Earnings call transcript: Queenal Energy Q2 2025 beats earnings expectations

Following the earnings announcement, Kiwetinohk Energy Corp’s stock price increased by 1.12%, closing at $22.50. This movement reflects positive investor sentiment, as the stock nears its 52-week high of $24.15. InvestingPro analysis reveals strong momentum with impressive returns over the last three months, and the company’s market capitalization now stands at $120.58M. The stock’s performance aligns with the broader energy market trends, which have been buoyed by higher commodity prices and increased demand.

Key Takeaways

• Queenal Energy achieved record quarterly production of 33,217 barrels of oil equivalent (BOE).
• The company reduced its debt to annualized free funds flow ratio by 40%.
• Operating and transportation costs were significantly lowered, enhancing profitability.
• The company increased its production guidance and reduced its expected royalty rate for 2025.

Company Performance

Queenal Energy’s performance in Q2 2025 reflects robust operational efficiency and strategic cost management. The company reported record production levels and a substantial reduction in debt, positioning itself strongly within the energy sector. With an impressive gross profit margin of 49.04% and an EBITDA of $42.52M, InvestingPro assigns the company a "GREAT" Financial Health score of 3.38. The strategic focus on high netback assets and market access has enabled the company to generate significant free cash flow, despite fluctuating commodity prices.

Financial Highlights

• Revenue: $201.4 million, a 48.53% increase over forecast.
• Earnings per share: $1.32, a 221.95% increase over forecast.
• Funds flow from operations: $88.4 million.
• Free cash flow: $37.2 million.

Earnings vs. Forecast

Queenal Energy’s actual EPS of $1.32 exceeded the forecasted $0.41 by 221.95%, marking a significant earnings surprise. Similarly, the company’s revenue of $201.4 million surpassed expectations by 48.53%. This performance is notably higher than previous quarters, indicating a strong upward trend in financial results.

Market Reaction

Following the earnings announcement, Kiwetinohk Energy Corp’s stock price increased by 1.12%, closing at $22.50. This movement reflects positive investor sentiment, as the stock nears its 52-week high of $24.15. InvestingPro analysis reveals strong momentum with impressive returns over the last three months, and the company’s market capitalization now stands at $120.58M. The stock’s performance aligns with the broader energy market trends, which have been buoyed by higher commodity prices and increased demand.

Outlook & Guidance

For the remainder of 2025, Queenal Energy has increased its production guidance by 1,000 BOE per day and reduced its expected royalty rate by 1%. The company also lowered its capital cost guidance by $10 million and anticipates a 20% growth profile in 2026. These revisions suggest a confident outlook and potential for continued growth.

Executive Commentary

Jacob Regoutski, CFO, stated, "We’re in a position of strength. Our netback, high netback assets, infrastructure ownership, and market access enable us to generate free cash flow across a wide range of commodity prices." Mike Bacas, Chief Operating Officer, added, "We continue to optimize our designs and build efficiency learnings, which are helping to drive our capital costs down."

Risks and Challenges

• Potential volatility in commodity prices could impact revenue.
• Regulatory changes in the energy sector may introduce new compliance costs.
• Geopolitical tensions could affect supply chains and market access.
• Environmental concerns and sustainability pressures may require additional investments.

Q&A

During the earnings call, analysts inquired about new well pad locations, the company’s natural gas price premiums, and the strategic importance of the Alliance Pipeline contract. Executives highlighted their focus on future growth and market expansion opportunities, reinforcing the company’s strong competitive position.

Full transcript - Kiwetinohk Energy Corp (KEC) Q2 2025:

Amy, Conference Operator: Good morning. My name is Amy, and I will be your conference operator today. I would like to welcome everyone to the Coetinox twenty twenty five Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number 2. Thank you. Mr. Nielsen, you may begin your conference.

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Thank you, Amy, and good morning, everyone. Thank you for joining us for the second quarter twenty twenty five Queenal Energy investor call. On behalf of Pat Carlson, CEO, my name is Kevin Nielsen, VP, Corporate Controller and Investor Relations, and I’ll be leading you through the call this morning. I’ll ask Janet Ainsley, our Chief Sustainability Officer, to do an indigenous land recognition. Please go ahead, Janet.

Thank you,

Janet Ainsley, Chief Sustainability Officer, Queenal Energy: Kevin. Queen of’s conference call today is coming from Calgary, the traditional territories of the People Treaty seven, which includes the Blackfoot Confederacy comprised of the Siksika, the Baganini, and the Kainai First Nations, the Tsuchina First Nation, and the Stoney Dakota, which includes the Chiniki, Beardspot, and the Stoney First Nations. Calgary is also home to the Timsurwack Metis government districts 5 And 6. We have operations across Alberta, Treaty six, seven and eight, and we recognize the diversity of First Nations and Metis people in all these places that we call home. Before I turn it back to Kevin, a brief update from the sustainability department.

We got news this week that Quito achieved Level five, the gold standard reporting from the United Nation Environment Programs Oil and Gas Methane Partnership. Level five is OGMP’s highest level of reporting, and we achieved it a year ahead of the required time line. I want to say congratulations and thank you to the Upstream team for demonstrating such a high degree of rigor on operational methane measurements and reporting. Back to you, Kevin.

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Thank you, Janet. Joining me today in addition to Janet are Jacob Regoutski, Chief Financial Officer Mike Bacas, Chief Operating Officer, Upstream Craig Parsons, VP, Finance, Power Division and Lisa Wong, Senior Vice President, Business Systems. We would like to use the first part of the call to provide you with a summation regarding our second quarter release from yesterday. The telephone line will then be opened to allow participants to ask questions. Before going through the results, I’ll remind everyone the conference call includes forward looking information and non GAAP financial measures with the associated risks and disclaimers detailed in our news release and MD and A.

The news release, financial statements and MD and A, along with all of the company’s official disclosures are available on our website and SEDAR plus I’m extremely pleased with the team’s performance in the second quarter. In our Upstream division, we continued to deliver strong operational and financial results, posting record quarterly production and generating free cash flow with controllable costs ahead of plan and building on the momentum from the 2025. Following a strong performance through the first half of the year and with the 2025 outlook underpinned by high liquids content production, low operating costs and critical access to the Chicago natural gas market, which continues to offer premium pricing compared to AECO, we are in position to make positive revisions to our full year 2025 upstream guidance. This will be expanded upon later in the call. The results continue to highlight the quality of our asset and the key differentiators that we have spoken about in the past.

With our strong netbacks, the company is well positioned to generate free cash flow, pay down debt and move to return a capital framework later in the year. On 06/23/2025, we launched a formal business strategy review to evaluate a range of potential value enhancing opportunities with a focus on the company’s upstream assets and an orderly exit from its power business. This process is ongoing, and we have no updates to share at this time. I would like to thank our shareholders on behalf of the Board and our team for their continued support, and I will now ask Jacob to provide some more information from the CFO’s perspective. Thanks, Kevin, and good morning, everybody.

We had an exceptional second quarter with our Duvernay Montney platform delivering across the board. Robust operational and financial results, record production levels, continued reduction in operating and transportation costs, extending access to premium natural gas markets with declining transportation tolls, on track for record annual cash flow, growing levels of free cash flow, debt repayment ahead of schedule, reinstated share purchases at a discount to NAV and positive revisions to our 2025 annual guidance. Let me walk through a few highlights from the quarter. We delivered record quarterly production averaging 33,217 BOE in Q2 with liquids comprising 45% of that total. We remain confident in our development program, which now reflects the Simonette plant turnaround and associated downtime shifting to Q3.

Based on strong performance, we are increasing the low end of annual production guidance by 1,000 BOE a day. Operating costs remain below expectations and continue to improve as we build more capacity at our owned and operated Simonette facilities. This helped spread fixed costs and brought Q2 operating costs down to $6.2 a BOE. We are reducing full year guidance by $0.50 a BOE to reflect these gains and the reliability of our assets. Transportation costs also declined this quarter, driven by reduced expenses to move placid NGLs combined with an anticipated 23% toll reduction on the Alliance Pipeline effective 11/01/2025.

We’re lowering our transportation guidance by $0.25 a BOE. Our access to Alliance continues to deliver outsized value. For the six months ended June 30, our realized natural gas price was $5.8 an Mcf, approximately 164% higher than AECO daily pricing of about $1.94 an Mcf for the comparable period. At current strip pricing, this differential is forecast to deliver $100,000,000 in net value in 2025. Our press release indicates or includes further detail on the Pembina pipeline settlement and revised toll.

Bottom line, we’ve secured critical market access for the next decade with the Alliance toll dropping to approximately $0.98 an Mcf. We expect this contract alone to add approximately $600,000,000 or over $13 per share of undiscounted cash flow over that ten year term. Q2 delivered top tier cash flow per BOE. We generated $88,400,000 in funds flow from operations and $37,200,000 in free cash flow. This builds on our strong Q1 momentum driven by scale, infrastructure, efficiency, cost and cost discipline, while growing production over 20% year over year.

After fully funding capital expenditures of $51,200,000 free cash flow was directed towards debt reduction. Our debt to annualized free funds flow ratio has now declined to 0.6 times, down from 1.1 times at the 2024, a 40% improvement. Following our strong performance in the first half, we’ve made the following positive adjustments to 2025 guidance. We’ve increased the low end of production by 1,000 BOEs a day. We reduced the expected royalty rate by 1% of revenue.

We lowered operating cost guidance by $0.50 a BOE. We lowered transportation expense by $0.25 a BOE, and we’ve reduced the high end of our capital cost guidance by $10,000,000 Crete Mill is in a position of strength. Our netback our high netback assets, infrastructure ownership and market access enable us to generate free cash flow across a wide range of commodity prices. At current strip pricing, we forecast approximately $95,000,000 of free cash flow this year. Even at $50 WTI and $2 Henry Hub for the remainder of the year, with the support of our net with the support of our strong hedge book, we still expect to generate over $50,000,000 of free cash flow.

To close, I’m extremely proud of what our team has delivered in the first half of the year and energized by the opportunities ahead. Thanks again for your time this morning. I’ll now turn over things to Mike to walk you through our upstream accomplishments. Yes. Thanks, Jacob, and good morning, everyone.

I’m pleased to provide you with an update on the progress in the upstream business for the first half of the year. In Q1, we posted record quarterly production and have now posted another record quarter. I’m very proud of the team for delivering this milestone. We did this safely with great performance across all aspects of the business. The strong first half of the year and the confidence we have in our program looking forward has allowed us to tighten our guidance range by lowering the bottom end, as you’ve seen in our announcement and just mentioned here by Jacob.

Just adding a bit of color on some of our recent well performance. We continue to see strong performance from our Simonette Montney program. Our first turbidite well, twelve oh three, remained relatively flat over its first eleven months of production far exceeding our expectations. It’s now produced over 2.2 Bcf and 105,000 barrels of condensate during that time. The second Furbotite well at 15 To 16 has been on production for approximately five months and is on a similar trend as the first well.

Three Toney Creek Duvernay wells at our 9 To 33 Pad came on stream in May and are performing in line with our expectations. We also executed three Montney wells that are one of 18 pad in Placid. Two of these wells will be flowed back later in August or early September once the processing capacity is available after third party K3 outage is completed, with the third well requiring a little bit of remedial work at a later date and was left uncompleted at this time. On both the Tony Creek and Placid Pads, we continue to optimize our designs and build efficiency learnings, which are helping to drive our capital costs down as reported in our press release. We see opportunities to continue this trend through economies of scale, well designed choices and innovative technology deployment that we’ve been trying.

It’s been mentioned already, and you have noted another very strong quarter for operating cost levels at just over $6 a boe. Now our strong production and efficient spending levels drove this performance despite having third party outage impact on our placid volume for approximately half of the quarter. You’ve also noticed that for the second quarter in a row, we’ve reduced our guidance for operating costs as Jake walked through, and we continue to see these costs trend in a positive direction, really driven by the quality of our assets and the team who operate them. A quick update on our current and remaining activity for the year. Here’s what’s going on.

So we’re currently completing two Duvernay and one Montney well at our Simonette area on the one in 20 7 Pad. This is the location where we’ve returned to after where we have the very exciting Montney, first Montney well, and it’s also the location where we drilled our record length 9,023 meter well. This is one of the wells we’re completing. Now these are expected to come on later in August. The drilling rig is back in our Simonette area drilling three new Duvernay wells in the northwest part of the core development area at the 9 Of 11 Pad, which is also a second occupation of that pad.

After this, and given the success of our recent Simonette Montney wells, we’ve actually just decided and got approval from our board to move to another two Duvernay, one Montney well pad at a three to 14 location situated near the Southwest part of our core development area. Here, we’ll drill an additional we’ll drill an additional Duvernay development wells and further delineate the Montney Turbotite play that we were having strong success with. Now in addition to this well capital, we’re also looking to complete the final stages of our five to 31 gas plant expansion in Simonette, which is adding 15,000,000 cubic feet per day of capacity to this facility, and this will complete the expansion of our expansion activities that we’ve been executing over the past couple of years. Looking forward, I’m expecting the third quarter to see some planned interruptions with the continuation of the K3 turnaround and outages planned at our 531 plant for this expansion. With new wells ready to come out at one of 18 in Placid and one of 27 in Simonette, we are expecting a very strong fourth quarter and exit for the year.

A safe, reliable operation is our mantra, and the team is delivering that while always looking for a marginal gain along the way. This has helped us deliver a very strong first half of the year. Thanks for your time today, and I hope everyone enjoys the rest of your summer. I’ll turn it back to Kevin. Thank you, Mike.

This concludes our second quarter conference call, and I will now pass it back to Amy for any questions.

Amy, Conference Operator: Sorry about that. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, just a reminder, please press the star followed by the one on your touch tone phone, and you will hear a prompt that your hand has been raised. Should you wish to withdraw your question, please press the star followed by the two.

And if you are using a speakerphone, please lift the handset before pressing any keys. So our first question today comes from Amir Arif from ATP Capital. Congrats

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: on a great quarter. Just wanted to follow-up on your comment there, Mike, about the three of 14, the new three well pads you’re talking about. Is that reflected in the current capital guidance? Or should we think of that as additional capital coming in just based on your comments about just recent approval from the Board? Hi, Damir.

Thanks for the question. Good one. No, I would it’s within the capital guidance. What we’ve done is accelerated that pad just based on some of the results, and we’ve actually just decided to defer one of our core area pads, which had at the eight of 23 locations. So it’s really just swapping out a very similar pad, just given some of the excitement we’ve had around that area.

And we like the prospect of that Simonette Montney Do Turbidite play down in that at that three to 14 path. So it’s within the capital guidance, just a swap. Got it. Okay. And then just on the Simonet Montney area, I guess, those wells are holding in very well.

Did you curious. Can you just share with us, is it more just the landing zone in lower part of the Mid Montney, or or or is it just a a certain area that’s better charged than than other parts of the Montney in that area? Yep. Good question. Without getting into detailed geological explanation, the quick answer via like, this it’s the turbidite play, which is a deeper, slightly higher quality reservoir that we’ve identified through the first couple of wells.

It exists. There’s about 69 or 70 locations we’ve identified, and it’s it’s basically a lower target from our most of the current Simonette Montney development. So we’ve got two benches to look at there, and this lower bench is what’s been proving up to be a much higher quality, higher productivity, higher gas drive zone. So that’s what we’re following up with. So think of it as a separate lower bench.

Okay. Sounds good. And then just a question for you, Jacob. Just on the return of the NCIB, I know previously, NCIB was never really it was more ad hoc. It was there was no formal structured approach in terms of how much how much dollars would be allocated on that front relative to your free cash flow generation.

Is there any change in that philosophy today, or or are we not there yet? Yeah. It’s a good question, Amir. Look, I think we’re just ahead of budget, I think, as you heard on the call here. So with that excess capital, our debt reduction is moving faster than we had budgeted, which is great news.

And so we’ve just turned the NCIB on just to be a kind of regular purchasing in the market when that’s available. And I think as we approach the end of the year, as we’ve been guiding in prior years, there’s probably a more substantial return of capital plan as we prepare for budget in 2026. But we’ll have those details as we approach the year. But I think just given current prices and strip levels production where the where our production is and the free cash flow generation, that’s going to provide a lot of opportunity to have a more substantial return to capital program in the next so stay tuned for more details as we approach budget. Okay.

Sounds good. Just as a final follow-up on that. So with the additional debt reduction, any thought of allocating some of that excess free cash to potentially accelerating or growing the free more well just given the low results you’re already achieving? Yeah. I’ll ask Mike to comment on that, Amir.

Yeah. Amir, we haven’t it’s always an option for us. We’ve got ready pads and wells to drill. We kinda like the cadence we’re on right now. We haven’t really exercised that option or had that debate necessarily, but we’ve always reserved that option, and we can go pretty quickly and move to that.

So no definitive plans at this point, but inventory available. Yeah. I think I think the other thing, Amir, probably given the additional financial capacity probably sets us up for more of a 20 ish percent growth profile in the coming year along with free cash flow generation. So similar total return. Like right now, we’re, I think, at consensus estimates, we’re 30% plus on total return.

So I I think we’re just setting up assuming similar commodity conditions for a similar situation in twenty in 2026. Okay. Sounds great. Appreciate the time. Thanks a lot.

Thanks, ma’am.

Amy, Conference Operator: Thank you. Our second question today comes from Joseph Schachter from Schachter Energy Research. Please go ahead, Joseph.

Joseph Schachter, Analyst, Schachter Energy Research: Again, on a great quarter. First one for me is nat gas price in the quarter $4.27 versus $2.39. Anything special in there that gave you that big bump up from a year ago? Is there to me, it looks like it’s more than just the NYMEX price.

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Yes, Joseph. It’s a good question. Look, I think certainly from the perspective, I think there’s two things. One, we have we definitely have differentiated access across the platform to that Chicago market. So we are the fifth largest shipper on Alliance, and I think we’re continuing to see 150 plus percent premiums for access to that market.

Overall, our gas macro environment, I think, has certainly improved from where we were last year. I think last year, there was quite a bit of production and maybe a little bit of a different weather forecast and storage levels, whereas this year, certainly, there’s production, but there’s also a lot of additional demand. There’s additional LNG capacity. There’s also power draw. And so when we look at Chicago, all those things are very strongly represented.

Chicago, it’s got a huge industrial base, which draws on that gas. The power demand there is two thirds industrial. So you’ve got 20 fourseven power from that huge industrial base, which draws on the natural gas. You got LNG egress opportunity to Henry Hub, and you got winter weather there. So we’re getting all those great things in Chicago, and we think that’s what’s driving the higher gas prices this year and in Ford Strip as well.

Joseph Schachter, Analyst, Schachter Energy Research: Going to the Alliance announcement as well. You have a ten year deal, as you mentioned, and you’re going to get the higher volumes. What volumes have you contracted? And then of that the amount that’s going through right now, how much is your volumes? And how much is volumes that you’re doing on a marketing basis because you have this great contract into Chicago?

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Yes. It’s a great question, Joseph. So we have 120,000,000 cubic feet per day contracted on Alliance. So we’re the fifth largest shipper. That will service our production base up to about 40,000 BOEs a day.

So we’re still well very well positioned into the end of next year if you look at that level. We’ve been filling that capacity as we’ve been growing our asset over the last three years. And so at any one day, we’re probably about 80 ish percent coming up to close to 90% full depending on when wells come on. And you would have seen in the quarter, we made $4,000,000 of marketing revenue. So we always consistently like right now, you look at the basis, the basis is high 2s, dollars 3 an Mcf.

What we’ll do is we’ll forecast any shortfall in the coming quarters, and we’ll lock that basis in, and that just guarantees us profits when we’re filling that capacity. But it’s becoming less and less and less. So you will see us pretty much going to 100% of that capacity by early next year in terms of our own production.

Joseph Schachter, Analyst, Schachter Energy Research: So where do you go from there? You guys still have a lot of growth ahead of you in terms of just the asset based drilling inventory. Do you need to do another contract? Do you need to find more space on it if others aren’t using it? Or are you going to be part of if Alliance starts going around asking to see if people will support an expansion, would you be part of that?

Like what do you do once you’re at 40,000? And how do you get the next phase of growth to 50 or 60?

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Absolutely. It’s a great question. So a couple of things. We do have 30,000,000 cubic feet a day on the NGTL system here in Alberta. And so we were pretty excited to see LNG Canada get started, and we’d like to see that get to full capacity.

Just with that volume alone, and you mentioned that 50,000,000 to 60,000,000. So with our Alliance capacity and the additional 30,000,000 cubic feet a day, we’re probably pretty well serviced to that 50,000 to 60,000 BOEs. And we’ve looked at the market and some of the forecasts that a lot of yourselves and other analysts have put on the street. And to us from the planned LNG additions that are coming to the West Coast to Canada, it looks like by 2029, 02/1930, there could be a shortfall of five to six Bcf a day in Canada. So we think there’s going to be ample opportunity if we want to go beyond that 50,000 to 60,000 in the future to acquire additional capacity in Alberta.

Certainly, if an Alliance expansion was put on the table, that would be positive for the basin here as well. And I think we would definitely look at what that kind of opportunity would cost and how it compared to what we could do with our additional Alberta capacity that we own today. So I think we’re in a really good position even beyond that 40,000, Joseph, and I think the market should be developing well. We’ll have strong Chicago. And hopefully in the next couple of years, see Alberta prices continue to move up.

Joseph Schachter, Analyst, Schachter Energy Research: Super. One last one for me. As mentioned earlier, you’re looking for a big uptick in volumes in Q4 and a good exit rate. Are you giving any guidance to what kind of numbers you’re looking at there?

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: We don’t typically give quarterly guidance, Joseph. If you look at our production, we’ve upped that to 32,000 to 34,000 BOEs on the year. So I think if you take the couple of quarters and average it out, that will give you kind of a bit of a perspective. But then Mike can share a little bit of where he thinks volumes are coming in towards the end of the year. Yes.

Just, I mean, maybe just to give you a little sense, I think I mentioned, Joseph, in my comments, Q3 is going to be a little bit lower. We’ve got an outage at our One Simonette facility, and the K3 has continued their turnaround activities into probably into the latter part of August here. So we’re expecting those two shortfalls to kind of give us a little bit of a low in Q3, but I’d expect to be up in the kind of mid to, kind of 35,000 to $38,000 sort of for the Q4. So we’ll be exiting quite strong.

Joseph Schachter, Analyst, Schachter Energy Research: Super. That kind of covers it for me. Thank you so much for answering all the questions. And again, congratulations on a great quarter. Bye.

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Thanks, Joseph. Thank you. Thanks for dialing in.

Amy, Conference Operator: There are no further questions at this time. I will now turn the call over to Kevin. Please continue.

Kevin Nielsen, VP, Corporate Controller and Investor Relations, Queenal Energy: Okay. Thanks, Amy. Thanks, everybody, for participating. We wish you a very great summer, and stay well, and we’ll catch up in the fall.

Amy, Conference Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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