Empire Petroleum, an oil and gas company with producing assets in New Mexico, North Dakota, Montana, Texas, and Louisiana, reported 2024 second quarter results and progress on its North Dakota development drilling program.
SECOND QUARTER 2024 HIGHLIGHTS
Q2-2024 net production volumes rose 20% sequentially and 24% year-over-year to 2,638 barrels of oil equivalent per day (“Boe/d”);
Average daily oil sales volumes grew by 23% sequentially and 25% year-over-year with largest increase from North Dakota operations
67% oil, 16% natural gas liquids (“NGLs”), and 17% natural gas;
Completion of the first stage of the North Dakota horizontal wells for Enhanced Oil Recovery (EOR) development in Q2-2024 and the EOR infrastructure to be completed by end of Q3-2024;
Largest production increase was from the Starbuck field, an increase of ~500% from initial purchase;
Increased year-over-year volumes by ~130% and quarter-over-year volumes by ~45%
Increase does not include the completion of drilling program or effects on production from EOR activities starting at the end of Q3-2024;
Commenced conformance improvements in Empire’s New Mexico assets, including an upcoming pilot drilling program; and
Reported Q2-2024 total product revenue of $12.8 million, a net loss of $4.4 million, or $0.15 per share and an Adjusted Net Loss of $2.9 million, or $0.10 per share.
Generated Q2-2024 Adjusted EBITDA of $1.7 million versus $0.2 million in Q2-2023
2024 OUTLOOK
Phil Mulacek, Chairman, commented, “Recent drilling and development data from our North Dakota assets reinforce our confidence in achieving significant long-term production gains. We have successfully enhanced well economics, reducing costs by approximately 50% to $2.4 million through standard directional drilling, compared to $4.8 million with Coiled Tubing Drilling (CTD). Directional drilling has also enabled us to nearly double the hole diameter, increasing the flow area by 66% and extending lateral well lengths by around 150% compared to early CTD wells. We anticipate further production improvements in North Dakota throughout 2024 and 2025 by integrating insights from our seismic surveys and completing our EOR infrastructure. Our objective is to continue boosting production in our Starbuck field through Q1 2025, with the potential for additional increases following the completion of our EOR development, guided by our 3D seismic data.”
Mike Morrisett, President and CEO, added, “We have made significant strides in North Dakota, resulting in notable production enhancements and shaping our development strategy. Our focus will be on completing the majority of North Dakota's development efforts in the latter half of 2024. Following this, we plan to shift our attention to our Permian assets in New Mexico’s Lea County, where we see even greater potential for production growth. We are advancing our technical review and planning for these fields and aim to initiate a pilot drilling program in 2025. Meanwhile, we remain dedicated to achieving continued improvements in Lease Operating Expenses (LOE) through the end of 2024 and into 2025.”
North Dakota – Williston Basin:
Empire expects North Dakota development efforts to drive production improvements; targeted to return operations to positive cash flow and support New Mexico exploration and development in 2025 and beyond. The Company’s goal to see a significant base production increase compared to when the assets were purchased is still the objective through Q1-2025;
100% of the first stage of EOR horizontal wells were completed in Q2-2024 and the first stage of the EOR infrastructure to be completed in Q3-2024;
Second stage of the EOR program and infrastructure to be completed in 2025-2026;
New horizontal laterals will be completed for Starbuck and other fields the Company operates within North Dakota;
Production anticipated to ramp in second half of 2024 with an additional four wells coming online and EOR injection commencing;
Drill core data, currently being evaluated, has confirmed new zones of potential development; and
3D & 2D processing to enhance infield development on the Company’s Starbuck assets and apply knowledge to other Company assets in order to expand the development footprint;
Completion of the 3D & 2D seismic survey in May 2024
Expect data processing and analysis to be completed by end of Q3-2024;
New Mexico – Permian Basin:
Continued data and analytics on historical water injection profiles across all injectors in Empire’s waterflood units;
Started conformance improvements on wells to evaluate the response before implementation on the unit, then a phased in approach;
Commenced seeing well performance on production;
Reduced water injection on wells;
Continued upgrading high potential recompletion opportunities; and
Continue the legal and regulatory actions against third parties trespassing on the NM water floods.
SECOND QUARTER 2024 FINANCIAL AND OPERATIONAL RESULTS
Net sales volumes for Q2-2024 were 2,638 Boe/d, including 1,761 barrels of oil per day; 435 barrels of NGLs per day, and 2,651 thousand cubic feet per day (“Mcf/d”) or 442 Boe/d of natural gas. Quarter-over-quarter net oil sales volumes increase of 23% primarily due to new wells completed in North Dakota.
Empire reported Q2-2024 total product revenue of $12.8 million versus $9.8 million in Q2-2023. Contributing to the increase was higher oil sales volumes in North Dakota and higher realized oil and NGL prices.
Q2-2024 lease operating expenses increased to $7.5 million versus $7.1 million for Q2-2023, primarily due to increased production partially offset by lower workover expense of $1.6 million for Q2-2024 compared to $2.9 million for Q2-2023. Higher workover expense in 2023 was primarily related to work performed on wells in New Mexico to enhance production.
Production and ad valorem taxes for Q2-2024 were $1.1 million versus $0.7 million in Q2-2023, as a result of higher product revenues.
Depreciation, Depletion, Amortization and Accretion (“DD&A”) for Q2-2024 was $3.2 million versus $1.1 million for Q2-2023. The increase in DD&A reflects higher production, the acquisition of additional working interest and the impact of the capitalized costs associated with new drilling activity in North Dakota.
General and administrative expenses, excluding share-based compensation expense, were $2.4 million, or $9.80 per Boe in Q2-2024 versus $1.9 million, or $9.75 per Boe in Q2-2023. The year-over-year increase was primarily due to an increase in salaries and benefits associated with an increase in employee headcount to support expanded operations.
Interest expense for Q2-2024 was $0.7 million compared to $0.2 million for Q2-2023.
Empire recorded a Q2-2024 net loss of $4.4 million, or $0.15 per diluted share, versus a Q2-2023 net loss of $2.5 million, or $0.11 per diluted share.
Adjusted EBITDA improved to $1.7 million for Q2-2024 compared to Adjusted EBITDA of $0.2 million in Q2-2023.
CAPITAL SPENDING, BALANCE SHEET & LIQUIDITY
For the six months ended June 30, 2024, Empire invested approximately $26 million in capital expenditures, primarily reflecting the continued drilling and completions activity in North Dakota.
As of June 30, 2024, Empire had approximately $9.3 million in cash on hand and approximately $0.7 million available on its credit facility.
Empire received gross proceeds of approximately $20.66 million at $5.00 per share following the close of the Rights Offering in April 2024. The Company converted the Promissory Note with Energy Evolution Fund, $5 million at 7%, to 800,000 shares of common stock.
UPDATED PRESENTATION
An updated Company presentation will be posted by Friday, August 23, to the Company’s website under the Investor Relations section.