Evolution Petroleum Corporation (AMEX:EPM) Q2 2025 Earnings Call Transcript

Evolution Petroleum Corporation (AMEX:EPM) Q2 2025 Earnings Call Transcript February 12, 2025

Operator: Good morning, everyone, and welcome to the Evolution Petroleum Fiscal Second Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. Please also note today’s event is being recorded. At this time, I’d like to turn the call over to Brandi Hudson, the company’s Investor Relations Manager. Ma’am, please go ahead.

Brandi Hudson: Thank you. Welcome to Evolution Petroleum’s fiscal second quarter 2025 earnings call. I’m joined today by Kelly Loyd, President and Chief Executive Officer, Mark Bunch, Chief Operating Officer, and Ryan Stash, Senior Vice President, Chief Financial Officer, and Treasurer. We released our fiscal second quarter 2025 financial results after the market closed yesterday. Please refer to our earnings press release for additional information containing these results. You can access our earnings release in the Investors section of our website. Please note that any statements and information provided in today’s call speak only as of today’s date, February 12, 2025, and any time-sensitive information may not be accurate at a later date.

Our discussion today will contain forward-looking statements of management’s beliefs and assumptions based on currently available information. These forward-looking statements are subject to the risks, assumptions, and uncertainties as described in our SEC filings. Actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statements. During today’s call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA. Reconciliations of these measures to the closest comparable GAAP measures can be found in our earnings release. Kelly will begin today’s call with opening comments, Mark will provide an update on our properties and plans as they relate to our ongoing strategy, and Ryan will provide a brief overview of our fiscal second quarter highlights.

After our prepared remarks, the management team will be available to answer any questions. As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today’s call, it will be available on the Investor section of our website. With that, I will turn the call over to Kelly.

Kelly Loyd: Thank you, Brandi, and good morning, everyone. Our team continues to execute a disciplined strategy that balances organic growth all while maintaining a strong financial foundation. Our ability to adapt to market conditions, capitalize on strategic opportunities, and drive consistent returns has been central to our long-term success. As we sit here today, I would describe the outlook for M&A as highly encouraging. We’re currently evaluating multiple acquisition opportunities, all of which have the potential to enhance our long-term growth strategy and further improve our cash flow generation right from the get-go. We’re seeing opportunities for negotiated transactions across several fronts, all at highly compelling valuations that, if we were able to close, will be materially accretive.

In the last five years, we have invested over $118 million in shareholder capital to grow production by 200% and expand our portfolio with hundreds of high-quality undrilled locations, all secured at exceptional value. We take great pride in our track record of acquiring assets at attractive valuations that deliver meaningful cash flow and long-term shareholder returns. Thus, we are confident in our ability to deliver on these initiatives and drive cash flow towards our dividend program for years to come. The energy market remains dynamic, presenting both challenges. While the first half of fiscal year ’25 has been marked by significantly lower realized commodity prices versus the same period in fiscal year 2024, particularly for natural gas, we’re excited about the expectations for the rest of the year.

Natural gas prices throughout the futures curve look much more favorable and look to have staying power as the outlook for increased demand only gets stronger with expected easing of LNG export restrictions and increased commercial and residential demand for natural gas-fired electricity. The front-month pricing of crude oil has tended to roll month over month towards spot pricing, bucking the obvious backwardation in the WTI futures curves. With supply and demand remaining fairly tight and threats of increased sanctions and other potential disruptions remaining ever-present, we see this trend is likely to continue. All of this makes for a very promising setup for the second half of our fiscal year 2025. Despite this volatility, our diversified portfolio allows us to sustain strong production growth and effectively manage market fluctuations.

Our ability to navigate these market conditions through a combination of strategic investments and disciplined capital management remains a key differentiator for Evolution. Our total production grew 10% year over year to 6,935 BOE per day, reflecting strong contributions from our geographically and commodity-type diversified portfolio of long-life, low-decline producing assets and our organic growth components. This double-digit production growth was in spite of temporary downtime in Williston and Chaveroo, which resulted in approximately 90 BOE per day of deferred production for the quarter. The downtime issues have since been resolved with rates fully restored by January. In the SCOOP/STACK, which we acquired based on accretive metrics to the then-existing production exclusive of any future new drills, has and continues to impress with results from new wells that have been drilled and/or completed since the acquisition.

Our partnership at Chaveru Field, with its measured pace, is progressing nicely as planned. With overall well results coming in at or better than expectations and an estimated 300-plus additional gross locations between SCOOP/STACK, these properties represent the most exciting current components of our organic growth portfolio, which is a crucial component to our more stable proved developed production base in driving future cash flows and feeding the company’s dividend machine for many years to come. We’re pleased to announce that this quarter marks our 46th consecutive dividend payment, maintaining our quarterly payout at $0.12 per share for the past eleven quarters. This consistency underscores the strength of our asset base, our ability to generate reliable cash flow, and our commitment to returning value to shareholders through all market cycles.

To date, Evolution has returned approximately $126.6 million or $3.81 per share back to shareholders in common stock dividends. In fiscal Q2, we returned $4.1 million to shareholders through dividends. Looking ahead, we remain focused on driving long-term shareholder value through disciplined asset acquisitions, strategic drilling expansion, and return of capital. Our focus on high-quality, low-decline assets ensures sustainable growth, supports our dividend program, and positions us to thrive amid commodity price volatility. With a strong portfolio, a history of disciplined capital allocation, and a commitment to shareholder value, we are well-positioned to continue executing on our strategy for years to come. With that, I’ll turn the call over to review our operations in more detail.

Mark.

Mark Bunch: Thank you, Kelly, and good morning, everyone. I will focus my remarks on key operational highlights from the quarter and encourage listeners to review our earnings press release and filings for additional details across our asset base. Three new wells at SCOOP/STACK were brought online during the quarter, adding to the seven gross wells completed in fiscal Q1 2025. We also agreed to participate in eight additional horizontal wells, positioning us for continued production additions in the region. Since the effective date of the acquisitions, a total of 32 gross wells or 0.5 net wells have commenced first production. We continue to outperform our type curves as well. Our production in fiscal Q1 was higher than Q2 due in large part to inclusion in Q1 of unaccounted for production related to prior periods.

With the ongoing activity at SCOOP/STACK, and the Oklahoma statutes that allow operators to delay payment on first production to working interest owners for up to several months, we could have the same thing happen in future quarters on newly drilled wells. However, with many operators, we’re able to gain access to near real-time daily production, thus allowing us to account for new well production during the same period. At Chaveru, production this quarter was temporarily impacted by gas interference issues in the downhole pumps, which reduced flow rates. The operator resolved the problem inexpensively, and production has stabilized back to its forecasted levels. At the beginning of January, we commenced drilling on the four new gross wells in our development block.

As of today, we had finished two wells out of the four and expect to finish drilling the remaining two wells by early March. Completions are scheduled to start in April. We have preliminarily agreed to six additional horizontal wells in drilling Block three, which are expected to come online in early fiscal 2026. At Delhi, CO2 injections resumed during our fiscal second quarter and contributed to our production growth. Following the quarter end, one new producing well was drilled at Test Site five. We’re awaiting the results. In the Williston Basin, a compressor failure on a third-party operated gathering system caused temporary downtime for approximately 30 days at the start of fiscal Q2, leading to lower natural gas and NGL sales for the period.

Oil volumes were impacted by delays in year-end sales in December, which were subsequently sold in January. Looking ahead, we remain focused on maintaining reliable production, optimizing efficiency, and ensuring the long-term value of our Williston assets. At Hamilton Dome, Jonah Field, and Barnett, production has performed as expected for the quarter, and we are pleased with the results. With that, I will turn the call over to our CFO, Ryan Stash, to review our financials in more detail. Ryan?

Ryan Stash: Thank you, Mark, and good morning, everyone. As Brandi mentioned earlier, we released our earnings yesterday, which contains more information on our results. Now, I’d like to go through our fiscal second quarter financial highlights. Fiscal Q2, we had total revenues of $20.3 million, down 4% year over year. The decline in revenues was a result of lower realized commodity prices, which were down approximately 12% year over year. However, we were able to largely offset the lower commodity prices with a 10% increase in production volumes due to our SCOOP/STACK acquisitions in February 2024 and subsequent drilling and completion activities, as well as new wells at Chaveru that came online at the same time. We have continued to add hedges to meet the requirements of our credit facility and protect cash flow.

Our ongoing goal for the hedging program continues to be to reduce downside commodity price risk while preserving the maximum potential upside. Accordingly, we will continue to monitor the market and may add additional hedges. On the balance sheet, as of December 31, 2024, our cash on hand totaled $11.7 million, providing us with a strong financial position. Borrowings under our credit facility stood at $39.5 million, supporting our ongoing operational and strategic initiatives. Total liquidity, including cash and borrowing capacity, amounted to $22.2 million, ensuring financial flexibility as we continue to execute our growth strategy. We declared a quarterly cash dividend of $0.12 per share payable on March 31, 2025. This marks our 46th consecutive quarterly dividend, a stable and reliable dividend policy.

I’ll now hand it back over to Kelly for closing comments.

Kelly Loyd: Thanks, Ryan. It should be clear that our strategic initiatives, both through acquisitions and organic development, have positioned Evolution for continued success. Our track record of acquiring high-quality, low-decline assets at compelling valuations, expanding our drilling portfolio, and maintaining financial strength reinforces our long-term growth trajectory. Looking ahead, we remain focused on disciplined capital allocation, maximizing shareholder returns, and sustaining our dividend program. With this approach, we are very confident in our ability to navigate market conditions, execute on strategic opportunities, and drive meaningful value for our shareholders well into the future. With that, I’ll turn it over to the operator to begin the Q&A session. Thank you.

Q&A Session

Operator: Thank you. We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, please press the star key followed by the number two. At this time, we will pause momentarily to assemble our roster. And the first question will come from Bobby Brooks with Northland Capital Markets.

Bobby Brooks: Hey, guys. I just wanted to ask first, obviously, it seems like M&A is still a top focus for the team, and it seems like the pipeline is really healthy. I just wanted to get a sense of would you guys be comfortable doing multiple transactions at once and or maybe it’s in a short window of a month or two you guys execute a couple? Or would you or the preference would be to rather space it out? Maybe also if you could just give us a sense of the size of these targets in your pipeline? Are they similar to what you’ve done in the past or bigger?

Kelly Loyd: Yeah. Thanks, Bobby. Appreciate the call. In general, right, I would say most of the things that we are taking a quick look at, deep look at frankly, are in line with what we’ve done in the past. Nothing sort of out of bounds on that front for the most part. We generally try to do things on a digestible basis. So if it turned out that doing one or two in serial sort of back-to-back order made sense from, you know, how you finance it all this and it was very digestible and still highly accretive to our dividend per share, it would be something absolutely we would consider. But it has to be the right deal and it has, you know, they both have to make sense together if we went that way.

Mark Bunch: Yeah. I mean, I would just add, Bobby. I mean, if you look back historically, you know, we did our Williston and Jonah deals pretty close within a couple of months of each other, right? So certainly, something we’ve done in the past. And as Kelly said, you know, it would just need to be the right two types of deals or multiple deals, but there’s certainly a chance we could do that. Yeah. Our SCOOP/STACK and our Chaveru partnership were very close in timing as well. Again, the cash flow is needed for those and received from those, you know, will be the main contributing factor.

Bobby Brooks: Got it. And then maybe just it seems like the pipeline it seems that it’s just accelerating a bit kind of the opportunities and for the opportunities such for M&A targets. Could you maybe just discuss a bit as to why that maybe I don’t and maybe I’m reading into it too much, but seems like there’s an acceleration. Why is that could you maybe just give us a sense as to why that is happening from like a macro perspective?

Kelly Loyd: Yeah. It’s always interesting to tell. You think at this point in time in the commodity cycle, there ought to be a ton of deals going on and we’ve seen certain times where there’s really nothing out there. Sellers are just, you know, expecting, you know, some current price to last forever or they’re expecting some futures price that, yeah, sure. You’ll make money on the futures price, but you’ll have to lose money right now to do the deal. Sometimes they just don’t line up buyers and sellers expectations and we just happen to be at a point right now where we are finding that we can make a reasonable offer and a buyer will or seller will make a reasonable response to it. So again, it just seems like sometimes all the stars line up and sometimes none of them do.

Bobby Brooks: Got it. And then maybe this is just the last one for me. I think Mark, you mentioned kind of the dynamic that in the SCOOP/STACK where there’s a there’s a bit of a delay that the operator can pay out the non-op guys. But then you said that that could be in the future and that could be an impact in the future, but it’s balanced off with something else. I don’t could you just kinda rehash that statement? I wanted to understand kinda what that balance is.

Mark Bunch: Yeah. It basically boils down to knowledge. Because we the problem is is we only have, you know, a small working interest in most of these wells, you know, say two percent. So we don’t have these tight relationships with the operators that we have in our other areas. Well, what’s happened sometimes is wells, you know, we’ll participate in wells, but we won’t get information about being online until after, you know, till we, like, get the first check, which might be for, like, four or five months revenue. And we didn’t accrue for it because we didn’t know or we or we didn’t know numb we might have known it’s online, but we might not know the numbers because we couldn’t get the information. Now the good news is is going forward, we’re getting more available data electronically from operators that participate in the system that we subscribe to.

So that probably gets better over time, but, occasionally, that can still happen. So it’s just a it’s just realizing revenue at, you know, in a period in a quarter that maybe after it actually already produced.

Bobby Brooks: Got it. Thank you, guys. And congrats on the quarter and I’ll return back to the queue.

Kelly Loyd: Thank you, Bobby. Thanks.

Operator: The next question will come from Jeff Grampp with Alliance Global Partners. Please go ahead.

Jeff Grampp: Morning. Wanted to start first on the SCOOP/STACK side of the business for you guys. You talked about continuing to have some above-average results. You give us a sense any materiality there relative to either type curve or expectations you had for some of these new wells? Thanks.

Mark Bunch: Yeah. Sure thing. So it looks like I on average, we’re about ten percent high on our what we’re actually what’s actually occurring is about ten percent above our type curve for gas, and we’re, like, pretty much dead on on oil.

Jeff Grampp: Got it. That’s really helpful. Thank you. Yeah. And on Chaveru, so I think you mentioned, Mark, April for completions to begin. On these upcoming wells. Should we expect much, if of any to period for those where you don’t get much of any of any oil. So just, I guess, trying to level set expectations for what kind of contribution you get this fiscal year, if any, from this?

Mark Bunch: You’re not gonna get a lot. You’ll probably maybe, like, you know, I don’t know, maybe month and a half or something like that.

Jeff Grampp: Okay. Great. If I can sneak one more, and may I don’t know if maybe this is for Ryan or or whoever else wants to take this. CapEx, I know when you guys came into the fiscal year, it was budgeted kind of in that, like, twelve to fourteen range. I think in that ballpark, obviously, kinda way under spending that on a run rate basis in the first half of the fiscal year. Is that range still pertinent, or how should we think about capital spending in the back half of the year?

Ryan Stash: Yeah. I mean, it’s gonna be back half weighted, Jeff. I mean, it’s the majority of it being, obviously, drilling and completion at Chaveru, and I think as we mentioned too in kind of in our remarks in the press release, you know, there’s some activity in SCOOP/STACK. So, you know, we do have some some money budget in SCOOP/STACK as we said, you know, we’ve had other AFEs come in we maybe weren’t expecting and some maybe get pushed, but, you know, there is some we are gonna expect some capital there. And then majority of our drilling and completion costs for Chaveru, those four wells is gonna happen in the second half of the year. But we haven’t seen any reason to adjust that overall. No. The range we still feel comfortable with.

Jeff Grampp: Got it. Okay. Perfect. Thank you, guys. Appreciate it.

Operator: Our next question will come from John White with Roth Capital. Please go ahead.

John White: Good morning, everyone. Thanks for all the updates on the call.

Kelly Loyd: Hi. Hey, John. Appreciate the call.

John White: Yes. On the subject of acquisitions, are you concentrating on existing core areas or could we see you open up a new core area with an acquisition?

Kelly Loyd: I would say that some of what we’re looking at has a bit of an overlap and then some of the stuff would be really new core areas. But as you know well, as a non-op, rather than if you were an operator, we’re would require a whole new team and, you know, you’d have to have a team for new area x whereas for a non-op, that that doesn’t really apply to us. So it’s it’s not a a G&A bump that would you know, you might expect from somebody who’s operating in a new area. That’s the beauty of us and our model being non-op.

John White: Okay. Thanks for the additional detail. I’ll pass it back.

Kelly Loyd: Thank you, John. Thanks, John.

Operator: And the next question will come from Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson: Thanks. Mark Bonas. On a micro level, the interference you spoke about at Chaveru, was that on the on the new wells that had been drilled, or was that on existing producing wells?

Mark Bunch: That was on the three producing wells that we had. From from drilling block one. Yeah.

Jeff Robertson: Does that issue make you think any differently with how you complete or stimulate the upcoming four wells?

Mark Bunch: It doesn’t affect the stimulation. On the completion side, it could you know, you know, we are looking at different ways to lift it. So as opposed to doing an ESP, we could try, like, a jet pump or something like that. But we have to we kinda have to figure that out. The nice deal is is we’ve found an inexpensive way to kinda get around the problem. If we need to. And we we could also just so we could end up deciding that the best bet is still to do ESP. That work is still left to be done.

Kelly Loyd: And Jeff, I mean, for context, it’s a real simple kind of plumbing problem. Lay a line and and dump some water down the backside. And in this particular case, the line was already laid for the facility back to the wells. Anyway, we just had to separate it out so that we could we could dump water down the backside of each of the wells. It was really inexpensive.

Jeff Robertson: Okay. Kelly or Ryan, the the last two acquisitions that Evolution completed, obviously, had some organic growth in both the SCOOP/STACK and the Chaveru. When you think about the profile of the company today, would you like to add inventory? Would you like to add PDP? Would you is the best outcome a mix? Can you can you just talk about it at a high level you think about where the asset base is today and and what you’d like to accomplish with incremental acquisitions?

Kelly Loyd: So where we sit today, I mean, listen, Jeff, in the way we looked at certainly the way we looked at SCOOP/STACK, we bought that because it was a nice, accretive acquisition on PDP, right, without taking into account all the benefit from all the upside, that was a good deal on PDP. It came with a bunch of upside that frankly, like Mark mentioned, is performing better than we thought when we acquired it. So I would say we’re never gonna turn down great opportunities for additional upside and anything we look at we like to have some ability to have some upside. However, it is something that we are focusing on now would be immediately cash flow accretive. So whatever we do is gonna be high on the PDP front. And again, we’ll get that LAN yap as you guys down in New Orleans like to say from additional upside.

Jeff Robertson: If I can ask one more Ryan, you talked about the balance sheet. I think you all issued a little bit of equity in the quarter under your ATM program. Can you talk about how you think about financing alternatives between debt and equity for acquisitions at this point?

Ryan Stash: Yeah. So, I mean, from a from a balance sheet perspective and a leverage, we feel, you know, we’re we’re within kind of our stated target, right, one times leverage. So I think any you can anticipate any acquisition we do if we added some debt, we would stay within those bounds. And so, you know, we’re obviously in consultation with with our lender and others just to make sure we have the availability we would need to consummate an acquisition. If it were to be a large acquisition, you know, we obviously have said before, if it’s large and accretive, and it makes sense, you know, we could look to use potentially some more into the ATM or issuing equity in the market. Again, as long as it’s accretive to the shareholders and it makes sense a free cash flow per share, which is obviously what we’re really focused on.

Jeff Robertson: Okay. Thank you.

Operator: Our question and answer session. Like to turn the conference back over to Kelly Loyd for any closing remarks.

Kelly Loyd: We just want to thank everybody for taking time out of your busy day to join us and happy to have you here. We are always available for any follow-ups. So thank you again.

Operator: And with that, the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.