Q1 2021 Evolution Petroleum Corp Earnings Call
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Good day, ladies and gentlemen, and welcome to the evolution Petroleum first quarter fiscal 2021 earnings release conference call. All lines have been placed on a listen only mode and the floor will be open for questions and comments following <unk> remarks, and you should be fired [laughter] throughout the conference. Please press Star then one on your telephone keypad to me to life.
Operator at this time it is my pleasure to turn the floor over to your host David Joe Chief Financial Officer of evolution Petroleum, Sir the floor is yours.
Thank you and good afternoon, everyone and welcome to evolution Petroleum's earnings call for our fiscal first quarter of 2021.
We will discuss operating and financial results for the quarter and I am David Joe CFO for the company and joining me on the call today is Jason Brown, President and Chief Executive Officer.
Little bit of housekeeping, if you want to wish if you wish to listen to today's call. A replay of today's call. It will be available shortly by going to the company's website.
And available until December 620, 20. Please note that any statements and information provided today are time sensitive and 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 risks and uncertainties that are listed and described in our filings with the FCC actual results may differ materially from those expected.
Since detailed numbers are readily available to everyone. In Yesterdays news release. This call will primarily focus on key results. All the continued volatility in oil prices and.
An impairment write down we had this quarter and I kept go update on ops operations and plans for remaining plans for fiscal 21, including capital spending.
I would now like to welcome and turn the call over to Jason Brown.
Thank you David Good afternoon, everyone and thanks for joining us today on evolutions first quarter fiscal 2021 earnings call.
The first quarter of fiscal 21 is continued to be challenging although with evolution I found ourselves to be quite effective and the remote working arrangement I know, we're all getting a bit T. U can and look forward to better days ahead into that I again wish you all the very best and think safe is we all continue to negotiate this uncertain social and economic time together.
As you know it continues to be.
Particularly difficult time in the oil and gas sector has global COVID-19 panel demand continues to disrupt the balance.
Of oil supply and demand.
We continue tomorrow or the state of go 19, making decisions to best protect our employees health in order to ensure our financial security. We have continued to focus our efforts.
Implementing additional cost cutting measures to better protect our investors.
We remain well positioned to take advantage of potential opportunities that arise.
And are focused on our ongoing strategy to create long term shareholder return.
As evidenced by a long standing dividend program.
With that I'm pleased to announce that our 20 eightth consecutive quarter issuing a cash dividend.
For our first fiscal quarter of 2021, we recorded revenues of $5.6 million, 67%.
Greece from the prior quarter.
We ended the quarter with $19.8 million in cash and remain debt free with an Undrawn bank revolver.
We recently had redetermined to $23 million.
And extended that revolver for additional three years.
We continue to concentrate our focus on cash flow and total shareholder shareholder return.
We provide an attractive cash return to shareholders and with paying our 20 eightth consecutive dividend.
We've now returned more than $71 million in cash dividends since the inception of the dividend program.
In December of 2013.
In July 2020, Denbury resources, operator, we're interested though I feel announced that it entered into a restructuring support agreement and under chapter 11 bankruptcy code and Texas.
On last quarter's call. We mentioned that we thought this would ultimately be positive for U.P.M. as it would speed up the process for them to be able to put capital to work in our field, which we.
Which we me on September 18th Denbury announced that they had emerged from chapter 11 bankruptcy and completed their financial restructuring.
This is another meaningful step towards freeing up capital to be spent on projects Adelheid. There will increase production. We are encouraged by our continued conversation when denbury and believe the del high Phase five expansion will begin later in our fiscal 2021.
We further expect the resumption of historically been official conformis expenditures to arrest the decline of car production in proved the CEO to flood performance. It is also important to note that during Didnt varies chapter 11 filing EM was not affected in terms of continuity of payments devolution or operational.
At Delphi field.
Before turning the call back over to David I would like to comment on David Joseph coming retirement, as previously announced on Wednesday, and congratulate him for over 15 years of dedicated service to the evolution petroleum.
David has served in a multitude of roles during his tenure at evolution.
It's been an integral part of our continued successes.
David will ramp remain onboard until the end of the year to help seamlessly transition our investors our business processes.
And our core institutional knowledge, so that there is little to no disruption for our business.
Our board.
Our team and I'm sure our investors join me in thinking you David for your time your dedication to this company and for your friendship.
We've enjoyed having you as a collie.
I wish you all the best as he moved to pursue other adventures in retirement.
With that I'll now turn the call over to David to run through our financial highlights and.
And then I'll wrap the call speaking briefly about our strategy and outlook in the M&A landscape David.
Thanks, Jason.
It's been a real pleasure and honor to work for Bob Herlin and the board of directors. It's dedicated employees, both current and past into served the company shareholder sure.
Quite a few years now.
I remain confident in the asset portfolio and the strategy a company moving forward I plan to remain an interested shareholder for many years to follow.
I will now like to share some more details regarding our financial results for the first quarter ended September 30 again, please refer to our press release in case you missed it yesterday afternoon for full details on the quarter and be on the look out for our 10-Q to be filed soon.
Hi, Jason already mentioned, we had revenues this quarter of $5.6 million, which was largely.
Attributable to increased oil prices, which averaged about $37 per barrel.
Average daily net production was down about 4% this quarter to 18 41 barrels of oil equivalent per day due to continued suspension of future purchases at del high along with NGL plant downtime and maintenance and some unplanned power outages.
Production was down we were encouraged to see increasing realized commodity prices for both oil and ngls quarter over quarter.
It should be noted that LLS pricing has been volatile this year and.
The historical stable premium to W.P.I. Adelheid is currently a deduction as del highs realized oil prices approximately $2.20 per barrel below W.T.I. in the quarter ended September 30.
Unfortunately until the global macro environment for oil demand improves I expect this trend to continue in the near term.
In part due to that and due to the low oil price environment. We realized in March 2020 through May 2020, the companys ceiling test for the book value of our producing properties was adversely affected.
For the first time in the company's history evolution recorded a significant non cash impairment charge in the amount of $9.6 million pretax.
Per prescribed rules the full cost method of accounting Accordingly ceiling test is performed and calculated using the trailing 12 months. The first day a month average oil prices based on this test our ceiling was less than our net book cost, hence the required impairment.
This result reflected a lower average benchmark W.T.I. whole price in the current quarter about $41 a barrel and the absence of a you have a higher year ago quarter average price about $56 per barrel, which no longer impacts the 12 month trailing average oil price computation used to derive the estimated discounted future net right.
Revenues from production and proved reserves.
<unk> impairments can take in about taking a variety of forms in our industry. For example, some of our peers have taken impairments for changes in their current development plans for proved undeveloped locations.
Or impairments related to expiring lease expirations or impairments for reserve performance revisions based on well results.
Evolution is not likely to have any of those issues largely due to our proved developed producing dominant reserves and and high percentage of those.
Proved reserves being.
Being produced.
The noncash impairment in this quarter is is largely attributable to lower oil prices.
Barring a substantial oil price increase we will likely need to record impairments in the coming quarters as well as the higher average oil price for from fiscal Q2 of 2020 rolls off.
Well this accounting measure has affected our book value in the near term we remain confident in the long term value of our long life low decline asset base, but.
Because of the impairment write down the company will benefit from a lower DDNA rate going forward.
Lease operating expenses.
In the current quarter increase.
Increased about 4.9% to 2.4 million and this was primarily due to increased activity at both Hamilton dome field and they'll high field as prices had didn't have increased in stabilized we expect elouise to increase that Dell high in the coming quarters now that's your two purchases have been restored that Delphi upon the completion of the pipeline repair when I cover.
October 26.
[noise], our DNA expenses.
Inclusive of non cash expenses increased about $260000 to 1.3 million for the current quarter.
Which is about the normal recurring gene a rate the increase in Jena is primarily attributable to the prior quarter's reduction of compensation incentives accrued earlier in the end of fiscal year 2020.
On the income and on the income statement, you will see an income tax benefit increase to $1.8 million compared to the prior quarter.
Primarily due to a higher.
Current quarter pre tax losses, driven by the <unk> impairment.
At September 30, the company continues to carry a receivable for income tax refunds of approximately what.
3.8 million up $3.1 million for previously reported enhanced oil recovery tax credits.
Net loss for the quarter was $7.1 million or 22 cents per diluted share compared to a net loss of 2.3 million or.
Or seven cents per diluted share in the prior quarter.
The company incurred about 100, <unk> hundred $89000 on capital projects in the first quarter, primarily at del high for reentry capital maintenance and plugging projects. We're.
We do anticipate field activities to pick up slightly with conformance workovers and maintenance projects.
All projected capital expenditures for the remainder of fiscal 2021 are expected to be funded by operating cash flows and existing working capital.
During the three months ended September 30, the company funded operations capital expenditures and cash dividends with cash generated from operations.
Working capital increased $2.5 million to 21.5 million at quarter end.
The company was able to preserve preserve its balance sheet and generate positive cash flows through a combination of increased total revenues previously announced reduction of dividend rate dividends paid out in various cost cutting initiatives, partially offset by $1.2 million a realized loss on derivative contracts.
Our liquidity position remains strong with 919.8 million in cash and an Undrawn credit facility, which was recently extended for additional three years to April 2024.
And redetermined at $23 million subject to financial covenants.
Despite the challenging calendar year, we remain we continue to maintain a clean balance sheet and remain in an excellent financial position.
This concludes our review financial results and operations for our fiscal first quarter ended September 30.
I'd now like to turn the call back over to Jason for some final remarks.
Thank you David.
As announced earlier this week in conjunction with David's upcoming retirement, the board has appointed a new CFO to be his successor.
Effective November 18.
Although I won't go into all the details of his background I will say that we are very excited about Ryan stashed coming on board. He comes to evolution from harvest oil and gas Corporation, where he served as vice President and CFO since October of 18.
Prior to joining harvests Mr. Stasz spent 11 years in energy investment banking group for Wells Fargo Securities here in Houston for several years prior to that as an auditor Ernst and young.
He is a rare combination of investment banker in CP, a big four auditor with public company CFO experience. He earned his M.B.A.
A masters in Peru.
Professional accounting and a bachelor's in business all of the Mccombs school of business at the University of Texas.
We're excited to find such a thoughtful and experienced financial executive is Ryan Kerry on the torch that David has carried so well for evolution.
And our next chapter.
We look forward to integrating his skill set and experience into our team as we look forward to grow our asset base and our dividend.
In addition to David's retirement and announced last week.
Oh.
Was the our board member in Audit Committee Chair Marin.
Oh, well the has elected not to stand for reelection we wish her the best in her future endeavors and think for thank her for her years of service that evolutions board of directors.
Details of these changes can be seen in our recently filed a form 8-K reports.
It's a priority for us as we said before to invest in the working relationship we have with our operators I continue to be pleased with the relationship and dialog weve been able to have with both Denbury and merit regarding our assets.
And cost option optimization initiatives.
We're very happy to see purchase fuel to volumes start to flow into Delphi once again.
This would bring some very much needed some pressure support and bring some of that oil production back. Although it may take a few months, we should start seeing the benefit of news. The EPS you volumes that they helped to bring reservoir pressures back to previous levels should rest the abnormal decline we've seen in oil production over the last six months.
And we expect to start to see an increase in production gradually through the remainder of our fiscal year.
So you have to volumes are currently about 65 million cubic feet a day as you recall historically, we've averaged in the 80 to 85 million cubic.
Cubic feet a day of purchase volumes did.
Didn't very did very well he those volumes back up over the next six months and may even be able to increase those volumes as high as 100 million cubic feet a day for some period to sort of make up volumes and of course all that subject.
It's a prudent operational integrity of their pipeline.
At Hamilton don't we still have about 20% of the production shut in that's about 30 wells.
And we do not expect to those to become economic enough to reactivate at prices below about $45 or up W.P.I. sustain as you recall that the differential there are not as good as del high end. The operational costs are higher per barrel is well that being said.
We're very happy with the operational team at Maritza, we're using this opportunity to maximise cut cost cutting process season operations in the field much of which we anticipate will be permanent captures.
They have brought on two wells in September and exceeded production expectations, which is also great news looks.
Looking at the future of our current assessment based on recent discussions our expectations.
Our that the emergence of Denbury from the restructuring process will bring about the resumption of conformance work over projects, which are very helpful. As I've said the interesting the decline of our current production.
We expect expenditures related to conformance to run approximately in the.
A six to 800000 remaining in our fiscal year I think last quarter. We reported we had on budget about 750000 to a million. We spent a couple of hundred thousand in the first quarter. So it's we don't really have any anticipated changes and we're kind of still on target for that in the remainder of physical 21.
In addition, the company his plan and still does for expenditures were approximately 1.9 million again, that's net to EM Uh huh.
Fiscal 21 to begin the development of phase five Delphi.
Adelheid, we'll find out more at our annual working interest on our meeting with Denbury in January but at this point as we understand it in various plans to commence this program in the spring of 2021, which is our fiscal fourth quarter phase five development costs are expected total $8.6 million net.
Yes in total with 3.7 million to be incurred in fiscal 2022, and the remainder of that over the next two years. These.
These projects all focused around the strategy of continuously.
In the life of our reserves and have been very successful over the past few years largely on arresting the natural decline.
Finally, although we're very pleased about the forecast that much and need additional capital investment in our current assets. We continue to selectively look for opportunities, where we can take advantage of our financial position and add additional assets.
That will further grow and diversify the company we're seeking additional low.
Low production decline long life reserves to add or assets that will contribute to our dividend for many years to come.
We're seeing some price stabilization and that encourages us. So the last couple of weeks, it's been a little bit influx, but that's led to several new deals. We started to see a number of recent transaction. We're confident in our acquisition strategy moving forward and the financial stability of our company to take advantage of these opportunistically where to grow.
Our position and I look forward to the future of evolution petroleum with that I think we're ready to take us some questions operator please.
Please open up the line for questions.
Thank you the floor is now a question. If you do have a question. Please press star one on your telephone keypad.
Questions will be taken into what do they want to see if at any time. You question has the easier you can remove yourself from the queue I first thing once again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time.
Okay. Our first question comes [laughter].
[noise] come from Jeff Grampp with.
Northland. Please state your question.
Afternoon, guys and congrats David on the retirement.
<unk>.
Thanks, Jeff.
Yeah.
Jason on the acquisition front I'll start there can you touch on kind of what you're seeing deal flow wise.
I I guess, particularly curious on maybe generically kind of asset characteristics are are you seeing more interesting things that have the ham dome type or I know in the past you had said gasket could be interesting in certain circumstances and that pricing. There's obviously firmed up so just kind of curious generically where you guys are seeing.
Maybe a little bit more interesting deals across the spectrum.
Sure I appreciate that it well, we're we've been working fast and furious on a number of of different strategies as I've said, it's you and Ive talked before and I've said before on these calls we're interested in both oil and gas, we we like assets like a health and domain and Dell high because they are long life.
Oil and.
And well, it's got to be down right now, but if we can get a purchase it might be a good time over there.
We would enjoy profits over the next couple of decades, there's we're pretty bullish long term on oil right now it's pretty tough the landscape there with oil with those type of assets are.
It's still tough right now the stabilization has now gotten people to the table to do some transactions, but particularly in the private space.
You know, it's a public company, our company's measured every day or the private space. They still have a view of what their assets are worth so there's a little bit of market therapy, that's going out there. We're starting to see some deals that have gone on the market for a while and ER and not transacted, so coming back for a second rounds, which is real positive the and this is of that to us.
Well, we've said before we're we're also interested in gas.
In a regionally probably specific area and as we've talked about the we like East, Texas, North, Louisiana or anything that kind of keeps us in that one pipe down to Sabine pass eventually the drilling out west will kick back up so we kind of want to stay not competitive with that and if you get too far away.
It's a midstream marketing game. So we're we're digging into east, Texas to look for some gas, we're actually seeing some pretty interesting opportunities. There a non marketed negotiated so there's a lot of things about gas we like in the sense that its once it gets to pass its initial decline.
It stabilizes going along flat decline in lifting costs are very low much lower than the gas and oil. So we like it for that reason too.
Okay, Great that's helpful and a follow up maybe a maybe its not let David sneak off without putting him on the spot on a call. It seems like you know you guys had historically kind of move to a cash tax payer status and its kind of been a little bit choppier in the last few quarters, just kind of wondering what we should what we should think about in terms of kind of a split between.
Deferred versus current taxes for you guys going forward.
Yeah. That's a good question, Jeff and so you know given the outlook for oil prices.
Going forward. Unfortunately, you know it one would project that.
Evolution.
I'll be making profits you know based on a strip.
Strip prices so like.
Like you said as you pointed out weve been a cash payer.
Unlike many M P registrars.
It's hard to hard to project going forward.
We're already off to a rough start this first quarter.
<unk> I would expect were not a cash pay or in this fiscal year at least as I sit and see it today.
Okay, and if if oil prices were to ride rides, you know measurably to a point, where you guys are.
GAAP profitable should we use <unk> cash taxes to return than that.
Yeah I believe so.
Okay.
Got it that's helpful. Thanks.
Thanks, Jeff.
Okay. Our next question comes from.
Richard Howard boiling point please state your question.
Yes. So you almost answered my question in the second half there Hey, Richard So.
Yeah, Nice nice time nice quarter, so I see this up.
Current asset of the taxes.
Do you do you anticipate that that cash will actually come in.
Are you referring to the income tax receivable, but yes, I am on the balance right one that [noise].
Yes, that's our expectation yet yes, it's our expectation that we are going to get the income tax refund from from.
The federal federal tax payer and there may even be a state refund buried in there as well, but the majority of it is a federal income tax return from it had all the carbon tax credits taken from previous two years of returns.
So what what is your tax basis of a barrel of oil production can you give me just a.
A rough ballpark on that.
I cannot give you a number I don't I don't have that number off the top my head Richard I don't I don't.
Not sure that's a number I can disclose publicly.
Okay, that's fine.
Anyway, Thank you very much.
Okay.
Our next question comes from Andrew Bond with ATP <unk>.
Please state your question.
Hey, good afternoon, Jason David Thanks for taking my questions Andrew.
Hey, so I have great color on the M&A side. So that question was was already asked but just wanted to just to get an idea are you able to provide the gross production volumes like you have a in quarters past or can we expect to see that in the filing when it comes I know you all don't really report a break out of production by field, but just trying to get a better sense.
As you know production in prices not to happen between kind of downtime in tandem.
Yeah Andrew.
That information in the 10-Q, we hope to be filing that are today or if not today Monday.
Perfect. Thanks, very much Jason its congrats on another day same in there.
Okay great.
Our next question comes from John White with <unk> capital. Please state your question.
Yeah.
No question for me I, just wanted to tell David Joe Congratulations and Ah I really enjoyed working with you and thanks for all your help for Senator money stupid questions over the years.
John Thank you for that let let's let's let's have lunch when one time permits out I enjoyed working with you as well.
That stay in touch thank you. Thanks.
Thanks, John.
And it looks like that was our final question.
Okay, Oh, well, we sure appreciate you guys joining us for our Q1 fiscal 2021 call.
Thank you. This concludes todays conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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