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Cavvy Energy Ltd, trading under the symbol CVVY, experienced a notable stock price increase of 19.54% following its Q2 2025 earnings call. The company reported a net operating income of $26.5 million and a reduction in net debt by $18.6 million, which likely contributed to the positive market reaction. The stock closed at $0.44, reflecting a $0.09 rise from its previous value. According to InvestingPro data, the stock has shown remarkable momentum with a 64% gain over the past six months and appears overvalued based on its Fair Value analysis. For more insights on overvalued stocks, visit our Most Overvalued Stocks list.
Key Takeaways
- Cavvy Energy’s net debt decreased by $18.6 million, indicating stronger financial stability.
- Third-party processing revenue rose by $5.4 million, showcasing business growth.
- The company is investing $10 million in well and facility optimization projects.
- Despite weak AECO natural gas prices, Cavvy Energy remains strategically positioned with robust infrastructure.
Company Performance
Cavvy Energy demonstrated solid performance in Q2 2025, with a net operating income of $26.5 million and a notable reduction in net debt. The company’s strategic focus on processing third-party natural gas and investing in optimization projects highlights its commitment to growth and operational efficiency. InvestingPro analysis reveals the company operates with a significant debt burden, with a debt-to-equity ratio of 1.2 and a concerning current ratio of 0.69. Despite challenges such as weak natural gas prices and shut-in production, Cavvy Energy’s diversified operations and infrastructure provide a competitive edge. Analysts forecast 32% revenue growth for FY2025, suggesting potential improvement ahead.
Financial Highlights
- Net Operating Income: $26.5 million
- Commodity Hedging Gains: $17.5 million
- Net Debt: Reduced by $18.6 million to $167 million
- Average Production: 26,000 BOE per day
- Third-party Processing Revenue: Increased by $5.4 million
Outlook & Guidance
Cavvy Energy expects to achieve or exceed the high-end of its net operating income guidance. The company is exploring partnerships in data centers and power generation, which could provide new revenue streams. Additionally, Cavvy Energy plans to refinance its debt in late 2025 or early 2026, potentially improving its financial flexibility.
Executive Commentary
CEO Darcy Redding stated, "We believe our strategic plan, first envisioned in 2023, remains appropriate and that we have demonstrated success in achieving our milestones." CFO Adam Gray emphasized the importance of reducing leverage ratios, stating, "Getting leverage ratios down is my absolute number one priority in the short term."
Risks and Challenges
- Weak AECO natural gas prices could impact revenue.
- High exposure to AECO prices increases vulnerability to market fluctuations.
- Shut-in dry gas production could affect short-term output.
- Potential sulfur market volatility post-2025 contract expiry.
Cavvy Energy’s Q2 2025 performance and strategic initiatives have positioned the company favorably, as reflected in the positive stock market response. However, the company must navigate ongoing challenges in commodity pricing and production to sustain its growth trajectory.
Full transcript - Cavvy Energy Ltd (CVVY) Q2 2025:
Marvin, Conference Call Moderator: Good day, ladies and gentlemen, and welcome to the Kabi Energy Q2 twenty twenty five Financial Results Conference Call. Please be advised that today’s proceedings are being recorded. Following the presentation, we’ll conduct a question and answer session. If you have a question you are viewing on webcast, please use the ask a question button in the top right hand corner to type your question at any time during the presentation. If you are participating via telephone and would like to ask a question, please dial 11 at any time.
You will then be in the queue for a question and answer session at the end of the call. I would now like to turn the meeting over to Mr. Dallas McConnell, Vice President, Corporate Finance. Please go ahead, Mr. McConnell.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Thanks very much, Marvin, and good morning, everyone. I would like to welcome you to Cavi Energy’s second quarter twenty twenty five Conference Call. With me today are our President and Chief Executive Officer, Darcy Redding Chief Financial Officer, Adam Gray Chief Operating Officer, John Emery and Chief Commercial Officer, Paul Kunkel. Darcy and Adam will begin today with a review of our operating and financial results and certain other company developments. Following their prepared remarks, we will turn the call over to the conference coordinator for your questions.
Adam Gray, Chief Financial Officer, Cavi Energy: Next slide.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Before Darcy begins, I would like to remind you that our remarks today will include forward looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by CABHI with the Canadian securities regulators on sedarplus.ca. With that, I will now turn the call over to our President and CEO, Darcy Redding, who will provide more detail on our performance last quarter along with recent corporate developments.
Darcy Redding, President and Chief Executive Officer, Cavi Energy: Thank you, Dallas, and thank you, everyone, for your interest in our company and in our second quarter twenty twenty five results. I’d like to begin the formal portion of the call by highlighting why we believe Cabbie Energy provides a compelling investment opportunity, followed by a short recap of our strategic journey to date. Cavi Energy is uniquely positioned in Western Canada as a small to mid cap energy company, owning both a material E and P footprint and an extensive network of natural gas gathering, processing, and product handling infrastructure. Our low production decline, consistently less than 10% annually, helps sustain our business while our extensive drilling inventory, exceeding 300 identified net locations, provides the company with an abundance of highly impactful shareholder value growth opportunities. Our high working interest and operated infrastructure includes three deep cut liquids recovery gas plants with sulfur recovery.
These assets have ample capacity to safely and efficiently process not only CABHI’s production, but to also support a thriving and growing natural gas processing business that supplements our commodity sales revenue with material fee revenue from third party producers in our capture areas. Cavi is a significant producer of sulphur in Canada, and beginning 01/01/2026, 100% of our sulfur production will be sold at full market value, contrasting the 6 Canadian dollars per metric ton that most of our sulfur sales have been capped at since 2019. Additional detail will be provided on this later in the call. We have a small but seasoned executive management team of five with over one hundred and thirty years of collective business and energy experience and a strong and supportive shareholder with Aimco owning 47% of our common shares. Our current share price represents a significant discount to our proved developed producing or PDP net asset value of $1.21 per share.
We believe that as we continue to grow our per share cash flow via our midstream growth, sulfur pricing exposure, and ongoing cost structure reduction and optimization, Gavi Energy represents an attractive investment opportunity for new and existing shareholders. Next, I want to briefly recap the execution of our strategic plan over the past couple of years. I’m extremely proud of our success to date. In 2023 and the 2024, we focused on improving our Western Canadian based upstream and midstream business. We focused on a new strategy that would strengthen and sustain the business in the short term and open opportunities for growth and shareholder value accretion in the medium and long term.
This new strategy resulted in a directional change away from a company that was founded on the vision of building a liquefied natural gas facility on the East Coast Of Canada. The LNG assets were sold in 2024 and the proceeds used to deleverage the company, repaying our highest cost debt. In 2024, we embedded this new strategy deep into our business by creating and enhancing the culture, processes, and skill sets of our team members across the organization, deepening our resolve and commitment to our transition strategy. In 2025, we are in the midst of completing our strategic pivot and have achieved the milestones originally imagined as our figurative measuring stick for the success of our strategy. Notably, in May, we gained shareholder approval for our corporate name change to Cavi Energy.
We believe this rebrand is both symbolic and appropriately timed with our establishment as a premier energy company in Western Canada. We will maintain our financial momentum by growing our midstream business, materially improving our cash flow most immediately with the expectation of greatly improved sulphur revenue in 2026, and deleveraging our balance sheet. We are extremely excited about this transition and expect a material reduction in our cost of capital while enhancing cash flow. We further expect to open new growth pathways as our improved cash flow creates opportunities to acquire assets complementary to our strategy or to fund drilling of our substantial inventory of locations. We believe our strategic plan, first envisioned in 2023, remains appropriate and that we have demonstrated success in achieving our milestones.
We look forward to reporting on our future successes. On slide five, revisiting a visual used in a previous quarterly call. The map on the right shows our Caroline gas plant, its extensive regional capture area associated with the existing cave owned gathering infrastructure, and the substantial new industry drilling that has occurred within that capture area over the prior four plus years. The chart in the lower left shows the tremendous growth in raw gas volume within the Caroline gas plant capture area with raw gas production capability in the region nearing 200,000,000 cubic feet per day as of the second quarter of this year. Over that same time period and as represented by the light blue line on this chart, Cavi has successfully grown its third party process volume by a compounded average growth rate of 76%, reaching approximately 80,000,000 cubic feet per day in q two twenty twenty five.
Our strategy remains focused on the continued growth of processed volumes and fee revenue at our Caroline gas plant, and we are committed to capture additional newly drilled production as well as production feeding the infrastructure of other operators in the area through our ongoing consolidation efforts. On slide six, you can see CAVI produced about 10% of Canada’s total sulphur in 2024. Effective 01/01/2026, 100% of CAVI’s sulphur production is eligible to receive market pricing, as I mentioned before, which has remained resilient throughout 2025 and is currently fetching a spot price of approximately 250 US dollars per metric ton. Although sulfur pricing has exhibited significant volatility historically, the chart shows that the market price of sulfur has exceeded our breakeven aggregate cost of handling, transporting, and marketing sulfur, which is approximately 80 US dollars per metric ton for the vast majority of the past fifteen years. In the 2025, approximately 1,100 metric tons per day of Cabi’s sulfur production received the contracted 6 Canadian dollar per metric ton, which will no longer apply as of January 1.
Although historical sulfur pricing does not guarantee its forward pricing, a sustained and robust sulfur price in 2026 and beyond will drive a significant new net revenue stream for CABBI as represented by the sulfur net revenue sensitivity matrix located in the lower right. Further scrutiny of this matrix shows that at reasonable expectations of 2026 sulfur pricing, the company has the potential to generate in excess of $60,000,000 in additional net cash flow. As this lever is now less than two quarters away from becoming reality, we are extremely excited about the opportunity this will create to help accelerate our strategy. We are looking forward to the expiry of the current sulfur contract after 12/31/2025, and we’ll be eagerly anticipating the impact to our business with this potential new revenue stream. We hope the review of the last few minutes has provided an illustration of some of the reasons we are excited for the future of the company and for the value it offers shareholders.
Moving on now to the current business at hand, the 2025 was one that accomplished significant growth in our midstream processing business while delivering strong cash flow and a healthy reduction to the company’s debt. Touching on the highlights for the quarter, despite a very weak pricing quarter for AECO natural gas to which approximately 80% of CAVI’s production is exposed, net operating income in the quarter was $26,500,000 bolstered by $17,500,000 in commodity hedging gains. Average production for the quarter was slightly over 26,000 BOE per day, which was impacted negatively by our decision to once again shut in dry gas production in Northern Alberta and Northeast BC as the relatively good AECO gas prices benefiting our first quarter quickly softened by the second quarter. A new record was established by the company in the second quarter when nearly 120,000,000 cubic feet of raw natural gas per day was processed for third parties at CAVI’s owned and operated gas plants. This supported a material increase of $5,400,000 in additional processing revenue in the quarter relative to the same period in 2024.
Net company debt was reduced in the quarter by $18,600,000 leaving the corporate net debt at the end of the quarter at $167,000,000 Debt reduction remains a key focus for the company for the remainder of the year and into 2026. At this time, I would like to invite Adam Gray, Chief Financial Officer, to elaborate on our second quarter operating and financial results and provide a few comments on our debt, liquidity, current commodity hedge position, and our corporate guidance.
Adam Gray, Chief Financial Officer, Cavi Energy: Thanks, Darcy, and good morning, everybody. Thanks for joining us. At a high level, the 2025 was characterized by three themes. First, consistent reliable operations in our core strategic operating areas second, the continued acceleration of our third party processing business, which we’ve been talking about for several quarters now and are pleased to deliver throughput and revenue numbers that support our growth story. And third, fairly significant deleveraging both against total debt and net debt metrics.
So on the first theme, I’ll turn your attention to the line graph on the lower left of this slide showing production by area over the last twelve months. During the second quarter, we produced just over 26,000 BOEs per day, approximately 81% of which was natural gas. Our remaining liquids production is roughly equally split between NGLs and condensate. This production result reflects strong operating reliability in our three core areas being Waterton, Jumping Pound and Caroline. Production also benefited this quarter from cycling on those volumes in Northeast BC and Northern Alberta, as Darcy mentioned, to take advantage of relatively strong prices in late Q1 and early Q2.
Northeast BC and Northern Alberta both produce quite dry gas, meaning very little liquids are recovered from the gas, and they have variable sorry, high variable cost profiles because we don’t own any processing infrastructure up there. These areas were shut in again through June as AECO prices seasonally weakened, bringing our current production today to just over 24,000 BOEs. We hope pricing will allow us to return these assets to production in the 2025. Also, as we’ve previously discussed, in August 2024, we shut in the component of our Central Alberta production, which flows into a third party Ram River processing facility. That production represents approximately 7,000 BOEs per day and is shown in the graph by the light brown or orange line.
The combination of current projected AECO pricing and the high cost burden imposed by that facility suggests this area will remain shut in for the foreseeable future. However, we continue to pursue a commercial outcome that could enable the economic resumption of that production. As a rule of thumb, our corporate production capability when all areas are producing is approximately 35,000 BOEs a day plus 1,400 tonnes of sulphur per day. Although it’s challenging to many of our per BOE KPIs when areas remain shut in, as I’ll discuss in a moment, we do believe that these shut ins preserve cash flow, reserve value, and strategic optionality, and we are endeavoring to get them back on as soon as economically possible. Turning to operating expense now.
On an aggregate basis, OpEx was CAD40 million for the second quarter versus CAD44 million for the 2025 and CAD53 million for the 2024. This 24% decrease in operating expense represents a combination of lower third party processing fees paid, lower carbon taxes, both because our carbon intensity is reducing as we fill our facilities and because we were successful purchasing carbon credits in the open market this year at a substantial discount to the compliance rate and continued cost reduction efforts across our field operations. Operating expense per BOE came in at $17.04, so as I’ve said in the past, the bulk of our operating cost is incurred at our three deep cut sour gas processing facilities. During Q2, only 61% of the total throughput of those facilities was our own production, so OpEx per owned BOE is only one metric to be considered in the business. This is why we use adjusted operating expense per BOE as that non GAAP measure recognizes both the third party processing fees earned and sulfur revenue we’re able to generate from the ownership of these facilities.
On an adjusted basis, operating expense was $11.59 per BOE in the second quarter. The gap between operating expense and adjusted operating expense continues to widen as we grow our third party business and will grow substantially in 2026 when we receive market price for our sulphur. Speaking of third party processing, our second theme of the quarter, we’re pleased to report 123% growth year over year in revenue on the back of 128% increase year over year in third party volumes processed. Darcy has spoken at length about this part of our business, so I don’t have anything more to add other than to say we hope to continue delivering growth at both Caroline and Jump Inbound. Turning to financial results, during Q2, our hedge book continued to deliver stability on both the natural gas and condensate fronts.
We’re pleased to have generated $09 per share in net operating income and $05 per share in operating funds flow, both stronger than Q1 when normalized for the hedge monetization we completed in Q1. We posted positive NOI and netback on a pre hedged basis, but certainly recognized the strength of our gas hedge book, which delivered $17,500,000 of gains during the quarter. Capital expenditures remained as constrained as possible in Q2, reflecting our desire to conserve cash and repay debt. However, we have continued to invest in high impact well in facility optimization projects financed by our rights offering last year. We budgeted $10,000,000 in capital towards this program in 2025, of which just over $3,000,000 has been deployed year to date.
These projects are on track to deliver well in excess of 100% internal rates of return and are all expected to pay out before the end of the calendar year. The ongoing deployment of this capital will positively impact cash flow over the short and long term and meaningfully improve business valuation metrics. Now to touch on the third and final theme of the quarter, we’re pleased to have made meaningful progress on reducing both total debt and net debt. Through a combination of cash payments against our term debt revolver, a favorable movement in the CAD USD FX rate, and reduction in our non cash working capital deficit, we’re able to reduce net debt by CAD18.6 million and total debt by CAD9.8 million during the quarter. Subsequent to the quarter, on a net basis, we repaid a further CAD1.1 million, bringing our debt balance today to CAD157 million or CAD114 million, a reminder that all of our debt is denominated in US dollars.
This quarter marks the fifth consecutive quarter we have reduced debt during quite a difficult commodity price macro environment. We are very proud of that record and hope to continue it or accelerate it if and as AECO prices recover and as other elements of our strategic execution continue to deliver results. Okay. I’ll finish up my section this morning by touching on our hedge position and 2025 guidance. In aggregate, our natural gas production was 87% hedged, representing a 110,000 GJs per day in q two at a price of $3.32 per GJ.
That hedge level will continue through the remainder of 2025, and at the moment, we have 78,000 GJs per day hedged in q one twenty twenty six, falling to 63,000 GJs per day by Q4 twenty twenty six through Q1 twenty twenty seven. We are not going to add additional gas hedges at the moment until there’s a recovery in the long term AECO strip, but expect to hedge up 2026 and 2027 production if and when we can do so at or above that $332 per GJ weighted average price. Our condensate production was approximately 65% hedged during the quarter. Those hedges, which are a combination of collars and swaps, gradually declined from just over 1,600 barrels per day in 2025 to 1,200 barrels per day through calendar twenty twenty seven, with a small position in place through Q2 twenty twenty eight. On the currency front, we’ve hedged the majority of our USD denominated debt service obligations between now and the 2025, and roughly 50% of those obligations in the ’26 with a variety of financial derivative products.
I’ll direct your attention to our financial statements for those details, as these hedges aren’t highlighted on this slide. Finally, we’ve not adjusted our 2025 guidance this quarter. However, we expect to be at or above the high end of our net operating income guidance and continue to see positive potential upside production if improvements in AECO allow us to return that Northern Alberta sour and Northeast BC fields onto production. That concludes my portion of the discussion. Thanks everybody for participating today and I’ll turn the call back over to Dallas for concluding remarks and any questions.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Thanks, Adam and Darcy. I’ll now ask the conference operator to manage the question and answer portion of the call from the telephone.
Marvin, Conference Call Moderator: Thank you. We will now take questions. If you have a question and you are viewing on the webcast, please use the Ask a Question button in the top right hand corner to type your question. If you have a question and you’re participating via telephone, please press star one 1 or your telephone keypad. There will be a brief pause while the participants register.
Thank you for your patience.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: K. We’ll now turn to questions from the webcast. We do have a few. So I’ll read them out loud and then ask a team member here to to answer. So the first question is from Ken.
Would Kabi consider a partnership with a data center proponent? I’m gonna ask Paul Kunkel, our chief commercial officer, to respond. Thank you, Dallas, and thank you for the question. I think the short answer is absolutely. In fact, we are currently working with a number of project proponents looking at the potential for both power generation and subsequent data center projects at all three of our facilities.
We are moving those discussions along in good order and we’re hoping in the near future to provide a little bit more information on that progress. Thanks, Paul. Next question. Excellent quarter. Is there an opportunity to reduce the interest rate on your loan or refinance to a lower rate in the near term given the quickly improving balance sheet and profitability?
This is Adam.
Adam Gray, Chief Financial Officer, Cavi Energy: Thanks for the question. So our existing debt comes due in March and July 2027. So as we enter the back half of the year, we’re gonna start looking at opportunities to refinance that debt, maybe get into a structure that has a bit more flexibility and a lower interest rate to your point. So certainly something that is on our mind and stay tuned as we move into the winter months.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Thanks, Adam. This is another one for Adam. Would you consider a small allocation to a normal course issuer bid within your capital allocation as leverage ratios continue to improve?
Adam Gray, Chief Financial Officer, Cavi Energy: Yeah, I think that that’s maybe a little bit further in the future. However, getting cash returned to shareholders is certainly something that we think very hard about and look forward to. I think getting leverage ratios down is my absolute number one priority in the short term. And we have to think about how we’re going to position this company for growth, absolutely buying back shares or dividends in the future is something that’s on the table.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: In the previous quarter conference call, there was a discussion on gas processing facility consolidation within the area of the Caroline facility. Has this occurred already given the large increase in third party processing? Or can you comment on this potential catalyst? I’ll ask Paul to respond. Thanks for the question, Dallas.
At this point in time, the numbers that show the increased processing at the Caroline facility do not include the impact of consolidation. We continue to work that we continue to work on potential consolidations and hope to have some information on that in the future. Next question. Is there any Cavi LNG going to Kitimat via the Coastal GasLink pipeline? I’ll send this to Darcy.
Darcy Redding, President and Chief Executive Officer, Cavi Energy: Yeah. That’s a great question. Really, the custody transfer point is at the back end of our facilities. So what happens to the actual physical molecules at that point is not up to us and we do not have any contractual arrangements to sell outside of the AECO market. So the short answer would be no.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Thanks, Darcy. And one final question. Is there any strategy in place to increase investor awareness, be an engagement with an IR firm, management participation in conferences, etc? I’ll ask Darcy to respond.
Darcy Redding, President and Chief Executive Officer, Cavi Energy: Yeah, thanks, another great question. We actually have recently hired on a contract part time basis an investor relations expert who has deep expertise over twenty plus years in the industry. We’re utilizing the network of contacts and the knowledge that that individual has. We also have a line of sight to start participating in industry conferences. In fact, we’ve just recently lined up to participate in the Schachter Energy Conference, which will be in Calgary on Saturday, October 18.
We hope to see people there, and we’re evaluating participation in several other conferences as we move into the winter season and into twenty twenty six.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Thank you, Darcy. More questions coming in, we’re just going keep rolling. Next up, can you share your internal assumption for average sulphur prices in 2026 once the legacy contract rolls off? And secondly, are there any plans to increase sulphur production back to your 1,500 tonnes per day capability achieved a few years ago?
Adam Gray, Chief Financial Officer, Cavi Energy: So I think as as the market knows, there is no futures market for sulfur. There’s no strip. We have deep relationships with sulfur marketers and sulfur buyers that we talk to on a daily weekly basis looking at twenty twenty six and beyond. I don’t wanna set, internal price for sulfur for 2026 until we release guidance in the fall. We certainly look at a range of sulfur prices when we’re sensitizing our budget and our cash flows for next year and we’re happy to share those in a few months.
Darcy Redding, President and Chief Executive Officer, Cavi Energy: I would perhaps add to that comment as well that we of course factor into our economics not only the price of eco gas but also the price of sulphur when we’re looking at proactively shutting in or re establishing production from our shut in fields. We do take into account those things. We’re also looking for creative ways that we can, on the back of the potential sulphur revenue and the value of sulphur, generate some activity in our core areas. Just as a matter of course or for illustrative purposes perhaps, some of the opportunities most notably that we have in Southern Alberta can produce in terms of new drilling opportunities, produce upwards of 150 metric tons per day of sulphur per well upon successful drilling and so there’s obviously a very large potential revenue stream associated with the sulphur on those drilling prospects. And so we think that we can perhaps attract some investment capital or some partnership participation in exploiting opportunities like that in the future.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Great. That is all the questions for today.
Marvin, Conference Call Moderator: Okay. I’m showing no further questions on the telephone questions. At this time, I’d like to turn it back over to mister McConnell.
Dallas McConnell, Vice President, Corporate Finance, Cavi Energy: Thanks to all of you for participating today. I very much wanna thank everyone for their interest. If you have any further questions, please call us at (403) 261-5900 or email us at investorscavienergy dot com. Thanks again, and we look forward to speaking to you soon.
Marvin, Conference Call Moderator: Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your
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