Vitesse Energy, Inc. Q3 FY2025 Earnings Call

Greetings. Welcome to the Vitesse Energy Third Quarter 2025 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to the Director, Investor Relations and Business Development at Vitesse, Ben Messier. Thank you. You may begin.

Good morning, everyone, and thanks for joining. Today, we will be discussing our financial and operating results for the third quarter of 2025 and increased production and capital expenditures guidance. Our 10-Q and earnings were released yesterday after market close, and an updated investor presentation can be found on the Vitesse website. I'm joined this morning by our Chairman and CEO, Bob Gerrity; our President, Brian Cree; and our CFO, Jimmy Henderson. Before we begin, please be reminded that this call may contain estimates, projections, and other forward-looking statements within the meaning of federal securities laws. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. Please review our earnings release and risk factors discussed in our filings with the SEC for additional information. In addition, today's discussion may reference non-GAAP financial measures. For a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings release. Now I will turn the call over to Vitesse's Chairman and CEO, Bob Gerrity.

Thank you, Ben, and good morning, everybody. Thanks for joining. In the third quarter, we stuck to our strategy of disciplined capital allocation. We participated in an increasing number of 3- and 4-mile laterals drilled by our operating partners. And significantly, we successfully completed 2 Vitesse operated wells, as Brian will discuss. As a result, we increased our production and capital expenditure guidance for 2025. Advancements in technology continue to enhance the value of our assets. Extended laterals are delivering strong economic results through lower drilling and completion costs per lateral foot. Drilling activity continues to progress further into the areas where Vitesse holds concentrated positions. Our original strategy of acquiring acreage outside the core of the Bakken is paying off as activity now moves into these areas, generating returns comparable to those historically seen in the core. We estimate that we have over 2 million net lateral feet of development remaining on our asset, which translates to more than 200 net 2-mile equivalent wells. The oil industry is highly cyclical. Our long-duration asset, low leverage, and disciplined hedging position us not only to withstand but to be opportunistic during market disruptions. We are your capital allocators, and we'll continue to make the best decisions with our capital each quarter based on the opportunity set available. As a testament to our allocation decisions, last week, our Board declared our fourth-quarter dividend at an annual rate of $2.25 per share. I will now hand the call over to our President, Brian Cree, to provide more detail on our operations.

Thanks, Bob. Good morning, everyone, and thanks for joining today's call. In late September, Vitesse's operating team turned to production 2 gross, 1.9 net drilled but uncompleted wells acquired through the Lucero acquisition earlier this year. The wells are exceeding our initial oil and natural gas production expectations and were completed approximately $2 million or 15% under budget. We continue to contemplate the best time to advance a broader operated drilling plan, but we will only implement a development plan at a cadence and return thresholds that strengthen our dividend. Production for the quarter averaged 18,163 barrels of oil equivalent per day. This brings our year-to-date production to 17,373 barrels of oil equivalent per day. As of September 30, 2025, we had 20.8 net wells in our development pipeline, including 5.6 net wells that were either drilling or completing and another 15.2 net locations that have been permitted for development. For 2025, we have approximately 60% of our remaining oil production hedged at nearly $70 per barrel and just under half of remaining 2025 natural gas production hedged with attractively priced collars at a weighted average floor of $3.73 and ceiling of $5.85 per MMBtu, both percentages based on the midpoint of our revised guidance. Additionally, we have over 3,300 barrels per day and 12,700 MMBtu per day of our 2026 oil and natural gas production hedged at $66.43 per barrel and through a costless collar of $3.72 by $4.99 per MMBtu. Thanks for your time. Now I'll turn the call over to our CFO, Jimmy Henderson.

Good morning, everyone. Just wanted to highlight a few items from our financial results for the third quarter of 2025. Please refer to our earnings release and 10-Q, which were filed last night for any further details. Production for the quarter was 18,163 Boe per day with a 65% oil cut. For the quarter, adjusted EBITDA was $41.6 million, and adjusted net income was $3.8 million. GAAP net income was a loss of $1.3 million, and you can see that reconciliation in our press release. Cash CapEx, including acquisition costs for the quarter were $31.8 million. These costs were funded within our operating cash flows. At the end of the third quarter, we had total debt of $114 million and net debt of $108 million, giving us net debt to adjusted annualized EBITDA of 0.65x. We increased our annual guidance for 2025 due to the completion of our 2 DUCs, as Brian discussed, and incremental organic well proposals primarily focused on 3- and 4-mile development. We now anticipate production in the range of 17,000 to 17,500 Boe per day for the full year of 2025 with an anticipated oil cut of 65% to 67%. Cash CapEx for the year is now anticipated to be between $110 million and $125 million. With that, let me turn the call over to the operator and open for Q&A.

Our first question comes from Jeff Grampp with Northland Capital Markets.

I was curious to start off on these longer laterals. I know that's something that you guys have kind of talked is directionally happening a bit more for a bit, but it seems like maybe a bit of a step change in terms of the proportion there. So I was just hoping to dive into that a bit more. Do you guys have any numbers on, I don't know, what percent of the program are these 3 and 4-mile laterals now? And can you remind us how that maybe compares to, I don't know, earlier this year or this time last year?

Jeff, it's Ben. I would say approximately over the course of the year, about half of our AFEs that we have received have been extended laterals. We don't see 1-mile laterals anymore, at least we haven't this year. So the remaining half has been 2-mile laterals.

Got it. Perfect. On the acquisition side, it seems like you were more active than before, possibly the most active quarter in over a year. Can you update us on what you're seeing in the acquisition market? Was this anticipated or unexpected? What is the outlook for acquisitions? Does this indicate more activity in the future?

Yes, Jeff, this is Brian. Obviously, as you know, we are always looking at near-term development opportunities, buying AFEs from those that they're looking to divest. And over the course of about the last year, it's just been a very competitive market. We've continued to be very disciplined with our rate of return approach on how we look at those. And you just keep banging away, and we've looked at hundreds and hundreds of opportunities. We continue to bid them as we have in the past, and we are fortunate to be able to close a couple of deals in the third quarter. And we'll continue to look at deals. The market is very strong. We're seeing lots of AFE opportunities. But again, we're being very disciplined with our approach in terms of how we're looking at making those acquisitions.

Just to clarify, I guess, there's nothing, I guess, dramatically different that you guys saw either from a competitiveness standpoint or your underwriting practices. It's just a function of some days you win the lottery, some days you don't kind of thing?

Yes, we are noticing increased activity on our acreage, which is beneficial. As we evaluate the AFEs coming into our position, it allows us to be somewhat more strategic when considering AFE opportunities on our existing acreage from sellers. We've put in a lot of effort into understanding this area, giving us an advantage.

Our next question comes from the line of Poe Fratt with Alliance Global Partners.

Yes. Just a follow-up on CapEx. Can you just highlight what acquisitions might be built into the fourth quarter CapEx range?

Poe, it's Ben here. We usually budget conservatively for acquisitions and are not sure when we will have successful opportunities each quarter. Right now, we have a few hundred thousand allocated for acquisitions in the fourth quarter. We hope to find economic opportunities that will allow us to invest more capital, which is why you see a $15 million range for this quarter. It's a broad range, but we want to have some flexibility to pursue attractive acquisitions if they arise.

Sounds good. Regarding the operated inventory, you've completed the two DUCs that you mentioned earlier. What is the outlook for any operated inventory opportunities you anticipate through 2026?

We have approximately 15 net undeveloped locations that we acquired through Lucero. We are actively examining these locations to determine the best drilling strategies and exploring opportunities to partner with others to enhance the overall economics. As previously mentioned, we are considering our plans for 2026, but the feasibility will heavily depend on oil prices and the capital expenditures of our partners. We are in the process of planning our operated programs for 2026 and 2027, but finalizing our models and budgets for 2026 will significantly influence our decisions.

That's helpful. And then when I look at the cost structure for the third quarter, the second quarter had a lot of noise, just positive noise because of the settlement. Can you look at the third quarter cost structure run rate? And is that normal? Is that more normalized compared to the second quarter?

Yes, definitely. Ben, this is Jimmy. Definitely, exactly as you constructed that third quarter is a much better indicator of run rate for G&A, particularly LOE, slightly higher than we expected, but we've had some workovers as we've talked before, and I think that's kind of coming to an end. So it should be slightly lower there. And on, say, gas prices, we're probably in the range that we expect. Hopefully, we'll see a little bit better results going forward as oil prices and our NGL prices have some life in the future. So hopefully, that helps you in your modeling.

Yes. Let me just add, this is Brian. Let me add to that. I mean, the LOE in the third quarter, look, I mean, we continue to look at all of the new wells that we acquired from Lucero, and I think we're making the right decisions in terms of when to spend money on those wells. And as Jimmy said, I think we've seen a lot less activity in the fourth quarter than we did in the third quarter. So I agree with Jimmy's comment there. And then obviously, with the gas price differential, when you've got oil at $60 and NGLs where they are, that third quarter looks pretty tough from a gas price standpoint, but we typically see that improve quite a bit in the fourth quarter and first quarters as we're in those winter months.

Our next question comes from the line of Noel Parks with Tuohy Brothers.

Just a couple. One thing I was thinking about is we're still seeing a fair amount of uncertainty in the credit environment just as far as sort of yield curve and so forth. I just wonder, do you sort of see any signs of that being on producers' minds as they look at their, say, 2026 budgets as far as just how inclined they are to be sort of either aggressive or hold back kind of, again, because of the funding environment?

Noel, this is Jimmy. Many factors influence the plans of operators, with oil prices being a significant one, along with consolidation within the basin. Operators are currently strategizing on how to allocate capital and manage their rig operations. We feel optimistic about our position, especially as more of our acreage is being developed and we have a more concentrated presence. This likely has a greater impact on next year's plans than the current interest rate environment. However, it's beneficial that the situation is moving positively. We remain hopeful that operators will finalize their budgets for next year, allowing us to gain clearer insights into our own plans.

Yes, Noel, this is Bob. We're looking a lot. So I can't speak to any specific asset that we're looking for other than our lens is pretty wide at this point, and we would love to buy gas assets at the right price. Look, the M&A market now is pretty frenetic. But if you take a look at the Bakken, it's pretty quiet. So we're going to be looking at the Bakken first. And the fun part about the operators in the Bakken is they are very well funded. They're not stressed. And other than the Hess Chevron transaction, which we think is certainly a net positive. And the Chord Enerplus transaction, which is also a net positive. We're looking at the Bakken first. Of the $1 billion of deals that we have in our deal shop right now, probably 1/3 of them are gas-oriented. But it's a very frenetic market, Noel, and I can't handicap what's going to be the next deal we do.

We have reached the end of the question-and-answer session. I would like to turn the floor back to Bob Gerrity for closing remarks.

Thanks, and thanks for everybody for joining in. If you've got any follow-up questions, Ben Messier does a great job in answering those. So thanks, everybody. See you in a couple of months. Bye-bye.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.