Aris Mining Corp. Q3 FY2023 earnings call

Key Points

• Aris continued positive momentum in Q3 with sustained water volume growth, up nearly 60% over the last two years.
• Focused on improving profitability, recapturing margins, and expanding infrastructure in the Northern Delaware Basin.
• Electrification of infrastructure, efficiency in the field, and business process improvement led to a $0.02 per barrel sequential improvement in adjusted operating margin per barrel, with adjusted operating margin at $0.40 per barrel.
• Beneficial reuse efforts ongoing with ConocoPhillips, Chevron, and ExxonMobil, testing technologies for produced water outside oil and gas.
• Sold non-core assets in Martin County, Texas for $20.1 million, allowing redeployment of capital into higher-return projects.

In the third quarter, Aris saw significant financial performance. Adjusted EBITDA was $44.9 million, up 14% year-over-year and 5% sequentially. Produced water averaged 1.06 million barrels per day, with skim oil recoveries of 0.11% per inlet barrel, ahead of expectations. Water solutions volumes were 460,000 barrels of water per day in the third quarter, growing 2% sequentially. The produced water business contributed to revenue growth, and water solutions benefited from pulled-forward completion activity and spot business.

Forward-Looking Statements

• Expect 2024 capital expenditures to be lower sequentially versus 2023 based on contracted customers' forecasts.
• Forecasted adjusted EBITDA for Q4: $41 million to $45 million, raising full-year 2023 guidance to upper end of $166 million to $170 million.
• Produced water volumes expected to be up approximately 2%-3% in Q4 relative to Q3, adjusting for asset sale.
• Water solutions volumes forecasted: 405,000-420,000 barrels of water per day in Q4, with potential for spot volumes.

Risks

• Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially.
• Volatility in oil prices, where a $1 change in oil price relative to expectations corresponds to an estimated $100,000 change in EBITDA per quarter.
• Uncertainties related to regulatory approvals for beneficial reuse efforts, particularly in New Mexico.

Q: Good morning, everyone. Thanks for the time and congrats on the quarter. Maybe if we could just break down a little bit more some of the moving pieces on the margin recovery, you mentioned electrification and bringing down the rental expense. Just curious if you can share a little bit on -- again, on the moving pieces there, how confident you are in the kind of trajectory going forward? And maybe if we can be greedy, kind of where you think these margins could get to over time?

A: Thanks, John. We do think that this margin recovery is sustainable, and we continue to look for other opportunities to actually increase it over time. I'll let Steve take you through the actual specifics on the electrification and rentals. But rest assured, we're looking at all aspects of our business to continue to see where we can increase efficiencies.

Q: Hi. This is Chad [ph] on for Spiro. Starting off, we're hearing more about produced water constraints in the Permian. Do you see a scenario where water takeaway actually becomes a bottleneck? And what's the solution to present that?

A: There is a lot more conversation about produced water constraints and concerns that there will be enough takeaway. This is actually a tailwind for us. So we are looking at a lot of different options as to how we can ensure that this wave of water that continues to come in the Northern Delaware can be dealt with, beneficial reuse, pipeline potentially out of the basin and continuing to look at ways in which we can be more efficient with our disposal volumes. But there is a lot of attention on it, and that is positive for us.

Q: Good morning. Maybe just I guess following up on the brine questions here and yes, I know you'll give more clarity next year. But I'm just wondering conceptually, if you kind of perfect the pilot, are you looking to apply this across all of your water volumes, or is it just kind of certain regions that are more concentrated and more economically viable? I guess how homogeneous is this opportunity?

A: Praneeth, good to hear from you. So we are very focused and we've always said that we're focused on waste to asset or waste to value. So we are constantly looking at our produced water to see what we can do with it other than just dispose of it and what is there that got value. So we have reuse and recycle as much as we can, and we continue to be very focused on reuse. In addition then, this pilot for beneficial reuse is to provide technology that can be used for water across the basin. And so it is not that it's just specific for certain areas of the basin. It is going to have flexibility that can be used with different influence water across the basin.