Hi, my name is Darren Barbee. I'm the senior managing editor at Hart Energy. I'm at the A&D Strategies and Opportunities Conference in Dallas, Texas, and I'm joined by Jason Pigott. He is the CEO of Vital Energy. Jason, thanks very much for being here.

Jason Pigott: Thank you for having me.

DB: So, you just got off stage, and you were talking about the fact that roughly in the period of five years, you've done about 10 transactions and now you're pausing. So first maybe you can explain why that is. Is it time to kind of digest all that that you've acquired?

JP: Yeah, we have had tremendous amount of success with the transactions that we've done, and we're just taking some time to get them integrated, demonstrate our ability to extract more out of these assets. We've got some scale. I mean, we've doubled our production since I started, so we've achieved that scale that we're looking for. We've got 10 years of inventory now with roughly five years of inventory below a $50 break even. And so we've got good momentum and now we just want to demonstrate that we can get our operating expenses down, get our capital down, reduce our G&A [general and administrative] costs. And so all those things together I think will ultimately help our shareholders.

DB: A couple of the recent deals you've done, some of the larger ones in fact, have been with Northern Oil and Gas (NOG). Can you talk a little bit about the relationship you've developed with them? Obviously, you did, I think last year, the Forge acquisition. This year, the Point [Energy Partners] acquisition. So can you talk a little bit about how you guys work together, and how you mesh?

JP: Yeah, in total, we've done three transactions with them. We sold some non-op to them from SM [Energy] that we had underneath SM early on. Great to work with, very commercial. Then when we came to the Forge transaction, it was an all-cash transaction for us and it's a way for us to punch a little bit above our weight. So they'll bring some cash to the table, we bring some cash to the table. It lowers our net cost to do a deal. So that's great. The other thing they help us do is they do their own independent evaluation. We do ours. We compare notes [to know], ‘do we both get the same answer?’ And that's the hard part of this is that two companies have to agree on ‘this is the price we think we should purchase this asset for.’ So they've been great to work with and share ideas. I mean, we will look at PDP [proved developed producing] one way, they may look at it differently, they may look at inventory different than we do. And so it really helps to have a company that you can partner with and then with Point, based on our great relationship, [we] brought them into that transaction as well. And it aligns us because with Forge, they [owned] 20% of. With Point, they [own] 20% of. So we can drill wells in either area and no one's getting upset because you're not drilling on my stuff from a prior transaction. But Nick and the team have been on a great job over there and we have a wonderful relationship with them.

DB: I know you guys are paused, but do you foresee similar kinds of transactional arrangements, kind of this sort of a three-way partnership, if you will, between the two buyers and the seller in the future with NOG or maybe some other company?

JP: It really depends on the size of the transaction and what you're looking to accomplish there. When we did the smaller transactions that were in that $200 [million] to $300 million range, we didn't need them for that and we could do it all ourselves. But you saw when we went up to $1.1 billion, that's much larger than all the transactions we've done in the past. So it's just a way to help us there. So I think there are some sizes where it's too small, but when you're looking at, again, it was $500 million-ish deal for Forge and then now $1.1 billion, they’ve [gotten] bigger, it's a great opportunity. And that's I think how they've built their business is working with other operators. So you've got to be good to work with or your model's broken. So they're a great team.

DB: I guess the other question is, if you're going to take a break and who's to say how long it will be, but as you digest the assets that you've acquired, is there this though in the back of your mind like, ‘Well, there's an inventory scramble going on, something good might come up that will fit perfectly with Vitals portfolio.’ Does that enter into your thinking at all? In other words, will you sort of un-pause the pause if you see something that's alluring enough?

JP: It could be, but it's not our focus right now. The last transaction we did for Point was all cash. So my priority is let's pay down debt and that is the best thing I can do for my shareholders because I have inventory. If I miss out on a deal, we're going to be just fine. We've added 185 wells, I believe, underneath our footprint from our prior transaction. So that's two years’ worth of inventory that has just been kind of free-ish inventory that we've added organically. So I believe we have a great opportunity to continue doing that and bring things like exploration or exploitation into our fold and grow inventory in a different way. A lot of these deals, and you see it with Point, had more PDP coming with them. So for us, if you want to build inventory, the cheapest way to do it is just getting wells and adding sticks, not having a big chunk of the cost with production.

So again, [the Point deal] is different because it's just in our backyard, a great fit. And when we think about the future, the wells now need to be better than what I already own. So that's one thing that they have to do. They have to be in close proximity and not be PDP heavy. So that screening criteria is going to screen out a lot more things than it would have in the past. So that changes. But if there's something right next to us, a great deal, we won't not do it. It's just not a priority for us right now.

DB: And then just a few years ago, you were at a market cap of around $400 million. You’ve far more than doubled that. Where do you see the company going? Do you see the market beginning to realize the assets and the inventory that you have?

JP: You get your report card every quarter, and for us just continuing to execute and demonstrate that we can pull costs out of the system. We had it on one of our slides on the deck. We had wells that were $1,200/ ft , or $12 million for a 10,000 ft well. We've already reduced cost to $925/ ft. So when you're cutting millions of dollars out of the well cost, that's a huge benefit for our shareholders because that translates to less capital that's going out the door and more that's going to debt reduction. So that's why that's such a priority for us right now.

DB: Right. Sounds like a great plan. Well, Jason, thank you so much for taking the time to be with us today at the conference, and to learn or read more, please visit hartenergy.com.

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