Good day, and welcome to the Evolution Petroleum First Quarter Fiscal Year 2023 Earnings Release Call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Ryan Stash, Evolution's Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to our earnings call for the first quarter of fiscal 2023. Joining me today is Kelly Loyd, a recently named President and Chief Executive Officer and a member of our Board of Directors. After I cover the forward-looking statements, Kelly will review key highlights along with our operational results. I will then return to provide a more detailed financial review, and then Kelly will provide some closing comments before we open it up and 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. As detailed numbers are readily available to everyone in yesterday's earnings release, this call will primarily focus on our strategy as well as key operational and financial results and how these affect us moving forward. Please note that this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available by going to the company's website. With that, I will turn the call over to Kelly.

Thank you, Ryan. Good afternoon, everyone, and thanks for joining us for today's call. Before I begin my prepared remarks, I'd like to thank the Board for naming me President and CEO. I've gotten to know the full team here at Evolution very well since I was named the Interim CEO in June. I am truly excited to lead this talented group of professionals as we move forward and continue to make progress towards ultimately achieving our long-term goals. I am fully committed and aligned with the Board in executing the company's strategy of disciplined financial management and accretive capital allocation with a goal of maximizing total shareholder returns. I look forward to leading Evolution in this next chapter. The first quarter marked a solid start to fiscal 2023. I want to thank all of our team members for their continued hard work and dedication. We're pleased with our overall results for the period, which was highlighted by another period of strong free cash flow generation, which we use to fund operations, capital spending, shareholder dividends and to reduce a significant amount of debt. We made a commitment to continue to pay down borrowings on our credit facility, and we delivered on that commitment by reducing debt by $9 million, a decrease of more than 40% since June 30. Our strong cash flow generated during the first quarter was also used to fund the payment of our quarterly cash dividend of $0.12 per common share, which was 20% higher than the $0.10 per share that was paid during the fourth quarter of fiscal 2022. Our Board declared a cash dividend for the second quarter of fiscal 2023 of $0.12 per share. This will mark the 37th consecutive quarterly cash dividend paid by the company since we began this return of capital program in December 2013. There are very few small-cap EMP companies who can say they have consistently paid a dividend for that length of time throughout several tumultuous commodity price cycles. We are proud to say that over the past 9 years, Evolution has paid over $90 million or $2.73 per share back to our shareholders. We have strong long-life and low-decline assets that will continue to support the sustainable quarterly dividend for the immediate and long term, benefiting our shareholders with a steady return of capital. Maintaining and ultimately growing the payment of a quarterly cash dividend remains a top priority. In further support of our shareholders, on September 8, our Board authorized a share repurchase program of up to $25 million of our common stock through December 31, 2024. Turning now to operations. In the first quarter of fiscal 2023, we produced 7,598 net BOE per day, which was 2% higher than the 7,451 net BOE per day that we produced in the fourth quarter of fiscal 2022. The first quarter benefited from higher natural gas and NGL production as well as higher natural gas pricing. This was offset by lower oil and NGL pricing versus the fourth quarter of fiscal '22. Having said that, we have been encouraged to see an upward trend in oil and NGL pricing recently, which will support additional cash generation in the second quarter of fiscal 2023. Looking at our first quarter results in more detail. Net production at Jonah Field for the first quarter was 181 MBoe or 1,967 BOE per day. This included 958 million cubic feet of natural gas or 88% natural gas. The Jonah Field is our most recent acquisition and similar to our other assets is highlighted by long-life and low-decline reserves that generate significant cash flow. In addition, the transaction also provides access to attractive Western markets where we continue to see favorable natural gas pricing. First quarter net production for our Williston Basin properties increased to 45 MBoe or 489 BOE per day, of which approximately 82% was oil. We continue to work closely with the operator, Foundation Energy Management on high-grading expense workovers, recompletes and sidetrack drilling opportunities. In addition, technical evaluations remain underway to assess our Pronghorn and Three Forks drilling locations. Net production for our Barnett Shale properties for the first quarter increased 8% and to 329 MBoe or 3,576 BOE per day, of which approximately 77% was natural gas. This is a result of Diversified Energy's capital workover program, which has been very active since becoming operator 11 months ago. Hamilton Dome field net production increased slightly to 38 MBoe or 413 BOE per day. We will continue to support the operator, Merit Energy in their efforts to restore production at previously shut-in wells, adjust water injection locations and volumes and execute on other targeted maintenance projects. Net production at Delhi Field increased slightly to 106 MBoe or approximately 1,153 BOE per day. Denbury is the operator at Delhi field, and they're continuing to perform conformance workovers and upgrades to the facilities. Before I turn the call over to Ryan, I'd like to point out that we recently posted our 2022 corporate sustainability report to our website which details our commitment to high-quality, transparent and comprehensive ESG efforts and disclosures. I am proud of our employees' commitment to sustainability and our Board's hands-on oversight, which is demonstrated by the Board's newly formed Sustainability Committee. Environmental stewardship, sound corporate governance and contributing positively to our employees and the communities where we work are cornerstones of our culture. We invite you to review our report to learn more about our sustainability efforts and our plans to continue to work with our third-party operators who share our core values and are committed to being good environmental stewards as we responsibly produce our energy resources together. With that, I will now turn the call over to Ryan to discuss our financial highlights.

Thanks, Kelly. As mentioned earlier, please refer to our press release from yesterday afternoon for additional information concerning our first quarter fiscal 2023 results. My comments today will primarily focus on financial highlights and comparative results between the first quarter of fiscal 2023 and the fourth quarter of fiscal 2022. A key highlight of the first quarter was our continued solid generation of adjusted EBITDA, which included $17 million during the period. Adjusted EBITDA was $24.33 on a per BOE basis. During the first quarter, we continued to fund our operations, development capital expenditures and dividends out of operating cash flow while also paying down $9 million in debt. Supported by our solid operational and cash flow outlook, we paid an increased dividend of $0.12 per share in the first quarter and declared a dividend of $0.12 per share for the second quarter of fiscal 2023 payable on December 30 to shareholders of record as of December 15. We clearly recognize the strategic importance of returning value to our shareholders and remain focused on the continuity of this program. As Kelly discussed, in September, our Board authorized a share repurchase program of up to $25 million through December 31, 2024. We expect to fund the repurchase program with working capital and operating cash flows and do not expect to incur any debt. We view the repurchase program as a tax-efficient means to enhance our returns to our shareholders. One of the key reasons that we have been able to execute on our long-term program to provide a consistent return of capital to our shareholders over the past 9 years is due to our conservative financial management. As such, we remain squarely focused on ensuring we maintain a strong balance sheet. As of September 30, 2022, we had $10.7 million of cash and cash equivalents, working capital of $6.5 million and debt of $12.3 million. We grew our liquidity to $48.5 million, a 31% increase since the end of the fourth quarter. As Kelly discussed, we were pleased to pay down $9 million of debt in the first quarter. Since the end of the quarter, we have paid down an additional $7.5 million and expect to pay down the remaining balance by the end of the calendar year. We did not enter into any additional hedges beyond what was previously disclosed in our last quarter and we remain below the threshold in our credit facility that requires us to add any incremental hedges. Looking at the first quarter financials in more detail. Our total revenue of $39.8 million was 5% lower than the fourth quarter due to a combination of factors, including lower oil revenue due to 2% lower sales volumes and a 16% decrease in realized pricing. Lower NGL revenue, which was primarily due to a 16% decrease in realized pricing. The reduction in oil and NGL revenue was partially offset by a 7% increase in natural gas revenue primarily due to a 3% higher sales volume and a 4% increase in realized natural gas pricing. The result was an average realized price per BOE decrease of 8% to $56.93. Lease operating expenses increased from $17.3 million in the fourth quarter to $19.1 million in the first quarter. On a per BOE basis, lease operating expenses were $27.35 for the first quarter compared to $25.47 in the fourth quarter. Primarily contributing to the increase was higher gathering, transportation and other expenses in the Barnett Shale associated with increased production volumes and commodity pricing as well as changes in estimates from prior periods. Also contributing to the increase was higher workover expense in the Williston Basin. Partially offsetting the overall increase in lease operating costs was lower CO2 costs at Delhi Field associated with the decrease in crude oil prices from the prior quarter. As a reminder, our CO2 costs at Delhi Field are directly impacted by the price of oil. Therefore, lower oil prices result in lower CO2 costs. General and administrative expenses increased to $2.5 million from $1.6 million in the fourth quarter. The current quarter included a little more than $300,000 in non-recurring transaction and severance cost. Also, the prior quarter was positively impacted by a $1.2 million reduction in noncash stock-based compensation related to the forfeiture of unvested shares. Net income for the first quarter was $10.7 million or $0.32 per diluted share versus $14.9 million or $0.44 per diluted share in the fourth quarter. Contributing to the sequential decrease was lower overall commodity prices and higher lease operating and general and administrative expenses for the reasons I previously discussed. Adjusted net income for the first quarter was $10.1 million or $0.30 per diluted share versus $15.1 million or $0.44 per diluted share in the fourth quarter. During the first quarter, we invested $1 million in development and maintenance capital expenditures. For fiscal 2023, we continue to expect total development capital expenditures of $6.5 million to $9.5 million. This estimate includes upgrades to the Delhi Field central facility, work over the Hamilton Dome field, the Barnett Shale, and the Jonah Field, and sidetrack drilling opportunities and low-risk development projects in the Williston Basin, excluding the development of the Pronghorn and Three Forks locations. As in the past, our spending outlook may change depending on conversations with our operating partners, commodity pricing and other considerations. So with that, I will turn the call back over to Kelly for his closing remarks.

Thanks, Ryan. We are clearly seeing the benefits afforded by the two acquisitions we completed in the second half of fiscal 2022, which have provided Evolution with a much larger and diversified asset base both geographically and by commodity mix. The cash flow from these two acquisitions has exceeded our expectations from the time of purchase. These two immediately accretive transactions follow our proven acquisition playbook executed over the past 3 years, with the overall combination providing enhanced diversification of our product mix and reserve categories across an expanded geographic footprint in multiple key U.S. onshore plays. We continue to survey the market for opportunistic acquisitions that align with our company's growth strategy. The intrinsic value of our enhanced sales mix was on full display in the first quarter as higher natural gas production and pricing were able to significantly offset the impact of lower oil prices compared to the fourth quarter of fiscal 2022. Our enhanced asset base provides for significant cash flow generation that further supports our well-established shareholder capital return program, provides a visible source of funding for future targeted strategic growth opportunities and places us in a strong position as we move through fiscal 2023. Our steadfast commitment to maintain a conservative balance sheet and to remain disciplined in our management of capital puts us in a strong position to continue to execute our strategic plan focused on maximizing total shareholder returns and optimizing every dollar that we invest. Our Board remains staunchly committed to maintaining and, as appropriate, increasing our dividend payout over the long term. We clearly recognize the tangible value of providing our shareholders with a consistent and substantive cash return on their investment. We truly appreciate their support of our ongoing efforts. As part of our comprehensive shareholder return strategy, we were also pleased to recently put in place a meaningful share repurchase program that allows us to opportunistically repurchase our shares from time to time through open market transactions, privately negotiated transactions or by other means in accordance with federal securities laws. We will continue to pursue initiatives designed to maximize total shareholder return by optimizing the value of every dollar we invest on a risk-adjusted basis depending on where we are in the cycle. Our approach of building a targeted asset base of PDP reserves capable of supporting cash payments to shareholders has served us well over the past decade and will continue to benefit our shareholders for many years to come. As in the past, we will continue to closely evaluate and execute on targeted acquisition opportunities that are immediately accretive, provide long-term established production, strategically expand our base of assets and do not result in material dilution. Any transaction must also legally support our long-standing thesis of providing a significant total return for our shareholders. We look forward to capitalizing on additional opportunities to profitably grow the business while continuing to provide our shareholders with a meaningful and tangible return on their investment through our proven and consistent strategy of squarely focusing on the needs of our shareholders. With that, we are ready to take questions. Operator, please open the line for questions.

Our first question comes from Donovan Schafer from Northland Capital Markets.

I want to start off by asking for just some more details on the lease operating expenses, excluding the CO2 injection and alarm taxes. So Ryan talked through some of what drove the increases, high gathering, transportation in the Barnett Shale. I guess I'd be curious to get some more details because I tend to think of natural gas production often skewing LOs lower on kind of a BOE basis? And then commodity pricing. I understand that the CO2 contract is linked to the price of oil. But sort of excluding that, it seems like there is still a sense that commodity pricing impacted LOEs like in the Barnett Shale. So just curious if you can give us some more specifics on what was going on there.

Yes, I'm happy to provide more details. For the Barnett Shale, the marketing contract includes a component linked to natural gas prices. As those prices rise, there is an associated impact. Additionally, we've experienced some inflation at the field level. Being a non-operating player means our actual costs reflect changes from about two months prior. This quarter, we're encountering what I refer to as catch-up expenses from previous quarters, influenced by rising commodity prices. This affects gathering costs and certain fee levels. Looking ahead, we anticipate that costs will stabilize in the upcoming quarters. We believe that a normalized cost range for the Barnett moving forward is around $20 to $25 per barrel.

That makes sense and is helpful. I appreciate that you try to minimize hedging, which makes your company an interesting option for those wanting exposure to commodity prices while also demonstrating prudent portfolio management. However, the hedging does raise questions about pricing. You mentioned positive developments with your West Coast exposure through Jonah Field. I’m wondering if you have any insights on the outlook for natural gas pricing, both in the West and Gulf Coast or other markets, particularly for the winter. Additionally, I’m curious about the oil side, knowing you’re selling crude to refiners rather than finished refined products. With the current situation in Europe and reports of tight diesel inventories in the Northeast, I wonder how that affects products like diesel that sell at a premium. Does it favor middle distillates, and will that benefit flow through, or is it primarily captured by the refineries?

Yes. Donovan, thanks. I would say specifically with regard to the Delhi, right? We get paid that due to where our crude is located and also the type of crude that it is. So that would already be made up for in the price we received at the purchase, if that makes sense.

Yes. I mean really, the impact is going to be more for just LLS pricing and how that translates to WTI. There are some transportation charges that are relatively fixed in there. So for the most part, as LLS moves, which, as you know, is sort of driven by rent and kind of how the international markets are, that's really what's going to impact Delhi specifically. I would say in the other.

You don't see changes spread changes from like product based on changes in refined products. That don't historic or they don't.

It could be eventually, right? But that would be a longer-term thing.

Yes. The only thing I'm considering is that some of the heavier components we have in Delhi, if they are used for blending, could see some benefits, but they won't significantly impact our cash flows.

Okay, okay. And then the natural gas, yes. Go ahead.

Yes. I was going to mention that regarding natural gas, storage levels have nearly caught up to last year and are approaching the middle of the 5-year average range. Once we reach this point, current gas prices will primarily be influenced by the weather over the next two weeks, leading to increased volatility compared to recent times. In the past year, there was a significant discount, resulting in considerable tightness. Currently, the market is not as tight as it was, but if we experience a couple of weeks of very cold winter weather, we could return to a deficit situation. Therefore, I anticipate some short-term volatility in natural gas prices. Houston Ship Channel has faced some difficulties recently due to the Permian production coming online. However, we are optimistic about the West Coast and Northwest Pipeline as the differentials for this winter and early next year appear favorable. We hope to continue seeing strong pricing from Jonah.

I wanted to revisit the topic briefly. Regarding the LOE, Ryan explained the situation in the Barnett. For the Williston, the LOE was somewhat higher this quarter as well, but we don’t anticipate it remaining at those levels moving forward. Much of the activity involved workovers where operators typically replace a single piece of tubing or a couple of joints that have issues. This can lead to more frequent returns for maintenance. However, with Foundation, we put significant effort into completing these tasks. As a result, this increased LOE in Williston should reduce the need for workovers over an extended period. We basically shifted some costs to this quarter that should provide long-term advantages.

Okay, regarding capital expenditures, this connects with workovers. When considering workovers in places like Barnett or Williston, the goal is to mitigate the decline rate, which could be due to mechanical failures downhole. In locations such as Hamilton Dome and possibly Jonah Field, if workovers are performed, they could lead to a more sustained increase in production, similar to what we see in Delhi. So, the projected capital expenditures of $6.5 million to $9.5 million for these more traditional non-Shale plays—will any of that contribute to incremental production, or is it primarily aimed at stabilizing declines?

Yes. So I would say, broadly speaking, it's flattening out the decline. But we do have some recompletion opportunities and specifically in the Barnett, there were some wells that were shut in that they brought back online, and they've been working through that program. So some of it is a potential to add incremental production or really put old production back up to where it was as much as anything. But recompletion of new zones would be additional potential reserves. And we do have a few of those projects on the books.

I'm interested in your approach to capital allocation regarding debt reduction, dividends, and stock buybacks, as you have various strategies available. While I understand the dividend is expected to remain stable and increase, I'm curious about the criteria that guide your decision on when to raise it. Additionally, how do you evaluate the timing for initiating a buyback, particularly concerning the current share price? Are you using metrics like present value on strip value or other per-share calculations? Lastly, what mental frameworks guide your decisions when considering increasing the dividend, executing a buyback, or investing in drilling activities in the Williston?

Okay. Sure. So, yes, you've got dividends, potential acquisitions, share repurchases, drilling, and debt repayment. Those are all uses of capital. It's very dynamic, and we review it frequently. Our decisions are based on what we believe to be the highest return and the best use of investors' dollars for the near term. This can change quickly. Donovan, it is complex, with many capital projects competing for funds. We aim to make the best and most beneficial decisions at that time, so it would be difficult to provide specific metrics on that right now.

Okay. All right. And then just my last question.

I want to talk about the dividend. Every time we've increased it, we've managed to maintain that higher level or raise it for at least four quarters. Increasing the dividend is something we consider very seriously, and when we choose to do it, it carries significant meaning.

Yes. From a buyback and acquisition perspective, we are always looking at potential acquisitions and are optimistic about entering a market that will be favorable for us. We aim to balance maintaining liquidity for acquisitions while also returning capital to shareholders. When considering buybacks, we evaluate whether to repurchase our own shares or acquire other opportunities in the market. It’s a dynamic process where we assess the market potential against the value of our shares. As Kelly mentioned, we will definitely consider the intrinsic value of our shares, but it's about more than just that.

If your shares were to decrease significantly, you might consider that their price is too low and it could present an attractive opportunity to buy back shares. However, not buying back shares in such a situation might allow for more flexibility to pursue a beneficial acquisition. Committing beforehand to a specific buyback price can restrict your options, particularly when considering trends in private transactions and M&A discussions. There may be trends and opportunities that are even more appealing, allowing for larger-scale actions. Is that correct?

Yes. That is definitely a true statement. That's how we look at it. And we weigh them very regularly, and you've seen our decisions over time, and they lean in different directions over time.

Yes, that makes sense. My last question is about the Delhi Field, even though I know you have many other assets now. If you think this applies to other assets, feel free to elaborate. The Delhi field stands out to me as it has additional phases and potential initiatives, like the heat exchanger you were adding. There seem to be many incremental opportunities there. I'm curious if you've had any recent discussions with the operator about new phase initiatives. Are there any updates on this front?

I will talk about Delhi. We have regular discussions with the team at Denbury, and I am encouraged by their renewed enthusiasm for the asset. I'm not sure if this is due to changes in personnel or corporate strategy, but they have been doing an excellent job with their conformance efforts and seem committed to it. They have also mentioned other projects they plan to pursue there, and I believe they are as excited about Delhi as we are. While it is a small part of their overall portfolio, I doubt it will be a focus in their corporate presentations. However, the asset team believes they have a strong asset and see more potential for it. I hope this gives you some clarity. We have a firm AFE, and while I cannot elaborate further, I believe they are exploring various options and are keen to improve the project, showing strong performance in conformance work.

Okay. In the shale industry, when people find stacked pay in the Bakken or similar formations, it can feel like free money. If you initially purchase with one layer in mind and discover another layer is economically viable, it becomes very attractive. However, this has always been the case with conventional resources as well, particularly during secondary and tertiary recovery phases. These processes often require a significant upfront capital commitment; they can't be executed one well at a time. They need to be planned and scheduled in advance, meaning you'll drill one well this month and another the next month in a specific location, which doesn't allow for stopping and starting. A sustained higher commodity price is necessary for this kind of capital investment. If we're moving towards that kind of environment, it will be interesting to see how it evolves, even if there aren't technically layers in this context. I appreciate your insights and will definitely have more questions about this in the future. If there's anything else you'd like to add, please do, but otherwise, I'll follow up with my other questions later. Good job on the quarter, everyone.

Thanks, Donovan. Yes, I really appreciate it, and happy to follow up with you further to help you out.

The next question comes from John White from ROTH Capital.

Good afternoon, everybody. And Kelly, I'd like to offer my congratulations on your recent appointment as CEO.

Thank you, John. I really appreciate that.

Well, you've been on the board a number of years. So you know the company very well, and you've got your own successful track record within the industry. So I'm glad to see it.

Well, terrific. Yes, it has been a great opportunity to work with such a talented team of professionals and to continue collaborating with the Board in a different capacity. It's fantastic, and I appreciate it very much. I am genuinely excited. It's a wonderful position.

I may have just noticed this, but in your September presentation on Slide 5, under the Return Of Capital section, there is a bullet point about Special Dividends. I believe this is a new addition to the presentation. Is that correct?

Yes. Honestly, we've discussed this at the Board level. We have not made a decision yet, but it is part of our considerations for the best way to return capital to shareholders in a manner that could have a long-term positive impact. It is definitely one of the options we are evaluating.

And I suppose that might be employed if things are quiet on the acquisition and CapEx front and give you the flexibility to pay a special dividend?

Yes. I would say along those lines, there would be a number of factors that have to take place. But for sure, thinking along those lines, that would be the kinds of things that would make that more attractive.

Okay. Well, the press release and the comments today were very detailed. So I don't have any further questions, and I'll pass it on.

Well, great. John, yes, thanks for calling. I really do appreciate it. I always enjoy talking to you.

Yes. Thanks, John.

The next question comes from Jeff Robertson from Water Tower Research.

Kelly or Ryan, can you talk about the $6.5 million to $9.5 million capital program that you referenced for fiscal '23 and how that might impact production as you progress through the rest of this year? For the rest of fiscal year?

Sure. I would say for the most part, that will be to keep production at levels consistent with our reserve report. We may see a few sort of chances to bump it on some projects along the line. And hold some of the production flat. But I mean that's really where that number came from the midpoint of that. It's just a sort of matter we've already planned out. So I think it the corporate decline that we have, it doesn't really change that. We have chances to do a couple of recompletions. We have chances to do some side tracks. Those would be sort of incremental. But for the most part, it's sort of steady as she goes in there.

I wouldn't expect this program to serve as a true maintenance capital initiative to keep production stable. However, we hope it will contribute to some production increases, particularly in the Williston with additional drilling, and may help mitigate declines in other areas.

Yes. And so like in the Jonah, there's some central compression facilities going in that will help. That will help us much with cost as anything else just like in Delhi, with the heat exchanger could help improve OpEx, lower LOE. So it's not all production, some of it affects costs as well.

Are some of those costs workovers and will flow through the LOE line? Or are they true capital costs?

These would be capital.

Yes, I think we will likely see a combination of both. Jeff, we make a determination when we receive the AFEs whether it's a capital or expense workover, but it will probably be a mix of both.

And Kelly, regarding the Williston, how far along are you in your technical and engineering evaluation of the inventory on the Pronghorn and Three Forks to start deciding whether some of those wells might fit into your capital program and foundation for 2023?

Okay. So it's like we're on a road, and to answer how far along we are, we're not at the end yet. I will say that. We’re still evaluating the situation. Prices fluctuate on both the input and output sides, so it's dynamic, and we are conducting a basin-wide study with a 3D geographic model. There is a significant amount of work happening. I would say we’re not at a point where we can confidently say we’re moving forward with this program at our current or any other level. We're collaborating with Foundation and making progress, but we're just not there yet. I wish I could provide a more specific timeline, but we've accomplished a lot and examined many aspects, yet there's still more to do. I hope that provides some clarity.

It does. Last question on capital allocation. The revolver balance at the end of the quarter was probably around $12.5 million, decreasing by $9 million during the quarter. Can you discuss how debt repayment on the revolver compares with your uses of capital, such as share repurchase authorization and dividends?

Yes. We mentioned this in our prepared remarks and press release. We paid down another $7.5 million after the quarter ended, which brings our drawn amount to just under $5 million. We anticipate addressing this by the end of the calendar year. Our consistent approach regarding share repurchases has been that we want to have our debt cleared before seriously considering a buyback. Given that our debt will be paid off soon, we will begin to evaluate the program based on how the Board feels about our outlook for mergers and acquisitions relative to our stock's trading position. As for the dividend, it operates somewhat independently of our debt repayment. We have always prioritized paying down debt and are nearing completion. This situation does not hinder our decision to raise the dividend if the Board believes the outlook supports it, even with some debt remaining. I don’t want anyone to think that we won’t raise the dividend or that raising it depends strictly on paying down all our debt. We take a dynamic approach each quarter, and considering the price volatility, we may reassess even more frequently.

Our next question comes from John Bair from Ascend Wealth Advisors.

I'd like to add the congratulations to Kelly on your appointment. And.

Thank you. Really appreciate it.

I have several questions, but due to the time limitations, I will address them later. However, I do have a couple of quick ones. We've discussed the debt payoff extensively, and by the end of this calendar year, you are likely to be debt-free. Your hedges will also be rolling off fairly soon. My question is about the dividend, which has been a common topic of discussion. Have you thought about implementing a variable dividend like many other companies, rather than considering a one-time special dividend if that seems appropriate?

Yes. We have considered an option. At this moment, the board and I believe that maintaining a consistent dividend will enhance shareholder value.

If you're looking at the structure, many companies set a fixed base dividend, with a variable component linked to cash flow. In this case, you have a base dividend currently at $0.12 per quarter, and then you can decide how much of your cash flow you want to distribute as an additional variable payout.

I understand what you're saying about having a true variable. You pay out a certain percentage of your rate, and I get that. We have definitely considered it, and it's something we will continue to think about. Additionally, we have an asset base that enables us to find acquisitions that can grow in a significant way without accumulating a lot of debt. So when it comes to acquisitions, for the right ones, we always want to keep that in mind. We don't want to rely solely on debt for this. Having some cash available on hand is also beneficial.

Yes. From a dividend perspective, we've conducted extensive analysis. As John White mentioned regarding special dividends, it's certainly one option available to us. However, I believe a one-time special dividend that doesn’t recur doesn't provide much value. If we were to consider a variable dividend based on a percentage of cash flow, it might earn us more favor in the market. That being said, it's uncommon for small-cap companies to adopt such a strategy. Those who have, like Diamondback, are typically larger producers with surplus cash that they struggle to deploy effectively. They already have buyback programs and base dividends. The market generally doesn’t favor them acquiring additional properties, leading to a situation where a variable dividend becomes a sensible choice for them. For us, we prefer to maintain some cash and cash flow to seize opportunities and grow our asset base through acquisitions.

Yes. To build on what Ryan is saying, it's a matter of the law of big numbers. For them, the portion of cash flow that exceeds the base could be used for acquisitions, but it's challenging to find something substantial and impactful enough to really make a difference. In contrast, we can pursue smaller acquisitions that do have a significant impact for us.

Okay. Fair enough. Kind of going back to some of this CapEx and lease operating expenses and so forth. Given the big push and effort on reducing greenhouse gas emissions and so forth. How much of your operating expenses? Or are you seeing a lot of need or attention being paid towards equipment being put on these producing well heads and so forth that is requiring new equipment to help mitigate leakage and so forth? Is that a meaningful part of your ongoing operating expenses?

I would say for the most part, no. Historically, energy companies have had a negative reputation. However, most companies are not innovating and are trying to minimize flaring. We are in situations where if we produce gas, we want to sell it. If we had large oil wells producing a significant amount of associated gas that we couldn't sell, that would present a dilemma we want to avoid. For those companies, it could be a substantial cost requiring extraordinary measures to capture that gas and prevent waste. While we have had some equipment needs, they are just part of normal operations. I don't believe there has been anything particularly extraordinary.

No, I would just add a couple of examples for you. For Jonah, they are focused on what they call responsibly sourced gas. Fortunately, we acquired the asset after they installed the necessary equipment, so we haven't really incurred any capital expenses. Any ongoing lease operating expenses we have are minimal and more related to capital, which we didn't need to contribute. In the Barnett, as I mentioned, they are diversifying and looking into options like solar-powered compressors, but we haven't encountered any significant large-scale capital expansions. I would expect that if they introduce something like a slower part compression, it could lead to savings on electricity. Overall, we are not experiencing a notable push or impact on our financials from this.

Yes, I believe it's a misconception that any oil and gas company would want to flare gas. It essentially means losing money if they do. What I was trying to emphasize was the need for monitoring. Are there any regulatory requirements or operational needs, especially in older fields with perhaps outdated equipment, that necessitate the installation of new monitoring equipment?

Okay. Sure. No, I understand. And I would say there's really nothing substantially new or different I hope that helps.

Yes. I mean, definitely right, look at Delhi, they're trying to get that certified as a carbon sequestration field, right? So that's the forefront of sort of CCUS movement here. And like I mentioned, John has already put in a lot of the monitoring equipment. In the Barnett, I think, like I said, diversified is going to replace things as it's needed. Some of the wells are that some of them have been drilled, call it, 10 or so years ago, but by a lot of oil and gas standards are not incredibly old. So I mean I think they're really potentially just looking at placing things as it comes up.

Okay. Well, I have more questions, but I'll arrange to get with you off-line then.

Yes. Listen, great. Thanks for the call, and we'll be happy to touch base with you anytime like.

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