Greetings, and welcome to the Vitesse Energy Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Ben Messier, Director of Investor Relations and Business Development. Thank you. You may begin.

Good morning, and thank you for joining. Today, we will be discussing our financial and operating results for the third quarter of 2023, which we released yesterday after market close. You can access our earnings release and presentation in the Investor Relations section of our website. We filed our Form 10-Q with the SEC yesterday. I am here this morning with Vitesse's Chairman and CEO, Bob Gerrity; our President, Brian Cree; and our CFO, Jimmy Henderson. Our agenda for today's call is as follows. Bob will provide opening remarks in the quarter. After Bob, Brian will give you an operations update. Jimmy will review our third quarter financial results. After the conclusion of our prepared remarks, the executive team will be available to answer any questions. Before we begin, let's cover our safe harbor language. Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to the risks and uncertainties, some of which are beyond our control, that could cause actual results to be materially different from the expectations contemplated by these forward-looking statements. Those risks include, among others, matters that we've described in our earning release and periodic filings. We disclaim any obligation to update these forward-looking statements, except as maybe required by applicable securities laws. During our conference call, we may discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, net debt, net debt to adjusted EBITDA ratio, and free cash flow. Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued yesterday. Now, I will turn the call over to our Chairman and CEO, Bob Gerrity.

Thanks, Ben. Good morning, everybody. Thanks so much for being on our call. With Brian Cree and I, today is Jimmy Henderson, who joined us two months ago, and we are thrilled. He's had a wonderful successful career as a CFO in the oil business, which is rare. And Jimmy not only brings a deep skill set to Vitesse, he's a wonderful guy and just has fit in wonderfully. So, it's really moved the needle in improving our capacity. So, welcome Jimmy. Vitesse is a return of capital company. Not the first time you've heard that from me, won't be the last time you heard it from me. And payment of our fixed dividend is our top priority. We paid our third quarter cash dividend of $0.50 per share in September. And earlier this week, the Board declared our fourth quarter cash dividend of $0.50 to be paid in December. We continue to look at a lot of near-term development drilling deals and larger asset acquisitions that continue to be supportive of our dividend. During the third quarter, we are able to complete several impactful acquisitions that meet our very high return hurdles. As previously discussed, we buy whatever we can within our stringent economic parameters, and we're not limited by a budget. We are only limited by opportunity and economics. We put hedges in place to protect these returns when the opportunities present themselves. With that, I'm going to turn this over to Brian Cree, my longtime partner and President of Vitesse. So, Brian?

Thanks. Good morning, everyone. As Bob mentioned, we acquired additional oil and gas interests through our near-term drilling acquisition program during the third quarter that will result in approximately $50 million of additional CapEx, primarily in the second half of 2023. These acquisitions exceeded our internal hurdle rates and are expected to provide material increases to production and cash flow in both Q4 '23 and across 2024. The wells associated with these acquisitions have either already started producing or are in the process of being turned on to production in the fourth quarter. So, the time between CapEx spend and revenue receipt will be shorter than our typical acquisition. Additionally, we seek-- we continue to see consistent pace of development on our existing assets. The organic conversion of our inventory of undeveloped locations remains core to our business model. Since we like to provide insight into our pipeline of drilling and completion opportunities, as of September 30, 2023, we had 7.7 net wells that were either drilling or in the completing phase, and another 10 net wells that had been permitted for development by our operators. I want to touch a little bit on hedging. Over the last two months, we added to our oil hedges for the remainder of 2023, for all of 2024, and for the first half of 2025. We now have approximately 50% of our estimated fourth quarter 2023 oil production and close to 40% of our estimated full-year 2024 oil production hedged at $79 per barrel. Thanks for your time. Now, I will turn it over to our new CFO, Jimmy Henderson, to review our financial highlights. Welcome aboard, Jimmy. Great to have you here.

Thanks, Brian, and thanks, Bob, for all the kind words. I'm certainly happy to be here. And good morning everyone that's listening in today. It is great to be back and involved in this industry that I continue to feel so important and provide a vital resource. It's been wonderful reconnect with many of you in the investment - in the banking and research arenas, as we continue to tell the exciting Vitesse story. Especially, I want to thank the Vitesse team for making me feel welcome and helping me get up to speed since I joined. And, lastly, congratulations to the Texas Rangers on the exciting win in World Series last night. Now on to a quick review of the financial results for the quarter and our financial status. I assume you all can refer to our earnings release and our 10-Q, which were filed last night, for all the details on the quarterly and year-to-date results. So, I won't bother repeating all the details that are included in those documents, but I'd just highlight a few items. As both Bob and Brian described, we've continued our return of capital program through the dividend and strengthened our future cash flows with several acquisitions, which obviously supports the dividend. Both activities continue to be cornerstones of our strategy. As for the results in the quarter, our production levels remained fairly consistent at just over 11,000 Boe per day with about 67% of that being oil. As we've previously reported, we expect the fourth quarter of this year to increase to 12,300 to 13,000 Boe per day with further increases in production next year in 2024, primarily due to the recent acquisitions that we announced. Likewise, adjusted EBITDA was flat sequentially at $34.7 million and adjusted net income was $11.1 million. GAAP net income was a loss of $1.5 million, and you can see the reconciliation of those numbers in that press release that we filed last night. Cash CapEx and acquisition costs in the quarter were approximately $34.1 million. We funded this investment with operating cash flows and withdrawals on the credit facility. This resulted in outstanding debt increasing by $15 million in the quarter, which puts us at $56 million drawn as of September 30. We do expect further outspend in Q4 as we fund the remaining CapEx and acquisition costs, as we disclosed a couple of weeks ago. We'll continue to fund these costs as well as our dividend through operating cash flow and on our credit facility. With that, let me turn it over to the operator for any Q&A that we might have today. Thank you, all.

[Operator Instructions] And our first question comes from the line of John White with ROTH Capital Partners. Please proceed.

Good morning. And congratulations on the quarter, and congratulations to Mr. Henderson for his new position.

Thanks, John. Appreciate it.

You said, you're - as you put out in the press release, you said acquisition activity accelerated in the quarter. Do you want to provide some more details on those acquisitions? Were they all producing properties and were they all in the Bakken?

Thanks, John, this is Brian and I'll handle that. Yes, as we've always said, the acquisition pipeline is something that we've developed over the last 10 years, but it can be lumpy. And we were just fortunate to see several different transactions come together, kind of, toward the middle and latter part of the third quarter. And, you know, they weren't really producing assets although what I would tell you is, is that - because our near-term development program is typically about buying AFEs or wells that are in the process of drilling, and that's really what the majority of these were. But, there was a little bit of uniqueness to them. In that, several of these wells that we acquired were further along that drilling process. And so, we were really happy with the rates of return, especially given that the wells, you know, started to come online, kind of, toward the latter part of the quarter and more than will come on in the fourth quarter. So, even though they were near-term development acquisitions, they were just coming online faster than our typical acquisition would indicate.

Thank you. And all of them in the Bakken?

Yes. All of those were in the Williston Basin.

Okay, thank you. I'll pass it back to the operator.

Thank you. Our next question comes from the line of Donovan Schafer with Northland Capital Markets. Please proceed.

Hi, guys, thanks for taking the questions. I want to start off by asking about natural gas price realizations. You know, I know that, you know, natural gas is a very small part of the overall production for you guys. But, just was how wide - just how significant price swings have been over the last 12 months being thinking like 10x, what they were this last quarter? When you take all that into account, like it can still be somewhat material to the top-line even as a small piece of the picture. So, I have to ask about, you know, realizations being $0.88 per Mcf in the quarter. I mean, I know, you do it net of transportation expense. So, is that maybe makes it not like an apples-to-apples comparison - let's say like a peer or someone else producing in the basin? But I just wanted to understand kind of what drove that lower - would it - what would it maybe be if you choose it if there a way to compare it to someone who does - doesn't report it in net of transportation expenses? Just trying to kind of wrap my mind around it and compare to what I've heard - what I see elsewhere.

Yeah, thanks for the question, Donovan. Good morning. Yes, so, unfortunately, practices vary in how you handle transportation, as well as two-stream versus three-stream reporting. For us, we report two-stream; meaning, that we have crude oil and natural gas only and not the NGLs, and the natural gas includes the NGL component of that. And I think one of the biggest - well, a couple of impacts in the third quarter that reduced our realized price and one is that NGL prices were very low as storage levels continue to be high coming out of that summer. That's certainly a seasonal thing, and we expect to improve as we go through the winter, assuming that it does continue to get cold on the East Coast especially. So, that should improve through, certainly quarter over quarter, here in the fourth quarter. The other component is, as you mentioned, gathering transportation and downstream costs, we net that out of our price. Not all producers do, some show that as a separate G&T price. But the way that we are paid, that's really just a part of the net revenue we receive at the well ahead. That's how it's handled here, so that - I'd have to make that adjustment as others make sure it is a different line item in the income statement. The other way that affects our net-back price is that a lot of those costs are fixed by the operators. So, they have fixed fee versus like a percentage of proceeds-type contract, which most people have gone to. And as prices of gas or NGLs goes down, obviously that fixed fee becomes a higher percentage of the net price. And so, it has more of an impact at lower prices than it does at higher prices. So, hopefully, that's helpful, but we will - happy to follow up with you if that doesn't get you on where you need to be.

Okay. You know, that's very helpful. And I want to ask about, you know, the hedge book additions just between the release yesterday and then the updated release with the recent near-term development acquisitions. So, I think the only - if my notes are correct, the only change to the hedge positions between those two was really the addition of, you know, the hedges in 2025. And it's not a huge quantity in terms of the total volume - maybe it's like 10% or something of the total volume at that point. But, I'm guessing maybe it's sort of tied to the addition of these acquisitions that you just sort of looking out and saying - okay, we underwrote things at a certain strip, you know, and then what can we hedge at that same strip - what can we hedge that compared to how we underwrote it. So, I guess, first, like kind of thinking about it conceptually the right way or was it just an opportunistic thing to pick up some smaller volume of hedges in '25? And then, how does that '25 - sorry $75 swap price - how does that compare to what or how the curve, where strip prices were for that time period when you underwrote some of these?

Thanks, Donovan. This is Brian. I'll take a crack at that. You had several questions in there. So, is it opportunistic? It's kind of a combination of both, right. I mean, we did see a nice run-up of oil prices starting in September and into early October, shortly after we had made those acquisitions. And so, it was a great opportunity for us to lock in prices associated with the expected production from those acquisitions at much higher prices than we had underwritten those acquisitions add. And that is part of the 2025 hedges. But, also keep in mind that, historically, our company has like to be closer to having hedges in place for, you know, approximately two years out. And so, it's just kind of part of our normal process of starting to lock in hedges. There's still lot of backwardation in the market as you get out into 2025. So, we took advantage of an uplift that we saw over a couple of days and got above $75 in 2025. So, we pulled the trigger on that. I just want to touch on your comment about '23 and '24. We actually did add quite a few hedges for '23 and '24, increasing our average price. I think at the end of the second quarter, we had hedges in place for 2024 that accounted for maybe about 20% of our expected production. Now, we're hedged at closer to 40% of our expected production, and we increased that average price from $76, which is where we stood at the end of the second quarter, up to a little bit over, close to $79. So, you know, again, it's a combination of both opportunistic. When we see those prices go up, we'll take advantage of it. And I think, you know, from our hedge book, you can see that we kind of like to be in that mid- to upper $70s before we lock in hedges, and that's kind of historically how we've handled it. My expectation is that that's how we'll look at it on a go-forward basis.

Okay. And then, lastly, just - I'm curious if you can comment on kind of the state of the M&A market. If you're assessing a lot of opportunities still, I guess you can comment both on ground game or near-term drilling - near-term development, as well as something larger package-type deals? In both those kind of opportunity sets, have you seen directional changes or were you seeing more potential in one versus the other at this time are going forward? Just kind of, in general trends, what kind of the state of affairs are there, and an opportunity versus not - sometimes, it's better to just sit things out for a while?

Yes. Donovan. Thanks for the question. This is Bob. We are seeing a lot of deal flow, both in the near term and in the larger asset class. It's possibly because the price of oil has been fairly stable, but this is the most - this the biggest deal flow we've seen in years. Now, that said, that doesn't always correlate to us closing those deals, but it's great. There is a real nice smorgasbord of opportunities. About half the company is engaged in some form of reviewing and analyzing and closing deals. So, we are very busy. But, again, can't promise that we're going to close those things. But, you know, at the end of the day, we are underwriters. So, we're having a lot of fun.

Yeah, I'd actually prefer that you promise that you don't close on any of the one that are, you know...

Right on, buddy - right on.

...if coming at, from an economic standpoint. So...

Right on.

Okay. All right. Well, great, thanks guys. I will follow up for any other questions.

Thanks, Don.

Thank you for your support, Donovan. Thank you.

Thank you. Our next question comes from the line of Jeff Brent with Alliance Global Partners. Please proceed.

Good morning, all. Thanks for the time. I was curious on the cost side of things, well costs specifically. Just an update there in terms of what you guys are seeing? How does a leading edge AFE maybe compare to this time last year, maybe first half of this year? And then, relatedly, what kind of costs are you guys baking into that '24 guide? Thanks.

Sure. Thanks, Jeff. This is Brian. I'll take a crack at that, and let Bob add anything that he wants to add. But, you know, we've talked about this on most of our calls. We didn't see as much cost inflation in the Bakken as I think some of the other basins have seen over the last year, year-and-a-half? But, as we mentioned on our 2Q call, the difference between the first quarter and the second quarter, we were starting to see a nice - you know - small but nice trend back to lower AFEs. I don't know that I would say that that trend necessarily improved into the third quarter. But I think it's been consistent. I think, you know, we started to see the price of oil go back up. You know, your drilling and completion costs are going to have some correlation to the price of oil. But I think we are happy with the AFEs that we've been receiving in terms of - where their costs are coming in, our operators are doing a good job. My sense is that, you know, sometimes, it takes a while for us to get all the actual costs and it's one of the benefits of - being an non-operated working interest owner is you don't see the cost as quickly as the operators do. But the trends that I think we're seeing is certainly the operators are doing a very good job of managing costs out there in the field. And I don't think we're seeing the inflation that we saw in 2022. I think that 2023 third quarter is kind of a continuation of the second quarter.

Got it. Great, thank you. And for my follow-up on, I guess, tangentially related to your own M&A aspirations. Hess is obviously one of your larger operators - that's going to be a changing of the guard there soon. Do you guys have an opinion on that - positive, negative, non-event - as it relates to how it will impact the test? And, prospectively, just curious how you guys are thinking about looking at opportunities underlying Hess acreage, given that change?

Well, you must have been at our conference from the last week, Jeff, because it's been a big topic of conversation. We know Chevron for what they've done in the DJ, and we think that there are very good operator. We are under Hess in a lot of in a lot of wells, and we - I can't predict if it's a good thing for us, Jeff, or a bad thing. But we do like Chevron, and we get our head on a swivel. Usually when M&A like that happens, it's beneficial because, you know, the smaller assets do shuffle, but we haven't seen that yet. So, we're looking at, we don't know yet.

Understood. Yeah, I know, it's early. I thought I'd ask. So, thanks for the time guys. Appreciate it.

Thank you, Jeff.

Thank you. Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to management for closing remarks.

Well, thanks everybody for your time. Ben does a terrific job in answering any questions that you have, and we really appreciate your interest and support. See you in a couple of months. Thank you. Bye, bye.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.