Q2 2021 Evolution Petroleum Corp Earnings Call

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Thanks for holding and we appreciate your time and patience. Please stay on the line and we'll be back and just a moment.

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Good day, ladies and gentlemen, and welcome to the evolution Petroleum second quarter fiscal 2021 earnings release Conference call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation. It is.

And now my pleasure to turn the floor over to your host Ryan Stash, Sir the floor is yours.

Thank you.

Good afternoon, everyone and welcome to evolution Petroleum's earnings call for our second quarter of fiscal year 2021 today.

Today, we'll be discussing operating and financial results for the quarter joining us for the call are Jason Brown, President and Chief Executive Officer, and myself, Brian Stash, Chief Financial Officer of evolution Petroleum.

If you wish to listen to a replay of today's call. It will be available shortly by going to the company's website or via recorded replay until March six 2021.

Please note that any statements and information provided today are time sensitive and may not be accurate at a later day. 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 SEC actual.

Results may differ materially from those expected.

Since detailed numbers are readily available to everyone and Yesterdays news release this call will focus primarily.

Key results volatility and oil prices and how that affects evolution and our typical update on operations and our plans for the remainder of fiscal 2021, including capital spending.

I'd now like to turn the call over and welcomed by our President and Chief Executive Officer, Jason Brown.

Thank you Ryan good morning, everyone and thanks for joining us today on evolution second quarter fiscal 2021 earnings call.

We appreciate your continued interest in and support of our company.

Like to start by welcoming our new CFO Ryan statutes first earnings call with evolution I would also like to thank Tim and particularly David Joe and the rest of the team for their diligent work and making this such a seamless transition with the company's focus on growing through acquisition opportunities Ryan.

Brian brings a nice skill set of investment banking experience to that effort.

We've been encouraged by the recent increase in commodity prices. However, COVID-19 pandemic is not yet in the rearview mirror and continues to disrupt all of us in many ways.

Which.

Keeps volatility and the price of crude and.

The delicate balance of supply and demand continues to be uncertain as evidenced by the futures market, while we cannot predict the duration of such volatility we are welcomed and we're well positioned to weather. These times as we've done this past year. We have continued to focus on managing costs and maintaining our balance sheet to protect us and ensure the long term.

The inability that our investors are accustomed to.

Although we had recently completed our fall credit line and determination of $23 million and a three year extension you may have seen and and I'll ask you that we were somewhat limited and our ability to draw on it and due to some covenants related to trailing.

Commodity prices, Ryan wasted no time, and adding value to the company by negotiating our sixth amendment with our lenders, giving us full access to our credit facility.

This along with our $19 million of cash on hand will primarily serve to support our continued acquisition strategy, which I will discuss in more detail later on the call.

And we remain and continuous conversations with our operators both in Delhi, and Hamilton dome to find ways to better optimize our assets, both technically and financially.

Our assets continue to provide long term upside as we believe they are substantial and still runway with numerous identified remaining projects such as workovers or infill drilling programs and new locations to be developed.

Particularly at Delhi.

I was pleased to see <unk> purchase purchases and injection pick up during the quarter to be normalized levels of Delhi purchased COC supply came back online and Doha in late October and initial restricted rate of 65 million cubic feet per day and averaged about 75 million cubic feet per.

Cubic feet per day in December we.

We've already seen and impacts and a softening and production decline.

And as <unk> reservoir pressures increase over the coming months, we hope to see production increase.

Also noteworthy that we settled the remaining derivatives contracts entered into last year.

We put in place to protect our balance sheet when oil prices precipitously dropped.

These contracts did the job that we needed them to do by protecting our balance sheet and dividend during a very tumultuous period.

But we were happy to get to their exploration and 12 31, So we can participate and the recent uptick and prices.

The company has no more outstanding derivative positions at this time as of January.

2021.

We continued to see positive earnings this quarter and as of December 31, and we recorded revenues of $5 8 million.

And three 1% increase from five six and Q1, we ended the quarter with $19 million and cash and remain debt free with an Undrawn bank revolver.

With that I'm pleased to announce our 29th consecutive quarter of issuing a cash dividend.

Of two five per share and in addition on February <unk> and approved our 30th consecutive dividend to be paid on March 31 of this year.

And decided to take the first step on the path toward our long term goal by raising the dividend by 20% to <unk> per share.

We hope that we can continue taking more steps in that direction as we all gain more and more confidence and the stability of the markets and commodity prices.

But we will only do so and it makes sense like it did this quarter when the hedge rolled off and we saw near term improvement and price.

We continued to concentrate our focus on cash flow and total shareholder return.

We provide an attractive cash return to shareholders. We're.

And we're paying our 29th consecutive dividend, we've now returned over $70 million and cash dividends since the inception of the dividend program and 2013.

With that I'll now turn the call over to Ryan to run through our financial highlights and then I'll wrap up the call by speaking briefly about our strategy outlook and the M&A landscape.

Brian Thanks, Jason.

I'll now share some more details regarding our financial results for the second quarter ended December 31 2020. Please.

Please refer to our press release filed yesterday afternoon for additional information and details for the full fiscal second quarter 2021, and look out for our form 10-Q to be filed later today.

Now I'll hit some of the financial highlights from the second quarter.

As Jason mentioned, we paid a <unk> 29th consecutive quarterly dividend on common shares and increased the next dividend payment by 20% from $2.05 per <unk> per share.

Revenues as Jason mentioned increased by three 1% over the prior quarter to $5 8 million, we generated cash flow and excess of the quarterly dividend before the effects of our hedge payments and ended the quarter with $19 million and cash and no debt.

We also amended our credit agreement to incorporate and more flexible current ratio covenant and it gives us access to the full borrowing base and.

In December the last of our hedges rolled off which had been adversely impacting our recent results as Jason mentioned and also these hedges served their purpose and protected our balance sheet, but we are.

Quarter.

1007 hundred 97 Boe per day due to the decrease in production and the Delhi field related to the shut in of the C. O. Two line as we discussed and a lack of conformance capital as Jason discussed with the resumption of the <unk> line and increased conformance work, we hope to see production numbers improve gradually over the coming quarters. We are however.

We're encouraged to see continuing price improvement on the realized prices for Ngls and realized NGL prices were up 36% this quarter for an average price of $12 36 per Boe.

Lease operating expenses increased 25 per cent to $3 million and the second quarter compared to $2 4 million and the prior quarter. This increase is entirely driven by the resumption of the CRT purchases at Delhi all of their lease operating costs remained unchanged at $2 4 million. We would however expect to see some increases.

Lease operating expenses at Delhi, and the coming quarters now that the CRT purchases and conformance Workovers have resumed.

Due to the depressed oil price environment, we experienced in March through May of 2020, our ceiling test for the book value of our properties was adversely affected therefore recorded a $15 2 million noncash impairment during the quarter as a result of the capitalized cost of oil and gas properties exceeding our forecast evaluation and ceiling.

Further prescribed accounting rules of the full cost method of accounting quarterly ceiling test is performed and calculated using the trailing 12 months first day of month average prices.

<unk> tests and payment was primarily driven by a decrease and this 12 months trailing average price for crude oil using our ceiling test from $43 63 per barrel and September 32020 to 39 and 54 per barrel at December 31 2020.

In December the last of our hedges rolled off as we've mentioned a few times here, which had been adversely impacting us as a reminder, for those listening and we had we had entered into hedges covering 4500 barrels a day, which was substantial portion of our production from April one through December 31 2020.

G&A expenses increased 500000 to $1 9 million from last quarter. This increase in G&A is primarily result of one time consulting and legal expenses associated with the sea us CFO search and transition costs as well as the occurrence of yearly administration and legal expenses associated with our annual shareholder meeting and new equity.

Plan.

Our income tax benefit increased $3 2 million or 39, 4% from the prior quarter, primarily due to a higher pretax loss associated with our impairment.

At December 31, and 2020, we continued to carry receivable for income tax refunds of approximately $3 1 million that we still expect to collect.

Net loss for the quarter was $12 7 million or <unk> 38 cents per diluted share the increase and the net loss was primarily driven by the aforementioned $15 2 million full cost ceiling impairment.

Due to the current oil price volatility the Delhi field, operator has decided to delay the phase five development project for 12 to 24 months, we do believe that phase five is economic at today's prices and we continue to included in our proved undeveloped reserves.

The previously planned Delhi phase five development expenditures were expected to be approximately $1 9 million and fiscal 2021, which we no longer expect to incur this year. However.

However, moving forward, we do expect to incur additional maintenance capital expenditures at Delhi, and Hamilton dome, and the operators resume conformance workover projects.

These amounts are not known or approved at the time, but are expected to be and the range of 250000 to 500000 and for the remaining six months of fiscal 2021.

And finally, working capital increased slightly from the prior quarter to $21 6 million and we ended the quarter with $19 million and cash after paying out 800000, and dividends have zero debt and an undrawn credit facility.

This concludes our review of financial results and operations for our fiscal second quarter.

I'll now turn the call back over to Jason for final remarks.

Thanks Ryan.

And as I mentioned before we continue to invest our time and attention into developing and collaborative working relationship with both of our operators and they are starting to see fruits from that effort would you said our annual working interest owners meetings with both operators and are encouraged by their plans.