HNR Acquisition Corp Announces Results for First Quarter Ended March 31, 2024 and Actions to Increase Production

Rhea-AI Summary

HNR Acquisition Corp (NYSE American: HNRA) announced its Q1 2024 results and plans to boost production. The company, which acquired LH Operating in November 2023, reported a total revenue of $3.3 million, affected by a $2 million reduction due to GAAP accounting for its hedging program. Roughly $5.1 million in cash was generated from oil and gas sales. Despite a net loss of $5.3 million, HNRA's CFO emphasized positive cash flow from operations and strategic priorities to enhance cash position, cut operating costs, and improve margins.

Maintenance costs for field repairs reached $1.2 million, with elevated but declining future costs expected. HNRA's production stabilized at 967 barrels/day, and a second workover rig is anticipated to further boost production starting April 2024. Plans include reactivating 14 inactive water injection wells and increasing overall production by 400 barrels/day by end-2024. An earnings call is scheduled for May 23, 2024, to further discuss results and future plans.

Positive

• Revenue of $3.3 million in Q1 2024.
• Approximately $5.1 million in cash generated from oil and gas sales.
• Stabilized production at 967 barrels/day.
• Positive cash flow from operations.
• Plans to increase production by 400 barrels/day by end-2024.
• Second workover rig beginning operations in April 2024.
• 14 inactive water injection wells being reactivated.
• Strategic investments to increase production and improve field conditions.

Negative

• Net loss of $5.3 million in Q1 2024.
• $1.2 million in unexpected repair and maintenance costs.
• $4.4 million of non-cash GAAP-driven expenses.
• $2 million revenue reduction due to hedging program.
• $350K additional G&A expenses for professional fees.
• Elevated repair and maintenance costs expected over the next two quarters.

Insights

Financial Analyst

The first quarter earnings report of HNR Acquisition Corp (HNRA) contains critical financial data pertinent to investors. Despite facing $1.2 million in unexpected repair and maintenance costs, the company's revenue for Q1 2024 was $3.3 million. Adjusting for non-cash GAAP accounting effects, the cash generated from oil and gas revenues was $5.1 million. The company reported a net loss of $5.3 million, but this was significantly influenced by non-cash expenses totaling $4.4 million. These include hedging derivatives, market value adjustments of stock-based fees, warrant liability changes and amortization of debt discount. Such adjustments are often less concerning in the long term, as opposed to actual cash outflows.

Investors should consider the potential for higher production in the coming quarters. HNRA contracted an additional workover rig and plans to reactivate several wells, which should lead to increased production. The company aims to boost production by 400 barrels of oil per day by the end of 2024.

Additionally, the hedging program's impact on revenue resulted in a $2.0 million non-cash reduction, indicating that higher oil prices are beneficial for unhedged oil sales. With approximately 70% of production not impacted by the hedging program, HNRA is well-positioned to benefit from rising oil prices.

While the immediate financial metrics might seem concerning, the company's strategic actions and long-term potential provide a more optimistic outlook.

Energy Market Analyst

HNRA's focus on increasing production and improving field conditions is a promising sign for stakeholders. The acquisition of LH Operating, LLC and subsequent operational advancements have stabilized production at around 967 gross barrels of oil per day. The addition of a second workover rig and the reactivation of 14 water injection wells are strategies aimed at enhancing production capacity.

Given the company's significant investment in repair and modernization efforts, the future production outlook seems positive. However, investors should be aware that elevated repair costs are expected to continue for the next two quarters. Despite these costs, HNRA's actions demonstrate a proactive approach to maximizing long-term field potential.

The Permian Basin, where HNRA's properties are located, is one of the most prolific oil-producing regions in the US. The region's infrastructure and existing wells provide a substantial foundation for future growth. The company's intention to focus on scientifically backed development strategies should also contribute to more efficient and sustainable production increases.

The company's long-term strategy includes a significant emphasis on increasing oil production capacity, which aligns well with broader market trends and the global demand for energy resources.

Legal Expert

From a legal perspective, HNRA's recent actions indicate thorough compliance and strategic planning. The acquisition of LH Operating, LLC and the subsequent registration of stock and handling of legal complexities reflect a robust approach to legal and regulatory obligations. This is important for maintaining investor confidence and ensuring smooth operational transitions.

The company's transparency in reporting non-cash expenses and the impact of their hedging program demonstrates a commitment to precise and honest financial disclosures. Such transparency is essential for cultivating trust with investors and aligning with regulatory requirements.

Additionally, the detailed breakdown of costs and their impact on the financial statements provides clarity to investors, which is vital in maintaining an informed shareholder base. The upcoming earnings conference call, featuring top executives, also underscores the company's dedication to open communication and stakeholder engagement.

Overall, HNRA's strategic and legal measures appear well-coordinated, supporting the company's long-term operational and financial goals.

HOUSTON, TX / ACCESSWIRE / May 21, 2024 / HNR Acquisition Corp (NYSE American:HNRA) (the "Company" or "HNRA") is an independent upstream energy company with oil and gas properties in the Permian Basin. Today, the Company announced results as an operating company for the first quarter ended March 31, 2024. The Company also outlines action plans to increase production.

First Quarter of 2024 Results

HNRA acquired the operating company LH Operating, LLC ("LHO") on November 15, 2023. The reported financial results and production results prior to that date are those of the predecessor and are not comparable to current and future results under HNRA control. We are through the initial discovery phase of the condition of the field and wells, and the review of the potential oil reserves. While the field was below expectations, the potential oil reserves are higher than what we expected based on discussions with the third-party independent engineering firm. We are optimistic of our long-term growth and future.

During Q1, HNRA stabilized production that had been declining prior to the acquisition. HNRA has experienced $1.2 million of unexpected repair and maintenance costs to get the field back into good working order above the level of lease operating expenses forecasted in the reserve report by our third-party, independent engineering firm. We do expect elevated, but declining, excess repair and maintenance costs over the next two quarters. We also expect increased level of production relating to field efforts to mitigate the cost impact.

Total revenue for the first quarter ended March 31, 2024 was $3.3 million. The revenue was impacted by a ($2.0) million reduction of revenues for the non-cash GAAP accounting treatment of our hedging program. A negative impact on the hedging program means oil prices have increased, which is a benefit to our oil sales that are not hedged. Approximately 70% of our current production is not impacted by the hedging program at the current oil prices. Accordingly, approximately $5.1 million of cash was generated from oil and gas revenues.

While the Company's net loss for Q1 was ($5.3) million, there were four major impacts to our financial results totaling approximately $5.9 million of costs.

The first major impact was that there was approximately $4.4 million of non-cash GAAP driven expenses. This includes the $2.0 million from the hedging derivatives computation discussed above if we were to cancel the derivative program that goes to the end of 2025. Additionally, there is an impact of $574K included in G&A expenses based on the market value of fees paid in stock versus cash during Q1. Other components of the $4.4 million are: a $624K negative impact from the change in value of warrant liability; a $349K negative impact from the change in value of FPA liability; and a $813K negative impact from the amortization of debt discount.

The other three major impacts to our financial results are: the lower production based on the condition of the field as discussed above; the approximately $1.2 million of excess repair and maintenance costs spent due to the condition of the field as discussed above; and approximately $350K of additional G&A expenses for professional fees, which was primarily driven by the complexities of components of the 10-K, plus fees for the registration of stock following the acquisition of LHO and other legal matters.

"HNRA has positive cash flow from operations, and the instruments we have put in place will continue to allow us to manage our financials," said Mitchell B. Trotter, CFO of HNRA. "Our strategic priorities remain focused on increasing our cash position, reducing our operating costs, and improving margins, all by increasing production. In addition to the repair and maintenance spends, we invested approximately $645K of capital expenditures to increase production."

Actions to Increase Production

The acquired property has significant potential. HNRA has a long-term view of the property development and thus are spending the time and money to bring the field into good condition, and just as importantly, spending the time and effort to study the science to maximize our approach to developing the field. Again, we are through the initial discovery phase and are optimistic of our long-term growth and future.

"Since the acquisition of the Grayburg-Jackson oil field, HNRA management has made material advancements and strategic decisions to grow the Company. We have operated the field safely and efficiently while investing monies to enhance the field condition and resulting production. Beginning in mid-November when we took over operating the field, we have had one workover rig operating to put idle and inactive wells we inherited back online. These wells were idle or inactive for various reasons," said Jesse J. Allen, VP of Operations for HNRA. "These first quarter activities enabled us to stabilize and maintain production of approximately 967 gross barrels of oil per day."

"We have contracted a second workover rig to increase production and capacity beginning April 2024." Jesse Allen continued. "Additionally, we have identified 14 Seven River water injection wells that were inactive due to various repairs. We worked throughout the first quarter to complete repairs, and we expect these wells to return to injection in the second and third quarters of 2024. Our field operating team has completed extensive repairs of two tank batteries to ensure safe and reliable operations."

Jesse Allen added, "As part of our operating plan, the engineering team has commenced a review of all wells with behind-the-pipe potential. This work prioritizes the highest-potential wells first. We expect to increase production on a quarterly basis."

"We continue to invest capital through modernization and maintenance of the Grayburg-Jackson oil field, and we continue to increase production by increasing the number of wells shut in and capped by water injection. We will bring these wells back into production," said Dante V. Caravaggio, CEO and President of HNRA. "Production of oil started to increase in April and is expected to increase again in May. We are on the path of our stated goal to increase production by 400 gross barrels of oil per day by the end of 2024. With the second rig on the property, we expect an additional six additional wells to return to production in Q2. This trend should continue and increase for the remainder of the year."

Earnings Conference Call

HNRA will hold a conference call on May 23, 2024 to share and discuss its first quarter March 31, 2024 results. During the call management will report on its earnings results as well as update investors on optimizing effective drilling conditions and sustaining production growth. The call will be held at 11:00 a.m. EDT. In addition to the company's first quarter results, management will discuss recent events and host a Q&A session.

The call will be chaired by Dante V. Caravaggio, President & CEO; Jesse J. Allen, Vice President of Operations, and Mitchell B. Trotter, Chief Financial Officer. All three will be available to answer questions. To participate in the live teleconference:

An audio webcast of the conference call will be available within two hours of the call on the HNRA website. To listen to a live broadcast, visit the website at least 15 minutes prior to the scheduled start to register, download and install any necessary audio software.

To participate in the live teleconference:

Domestic Toll Free: 888-506-0062
International: 973-528-0011
Participant Access Code: 714419

To listen to a replay of the teleconference, which will be available through June 6, 2024, please visit the investor relations section of the HNRA website or call one of the numbers below:

Domestic Toll Free Replay: 877-481-4010
International Replay: 919-882-2331
Replay Passcode: 50675

For the Webcast: https://www.webcaster4.com/Webcast/Page/2999/50675

About the Oil Field Property

In November 2023, the Company acquired LH Operating, LLC ("LHO") including its holdings in New Mexico of oil and gas waterflood production comprising 13,700 contiguous leasehold acres, 342 producing wells and 207 injection wells situated on 20 federal and 3 state leases in the Grayburg-Jackson Oil Field. The Grayburg-Jackson Oil Field is located on the Northwest Shelf of the prolific Permian Basin in Eddy County, New Mexico.

Leasehold rights of LHO, now a wholly owned subsidiary of the Company, include the Seven Rivers, Queen, Grayburg and San Andres intervals that range from as shallow as 1,500 feet to 4,000 feet in depth. The December 2023 reserve report from our third-party engineer, William H. Cobb and Associates, Inc. ("Cobb"), reflects LHO to have proven reserves of approximately 15.4 million barrels of oil and 3.5 billion cubic feet of natural gas. The mapped original-oil-in-place ("OOIP") in the LHO leasehold is approximately 876 million barrels of oil in the Grayburg and San Andres intervals and 80 million barrels in the Seven Rivers interval for a total OOIP of approximately 956,000,000 barrels of oil.

Our primary production is currently from the Seven Rivers zone. In addition to proven reserves, the Company believes we may access an additional 34 million barrels of oil by adding perforations in the Grayburg and San Andres formations. With proven oil reserves of over 15 million barrels, combined with the potential 34 million additional barrels from the Grayburg and San Andres zones, LHO should produce oil and a revenue stream for more than two decades with a slow decline rate.

About HNR Acquisition Corp

HNRA is an independent upstream energy company focused on maximizing total returns to its shareholders through the development of onshore oil and natural gas properties in the United States. HNRA's long-term goal is to maximize total shareholder value from a diversified portfolio of long-life oil and natural gas properties built through acquisition and through selective development, production enhancement, and other exploitation efforts on its oil and natural gas properties.

HNRA's Class A Common Stock trades on the NYSE American (NYSE American:HNRA) and our public warrants trade on the NYSE American (NYSE American:HNRAW). For more information on HNRA, please visit the Company's website: https://www.hnra-nyse.com/

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from what is expected. Words such as "expects," "believes," "anticipates," "intends," "estimates," "seeks," "may," "might," "plan," "possible," "should" and variations and 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 future events or future results, based on currently available information and reflect the Company's management's current beliefs. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking statements. Important factors - including the availability of funds, the results of financing efforts and the risks relating to our business - that could cause actual results to differ materially from the Company's expectations are disclosed in the Company's documents filed from time to time on EDGAR (see www.edgar-online.com) and with the Securities and Exchange Commission (see www.sec.gov). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Investor Relations:

Michael J. Porter, President
PORTER, LEVAY & ROSE, INC.
mike@plrinvest.com

SOURCE: HNR Acquisition Corp.

View the original press release on accesswire.com

FAQ

What were HNRA's revenues for Q1 2024?

HNRA reported total revenues of $3.3 million for Q1 2024.

What was HNRA's net loss for Q1 2024?

HNRA reported a net loss of $5.3 million for Q1 2024.

How much cash was generated from oil and gas sales by HNRA in Q1 2024?

HNRA generated approximately $5.1 million in cash from oil and gas sales in Q1 2024.

What unexpected expenses did HNRA incur in Q1 2024?

HNRA incurred $1.2 million in unexpected repair and maintenance costs in Q1 2024.

What are HNRA's plans to increase production in 2024?

HNRA plans to increase production by 400 barrels/day by the end of 2024, with a second workover rig and reactivating 14 inactive water injection wells.

When is HNRA's earnings conference call for Q1 2024?

HNRA's earnings conference call for Q1 2024 is scheduled for May 23, 2024, at 11:00 a.m. EDT.

What are the expected future costs for HNRA's field repairs?

HNRA expects elevated but declining repair and maintenance costs over the next two quarters.

What is the impact of the hedging program on HNRA's Q1 2024 revenues?

The hedging program reduced HNRA's revenues by $2 million in Q1 2024 due to GAAP accounting treatment.