EON Resources (NYSE American: EONR) Q2 2026 Earnings Call

0:00 Good morning, and welcome to the Eon Resources Incorporated second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode, and we will open the floor for your questions after the presentation. If you wish to join the queue to ask a question at any time, you can press star 1. Should you wish to remove yourself from the queue, press star 2. You can also ask questions through the webcast meeting interface. It is now my pleasure to turn the floor over to your host, Michael Porter. The floor is yours.

0:32 Thank you, Michael. Good morning, ladies and gentlemen, and welcome to the earnings conference call for Eon Resources. This call may include forward-looking statements within the meeting of the private securities litigation reformed act of 1995 that involves risks and uncertainties that could cause actual results to differ materially from what is expected. Words such as expect, believe, anticipate, estimates, might, possible, should, and variations in similar words and expressions are intended to identify such forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Such forward-looking statements relate to further events or future events based on current available information and reflect the company's management's current beliefs.

1:25 all information on the company can be acquired through the sec.gov website. Without further ado, I'd like to turn the call over to Dante. Dante, the floor is yours.

1:38 Thank you, Mike. Good morning to everybody. Thank you for dialing in. It's always a pleasure for us to address our shareholders, our vendors, our partners, and again, we We really appreciate your investment in our stock. And again, on the forward statements that we are going to make, as Mike Porter mentioned, it is the views of the four of us presenting. It does not represent our contractors, our partners, our drilling partner, or anybody else. So we have our own information, our own data, and we are going to present it here today to the best of our ability so that our shareholders can make an informed decision. Do we make sense to be an investment?

2:26 We certainly hope that you conclude we do. So again, I'm Dante Caravaggio, the CEO and President. We're going to have Mitch Trotter, the CFO, David Smith, our General Counsel, and Jesse Allen, our Vice President of Ops, present. I'm now flipping to our company overview. We own two properties. We own the Grayberg Jackson Field with... about 15,000 acres and we own the South Justice Field with about 5,000 acres. Between the two of them, we've got about 1.2 billion barrels in place and it's glorious. It really is something special to own something in the Permian with stack pay. It means that you can produce a zone, deplete it, and move on to the next zone. It also means you have a mixed bag of conventional and unconventional.

3:17 It also means you can do a lot of things with it. You can water flood it. You can produce it on primary. You can CO2 flood it. You can go horizontal. And the blessing that we have in the Grayburg-Jackson field, and we've talked about the San Andreas, the depth is not so deep. We're normally at 3,500 feet plus or minus, say, 1,000 feet because that zone varies that much and it's generally over 1,000 feet thick. The cost to drill is not as great as if you were drilling A Wolf Camp Well at 10,000 feet. So we've talked about these drilling costs before and it's still expensive. You're in the neighborhood of 3 million bucks to drill one of these things and with all the jewelry and production facilities and all this and that, you can add another half million to it without any trouble.

4:13 And then we're going to talk today about the South Justice Field, which is deeper and You're talking about 6,000 feet. You've got to add another million, million and a half to that to drill those. So there's a lot of capital involved. There's a lot of fun, I think, owning our company right now. And thanks to our partner, Virtus, we've got a couple wells in the works that hopefully soon we'll be able to announce how they're doing. I'm going to flip to the next slide here. Guys, the magic of our company and being a public company, we've got roughly... I'll say $35 million worth of PDP production and we have roughly 50 million shares outstanding.

5:00 So PDP is the king. That is the gold standard for reserves. It means it's proven, it's developed, it's producing. So all the other reserves, if you talk about PDNP, it's not producing but it's proven. if you talk about undeveloped, it could be there. You're going to have to drill to be sure. If you talk about PUDs, it could be there. You're going to have to drill to be sure. But we have a lot more reserves outside the PDP realm that give me great comfort that says in 27, we're going to be adding value to each share of stock by moving undeveloped reserves into the PDP category.

5:45 And that's where the and more. Frankly, the rubber meets the road. So my goal in 2027 is to increase our PDP reserves appreciably, to get this to go over $100 million. That's going to take drilling, it's going to take acquisitions, it's going to take water flooding. And you're going to hear all about that. You're also going to hear for the first time more in depth about South Justice. We think we're going to do it again with a farm-out agreement with a reputable partner that's going to bring in, frankly, the high-risk money. The biggest risk in drilling is the first few wells because we don't know what we're going to get. So the people that will pony up and do that believe with their wallet that there's something there.

6:36 And that's tough to borrow that kind of money. That's why you've got to bring in a very skilled partner who can assess the quality of the formation just as we do and be ready to spend the money. Next slide. Really, if you look at 24, 25, Q1, Q2, all of it summarizes for me as groundwork for 27, including what we're doing right now in Q3 and 24, you're going to see results in the last The best thing I can say is we kept it flat. We've been capital starved. We did not expand water flood patterns. We didn't do enough. Stimulations to drive the oil producing rate up but we are going to do that we believe with the drill bit and we have converted ourselves from a I'll say a little bit boring PDP water flood company to a very exciting drill bit company so we have two properties and we believe we have 200 million dollar bets you know the one we're on now and nobody knows if it's really a hundred million that's our estimate and nobody really knows until we drill on

8:09 South Justice. Is that going to produce 100 million for us? But you're going to see some of these numbers calculated by our engineers and our geologists when Jesse speaks and these first two wells have been drilled. They are producing. We're not prepared to announce really anything about them yet. It's too soon. They've just been on a few weeks and what we are anticipating a robust drilling program and we're building a war chest of money based on loans, based on how we're going to get there so we can be ready when we get the cash calls as these wells get drilled. We do have a big news item. We were late in our filings.

8:54 It's an embarrassment. We cured it and now we're compliant. It's going to be discussed more about our lessons learned when you hear from Mitch. I am making a commitment that every time we issue a share, we're going to add $2 of value in terms of PDP value from adding reserves. And it's kind of easy to make that promise because we have so many reserves in the unproven, in the PDNP category that all we need to do is get a little bit of drilling done. I say all we need to do, but we have a very competent partner who we have faith in. that's going to get this going. And as those reserves are developed through drilling, we will approve the reserves and we'll put those on our books.

9:44 We'll also add water flood patterns as the year goes by, and we'll move reserves into PDP from PDNP as well. We also have in the planning for, frankly, this year, and this year is getting kind of short in the window, to do an acquisition. We had to have all of our filings current. Now we're there. And so now the banks will talk to us. Now we confirm up our financing. Now we could sign a PSA should we reach agreement with a seller. And with that, I'm going to turn it over to David Smith to give you the year in review.

10:29 Thank you, Dante. This is David Smith. It's my pleasure and opportunity to introduce myself to give you a little review of the last couple of years. I have been in and around the oil and gas industry for the last 40 years. It's an exciting business. We have had so many accomplishments, it's hard to squeeze it all in in a short time period, but we have issued lots of press releases that you can review. But just to touch on it a little bit, in November 2023, we purchased the Grayberg Jackson Field for $90 million. And we did that while we were a special purpose acquisition corporation or a SPAC.

11:14 And I can tell you that that was our first achievement because most SPACs failed. SPACs were out of favor at that point in time. and to have succeeded as an oil and gas SPAC was even more notable. And then, and I've been around since the formation of this company and during the period when it was a SPAC, so I've seen a lot of the accomplishments. On September 9th of 2025, that was another Red Letter Day where we had a significant closing with a number of parties. where we eliminated toxic financial instruments. We recapitalized our capital stack. We added over $70 million of shareholder value.

12:02 And that was a closing day. It all came down in a number of unrelated but related to us transactions where we dealt with the original sellers of the property. We were able to reduce the and many more. We also bought back a royalty that had been reserved by the seller and added that to our asset base on that day. We dealt with a secured lender who was an institutional reserve-based lender and were able to satisfy them in full. So right now we don't have a reserve-based lender or institutional bank.

12:57 Our properties are free from being collateralized like they were at that time. We also dealt with an overriding royalty purchaser and were able to raise an amount of $45.5 million in that same closing. We also entered into the Farm Out Agreement, or the title is actually Development Agreement, but it's in the nature of a farm out, where the parties drilling our partner in that earns acreage and develops acreage based on the terms of that agreement. So in my career, the 40 years I've talked about, that's one of the great accomplishments that I can note on one hand how many were achieved in my career.

13:49 That was really a special day because it took lots of negotiation and coordination. So very, very thankful to be involved in that. The Farm Act Agreement added substantial value. We initially settled employee wage claims that we inherited when we purchased the company. They had been promised bonuses based on the closing and we were not involved, some of which we were not aware they filed after we had closed. So we did manage to get all of those resolved. We have during that period as well navigated the New Mexico Oil and Gas Conservation Division and the BLM, which is Bureau of Land Management Requirements.

14:37 and we feel like we've got a great working relationship with our San Andreas working interest partners who is also the operator of those properties and they are very skilled at that. So those are just some of the highlights. We've accomplished much more than that and it would take me a long time to cover that. So with that, I will turn it over now to Jesse on the operations side.

15:04 Thank you, David. Good morning. This is Jesse Allen. I'm the VP of Operations. And today I'll be talking, of course, about our operations in the Grayburg-Jackson field in Eddy County, New Mexico, and then our South Justice field, which is in Lee County, New Mexico. The two fields are about 60 to 70 miles apart and so relatively close, so it makes for great field operations. What I'm going to talk about first today is is the technical highlights of our geologic and reservoir team and operations team, which also includes our field personnel. And then what I'll do is I'll go into a few words about the actual operations at Grayburg-Jackson and at the South Justice.

15:53 Then I'll talk a little bit about the horizontal program there in the St. Andrews and the Grayburg-Jackson. And then I will talk about the programs horizontal potential in the South Justice field. And then I'll wrap it all up with our internal review and summary of our reserves and the value that we've calculated for those reserves. So with that, the same technical team that identified the San Andres potential at Grayburg Jackson was also the same team that identified our horizontal potential in the Blindberry Tuck Drinkard at the South Justice Field, South Justice Unit. When I say South Justice Unit and South Justice Field, they're actually interchangeable. The playbook approach was in both areas we had extensive vertical well control and we had for the most part modern logs that we were able to analyze, perform the petrophysical and reservoir analysis. So a lot of times, as most people know, a lot of these shell plays Well control can be rather sparse, but in these two cases, we had a lot of well control, which gives us a lot of confidence in the analysis that is performed.

17:13 So once we did that, we then went about trying to recruit a drilling partner for Grayberg Jackson, and obviously we were successful with that. And now we are applying that same playbook approach to recruiting a drilling partner at the South Justice Field, as Dante and David have mentioned. So let's go to the next slide, please. Current operations at both Grayburg Jackson and South Justice, safety is excellent. Our operations team does a wonderful job of working safely each day. And I've mentioned this before in previous earnings calls that we do every Wednesday, get all our lease operators together.

17:58 We talk about close calls. Incidents that are unsafe and so everybody has their say in safety. And as a result, we've had no reportable incidents within our company here, which is fantastic. And we hope to continue that in the future. Production at Grayberg Jackson in South Chester is approximately 900 gross barrels all per day currently. And most of the work this past year has been in fulfilling our stipulated final order with the New Mexico Oil and Conservation Division. And that's mainly idle wells and inactive wells that we acquired at the acquisition. And so we've been doing that work as required. And the production as a result of reactivating the wells was about 60 barrels of oil per day in my estimate.

18:56 Then as we entered 2027, Our plan is to develop 10 seven-rivers water flood patterns. The seven-rivers interval, which is above the St. Andrews, the Queen Grey Berg, is where most of our current vertical well activity is. And I've estimated CapEx to develop those 10 water flood patterns at about 2.5 million and that production increase that's expected, it will be around 250 barrels of oil a day. Then for 2027 at the South Justice field in the South Justice unit, we're gonna reactivate 25 idle inactive wells there. As they are deeper, we may encounter a few more problems as a result of the long inactive status of those wells. I've estimated two and a half million dollars capex there also.

19:53 and with an expected production increase of 240 barrels a day. So just from ongoing activity that we'd had planned in the past and hadn't been able to accomplish, we are certain we'll be able to do that in 2027, or our expectations are that we will. So let's go to the next slide, please. The St. Andrews Horizontal Drilling Program, I'll provide a little background. Initially, we completed three vertical wells. and you can see there the production from the three wells. Each of them were commercial and we continue to reap the reward from those wells. As we've mentioned, we did a San Andres farm out development agreement in which we had three wells that were carried of one mile lateral length and the drilling operations commenced in mid-August.

20:48 The first horizontal well we encountered high water rate flow and some pressure at about 750 feet plus or minus. We felt there was a well-controlled potential there, so we plugged that well. And as a result of that, the operator initiated some additional special precautions. So let's go to the next slide. And as a result, the Scaly Unit 2H and the Scaly Unit 3H were drilled with basically no issues. The completion operations of both wells commenced in late September. The production facilities there on the scaly unit where these wells are tied into was completed and ready to go when the wells were ready to produce.

21:33 And they were turned on 10-13-26. So just as we said about two weeks ago, a little over two weeks ago, we've got about 30,000 barrels of Thank you for joining us today. are expecting in the range of 400 to 500 barrels of oil per day per well.

22:18 If I put a timeline on that, and of course I'm always hesitant to do that because sometimes mother nature can throw you a little curve ball and things may take longer or they may or may not take as long, but we expect maybe first oil by the middle of November here and as we continue to produce the wells, as the operator continues to produce the wells, that they'll peak maybe by the end of November. again those are our own internal expectations and we always want to make sure that what we say is what we've come up with and that those are our words and in our expectations as we go forward. Next slide please. Now in the future I do want to note that in case anybody was wondering the well that we had to plug that's we still will get in the 2027 program a carried well. So wanted to make sure that that well will be replaced with a program well in 2027. The operator has been advancing the permitting requirements as we anticipate there in the first quarter kicking off the drilling program again.

23:36 I do want to, it's always, Everybody always wonders, well, what's the timeline for permitting? Well, we don't expect any constraint on the pace of future development. And so the operator's done a fantastic job of staying ahead of that. And so we don't expect any constraints in regard to permitting. Again, as I've said, we'll resume in the first quarter of 2027, of course, Any future expectations and activity will be based on the initial performance of these wells. And so it's like anything, success breeds success. So if the rates are as anticipated, then obviously we'll move forward with the program.

24:26 Next slide, please. I now want to talk a little bit about the horizontal drilling potential there in the South Justice Field. all the analysis of the data, the well logs, the petrophysic, etc., has all been completed. And as I said previously, the same team that did the Graybrook-Jackson Field initial analysis also did the South Justice. And I did want to point out that the data indicates that we have better rock properties, and as a result, we expect... are all potential, initial potential rates to be higher at South Justice than Grayberg Jackson. And I'll talk a little bit about that as I go through the next couple of slides.

25:16 The marketing effort to recruit a drilling partner has begun and we're using the same strategy to recruit a partner that is as skilled as our current partner in the Grayberg Jackson. and the interest right now is really high and obviously people need to do their own analysis of the work that we've done and of course they've got to do their own internal analysis. So that's where we're at right there right now as far as recruiting that partner and getting a potential program going in the South Justice field. Next slide please. Here quickly, we anticipate with the smaller acreage, a little over 5,000 acres, that we have room for 21 horizontal wells there of varying lengths.

26:06 And when I go to the next slide, you'll be able to see why that is. Our expected average recovery barrels of oil per foot is about 107 barrels, and we've used that to calculate the expected ultimate recovery, the EUR, and then we've made an estimate of the cost for each of the horizontals. Worth noting here is that there are some shorter laterals and then there are some longer laterals, but the overall average length will be a little over 8,400 feet. So the lateral lengths are going to range from a little over 2,600 feet to a little over 13,000. That's what we anticipate. And obviously, our partner will have a say in that, of course, how we drill them, et cetera, and so on.

26:51 Next slide, please. So here's a map of the South Justice Unit and the layout of the horizontals. Orientation will be from north to south, and that's how we fit in because of the unit boundary. That's the reason for the varied lateral lengths. And then on the right is the well control we had in the modern-day logs. All the logs were run in the early to mid-'90s, and so we had good log data that we were able to analyze this entire The interval there with the blind brie and the tub drinker, that whole interval is called the yeso. And it's actually the same interval that produces deeper over in our Grayburg Jackson that's operated by other operators in the Grayburg Jackson field.

27:44 Our rights are down to the base of the San Andres. But over here, it's the yeso that we have interest in. and that's the unitized interval and that's the interval we'll go horizontal. Next slide, please. This is my final slide and this is an internal summary and value of each of the different assets we have. And those assets, of course, in the Grayburg-Jackson are Seven Rivers Water Flood and then the San Andres Horizontal and then at South Justice is the current operations There's a waterfall over there. And so we'll continue to activate wells and continue to produce those wells there. And then, of course, the horizontal potential in the Blangberry tub drinker at intervals of the ASO.

28:38 So I don't want to – this presentation, of course, is on our website. So you'll be able to go in there and take a look in more detail at all the slides. But what I want to point out here is that overall, in our estimation, we've got a little over 40 million barrels of reserves with a value of over 400 million. And you can see each of the categories there. As Dante had said earlier, PDP is Prude Developed Producing. That's where the, as he said, the rubber meets the road. That's your current value. of your reserves that are producing. And then the PDNP, which is Proved Developed Not Producing, that's the future value as you convert wells to injection or recomplete to the Seven Rivers Formation or you drill the wells, those reserves start to go from probable to PDNP and then into the Proved Developed Producing categories.

29:38 So this tells you what the prize and what the value future value of our company that we have anticipate and expect with the our ongoing activities. So with that I turn it over to Mitch Trotter. Mitch take it away please.

29:58 All right thanks Jesse. Again that's Mitch Trotter the CFO and I want to start off with just taking a few minutes and go ahead to the next slide please. The on the late filings and we are now current and compliant on all our filings and we're on pace to file Q3 timely. So what were the two areas, there were two major categories of the delay, the complexity and our systems. And we discussed in the past, certainly on the April earnings call, the 20-25k took extra time because of the complexities in the various instruments and those complexities range from September 9th recapitalization farm out, the acquisition of South Justice, we purchased an ory, we sold two orys, we eliminated senior debt, the seller note and the bank loan, we eliminated preferred stock, we eliminated Class B stock, we took out 35 private loans and warrants to notes.

31:07 And they had over 100 conversions during the year. And there were a whole lot of settlements back both ways with respect to debts and obligations. All of that had an impact on tax and GAAP. And that took weeks to do. So what did our lesson learn from that? Well, we're not going to stop doing complex transactions, just doing an acquisition. and the financing and everything else. But we're going to try to be a little ahead of the game and address it up front. We actually have a – we've hired an advisor, a national advisor, to prep in advance of what's going to happen there. So we're kind of in gear there. The other piece, the systems.

31:53 We're not perfect. We have things that we need to clean up. It is added to the delay, no doubt about it. but there are no fundamental flaws in our processes and internal controls and there's no fraud, theft or any questionable practices. So the lessons learned here is where do we need to enhance our systems and procedures? And we're doing lessons learned, we also have this national advisor, we've got some other consultants that have helped us in this process and we're going to take the steps to enhance our systems and make them better. Now I want to talk a little bit about the key things. Revenue has been trending upward, and you can see it in Q1 and Q2 has increased again, and it's gone over time with the trend in oil prices. Now we do have a little bit of hedging that I think suppressed a little bit of the revenue in Q2, but it's continuing to grow up, go upward with the net.

33:03 The next thing is the big thing that drives a lot of our financials in our future really is the reserves. Dante spoke on them. Jesse spoke about them. They're not directly in our financials, but they're an integral bridge between operational and financial results. Oil reserves at the end of 24 did drop to 25. that impacted some of the 25 financials, the depletion and all that we've talked about in the past. The oil, why did that happen? Oil price during that period, you can see, trended down 12 bucks. And, you know, we needed to spend money on the infrastructure as Jesse and Dante spoke so that we could keep the fields stable and producing in preparation for the future. Obviously, this left us less money.

33:56 for development and reclassifying the PDMP and PUD and probable back to PDP. So production's been stable quarter over quarter and revenues have been driven by the oil price versus the reserves. We are focused heavily on increasing reserves, PDP reserves specifically, that will drive our future growth, and Dante spoke to it, and that is a key focus of 27. So let's go to the next slide, please. Go ahead, one more slide, please, David. Now, the big swings in our financials were not the ongoing steady-to-steady production and costs and everything else. It's been the derivatives, the non-cash derivatives.

35:00 The first one is the non-cash derivative, spending revenues up and down. The table there is to kind of show you that. And we really haven't discussed it since 2024, but the oil price volatility now makes it a topic. Non-cash derivative impact to revenues has an inverse relationship to oil prices. Oil goes up, we take a hit. So oil at the end of December was $57. At the end of March, it went up to $101. And then, hence, we had a $3.3 million hit. Then oil dropped to $69 by the end of June, and we had a pickup of $2.2 million.

35:47 oil increased to $90, went up again in Q3 to the end of September. So we expect a non-cash revenue hit in Q3. It's all non-cash. It is a theoretical, if we canceled all hedges and everything at the end of a month, what would happen? It is not based on actual performance or any other kind. So the other big thing, and it's down there in the other Expense and Derivatives. Big swings in that is the derivative valuation of convertible notes, of warrants in the past, of puts and various ELCs. Again, all line cash, but they're important. They are below the line expenses or pickups as well.

36:41 And then on the expense side, LOE, the lift cost, GNA, they've been steady quarter over quarter for several quarters and we still expect the same. Now they've been decreasing a little bit so we're pleased with that but I'm not going to go into that in detail here. Let's go ahead to the next slide. That's the balance sheet slide. I'm not going to spend a lot of time on the balance sheet. The quarter to quarter is very steady, similar to the Income Statement, go to the highlights slide next, please. And then, you know, the best part about the trend is cash has increased from Q1 to Q2, and we expect it to also increase in Q3.

37:33 But the bigger story behind the balance sheet in 26 compared to 25 is we reduced debt from $42 million to $6 million. Senior debt is gone. The capital stack cleaned up from year over year. Preferred shares are eliminated. Class B stock is gone. So huge amount, a lot driven by the September 9th, of course, funding that did that. And we're quite pleased that was a major event, as David had articulated. Now, as a recap, today we've been very steady stable pace production and everything else so we do thank and we've had a lot of trials and tribulations and we thank all the shareholders that have stuck with us and we talk to many of you all the time uh through all these ups and downs we appreciate it 2027 looks up okay just as uh just to give you a kind of a what if what if the next yeah We think we will have net 1,000 barrels per day as an example in the realistic expectations and estimates that we've done.

38:52 And if you just take $80 a barrel on average, that's $2 million a month, $24 million of revenue. And the LOE related to that, $2 to $3 million a month. on that piece. And we're working obviously hard to continue to track that. So the growth in our net barrels per day drives a lot of what we do. And of course, growing the reserves translate to our future and our future revenues growth. So with that, I do want to send it over back to Dante because he's going to talk about how we fund these Thank you, Mitch.

39:42 Let me recap what I hope everybody picked up, the takeaways. From David, I hope folks have picked up that really in terms of legal, restructuring, capital, figuring out what a farm out is, how to make an agreement to do such a thing. That's behind us. And all that work to establish a platform and a model for the business going forward. And then you heard from Jesse that we've got a prize out there of $400 million in present value discounted at 10% to make real. Right now it's hypothetical. But if we can move that $400 million in value and unproven value and Non-Producing Reserves to PDP when today we're standing at roughly $30 million in PDP, you got a hell of a kick for the company.

40:49 So if it was $50 going to $400, that would be an eight-time increase in the asset value. Now that's not going to happen in $27, but I've got a target there that at least $100 of that $400 We're hoping we'll move into PDP during 27. I'm also leaving myself the ability to add an acquisition to help me out there. So that's that. Then when you heard from Mitch, really the financial performance in 24, 25, Q1 26, Q2 26, it's nothing to sing about. It's not a reason to buy our stock. But what is a reason to buy our stock? is the drilling inventory of both properties and the unproven reserves that have some logic behind them that add up to $400 million. So if I'm listening to Mitch Spitball over there, what happens with 1,000 barrels a day being $24 million, we're essentially doubling the revenue of the company in the next 12 months. That's a target.

42:05 That's what I'm hoping we're shooting for. And it shouldn't be just in the same proportion of EBITDA and profit, because we've got a large G&A nut to cover as a small public company, and frankly, our mass is too small. But adding another thousand barrels a day, well, we're something. We're something. and if we could do it again in 28 and 29, well, we're really something. So I'm going to change the topic now to my slide of where's the money going to come from to fund this because we're not going to get there on the cash flow we have today. So I'm covering with you, and I've talked about this before, we don't like using the stock, certainly when it's at 40 cents. So everything I can do is to steer clear of selling the stock.

42:59 Term overrides, and let me explain what a term override is. A term override means we establish a term with the lender such that we get the override back. And generally it takes the form of a cash on cash return. You give me a dollar, I give you back two dollars, and then you give me back the override. But I'm paying you with a temporary term override to conclude that agreement. So I tried that but failed when we did the deal on September 9. Those overrides were permanent overrides. Sad for me, good for the other party, but it was still a good deal for us. But we don't like selling permanent overrides.

43:45 We prefer not to. But in a pinch, we're going to do it. And we're going to continue to do term overrides. to fund the legacy field operations like returning idle wells to production at South Justice. We're going to shoot for $10 million over there. We're going to use term overrides to fund water flood expansion. You heard Jesse talk about that. We're going to do that. Now what that means is initially as we convert water flood patterns, as we return wells to production, we don't gain much for it until we pay back the lender. on his cash-on-cash contractual return. If we buy a property, I'm not opposed to selling a 10% override in a good property, and I put in a for example. For example, if we bought a property for $35 million, I would sell a 10% override, hope that I could gain $10 million, and then find the other $25 million from the lender.

44:44 That's a pretty good deal. And that lender, it would be a Low double digits or high single digits and typically over a five-year period. That's what we had before with FIBT and we paid that loan off a year early. We're also not opposed to just traditional debt. We're not opposed to a fund for acquisitions. We're not opposed to a fund for new drilling. Frankly, we've hired investment bankers to help us and they're active today working on these amounts. So we don't have to find the funds to drill every single well. We just have to find the funds to drill enough wells until we hit the flywheel, meaning the wells are producing enough cash that we can organically pay for subsequent wells.

45:37 We do have an ELOC out there, and we did file an S-1 registration yesterday, and we're going to put some stock in there with them, but we're not going to push the gas pedal at these low oil prices or these low stock prices. So we're hoping we can get excitement around the stock and as hopefully the stock price rewards us for our good work, we may sell some stock and raise some of the money necessary for some of this capital expansion. but we're going to be responsible about it. And I make a commitment to all shareholders that any share we create, we return $2 in value in terms of that increase in PDP.

46:26 So it's kind of easy math. It's kind of easy to report that quarterly, what our PDP reserve additions are. And I think that's the yardstick the shareholders should measure us by. We also have, we probably have 40 to 50 million of just hard assets on the ground. This is pumping units, this is tubulars, pumps, tanks and whatnot. That also becomes a way to borrow money. We can either do it from as collateral to a bank or an equipment lease back. And we've assessed that there's probably 10 million there that we could access. And the last thing is, in the future, There's cheaper ways to use stock than an ELOC, and that's an ATM. However, being late in our filings kind of pushed that out into the future, so I list this as kind of a future objective.

47:18 So I want to share that to investors because everybody asks, and we get lots of questions, are you going to dilute the value of my stock away? And the answer is no. We're going to be responsible about it, but we're not going to ignore that avenue when we can use it responsibly to add value to the stock. Next slide, the last slide. So let me summarize what's happened. 25 and 26 were positioning years to grow through the drill bit. It wasn't our intention on the first day we bought the property to go drilling. We figured, and my background in oil and gas is more water flooding, while Jesse is actually more fracking and completions.

48:03 But Jesse wins out. His college team has a better record than my team. He's a guns up school. I'm a go Trojan school. We didn't have a great weekend last weekend, but we hope this weekend goes well. But it does look like we've transformed ourselves to both a water flooding and a drill bit company. Our business model is replicating, as Jesse said, the Grayberg Jackson field, meaning We're going to be very good at water flooding conventional reserves. We're going to be very good at drilling horizontal wells. And we're going to exploit all the multiple stack pay that the Permian gives us. So that gift just convinces us we want to stay playing in the Permian.

48:49 We want to stay playing in multiple stack pay zones. And when we look for properties to buy, we love conventional and unconventional all in the same fields. all within our rights. So water flooding a property concurrent with drilling brings lots of benefits. Horizontal drilling brings big wells, big revenue, big excitement. However, water flooding solves some of the water handling problems, depends how much water you're going to make. It also creates a sustainable low decline production. So we want that PDP for the next 50 years. We can do that with water flooding. If we stick with just primary alone in 7, 8, 10 years, your 500 barrel a day well will fizzle to 50.

49:39 So we want to keep the production up. It extends the life of the field, maximizes the overall return on the capital you've already deployed, and we think we're lined up doing what we're doing, even with just these two fields, for big production increases through 2030. So with that, I'm going to turn it back over to Mike Porter for Q&A.

50:08 Mike, will you take it from here? Yes, thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1. We do ask if listening on a speakerphone today Please pick up your handset while asking your question to provide optimal sound quality. Once again, please press star 1 on your phone at this time to join the queue to ask a question. You may also ask a question through the webcast interface. Please hold a moment while we poll for questions.

50:45 There currently are no questions in the audio queue. Does the call host have questions in the webcast queue?

50:53 Dante, the first question is the company's stock price has deteriorated drastically due to the late filings. Despite a perfect storm, positive production results, high oil prices, tight oil market, and thus I would like to know what would be the strategy to recover it to its glory days?

51:14 Yeah, that's a great question. We also published a fact sheet on this. So I point to two things. First of all, We were woefully behind in the filings. Big embarrassment. It's our fault. It's my fault. I'll take the hit on it. Trust me, behind the scenes, we're doing all the right things to fix it. The proof is in the pudding. I'll ask everyone, measure us by when we file the Q3. We got everything current. Frankly, it was a lot of hard work and a nightmare. and it distracted the whole management team. So the Q3, I believe, as Mitch said, is well underway to be filed on time, which is the middle of November.

52:04 Woe to us if we miss that date, but we have changed everything and I'm not prepared to tell you all the differences, but that's step one. Step two is we got to get the production up. We got to get the production up and I'll tell you, I have a lot of faith in our drilling partner. I got a lot of faith in the science that's already been deployed by their team, by our team and I'm optimistic. I might be the most optimistic guy and I've been cautioned by everybody, don't say what you really think because what I really think is a lot higher numbers than I've said. In the end, we are not months and months away from knowing whether this drilling program is going to be a success.

52:53 It is not far away. If November 15th proves to shareholders we figured out how to file an SEC filing on time, I think November 15th or November 30th also coincides with when we might be able to say something about these wells that have been successfully drilled and completed. Our plan is kind of that. If there was a third leg in this stool, we are an acquisition company. I promised we would get an acquisition done this year. The gun is to my head to do it. That would be sort of the third leg. Metric out there now in years going forward.

53:38 I mean, I don't think trust is a one-time event. I think it's time dependent. And I've already laid the groundwork to hang myself, which is to say, watch the PDP numbers grow. If you don't see our PDP numbers grow, then I failed as your leader for this company. But I believe with 400 million in value stacked up, We're going to figure out how to move a goodly amount of that over to PDP by the end of 26 and into 27. Those are the yardsticks that I give shareholders.

54:24 Again, I don't expect the market to do anything today or tomorrow, but I do expect that the market will see these things by the end of November and certainly by Christmas. such that the person that posed that question would be much happier. And by the way, I'm a shareholder myself and I would also like to say that the management team has been unable to buy shares until we got through these current filings. So I believe I speak for everyone on the team to say we believe in this thing. We really believe in this thing. So back to you.

55:05 Thank you. The next question is, congrats and great job, Eon team. Any rough estimates on permits to drill the next three horizontal wells?

55:20 I'm going to answer this one, even though the right guy to answer it, let me let Jesse answer it. Let's see what you say, Jesse.

55:27 Okay. Again, a good question, and as I've said in the presentation, are partners proceeding with the permitting process, and all indications are that there'll be no holdup due to either federal and or state requirements. So everything's on course to be able to, pending, of course, the results of the two wells we've drilled and completed and are testing currently, that we will be able to kick off a program in quarter one, 2027. Obviously, if there's any change in that, we will let our investors know.

56:13 And I think that probably answers what you need. Do you want to add anything there, Dante?

56:17 Yeah, I guess I got to say the economics of drilling have been looked at at all kind of ranges of oil price. And certainly oil prices today, nobody saw this. I'll just say I didn't see it. Thank you for joining us. to wait and fully analyze the vertical well test, and I expect the same with the next series of wells. These two wells will be fully analyzed before the drill bit hits the ground on this next go.

57:14 And then the pace that you go, you have to consider all the factors, water handling, power, logistics in the field, but the vert test guys have been very good at anticipating potential problems and, frankly, solving them. So we're not going through all their technological solutions, but it is impressive what they're doing. I'll leave it at that.

57:42 Okay. The next question is, what is the current and future crude oil hedging strategy?

57:51 Okay. This is Mitch. I'll take that. So our current hedging, if you go back in time, and I think we had a press release that oil price was dropping at the end of 25 down into the well into the 50s and then popping up into the 60s and all that so we our strategy then was to lock in enough through the end of 27 to just cover our basic operational needs and we have hedged about 950,000 per month, which covers the Gray-Burke Jackson. It's only on Gray-Burke Jackson.

58:37 And it is enough to cover the LOE, the monthly LOE of 700, and then have another 250,000 to contribute to either the South Justice LOE or GNA. So that was a strategy then. It's in place. It's our base. but with that, now that oil prices are up, we are not hedging anymore unless something crazy happens to our advantage or disadvantage one way or the other. We are unhedged, not hedged, naked on all of the incremental 25% and growth on the Grayburg Jackson water flood. We are not hedged.

59:23 We stay naked on the horizontal completely on South Justice. All of that's free floating with market. So that's our strategy. Obviously we address it every month. Right now there's until oil prices decide to do something crazy or we give a very sustainable different level of oil price and production going. and if we do certain types of bank debt financing for property, then there may be some requirements for the bank. The banks require 75% of current production. That's also the reason we kind of picked the number we had.

1:00:08 So that's kind of our overall strategy and with that, I'll turn it back over to you, Mike.

1:00:15 Thank you. The next question is, What effect did the crazy weather throughout the country have on the company? Did it cause you to lose any days of production?

1:00:28 Hey, Dante, I'll answer that one. Yeah, it did. We're in a rural area there in New Mexico, especially in the Grave of Jackson. And so severe weather, lightning storms, high winds, high rain, It does affect our electric power and so it did affect us in that we had downtime related to our infrastructure, especially in the electric. And then getting around the field when you have severe thunderstorms, lots of rain makes it a whole lot more difficult to get around the field, make your wells, get to the tank batteries, be able to repair and so on. So yeah, it did have an effect, but we've handled it.

1:01:23 Field operations team is excellent in that regard because this is not always a one-time event. It happens to us each year. Thunderstorms don't go away and thank goodness we don't have a severe drought. That doesn't help anybody. And so yes, to answer the question, it did cause downtime both at the Gray Bird Jackson Field and the South Justice Field. And we're on the downhill side of that now in that we're getting a lot of our wells back on as the infrastructure is repaired and roads are graded, et cetera. You could spend a fortune trying to maintain roads out there, so we only do it when we have to as a result of severe storms.

1:02:08 I think that answers the question. If you have any follow-up, just let me know.

1:02:14 I'll turn it back over to you. Dante, last question. What effect is higher oil prices having on your ability to make an acquisition?

1:02:28 It helps. It helps. We have to constantly go to the third-party engineer to reassess the value of a property and The thing about strip pricing where the geniuses that develop this, even though oil prices are at $100, they don't predict that it's going to be $100 next year, next month. Everybody's strip pricing reflects that it's down. However, the interest level by investors to support us with drilling, the interest level by investors to get a quick payout in a term override, that helps us. So those help us.

1:03:14 As far as buying a property, I don't want to go on an open market and bid against everybody. We're doing it with relationships, meaning we know the seller. Hopefully we can do a dinner and come to some agreement, and it's a win-win for both. That's kind of where we're at. We're looking at these things and an acquisition for us takes a very long time. We're not set up with a vault with a billion dollars in it to where if we like something, we could stroke a check in the next two weeks. So we have to do the dance, reach agreement, work with a bank that will work with us with our current situation. And we didn't help ourselves with these late filings, but now that they're done, We do have parties that will work with us. So that's a long roundabout question.

1:04:08 It's easier but still hard for us. It's not due to oil prices. It's just due to the lateness of the filings did us some harm, and we're recovering now from it.

1:04:24 Thank you, sir. That was the last question.

1:04:28 Well, very good. We appreciate everybody's participation. Thank you. Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day.

1:04:42 Thank you for your participation.