EON Resources Inc.

Thank you, Matthew. Good afternoon, ladies and gentlemen, and welcome to our Special Conference Call.

Before I turn the call over to management, I have to read the forward-looking statements. This conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform 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, seek, might, plan, any variation in similar words and expressions are intended to identify such forward-looking statements. But in the absence of these words, it does not mean that a statement is not forward-looking.

The company expectations are disclosed in the company's documents filed from time to time on EDGAR and with the Securities and Exchange Commission. Without further ado, I'd like to turn the call over to Dante.

Dante, the floor is yours.

Thank you, Mike. Good afternoon, everybody.

We're getting to be old friends. This is probably the seventh or eighth, one of these things we've done as a group.

I apologize upfront because I'm in an airport, and we're going to get a little bit of background noise. So I'm on company overview slide.

And all I'm going to highlight there is -- all of our operations are in close proximity in that Southeast corner of New Mexico and New Mexico and Texas combined today make up most of the oil production for the United States. New Mexico is making 2 million barrels a day.

Texas is making 6 million barrels a day. And we're in there bringing this thing in from the rear about 1,000 barrels a day.

Over the last couple of days, we're at 960, 980 barrels a day and increasing. So today, our highlight is the deal that we closed a few weeks back.

And we've got on the line with us, our attorney, David Smith. We've got our CFO, Mitch Trotter, and we've got our Vice President of Operations, Jesse Allen.

Of course, we have our IR PR Manager, Mike Porter. So let me leave you with what I think you're going to take away after the next 20 or 30 minutes we're together.

David is going to cover the multiparty closing that we had and the unique value and differentiated value this brought. So all along the way, we did our best to try to get a reduction in any cost for payoffs, which we did in the last 2 weeks.

So you're going to get those details from David. Mitch is going to talk about the impact of this, this deal that we struck and close on our P&L and on our balance sheet.

And then Jesse is going to talk quite a bit about the two items, they're going to really jack up our production. We think we're going from 1,000 to north of 5,000 by accelerating our expansion of waterflooding in the Seven Rivers formation, which most of our production is from today as well as the potential drilling of 90 wells in the San Andres formation, which these wells are forecasted to make 400 barrels to 500 barrels a day, each.

So you multiply those numbers, you get a crazy large number. So let me cover a couple of other things.

If you add all the value of reduction in debt, reduction in loans, reduction in liabilities and the impact to shareholders from the Farmout, this deal is worth over $150 million. So those details you're going to get as the speakers follow me.

To our future, we've reduced major risk. When you have a bank loan with bank covenants, you run the risk of a default because you have to do everything that bank wants you to do.

We are senior debt free. We don't have any bank covenants today.

We don't have a $20 million debt item. We've got some $2 million and $3 million debt items from the normal course of running the business.

But we are a quantum leap beyond where we were, I'll say, 3 weeks ago. I already talked about the Farmout and the amount of production that could bring.

In this big beautiful deal that you're going to get into the details, we picked up $5 million in cash for the Farmout as a leasehold. We also picked up $2 million just to do, I'll say, miscellaneous works on the field to support the horizontal drilling effort.

One item is just digitization of our logs. That will be picked up by this funding.

So we're expecting our LOE and our G&As to reduce a bit just from the funding of this Farmout. With that, I guess, I'm going to just kind of summarize my list.

The production is going up. The costs are going down.

We're going to have more cash to play with. And what all this means is more opportunity to buy properties, to expand the massive field that we've got and the other little field that we've got.

So we have right now a 16,000 acre property. We bought a 5,000-acre property earlier this year.

And I think we're going to stay in that space for a bit, picking up 5,000 and 25,000 acre spaces, which don't catch the attention of an Exxon or Chevron or or an Occidental. So we're kind of happy right now.

So with that, I'm going to turn it over to David Smith, our General Counsel. Thank you, David.

Thank you, Dante. This is David Smith.

I've been the General Counsel for the company since its inception. And some of you may recognize this.

But we've acquired our first acquisition on November 15, 2023, 2 years ago, and we've accomplished so much in that time. I'm really excited to be able to give an overview of the funding highlights.

It is a remarkable, incredible value to shareholders and the company, both on a present basis and future basis. I've been in the industry my entire career in or around it, either as an attorney or in land in my early days.

And I've seen lots and lots of deals, but I've never seen one quite this good. And really from several different points, both in the funding capital that we received, the asset that we received in a present form and then also the future value to be brought, specifically with the Farmout.

It's hard to imagine that we could duplicate the value being brought by this multiparty closing on September 9 by any other method other than how we accomplish it. It was a team effort, significant in that we had four industry players from different categories, all participate and get this closing done in one day under time constraints.

So I'm very excited and very excited to speak to you about it today. So let me break it down a little bit.

We got a total of $45.5 million in cash delivered to our company on the date of closing, September 9. We had much of it dedicated for different purposes.

In regard to how that broke down in regard to funding, we had $20 million paid in for a 15% overriding royalty interest in our largest field, the Grayburg-Jackson Field. That was our initial acquisition in the company that own and ran that field, that's in Eddy County, New Mexico.

With that 15% override, we were able also to purchase that, a 10% override that we had given at the time of our initial business combination to the seller of those assets. We had several obligations to the original seller that we have now satisfied through this closing as well after a 2-year period.

We received another $20.5 million by the sale of a 5% overriding royalty interest in what's going to be the horizontal drilling under the Farmout in the San Andres formation in the Grayburg-Jackson Field. So that money went essentially to our bottom line for cash flow because we are not involved in having to spend that money for any other purpose right now.

In fact, we have a 3-well carried interest in that Farmout. We also raised $5 million under the Farmout Agreement for the [ farmee ] to acquire the ability to undertake that Farmout, drill the wells and acquire interest in the San Andres formation.

We also had received another $2 million, or up to $2 million for studies of the San Andres formation and the work-over of existing wells in the Grayburg-Jackson Field. So that's a significant benefit there.

Again, we don't have to come up with the cash to pay those $2 million that's going to be funded by the farming. In regard to the use of the proceeds that were raised.

We have retired $20.6 million in senior debt. That was to our secured bank who held all of the oil and gas properties in the Grayburg-Jackson field as collateral.

As Dante had mentioned, we are out from under any kind of covenants negative or otherwise in regard to that debt. So we have much more freedom now in considering other transactions beneficial to the company.

It's an excellent position to be in. We also received in that retirement of the senior debt, a $1.5 million cash discount for payment in cash at the time we did it.

We also from the full proceeds retired $15 million in a seller note. At the time, with accrued interest, the actual obligation was closer to $20 million.

So we were able to settle that suite or not suite -- settle the note for $7 million, receiving an approximate $13 million discount from the sellers from whom we bought the original properties back in November of 2023. Just a huge significant benefit.

We also received a 10% overriding royalty interest by purchase from the seller in the Grayburg-Jackson field, giving us a higher net revenue interest in that field, that the sellers had retained at the time of our initial business combination in 2023. We had also received -- or paid a price that was substantially less than we had initially negotiated back in 2023.

So a huge advantage there as well. We have paid other obligations, about $4 million from the proceeds that we received in the funding, including getting additional discounts, $600,000 in one instance that I'm aware of.

So the discounts were equally impressive as to the funds actually received. One of the greatest values we received is we had issued 1.5 million -- we had issued dilutive preferred shares deemed convertible shares, that could have been converted at a value of $27 million to the sellers, that was an obligation that was signed in our closing of November 23.

But we were able to settle that in this closing as well with 1.5 million common shares valued at about $500,000 at the time of the stock price trading for that $27 million obligation. So it's very exciting to be able to announce that.

It's one of, what I would say is the highlights of my career. It's -- it was amazing to see our EON team work so hard and produce these kind of results for shareholders, which is why we come to work every day.

So with that, I'm going to turn it over to Mitch Trotter, our Chief Financial Officer, and he'll be able to expand in that arena as well.

All right. Thanks, David.

Hello again. This is Mitch Trotter as he stated, the CFO, and I want to thank all those who are attending today.

Many of you have been on past calls we've talked to individually. So as David stated, this was a great deal for EON.

It was a great deal for our investor now. And it's a great deal for you, the shareholders.

So let me fill in a little bit of what David and Dante have laid out by going through the estimated impacts to the financials from the funding and the Farmout Agreement. So what does all this mean to the balance sheet, paying off both senior debt instruments, buying back the 10% ORE, retiring the preferred shares.

Just what does it mean to the balance sheet? Well, this is huge.

This is a major cleanup of our balance sheet. $35.6 million of debt gone.

$5 million of unpaid accrued interest gone. Payments of obligations and money for the field, it also means the minority interest and the preferred shares are gone with a lot less shares as David had stated than the potential highly dilutive preferred shares.

So our equity section is now clean. So that's huge for our balance sheet.

And what you're seeing here is a pro forma balance sheet, captures the essence of the closing as of Q2 had it happened. The final Q3 balance sheet may and probably will look a little different, but that's based on final GAAP analysis of all the multiple complex transactions where each one maybe slightly accounted for differently, but that's just how it is.

But this gives you the essence of the deal. So let's go to the next slide.

Let me touch on the P&L and the cash flow. Well, just like the balance sheet.

This is a reset of our P&L and our cash flow in the positive manner. The only near -- real near-term impact to our income statement cash flows is from that 5% incremental ORE on the existing Seven Rivers waterflood, where we issued a 15%, but bought back to 10%.

So the net impact to both the balance sheet -- the income statement and the cash flow this is positive. It is not a detriment at all to EON.

The income statement goes up by net $300,000 per month. Revenues take a small hit of $100,000 a month, but interest expense and the funding goes down by $500,000 and then the rest is taxes.

Same thing for the cash flows, where we have a $500,000 per month improvement. Our $670,000 per month debt amortization payment, is gone.

It's gone including the covenants. They're gone.

And that's huge for us. This also partially pays -- is partially offset, of course, by the ORE payment.

So this is the near-term impact from the Seven Rivers ORE. As the waterflood, Seven Rivers production increases over the months to come and oil prices change, the payments are proportional with less risk to the company.

And then what does this 5% Farmout ORE means? Well these payments are all -- this ORE is all factored into the horizontal drilling program, that doesn't start impacting financials until mid-2026.

But again, the production and the price risk is mitigated by the use of ORE funding. In short, what this does is this funding and this change opens up all kinds of possibilities for EON, looking forward and going forward.

So with that, I want to go over to Jesse and let him touch base on the Farmout. If you'll advance to Jesse's slide.

Appreciate it.

Thank you, Mitch. Good afternoon.

Again, this is Jesse Allen, VP of Operations at EON Resources. Today, I'm going to talk a little bit about the Farmout details and a little bit about our partner, Virtus Energy Partners, and then I'll wrap up my talk with the impact that this Farmout agreement and the cash that we've been able to obtain has on our future oil and gas production.

So with that, the essence of the Farmout deal is that we entered into an agreement with a subsidiary of Virtus Energy Partners, which is known as Virtus and they end up being the operator with a 65% working interest, and we retained a 35% working interest. What this really means is that we were able to -- we're going to be able to exploit a field within a field.

And so what does that mean? That means we've got our current operations ongoing, which is the Seven Rivers waterflood.

And now the development of the field within the field is the horizontal development of our San Andres interval. And so that's very important to understand.

So we've got kind of a double barrel of production that will be our future. So what did we receive in all this?

We actually -- as part of the deal, we received a $5 million consideration that earned Virtus, their 65% working interest. And so with that, what are some of the details within that Farmout agreement?

Well, in first quarter of 2026 and into the second quarter, Virtus will be drilling 3-wells in which they carry 100% of the cost. We earned 35% interest in those wells, and Virtus pays all the costs.

And what is -- and what are these wells going to make? Well, as Dante has mentioned, the wells are going to produce 300 to 500 barrels of oil a day per horizontal well.

Costs will be in the range of $3.5 million to $4 million each, and we have the potential across our acreage here to drill 90 horizontal wells at a total capital cost 100% of $300 million. So this is a huge deal.

And what makes it really, really great is that Virtus our partner, these guys were formerly the management team that ran Steward Energy and developed a premier San Andres right on the Texas and New Mexico state line. And the reason Virtus joined us is after looking at all the data that we had put together and all the analysis that we did, they felt like our acreage is as good, if not better, than the acreage they developed with Steward Energy.

So that's also very important. They were very excited about this opportunity.

And it's worth noting that as Steward Energy, they grew that production in the Stateline Field. We like to call it the Stateline Field to 30,000-plus barrels of oil a day.

So we believe we're going to have that potential, if not more. In addition, what does this impact?

What is the impact that this is all going to have on EON resources? Again, with expected production of 300 to 500 barrels a day per horizontal well, over the life of the drilling program, this will be a net production to EON of over 7,000 barrels of oil a day.

But as we go into this partnership with Virtus, it's worth noting that in addition to the $5 million that Virtus provided to us in cash, there's also a $2 million expenditure that we're going to use to re-complete vertical wells and actually prove up how good, just how good the San Andres horizonal development is going to be. And that $2 million will be used to do those vertical completions at no cost to EON resources.

That's to our total deal with Virtus was $7 million in cash. We'll use that $2 million to do some science and perfect exactly how we're going to complete these horizontal wells.

And we expect to do these workovers that I speak of using the $2 million in the first quarter of 2026, maybe by the end of this year. We'll have to see how that all pans out.

So with that, I am going to turn it back over to Dante for concluding comments.

Well, thank you, Jesse. I'm going to do the wrap.

And again, I apologize for some background noise here, but let me wrap it up. Existing operations are going to get the benefit of this deal by having more cash available for workovers and production rigs.

Today, we're running 4 production rigs on our property, and we're trying to make sure every well produces, every injector injects and get that production up, we hope, by the end of this year to 1,200 maybe 1,250 in the same formation that we're producing out of today. Mostly the Seven Rivers.

It's an absolute joy that we have shed that $35 million in debt that comes with bank covenants and restrictions. And my phone hasn't stopped ringing.

So I believe before the end of the year, we are going to be doing some other big things. And we can't, of course, talk about that but we couldn't talk about that big deal in too much detail, although nobody believed this.

But hopefully, some folks might believe that we are going to -- we're not done yet. We're not resting on our laurels and that we've got -- we got a lot more things to do.

The Virtus guys are fabulous folks. Their name implies virtue and the pronunciation, they keep correcting me because it sounds like Virtus, but they wanted to be pronounced "Virtus".

So I'll be working on that in coming months. Their production is not going to kick in to the middle of '26 because they have to go through the grind of permitting.

Now we are mostly in federal lands. We do hope that the new administration cuts the time to permitting on federal lands from, say, 7, 8 months to hopefully 6 months and then we get going.

We are going to see a kickup in income and EBITDA that probably isn't going to be really noticeable until the end of Q1, but it should be substantial because of all the things we've just talked about. As far as looking ahead and going forward, we don't think there's a better time to be buying oil properties.

So if we can buy these things at under 3x EBITDA or 3x cash flow, we're buyers. And now that we don't have much debt, we have people that might extend us a little bit of credit.

So we don't want to get in the same trap that we were before. But certainly, we're in a good spot right now, and we're looking ahead.

So with that, I'm going to turn it over to, I think, Mike Porter, who's going to organize our Q&A.

Thank you, Dante. Matthew, would you please start the question-and-answer period?

Yes. Thanks, Mitch and David.

My question is given all the things you've done in the refinancing. How many shares will be outstanding at the end of the third quarter compared to, I think, about 36 million were outstanding at the end of the second quarter?

This is Mitch. I'll answer that.

We're about 43 million, and we'll get locked down today, but we had it as of this morning so that we could do our upcoming shareholders meeting end of October. So not dramatically different, but that includes the shares issued and everything else.

What will shareholders' equity be or how much higher will it be due to all the arrangements that were made under the new financing?

A very good question. And I did my pro forma balance sheet, and it shows about $11 million range.

Well, as David articulated about $10 million or so million came from pickup settling of some of the debt. And so we're estimating what's going to flow through the retained earnings for all the settlement and pickups.

So I'd just say $10 million to $12 million should be the ballpark pickup at that point in time.

Gentlemen, the first question from the web is, when will the company start having a positive cash flow?

Okay. This is Mitch.

I'll answer that one. Well, obviously, we have a huge pickup of $500,000 or more from just getting rid of the debt amortization and the incremental ORE.

That puts us about in a breakeven position. And what's positive cash flow versus not, we're investing in the field.

So from a straight every day, we're -- from operations, we're in a positive mode. But we do have expenses to workovers and all that, our capital expenditure.

So I would say we're kind of in a breakeven right now, and ballpark...

I'm going to add to that, if I could. We're spending too much on G&As and LOE.

And so we are in a mode now where we -- to get this, I'll say, great deal done, we spent a lot on legal fees, on management time, on consultants, all that's going to zero. And I think all of it is at zero.

But now we have three main cost areas, insurance, legal and auditing. We're doing our best to get those costs cut in half, I hope.

I hope that in the LOE that as we look at shared services with Virtus, we bring our costs there down as well. So we want to get below $20 a barrel, lifting cost.

And that's squarely in the center of our target. And as we look for acquisitions, remember, if we buy a property not too far from where we're operating today, we'll incur no G&A incremental.

And if the -- there are synergies between operations it will bring down our existing LOE as well, our lease operating expense. So I'm expecting that even though Mitch is saying we're close to breakeven, we should be making money very shortly, as we drive costs out of the system.

So I'll turn it back over there to Mike.

Next question is, is a buyout by a bigger player an option or not, if the valuation is interesting?

Yes, I'll field it. I think we're too small.

I just think we're too small. I think that if we're producing 20,000 barrels a day as a group.

Between us and Virtus, offers will come. But this is also why in the agreement that we made with Virtus we didn't want them to have the ability to get a couple of good wells and then sellout.

We want them to be married to us for years. So we have a 15-well minimum they must drill to earn the rights field-wide.

So we think we're going to be in good shape to harvest these agreements for a while. Now it doesn't mean we won't sell, if we get an outrageous offer.

I mean if someone wants to come and offer us $20 billion, they can have it. But I don't see that happening.

Back to you.

Okay. Great job team.

Now that the bank covenants are gone, are you still targeting 70%-ish hedging of production?

Okay. Mitch, I'll take that one.

First off, we believe in hedging at a certain level. So the answer is not 70%.

Now who knows, we could -- like Dante said, have an acquisition that might have some debt. But that would be a field-specific thing.

We are already in the process, and it'd be nice if oil prices were higher, but we're picking the days to start getting some hedges, and we've got through a chunk through the first quarter of '26. And -- but it's only like 25% of the hedging of the production, and it's -- everything is over $62.50, that's our minimum.

We want it much higher. Now if we get a great big pop, like actually a couple of years ago, we locked in a lot of big prices.

We'll do that. But I can see us building up to the 50% level as prices allow us to, but we're not going to rush into it.

We need to have enough to weather a dip. And I don't think it's going to dip for too long that the Saudis won't go nuts enough, let's make it go back up.

So we need to weather storms. And that's our philosophy at the moment.

Okay. Back to you, Mike.

Thank you, sir. Another question.

Dante, congratulations to you and your team for this outstanding deal that you closed. Here's my question.

The potential BOPD increase you mentioned going from 1,000 to 5,000 barrels. Would that increase include the new wells drilled by Virtus or is that the potential increase just from your workovers and increase production from existing wells?

Yes, I'll field it. And then Jess, you will correct me.

But the Virtus wells, I think we can bank on 4,000 net barrels a day within 4 to 5 years. And I think our own water flooding, I think we can bank on a double 1,000 to 2,000 in the SBR and possibly more.

So I'm throwing out a 5,000 barrel a day number as a combination of the 2 fields being developed in different formations. Now the upside of that, I mean, maybe it could go to 7 or better, but we're trying not to over forecast this stuff.

I mean, I feel very comfortable the SBR can carry us to 2,000 barrels a day in the next 24 months. And I feel very good that the Virtus team can carry us to 4,000 barrels a day for our share of that production in 4 years.

So -- but those are big numbers, a lot higher than where we're at today, and that gives us a lot of runway. Now we're not going to sit back with that.

I mean I feel like with our size and our G&As, we really need to be at 2,000 barrels a day for shareholders to be dancing in the street and to take some of the pressure off us. Now we're going to do it a couple of ways.

We're going to cut costs. We're going to look for a great deal under superb financing terms.

And we're going to press forward on what works. So that's -- I hope that answers your question.

And the last question, in the releases, you mentioned returning a 10% royalty. Can you please explain what this means to the company?

I'll let David chat about that, please.

And I was looking at the question here. Can you repeat that for me, Mike?

Yes, Sure. In the release, you mentioned returning a 10% royalty.

Can you explain what this means?

Yes. Several things.

The overriding royalty interest is -- if you're familiar with overrides, a net payment out of proceeds without any cost expense. So that is the bottom line net revenue to us when that was conveyed back.

Now we turned around and sold that in the overall transaction. And we were able then by selling that interest, bring in $20 million for that interest.

And we netted approximately $6 million to $7 million off of that one transaction by being able to flip it in that direction. So the net effect to our revenue in the Grayburg-Jackson field was to lower it by 5% and only by 5% by having bought that back.

We wouldn't have been able to economically be able to sell that 15% override that would put us at a very low net revenue interest, which we couldn't afford to do. So it was a key ingredient to getting this overall funding done.

Yes. Let me -- I'm going to highlight a subtlety, that most people probably did not pick up.

And we don't highlight this because I don't want to rub salt, in anybody's wound. But that override that we gave up when we bought the property, we received the credit on the purchase price of $30 million.

We bought it back for $13 million, and then we sold it -- for really, you have to stick with me to follow this, we sold it for what would be the equivalent of $53 million and you're going to say, how did you do that? Well, that override was in all zones override, embedded in it was the San Andres.

So if you stick with me, we sold a 5% override in the San Andres for $20 million. We sold a $13 million override in the Seven Rivers for $20 million, and then we retained the balance.

So that -- now we're not that smart. We didn't realize at the time we did a lot of this, the value of the San Andres, we have to credit Virtus for opening our eyes to it and it came about as we were looking for a drilling partner because we did have our own geologic group, say, the San Andres, looks pretty good, and we ought to go for a pro from Dover, which turned out to be Lance Taylor and his team.

So in the end, I just have to credit it to praying to rosary, but we got a gift from God, and we're dealing with some very nice people that have been palms up on honest with us, and we did the same. And in the end, our shareholders all benefited.

So I'll turn it back over to David, if I said anything wrong, please correct me.

Very good points, Dante, that's exactly right. Mike?

Yes, sir. Gentlemen, that's the end of all the questions.

Dante, I'm turning it back over to you.

Well, look, we appreciate our shareholders that are sticking with us. And we feel as bad as anyone, especially since I'm a major shareholder and our Chairman, the Salvucci family, our major shareholders, we are absolutely focused on getting the stock price up.

So we don't want to pump shares into the market without bringing in way more value in terms of shareholder equity and earnings and cash flow at the same time. Now we are getting offers because others see the potential of the stock to go up to, I'll say, transact properties for shares.

And it's not going to be easily done. We're going to need a spectacular property at a spectacular deal before we do that.

It's much more preferred to take on debt or to sell another ore. So I think in the end, this team has honed its metal.

We've come through the fire, the legal team, including our extended legal team were spectacular. Our vendors have been great to us.

And all parties we've dealt with, First International Bank and Trust, CIC Partners have all been wonderful, and we remain on excellent terms. So that's the way we do business.

That's the way our DNA is put together, and we want to be straight up with our shareholders. We are looking forward to a very big future, and you're not going to have to wait long for this positive cash flow and these earnings to show up in our Qs and our 10-Ks.

So with that, I turn it back over to Mike here to close up.

Okay. Matthew, close off the meeting and thank you, everybody, for attending.