Q1 2024 Evolution Petroleum Corp Earnings Call
Good morning, and welcome to the evolution petroleum first quarter fiscal year 'twenty 'twenty four earnings release conference call.
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I would now like to turn the conference over to Randy Hudson Investor Relations manager.
Please go ahead.
Thank you and welcome to evolution Petroleum fiscal first quarter of 2024 earnings call I'm joined by Kelly Lane, President and Chief Executive Officer, and Brian cash Senior Vice President and Chief Financial Officer Treasurer.
We released our fiscal 2024 first quarter financial results after the market closed yesterday.
Please refer to our earnings press release for additional information concerning each yourself you can access our earnings release in the investors section of our website.
Please note that any statements and information provided on today's call speak only as of today November.
November eight 2023, and any time sensitive information may not be accurate at a later date.
Discussion today will contain forward looking statements of management's beliefs and assumptions based on currently.
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.
Thank you for this call we may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income reconciliation.
These measures.
<unk> GAAP measures can be found in our earnings release.
Brian will begin today's call with a brief review of our fiscal quarter highlights and then I'll turn it over the call Kelly for an update on our properties and plans as they relate to our ongoing strategy of maximizing total shareholder return 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 investors section of our website with that I will turn the call over to Ryan.
Thanks Brandi.
As Brian just mentioned, we released our earnings yesterday, which contains more information on our results My comments will focus mainly on the highlights of the current quarter.
In September we entered into a participation agreement to horizontally develop a portion of the Chevron oil field in the Permian Basin and New Mexico. This is exciting to us for a number of reasons. It provides evolution with over 80 gross and 40 net locations to horizontally develop an enormous proven oilfield with an <unk>.
Estimated 700 million barrels of original oil in place with only 5% having been recovered to date.
Of all of our development opportunities, we expect the <unk> field to provide the most economic and largest upside opportunity. Additionally, the deal was structured in a way where evolution only pays upfront acreage costs for locations to be drilled within the upcoming development block and the majority of the money we spend on this project goes.
Where it will benefit shareholders and most into the ground and towards producing oil.
This quarter, we had total revenues of $20 6 million net income of $1 5 million and adjusted EBITDA of $6 7 million all significantly higher than last quarter, primarily as a result of improved commodity prices and also due to improve operations at most of our properties negatively impacting.
This quarter was 500000 and adjustments related to ownership updates received from the operator of our Barnett properties. These adjustments covered a 22 month period beginning in September 2021.
These adjustments affected the top line and therefore reduce revenue net income before taxes and adjusted EBITDA each by $500000.
For production, we were able to achieve a net zero percent decline in production from the previous quarter to this quarter, we saw operational improvements in our Williston and Delhi assets from last quarter offsetting declines in the Barnett shale properties due to some continued operational challenges there on.
On the development side, we brought on two new producing wells at Delhi at the end of the current quarter and subsequent to quarter end drilled and cased, one well and spud another at our <unk> field in the Permian Basin.
Our second fiscal quarter will benefit from a full quarter production from the two new wells at Delhi, while the Chevron wells are expected to begin impacting financial results by the end of the third fiscal quarter and be more fully reflected in our fourth fiscal quarter.
After fully funding our operations field development expenditures and paying our dividends. We ended the quarter with increased working capital and maintain liquidity of approximately $60 million between cash on hand, and $50 million in borrowing capacity.
On the shareholder return front, we paid 12 cent dividend in September and declared another <unk> <unk> dividend to be paid in December which will mark our 40, and 41 consecutive quarterly dividends and fifth and sixth consecutive dividends at the current level.
I'll hand, it over to Kelly.
Thanks Ryan.
Evolution, we accomplish our strategy of maximizing total shareholder returns by carefully weighing the use of every dollar we put to work for all of our stakeholders always with an eye towards increasing or extending the runway of our dividend.
In order to generate the return on capital we use to fund our dividend program, while maintaining our asset base for years to come we have assembled a group of producing asset that is diverse both in terms of commodity mix and in terms of regionally.
If oil is selling for a premium near the Gulf Coast, we have assets that will benefit from that if natural gas is selling for a premium on the west coast. We have assets will benefit from that and so we have always sought and we will continue to seek acquisitions accretive strategic producing properties that meet our criteria.
To allow us to support our dividend for years to come.
As announced earlier this quarter through our participation agreement in the Permian basin to horizontally develop the Chevron field.
We now have an additional strategic property that we expect will bring organic growth to the company further diversify our asset base and be very supportive of our dividend for many years.
Now we will give you a bit of the state of the union on our various properties will discuss the state of our properties as we stand today, where appropriate versus during our fiscal year 'twenty for first quarter and versus our fiscal year 'twenty three fourth quarter.
Since Mark bunch, our CEO is traveling today.
Brian will cover the Jonah field Williston Basin, Barnett shale properties, and I'll discuss our Hamilton Dome field, Delhi field and <unk> field properties.
Yes.
Thanks, Kelly and our Jonah field production for this first quarter of fiscal year 'twenty four was slightly stronger than it was for the fourth quarter of fiscal year 'twenty three and current operations as of today are continuing as expected for our Williston basin as we previously disclosed during our fiscal year 'twenty three fourth quarter.
Production was subdued due to certain wells, having production issues and needing workovers as well as downtime related to the compressor station at rough rider.
The Workovers that were completed during the fourth quarter of fiscal year 'twenty, three and continued into the first quarter of fiscal year 'twenty four led to increased oil production during the current quarter versus last quarter. The compressor station issues that began last quarter continued during this quarter affecting our natural gas and NGL production.
As we stand today these issues are largely resolved.
At our Barnett shale properties, beginning in April 2023, and continuing to varying degrees through October of 2023, our production suffered from the Elisa <unk> of compressor related issues due to the extreme heat experienced this summer excessive downtime within Enlink is gathering and processing system pipeline rerouting and.
<unk> optimization and our operators decision to temporarily shut in low margin wells that were largely brought on to take advantage of the high natural gas prices realized during the second half of 2022.
These effects were felt during the last in current quarters and led to an overall production decline that was well above the natural production decline.
As of today Enlink has finished their major overhaul at the corvette processing plant. The summer heat has abated and the pipeline optimization project has been completed we were glad to see production remained relatively flat from last quarter to this quarter and will continue to closely monitor. This we believed a large declines are substantially.
Done and things should begin to normalize there.
Now Kelly will discuss our Hamilton Dome field, Delhi field and <unk> properties.
Thanks Ryan.
At Hamilton Dome field, our current quarter production remained very flat relative to last quarter and we're continuing to see strong performance from this field.
At Delhi as stated previously our fourth quarter fiscal year 'twenty three production was impacted by downtime associated with the installation of the heat exchanger project.
Full field shut down for maintenance.
Related compression issues and downtime at the NGL plant due to turbine issues.
During our first fiscal quarter, we began to see benefits from our heat exchanger project and didn't experience a full field shut down for maintenance.
Oil production was impacted by the extreme summer temperatures somewhat limiting the heat exchangers ability to cool the C O two.
We believe that the heat exchanger was still key to preventing a larger impact on the field as seen in previous summers.
Delhi Ngls were up 40% from the previous quarter.
However, we did continue to be affected by turbine issues at the NGL plant, which led to downtime and a lessened ability to optimize it.
Overall, we saw a sequential production increase of roughly 6% at Delhi and as we stand today. The NGL plant is fully operational and being optimized to achieve higher rates as a result of the heat exchanger and increased run time.
As Ryan mentioned in the highlights at the end of Q1, we were able to bring on two newly drilled wells. The Delhi 119, 10, and the Delhi 123 23.
Well at least did not have much of an impact on Q1, given the short amount of time that they run during the quarter. The early results of these wells are positive.
And we are encouraged with them going forward.
Regarding the future of Delhi I'm sure. Many of you saw that the Exxon acquisition of Din Barry was finalized.
I was able to speak with some of the operators Delhi team and they're very positive about the outlook for Delhi going forward.
Their priorities seem to align with ours and they are already working to get improved contracts for the area.
Continuing did barry's previous efforts Exxon is moving fully forward through the process of getting Delhi certified as a carbon capture utilization and storage site and have every reason to believe that they will be successful.
We will report more on this as developments occur.
Lastly, our newest venture the chaperone field.
We finalized the participation agreement during the current quarter only about a month and a half ago and we are pleased to report that we have already drilled and cased. The first partnership well and are well underway drilling the second well of a three well pad with a third well to follow completion work on the three wells is expected to commence at the end of this cat.
Under year with first production expected in early 2024.
For now we can say that we're very pleased with the progress we've made with our partner <unk> and look forward to sharing our results with you at the appropriate time.
With that I'll hand, it over to the moderator to begin the Q&A session. Thank you very much.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
And our first question will come from Jonathan Shaffer, Oh Roth capital. Please go ahead.
Yeah.
Hi, guys. This is Donovan schafer with Northland capital markets.
Sorry, if I had a part in any confusion there in mainland company Ah I Wonder if first asked about just because you know it's been an important part of things in the recent past I wanted to ask about west coast natural gas prices for the Jonah field you know it didn't.
Have a.
Your upside and you know that's not what we should expect per se going forward in general like where like the 20 plus.
Her mcf prices, we had a couple of quarters ago, but it does seem like there is still you know maybe a $2 premium or something in the last time I checked versus east coast prices are but again I know you've got legs first day of the month pricing.
I'm, just curious of Ryan or Kelly, if either you guys can kind of talk about how.
How does the influence of West coast natural gas pricing with you guys and the way that all gets contracted maybe for the current quarter just how that's looking.
Yeah sure I'll take that I appreciate it thanks for the question Donovan.
So as you mentioned clearly prices have been not quite as high yet as we saw them last winter, but I would say you know I was looking back last year or two you know October really adding going to November was a little soft too I mean, we're still just getting into winter. So we havent really seen I don't think a lot of hopefully what we're going to see in pricing.
But we have seen a little bit of early sort of winter I would say strength here you know he thought we saw a little bit of a spike at the end of October into November, which should help our November price out there where it was trading.
Close to $5, an mcf, so and if you remember too we also get an uplift in Jonah because we're selling them a little bit richer gas. So it's about one.
One one.
110% kind of of the Henry hub price you see so we get that uplift too so.
We're a little encouraged what we've seen this early winter and I will say the differentials are still it's still relatively strong. So December I just looked December and January are still probably at $5 premium to Henry hub at least in the futures market.
So we're hopeful that we're going to see some strong pricing here again, thats why im probably not what we saw last winter, but hopefully some strong pricing.
Okay. That's very helpful. And then Kelly you made an interesting comment around the Exxonmobil acquisition of Denburg.
Got it.
Jim you spoke with their already are.
Working to get improved contracts for the Delhi area.
One I'd just be curious you know what are the like for Exxonmobil. You know who are the service provider is they're trying to contract with them as it is.
Sort of basic as electric utilities and.
Maybe service rigs.
I don't have their own yeah, how much can that move the needle and is it do you think theres a meaningful chance that.
Exxonmobil I mean done Barry was already a.
Fairly large sized player but of course exxonmobil is nor is the biggest.
By certain measures so.
Is there a potential for a real meaningful increase there if exxonmobil can come in and have better bargaining power with service providers. If you can just talk through where it gives some more color there that'd be great.
Sure and thanks Devin.
You will see a there's there's always activity going on at Delhi right. So there are plenty of service providers.
On a continual basis from a contract basis electricity is a big thing.
Additionally for the NGL pricing we received there.
Danbury had a nice contract it went off.
And during the transition during the time from which they signed the deal to close they were they you know like any normal deal they werent going to enter into any new meaningful contracts.
First speaking with them I understand that that is already underway.
Which I think could have a really nice impact for us.
Going forward.
Additionally, like you said with service equipment, frankly with with the rental turbines.
In particular I know it was mentioned to me are that excellent actually has a whole team dedicated to contracts with GE. So I certainly think we have a real good chance of getting a better deal on that on the turbine from there.
So it's just across the board bigger company bigger leverage better contracts up.
Okay. That's helpful and then I kind of I thought of this question ahead of time for Mark bunch, but.
I heard that he is not on the call, but maybe Kelly you may or Ryan both of you may have some.
Knowledge of this.
You cited the two wells are in the chaperone field one of them is already been drilled and cased. The other one is <unk>.
Currently being drilled.
No.
I know the way it guys like Mark our [laughter] and is probably getting a daily update you guys might be getting a daily update as well, yeah, where you could see details like a you know it's the first drilled and cased well if you pulled the wireline log on it getting some data there if youre getting one.
Updates from from mud logging or if you're doing measurement. While drilling is there anything that you guys are seeing that is either incrementally positive that you're excited about.
Or or or the opposite and yeah. There is kind of measurement. While drilling are you able to have a good sense of where were you where you've landed the laterals and you kind of happy with where those laterals are are coming in to the formation. I think you were targeting kind of the top of the formation so sure.
Any color or updates there.
So a couple of things the second well actually this morning, I think it was down two measured depth of over 8400 feet. So it's coming along nicely.
And I can tell you that on both wells the the target zone that we're going for is about 40 feet thick.
And there is a particular sort of window in there.
About 20 foot thickness, which you know we do the Oh, the logging, while drilling and Geo steering and the first well was 97% in the 20th.
20 foot window.
And the rest of it was just a couple feet outside so all well within the 40 foot window in the second well is looking very similar the mud logs you know you're getting a little bit of gas show up a little bit of oil show up and it's in the sort of.
Dolomite here, it's not going to be a hugely telling it's a known feel we know the lithology, we know theres oil there. So it will really be the completion activity, where you'd get a C. Moore resulted as opposed to hoping to get some huge kick on our mud log but it.
Anyway, I I like I said in the note were very pleased 97% within a 20 foot window and the first one and it's looking similar if not better in the ER and the second one so far so.
Happy with happy with that for sure.
Yeah that is I mean, if anything highlights you know the technology improvements and being able to go into an old field like this with.
Horizontal drilling within the accuracy of a 20 foot window, yeah 8000 feet below their gout is it's pretty incredible.
It makes it helps kind of.
The the compare it makes it a compelling about you could really get some have.
Meaningful extra extraction from that kind of improvement.
Okay. Just a quick clarification I think you probably noticed we just messed up but it's about 44 feet below the dam sorry total length of laterals.
Right around about a mile from there so.
My apologies.
Okay. I'll go ahead, and I'll I'll take the rest of my questions offline.
Terrific. Thanks again donlin.
Okay.
The next question comes from David Lock of Old Man with investment.
Please go ahead.
Hey, guys, how you doing this morning.
We're doing all right how about you.
I'm doing alright can't complain.
Oh.
Just quickly on sort of like production levels would it be would it be fair to say, given new wells drilled and resolution of problems that.
Your exit rate was a little bit higher.
In the September quarter than the average for the 90 days.
So.
I can I can say things that you you can draw your own conclusion, there there were issues that affected us throughout the quarter that exiting the quarter had less of an effect on us how about that.
Okay.
And what the heck is going on with all your compressor compression stations, I mean, not not yours necessarily but it's.
Industry wide problem at this point.
Well some of it in some of it I think is a more specific.
Enlink took over in the Barnett I know about a year ago. So one of the things. They did is they value evaluated all their lines and all their play.
Plants and processors and they did some overhauls and they tried to optimize and.
Brought things down and move things around and you combine that with.
Trying to do new projects are in addition to what you would normally do to optimize to help with some of the compression Ah I just think it it's been a challenge for them. We do expect that we will get better as they go forward.
And.
I think on that front that pretty much covered there like I said there were several projects that they had and we.
It should be finished with most of that most of those so they can focus more on day to day operations.
And getting back to where they are more efficient and going along those lines in Delhi and then we've seen in the past right.
And the extreme heat and the extreme cold it's affected the density of the C. O two which gets injected which has you know ramifications this summer.
In particular was.
I would say a standard deviation higher than normal on the heat front, which is one of the main reasons, we wanted to put in the heat exchanger.
We do think it has had a nice effect already we think in the winter you'll be able to see some real benefits there.
Just just quickly when the heat exchanger at Delhi is meant to accomplish for primary functions first to reduce L. E.
By removing you know a lot of the prior equipment they needed for cooling there was a lot less efficient will get swamp coolers and literally plugging in fans and running cold water over things like the heat exchanger will help with that and really should improve L. O.
You can use more gas and electric E. L. You can have less gas used to cool things less electricity for heating and cooling and less chemicals et cetera.
Second really the cooling the C O two during the summer heat to allow for better inject ability. We saw some of this effect, it's hard to know how much different it really would've been but we do feel there was definitely an effect.
And then the third when you look at the heat you would need to heat up the inlet stream and the winter is pervades hydrates from forming and freezing issues.
And lastly.
The fourth one really it allows for us to optimize the NGL production more of it can go to the plant versus being used to warm the inlet stream. So there's a couple of benefits from that capital project that we've been working over the last couple of years, yet to be seen but.
Anyway, it's it's it's in place and we're hopeful for the effects there.
Excellent.
Sort of switching gears, a little bit the adapt trial wells.
What sort of initial rates.
Are you guys expecting those to come in on and what is the decline curves look like on those.
So we have a bit of that in our presentation, but I mean, the Ips that we're using we're trying to be fair.
Fairly conservative, but they don't want a gross about 300 barrels a day per well.
And then it's going to decline.
Hyperbolically until it becomes.
Until it becomes exponential and until it becomes linear at the end of its life so right.
Right.
Sure and.
And it's not as.
Steep of a decline as say like a Delaware well right. It's not it's a different rock formation. So we expect it to be.
A b factor of.
Well, yes.
And just so I, that's why I sort of keep my math straight when when you say 300, that's like gross to the well so not not to your interest that is correct.
Okay.
And this first batch of wells is about an 83% NRI. So.
Pretty good on the royalty front and we're obviously half of that.
Okay.
And then lastly.
Lastly on Delhi, you've mentioned quickly in the prepared remarks about Exxon proceeding forward with that potentially being a uh huh.
Carbon capture and sequestration site.
What extent if any does that accrue to you guys doesn't interest owner or is that all just exxon's money and.
Project.
No I mean, I think you know based on our initial discussions with our tax folks I mean as long as they take industrial C. O two right into the field, we should be able to get our proportionate share of the 45 acute credit. So I mean, I think it would do two things for US right. One is it can potentially reduce our L. O right. If they are.
Can I take C O two from Jackson Dome, which is our biggest expense there.
And then two you know whatever they inject from industrial side, you know we can get a promote we should be able to get a proportionate credit of that and the other thing to consider there I mean this the line that goes to Delhi is connected to the line that goes to all of the other fields along the Green line.
So the expectation is it will be considered fungible.
I should get it to propulsion and we should get our proportion of that so.
Okay. So that that that was going to be my next question, which is like how do they how do you.
A portion what comes from Jackson Dome, and what comes from industrial sources, whereas that again sort of like.
Exxon accounting thing and they'll figure out a way to allocate stuff.
Take the most money themselves.
Uh huh.
Well, you know look let's be honest it it remains to be seen but.
Again, when I spoke to the folks over there are they.
They were again had every expectation that that it'll get certified so.
And any sort of like round expectations on when that might happen.
What the latest I heard was by the end of the calendar year now whether this finalizing of the merger affects that at all one way or the other.
I am not sure, but I don't have any reason to change that expectation as of now.
Okay.
Perfect. Thanks, a lot gentlemen.
Thank you.
The next question comes from John Bair, ascend wealth advisors.
Go ahead.
Good morning.
Good morning to you John.
All of them.
Couple of my questions have been answered asked and answered one of the one I had was on the Chevron wells, what what's the cost per well on those.
What's your A&P cost on that if he has 3 million.
Okay, so half of that growth correct.
Okay.
And then you also mentioned there were two down dip wells that you indicated.
We're working.
Favorably.
What kind of rates are you what kind of increase in production on that.
Yes so.
Like I said, it's not it's not going to be a huge number right. We think the two combined are will ultimately peak at around 250 ish barrels a day gross.
So call.
Call it a quarter of that for us on our end.
Again, the economics on it though.
What they cost and the return we think these are very nice return projects, but more importantly, one of them was more of an infill well sort of within a pattern.
Trying to see if you could get a little bit of additional inswept area and the other one was more down dip, which goes along with some of our belief that the C. O. Two injection over the years may have pushed some oil down dip.
And where like you said, it's early days, but ER, but we're we're pretty happy with the results and I know that the team over there.
<unk> is as well so this could certainly.
Lead to more locations. We don't we don't have any on the books, when we schedule them lean and be able to get into that but we do hope it can lead to some more down dip location. So.
Well I know Theres an area.
It's Ben.
<unk> been out there I forget with section five or something else, but yeah.
<unk> had some potential and.
So this is not this is not that John just to be clear. This is elsewhere right right no I understand what I was getting at is that you've got some <unk>.
What's your perspective it has not.
Not been addressed I guess.
For various reasons with done Berry's issue and so forth.
<unk>.
Do you sense that that the Exxon will continue due to to.
To work.
Maybe the to do those kind of in fills or or is that too small for them to really oh.
Oh.
Expend capital.
So first of all I think what Exxon is going to do is.
What makes the most sense and I think they have to look at fields and EMI myopic sort of sense. So I do think they will try and optimize each of the fields. They have so.
With regards to test site five I I can say this win win didn't Barry was the operator they were resistant towards.
Towards going there are they do you know.
All done the work and we all think it's a very economic project, but you know for reasons related to past [laughter] issues did Barry was reluctant to go there.
Do I.
All I know is there's a it could be exactly the same chance or a better chance with with Exxon going there.
We have not yet had the chance to sit down with them in a formal capacity and go through plans regarding test site. Five obviously that is in the works and we're going to try and do that.
Soon as we can.
Yeah, I would just say look if it was a super low percent chance before where it's either the same or better now.
Fair enough last quick question did you have any capex.
Capex obligation for that corvette processing plant or is that all.
No that is not associated we don't that's all third party.
That's what I'm the same thing with the other compressor station in the Williston, that's actually one of station in the world and that has had issues in the past right.
Okay.
Good. Thank you for taking my questions.
Absolutely.
Thank you.
Once again, if you would like to ask a question. Please press Star then one.
This concludes our question and answer session I would now.
Like to turn the conference back over to Kelly Lloyd for any closing remarks.
Okay.
Thank you.
Just want to tell everybody. We really appreciate you joining us today and.
We are available if you need us please give us a call and our numbers on the website. Thanks again.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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