Q1 2022 Evolution Petroleum Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the evolution Petroleum first quarter fiscal year 2022 earnings release conference call at.
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 now my pleasure to turn the floor over to your host Ryan Stash, Chief Financial Officer, Sir the floor is yours.
Thank you Kate.
Good afternoon, everyone and welcome to evolution Petroleum's earnings call for our first quarter of fiscal year 2022, joining us today is Jason Brown, President and Chief Executive Officer, and myself, Brian Stash, Chief Financial Officer. After I cover the forward looking statements Jason will review key highlights along with our operational results.
I will then return to provide a more in depth financial review finally, Jason will provide some closing comments before we take your questions.
As a reminder, if you wish to listen to a replay of today's call. It will be available by going to the company's website or via recorded replay until December 10th 2021.
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 SEC actual results may dip.
For materially from those expected.
Since detailed numbers are readily available to everyone. In Yesterdays earnings release. This call will primarily focus on our strategy as well as key operational and financial results and how these affect us going forward. Please note that this conference call is being recorded I will now turn the call over to Jason.
Thank you Ryan.
Good afternoon, everyone and thanks for joining us today with them for evolutions first quarter fiscal 2022 earnings call.
Our first quarter represented another period of strong financial performance.
And continued cash generation that supports our long term strategy.
Operating within cash flow and paying an ongoing meaningful cash dividends to our shareholders, which we've been able to do consistently over the past eight years.
In addition to our financial performance the team was able to successfully develop and publish our inaugural corporate sustainability report.
It can be found on our recently updated website I'm proud of the work that the team has accomplished in this regard.
And we'll be excited to hear for any feedback that are our shareholders.
Yes.
During the first quarter, we produced 5843 net Boe per day.
That was about 33% higher than the fourth quarter of fiscal 2021. This was primarily due to a full quarter production.
For our Barnett shale assets that were acquired on May seven.
I am pleased with our team who was able to seamlessly integrate the barnett assets into our systems.
Without any material ongoing G&A additions.
We also benefited significantly from higher commodity pricing.
As we continue to remain unhedged during the first quarter.
These factors combined with the efforts of our third party operators to leverage efficient fuel cost structures.
Resulted in an adjusted EBITDA of $8 5 million.
This was more than 80% increase from the fourth quarter of last year.
We once again generated operating cash flow in excess of capital expenditures, which allowed us to pay our 30 <unk> consecutive.
<unk>.
Quarterly cash dividend.
In addition, we were able to grow our cash position to $8 million at quarter end, which was a 51%.
Higher than our cash balance at June 30 of 2021.
Now looking at our operating results in more detail net production at Delhi for the first quarter was 118228.
That's about 285 Boe per day.
Slight decrease of around 3% compared to the prior quarter oil production was impacted by decreased their reservoir pressure.
Due to the suspension of <unk> purchases from July 15th through August 20th.
Preprint of preventative pipeline maintenance.
During the scheduled pipeline repairs to seal to recycle facilities operated as usual, providing about 80% of the typical injection CNC volumes.
The pipeline is owned and operated by <unk> and on August 21, the pipeline maintenance was completed and resumed flowing through Q2 at a rate of approximately 85 million cubic feet per day.
The operator anticipate.
It's right up to about $110 million.
Up to about 110 million cubic feet per day during the next quarter in order to increase pressure to support to the reservoir and host to continue the elevated purchase rates throughout the winter and spring.
Along with the operator, we are hopeful that these additional tier two volumes will help to reestablish the reservoir pressure.
Some of the subsequent associated production that was lost.
As a result of the temporary pipeline failure in fiscal 2020.
At Hamilton Dome, we saw sequential sequential quarterly increase in production of 2% to 37145 barrels.
Or 404 barrels of oil per day. This is primarily due to continued reactivation of previously shut in wells.
The strategic adjustments to water injection locations and volumes as the operator.
Merits field projects remained focused on maintenance.
During production and optimizing.
The field.
Net production of the Barnett shale assets for the first quarter of fiscal 2020 to 392115 Boe or $41 53.
Bo per day.
This is about 59% higher than the fourth quarter of fiscal 2021 increase mostly was due to this being a full quarter production compared to 55 days in the prior quarter.
Due to our closing the purchase of the assets on May seven as we discussed in our last call Blackbird operating primary operator of our Barnett shale assets sold or interest to diversified energy company <unk>.
In July of 2021.
We look forward to providing more detail.
On the expected future Capex and operational plans at the Barnett assets. Once a diversified has finalized their plans upon completion of the transition period and although we are pleased we have already received a workover for the reactivation of the saltwater disposal well from them, which will allow the return of production for four offset wells. So this is <unk>.
<unk> the kind of work that we anticipate from diversified and we're excited about other high rate of return projects that we can participate with them on those assets.
Our Barnett shale acquisition has materially increased our exposure to natural gas through the acquisition of another long life low decline asset.
We're excited about what that accretive acquisitions out of our company and our shareholders moving forward with purchase was particularly well timed considering the sharp increase we've seen in natural gas prices in recent months consistent with our successful past strategy will continue to evaluate additional accretive opportunities to expand our business for the long term.
Right of our shareholders.
These efforts support our long term focus on continue to operate within cash flows we maintained.
And potentially increase the cash dividends that we paid our shareholders over time. Despite the challenges of 2020, we've been proud of our commitment to return meaningful value to.
So our shareholders through a consistent dividend program.
This includes increasing our first quarter fiscal 'twenty two dividend to seven five cents per common.
Share of stock and that was paid in September.
It is supported by continued improvement of our business and economic environment. We were pleased to declare a second quarter dividend that will be paid on December 31 to.
To shareholders of record as of December 15th.
This dividend evolution will have paid out.
$80 million.
The $80 million or $2 41 per share back.
Back to shareholders as cash dividends since 2013, maintaining and ultimately growing our stock dividend along with achieving disciplined growth through accretive acquisitions remain our key priorities moving forward and we are.
I appreciate your continued support of our shareholders with that I'll now turn the call over to Ryan to discuss our financial highlights.
Jason.
I'll share some more details regarding our financial results for the first quarter of fiscal 2022 as I mentioned earlier, please refer to our press release from yesterday for additional information and details and some of the key highlights are.
As Jason had just mentioned that we paid our 30 <unk> consecutive quarterly dividend in the first quarter of $7.05, which is a 50% increase over the prior quarter and as Jason also mentioned we declared $7.05.
Dividend for this upcoming quarter. This can be payable on December 31, 2021.
Our adjusted EBITDA increased more than 80% to $8 5 million from the fiscal fourth quarter of 2021 and as Jason also mentioned this is really due to a full quarter production from the Barnett shale that closed in may as well as improved commodity prices relative to the prior quarter.
We were able to fully benefit from these increased commodity prices due to our strategy to remain unhedged.
Funded all operations development, Capex and dividends out of operating cash flow and maintain a strong balance sheet with $8 million of cash on hand, and $4 million drawn resulting in a net cash position of $4 million as of September 30th now I will say, we do expect to pay off this $4 million during this quarter, our fiscal second quarter as we're set to have a final.
Settlement with Tokyo gas to sell over the Barnett assets, we expect that to happen. This month working capital increased by $4 1 million to $15 $6 million. This quarter and this is really due to a lag in revenue receipts and invoices from the operator of the assets diversified. So we currently have more months than we would usually.
We expect of revenues and expenses in our receivables and payables. We do expect these timing lag to be corrected during this fiscal second quarter as diversified has now begun to take over operations and also as I had mentioned, we expect to complete the final settlement with the seller going forward. We would expect to have approximately two months of receivables and one month of payables and on working cap.
<unk> accounts, which is typical for non operated assets.
Turning to our credit facility, we incorporated our acquired Barnett assets and our recent amendment. The eighth Amendment that was finalized in November night. The result, with the determination of a new borrowing base of $50 million, which was a $20 million increase from our prior borrowing base of $30 million. However, we have elected a $40 million commitment amount, resulting in current.
Ability of $36 million as we currently still have four drawn 4 million drawn as I had mentioned.
I would note that the amendment does add a covenant requiring us to hedge certain percentages of future production based on the utilization of the borrowing base under the credit facility more specifically once we reach a 25% utilization on our borrowing base, we're going to be required to enter into hedges for 25% of our PDP production on a rolling 12 month basis.
Once we hit 50% utilization that's required hedging increases of 50% and once we hit 75% and increases again to 75%.
I will say that we do continue to maintain our strategy of retaining exposure and upside to commodity prices, which has benefited US recently, however, as we have mentioned in the past and feel like we're being consistent in the way we've talked about how we would handle potential acquisitions and that we will look to hedge a portion of the production from a potential acquisition to lock in return and ensure.
Quick pay down any debt that we may borrow.
Now looking at our first quarter financials in a little more detail. We grew total revenue by 38% from the prior quarter, which was primarily due again to the benefit of a full quarter of production from Barnett as well as an overall, 2% increase in realized commodity prices on a Boe basis.
<unk> increased to $8 6 million in the first quarter, primarily due to the higher volumes with the Barnett shale and increased workover activity of Hamilton dome.
Partially offsetting this increase in LOE was a previously mentioned suspension of Sidoti purchases at Delhi from July 15th August 20th to perform the necessary pipeline maintenance. This combination of lower CRT purchases and lower and the lower operating cost nature of our of our now Barnett shale natural gas wells resulted in low cost of 16.
<unk> per BOE for the first quarter, which was a $6, 16% decrease from the fourth quarter of 2021.
G&A expenses were $1 9 million for the first quarter compared to $1 8 million for the prior quarter with the overall increase primarily due to onetime costs associated with the retirement of the Chief accounting officer professional fees associated with the Barnett shale acquisition and some initial costs for the development of the Companys inaugural corporate sustainability report.
Net income for the first quarter was $5 2 million or <unk> 16 per diluted share compared to $2 2 million or <unk> <unk> per diluted share in the previous quarter. Again. This increase was primarily driven by higher commodity prices and a full quarter of production from the Barnett shale.
For the three months ended September 30, we invested 300000 in Capex, which is primarily associated with Delhi field capital maintenance activities. We currently expect that the operators at Delhi, and Hamilton down will continue conformance workover projects, and we will likely incur additional maintenance capital expenditures as oil prices remained strong for fiscal year 2022.
Based on discussions with the operators our total Capex for Delhi in Hamilton Dome is expected to be in the range of $1 million to $2 million, primarily consisting of conformance workover and maintenance capital projects.
Also as Jason mentioned, our capital spending program has not yet been established for the Barnett shale, but.
So as he had mentioned we are beginning to see projects proponents and would expect to continue to see additional workovers and returned to production projects given the commodity price outlook now.
Now with that I'll turn the call back over to Jason for his closing remarks.
Thanks Ryan.
We're very pleased with the momentum that we built through the first quarter of fiscal 'twenty two.
We remain focused on our core values, which include generated cash flow and providing our shareholders with a meaningful return on their investments through cash dividend and executing on additional accretive acquisition as I said on our last call I believe that we've demonstrated our ability to source value and successfully transact on opportunities that support this strategy.
But equally important to those activities is the ability to integrate and manage those assets once they are owned.
Team has done a great job with this which only increases our confidence in the outlook of our organization.
Supporting our efforts providing shareholders with an ongoing cash return on their investment.
Is our commitment to continuing sustainable business practices as I mentioned earlier last week released our inaugural corporate sustainability report and while we currently do not operating the assets in which we have ownership interest.
We view, our environmental social and governance or ESG programs.
And initiatives is key to our strategy to further differentiate evolution, both now and in the future ESG will be a consideration as we evaluate future accretive opportunities to grow our asset base and reserves.
Following our Barnett shale acquisition, we remain eager to continue grow to grow in both in size and scale and feel that we're well positioned to execute on the right opportunities for our business we.
We continue to source and access a wide variety of marketed and negotiated transactions. We're optimistic that we will be able to grow our business and provide additional shareholder value.
Through targeted expansion of opportunities in fiscal 'twenty two.
With that I think we're ready to take questions. Operator, if you'll please open the line for questions. Thank you.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
You wish to withdraw your question you May press star Q to lead the queue.
We do ask that if you were listing on speakerphone. Please pick up your handset for optimum sound quality. Once again, if you have any questions or comments. Please press star one now.
And our first question today is coming from John White at Roth Capital Partners. Your line is live you may begin.
Thank you operator.
Good afternoon.
Jason and Ryan Hey, Joe Hey, John.
I was really glad to see the strong results all the way round.
And congratulations on the increased borrowing base.
Thank you.
Awesome.
Some of the Hamilton Dome Workovers were included in <unk>.
Are there more of those coming in.
In the in the next quarter or so.
Okay.
Those guys it really sharp during 2020, they basically pulled it down to hardly anything there's not really any new drilling going on up there are no new capital project. So those workovers, they're more expense workovers.
Things that down pumps that sort of deal Theres a few items that are wells that they took off production immediately about 40% and over the last year. They pull things back on this last set with now the final saltwater.
Injector well that they were able to turn back on so we would consider this this quarter to be high there may be a little bit more in the next quarter. There are consistently some workovers from time to time there just in.
Pumps going down or whatnot normal maintenance.
Was it was extra within what we expect.
For two reasons, one to kind of make up some things that they had been putting off in lower price environments and to to get that force injector up which is going to allow more water to be injected around the field. So.
So the short answer is yes, maybe a little bit more it was higher than normal but I.
I think that.
Put our lifting cost up to about 40 Bucks a barrel, we would anticipate that that's going to ease back to the low 30%. So I think we're in the $31 50 before.
And maybe even better than that more of an ongoing thing although the next quarter it might be slightly somewhere in the middle that makes sense John.
Yes, it does thanks for that detail.
And boy.
Natural gas out of the Barnett sure has a positive effect on Hello.
You mentioned.
One saltwater disposal well as planned and you said.
Diversified is still finalizing.
Their plans are you getting any kind of.
In formal indication.
The workovers at the Barnett.
Yeah.
No I think they're finalizing their transition.
The services agreement with Black Beard. This month, so we would anticipate being able to have it we just didn't weren't able to have them be a formal meeting with them before this call, but we anticipate that over the next few weeks no. We just actually got it.
And AFC from them, which we were actually pretty surprised to have and are excited about its not the drilling of a new saltwater disposal well. It's the reactivation of one that would then in turn allow those wells that were previously producing I think theres four wells that we're making about 450 a day.
That's just gas that we're not going to make so it's those types of activities, we anticipate quite a bit up but I will say, we also have got in AFP on a new drill well out there job.
This is one of the minor.
We have some other assets there that I think we have about one 5% interest. It's a small piece that are operated by a few other operators diversified to the main operator for and so this is one of the other ones. So it wasn't a significant thing for there, but there are people standing up rigs in the Barnett, which is which was interesting to see as well at some point some of those.
Locations might be of value to us so we're going to be looking at that over the next quarter as well.
Well very good it looks like the acquisitions working out very well for you and Oh.
Ill pass it on.
Thanks, Jeff Thanks, John.
Thank you. Our next question today is coming from Eric Bolton at Grand Slam. Your line is live you may begin.
Hey, guys congratulations on a very nice quarter and really congratulations on having made such a good acquisition with the Barnett shale.
You mentioned that you were starting to look towards the the final settlement with with Tokyo gas, what's what's involved in that.
So yes, if you recall.
It took us a while to get the deal over the finish line with kind of working with the Japanese counterparty, but the actual so the effective date of the transaction I think we've talked about this before was January one of this year.
So when we closed in May right. We received a portion of what Tokyo gas and receive which was about a couple of months worth.
Cash flows in May and we expect to receive the remainder of kind of those cash flows between call. It March and in May when we closed finally, but theres actually probably even a little bit more as it's taken it took the prior operator blackbird, a while to get things transitioned over so.
There's a decent amount that we will probably expect to receive only when we close here on the final settlement, which is basically truing up every all of the revenue that they received from January one to now okay. So we're basically expecting this to be a positive result that you own them any more money right into them paying you extra money.
Correct Okay.
And there were also I think there were a few wells that they had but didnt immediately transfer because there was some question about whether somebody had a writer first refusal is any of that.
Still that'd be part of this or is that is that just completely dead.
I think we should assume at this point that it's that we're certainly open to it.
That was actually not a writer first refusal.
Lawsuit.
Okay.
It's backed off because the operator was also selling blackbird a diversified.
Yes.
They chose to just go ahead and close despite of the lawsuit. So we kind of stayed away from that if it got remedies, we would be fine to make a run at it but I think also you have the complication of them probably wanting a whole lot more for it so I'm not sure that we wouldn't we would buy it at this point, but I think it's safe to assume at this point, let's not and if it comes back.
Round at some point, we're free and clear then we would probably take a swing at it.
Okay.
And obviously, you're generating a tremendous amount of tremendous amount of cash and it looks like youre going to youre going to generate some more cash here from I guess from this final settlement.
So some of it will go to pay off I guess that $4 million that you have I was actually a little bit surprised that the board chose not to increase the dividend at this time, considering b b.
The amount of cash that you currently have and then I mean looking out just a couple of quarters you could be all the way back to the amount of cash you had.
Before the last acquisition, probably by the end of June if prices stay up here.
Any any thoughts on sort of what the board's thinking is there.
Well.
This is a pretty thoughtful board in and has a reputation long earned from being very fiscally disciplined and prudent. So I think what you are feeling here is real.
Relevance too.
To go too aggressive to raise the dividend and not wanting to lowered again, we feel like the reputation is really built around we pay our dividend we've only lowered it twice during two in 2014 when commodity prices collapsed and then in 2020, when they did as well each time kind of measured Lee moving forward. So I think what youre seeing there.
We could have went right back to where consensus but.
We're certainly feeling more comfortable about the stability of overall economic environment, and Covid situation and our cash flows and everything else, but there's been quite a bit of volatility in the last 12 months and I think yes.
For sure.
Sure.
I don't have.
I don't know I have a little bit more runway I guess.
Okay.
Just add real quick I mean, when we when we had discussions on dividend policy I mean, we look.
Five plus years out right and so if youre looking at years, four and five as you probably know the stripped highly backward dated so.
Things look a little different right and so as Jason alluded to I mean, we're setting a dividend rate for the long term and so while we could have raised it we felt being more prudent given kind of the backwardation and prices and quite frankly, keeping some powder available as acquisition opportunities that we see.
Uh-huh.
Okay, and I guess, you'll actually that sort of leads to my last question. If I may just kind of on the acquisition front with the Big run we've had on commodity prices is that making it harder to source deals.
Well, what he just no definitely not to source deals.
There's a ton of deals out on the market some of them with unrealistic unrealistic expectations.
Yeah.
The thing that's interesting is what Brian just said, though.
The strip is pretty backward dated now we're fairly bullish on the long term prices, but the market in general is pricing quite a bit of uncertainty.
Evidenced by the backwardation, meaning that if prices are pretty high right now, but a couple of years out gases back three bucks oils back to 55 or whatever it is I mean.
Pretty quickly the interesting thing that that is almost enabling though if is transactions to actually happen because people can get closer to strip pricing further assets.
And people buying them, if you're reasonably confident about the future curve.
You might be willing to pay closer to strip because the strip so backward dated.
For us we're looking for that long tail, we're looking for barrels five 710 years out there and those things are getting priced way down right now that makes sense. So absolutely that makes a lot of them and we're pretty we're pretty hopeful like I said it in there.
Right right. We're also pretty hopeful we'll be able to transact in the next six to eight months on something else that will support the dividend.
Excellent. Thank you again.
Yes.
Yeah.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one at this time.
We have no further questions in queue at this time I will now turn the floor back over to management for any closing comments.
Well. Thanks again, thanks for your participation today and feel free to contact us if you have any.
Any other questions or comments.
Appreciate the continued support from our shareholders and look forward to providing everyone with further updates on our business and potential targeted growth opportunities on our second quarter fiscal two.
'twenty two earnings call that will be in early February.
Thank you.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day, we thank you for your participation.