Q2 2024 Evolution Petroleum Corp Earnings Call
Operator: Good morning, and welcome to the Evolution Petroleum second quarter fiscal year 2024 earnings release conference call. All participants will be in listen-only mode.
Good morning, and welcome to the evolution petroleum second quarter fiscal year 'twenty 'twenty four earnings release conference call.
All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on your telephone keypad.
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Operator: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Brandi Hudson, Investor Relations Manager. Please go ahead.
To withdraw your question. Please press Star then two.
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I would now like to turn the conference over to Brandy Hudson Investor Relations manager. Please go ahead.
Yeah.
Okay.
Brandi Hudson: Thank you. This is the Evolution Petroleum Fiscal Q2 2024 Earnings Call. I'm joined by Kelly Lloyd, President and Chief Executive Officer, Mark Bunch, Chief Operating Officer, and Ryan Stasch, Senior Vice President, Chief Financial Officer, and Treasurer. We released our Fiscal 2024 second quarter financial results after the market closed yesterday. Please refer to our earnings press release for additional information concerning these results. You can access our earnings release in the investor section of our website. Please note that any statements and information provided in today's call speak only as of today's date, February 7, 2024, and any time-sensitive information may not be accurate at a later date. Our discussion today will contain forward-looking statements of management's beliefs and assumptions based on currently available information. These forward-looking statements are subject to the risks, assumptions, and uncertainties as described in our SEC filing. The actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statements.
Thank you welcome to evolution Petroleum fiscal Q2, 'twenty 'twenty four earnings call I'm joined by Kelly Lane, President and Chief Executive Officer, Mark Bunte, Chief Operating Officer, and Ryan Stash, Senior Vice President and Chief Financial Officer, and Treasurer, We released our fiscal 2024 second quarter financial results.
After the market closed yesterday, please refer to our earnings press release for additional information concerning these results you can access our earnings release in the investors section of our website.
Please note that any statements and information provided in today's call speak only as of todays date February seven 2024, and any time sensitive information may not be accurate at a later date. Our discussion today will contain forward looking statements of management's beliefs and assumptions based on currently available information. These forward looking statements are.
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 statement.
Brandi Hudson: During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income. Reconciliations of these measures to the closest comparable GAAP measures can be found in our earnings release. Kelly will begin today's call with some opening comments. Mark will provide an update on our properties and plans as they relate to our ongoing strategy of maximizing shareholder returns, and Ryan will provide a brief review of our fiscal quarter highlights. After our prepared remarks, the management team will be available to answer any questions. As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available on the investors section of our website. With that, I will turn the call over to Kelly. Thanks, Brandy.
During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income.
Reconciliations of these measures to their closest comparable GAAP measures can be found in our earnings release call.
I will begin today's call with some opening comments Mark will provide an update on our properties and plans as they relate to our ongoing strategy of maximizing shareholder returns and Ryan will provide a brief review of our fiscal quarter highlights.
After our prepared remarks, the management team will be available to answer any questions.
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 Kelly.
Thanks Brandi.
Kelly Lloyd: Over the past few years, our industry has evolved, and fittingly, so has evolution. The need for increased scale and economic efficiency has become more and more obvious. With the breakdown of the price correlation among commodities and the outsized effect of regionalized pricing, having exposure to multiple commodities in multiple markets has proven superior to the pure play, single basin, single commodity strategy of the past. Similarly, the shortening and hedging of the commodity price cycle have increased the urgency of adding investment flexibility to portfolios. Being able to nimbly make accretive acquisitions and have an organic growth component to protect and enhance our dividend and share valuation while commodity price volatility remains elevated has become crucial. From October of 2019 through February of 2024, with the expected close of our latest three acquisitions, collectively we call this the scoop stack, Evolution will have participated in six major transactions, putting over $119 million to work for our shareholders. During that time, we've paid down over 41 million dollars in borrowings while our share count has remained virtually unchanged.
Over the past few years, our industry has evolved and fittingly so his evolution the.
The need for increased scale and economic efficiency has become more and more obvious.
With the breakdown of the price correlation among commodities and the outsized effect of regionalized pricing, having exposure to multiple commodities in multiple markets has proven superior to the pure play single basin single commodity strategy of the past.
Similarly, the shortening in the heightening of the commodity price cycle is increase the urgency of adding investment flexibility to portfolios.
Being able to nimbly make accretive acquisitions, and having an organic growth component to protect and enhance our dividend and share valuation while commodity price volatility remains elevated has become crucial.
From October of 2019 through February of 2024, with the expected close of our latest three acquisitions collectively we call. This the scoop stack evolution will have participated in six major transactions, putting over 119 million to work for our shareholders.
During that time, we've paid down over 41 million of borrowings while our share count has remained virtually unchanged.
Kelly Lloyd: Since we began paying dividends 10 years ago, we have returned over $3.33 per share to shareholders in cash and another $0.24 per share in share repurchases. These six major transactions have added oil, natural gas, and NGLs, all of which gain us exposure to different, largely uncorrelated markets, both by product and locations, many of which have recently experienced outsized, favorable pricing versus other sales points. These six major transactions also provide Evolution with hundreds of undrilled upside locations.
Since we began paying dividends 10 years ago, we've returned over $3.33 per share to shareholders in cash and another 24 cents per share in share repurchases.
These six major transactions have added oil natural gas and Ngls, all of which gain us exposure into different largely uncorrelated markets, both by product and locations many of which recently have experienced outsized favorable pricing versus other sales points.
These six major transactions also provide evolution with hundreds and hundreds upside locations we.
Kelly Lloyd: We can either choose to participate in or sell many of these undeveloped locations, depending on which will bring the most value to our shareholders at the time. As an example, we have already drilled three producing wells in the Chabiru Field and two in our Delhi Field. So, while our methods to execute our strategy have evolved and will continue to be enhanced, our goal remains the same as it has been since 2013, the year we paid our first of 41, and counting, consecutive dividends. That goal is to maximize total shareholder returns by carefully evaluating every dollar we use to drive dividend payments, share repurchases, and replenishing and or growing our cash flow-producing asset base, all while avoiding significant dilution or over-leveraging our I'll hand it over to Mark now, who will give you an update from an operational standpoint on some of our recent actions supporting our strategy. Thanks, Kelly.
We can either choose to participate in or so many of these undeveloped locations, depending on which will bring the most value to our shareholders at the time.
As an example, we have already drilled three producing wells in the shampoo field and two in our Delhi field.
So while our methods to execute our strategy have evolved and we will continue to be enhanced our goal remains the same as it has been since 2013 the year, we paid our first a 41 in counting consecutive dividends that goal is to maximize total shareholder returns bikes.
Carefully evaluating every dollar we used to drive dividend payments share repurchases and replenishing indoor growing our cash flow producing asset base, all while avoiding significant dilution or over leveraging our balance sheet.
I'll hand, it over to Mark now, who will give you an update from an operational standpoint on some of our recent actions supporting our strategy.
Thanks, Kelly I won't bother to repeat what you read in the press release and we'll just focus on notable items for our Williston basin assets production was impacted by reduced gas sales due to the one O grassland system being shut down for almost three weeks and downtime of a few wells in November currently the wells and the grasslands.
Mark Bunch: I won't bother to repeat what you read in the press release and will just focus on notable items. For our Williston Basin assets, production was impacted by reduced gas sales due to the One Oak grassland system being shut down for almost three weeks and downtime of a few wells in November. Currently, the wells and the grassland system are back online, resulting in an average rate for December of more than 500 BOE per day. At our Barnett asset, although Inlet continued to experience issues with some of the gathering facilities, production was not significantly impacted, and production for Barnett has flattened back to its normal historical decline. At Hamilton Dome Field, our current quarter production was affected somewhat by well work, but we expected all of these wells to be back online during our fiscal third quarter. Overall, we can see strong performance from this field. At Dell High, the ongoing transition from Denbury to Exxon as field operator has felt largely seamless to us.
System are back online, resulting in average rate for December of more than 500 Boe per day.
At our Barnett asset, although enlink continued to experience issues with some of the gathering facilities production was not significantly impacted our production for the Barnett has flattened back to its normal historical decline rate.
At the Hamilton Dome field, our current quarter production was affected somewhat by well work. The we expected all of these wells to be back online during our fiscal third quarter. Overall, we can see strong performance from this field.
At Delhi, the ongoing transition from Denver to Exxon as field, operator has felt largely seamless to us we continue to believe exxon's priorities align with ours and at Delhi will be a certified carbon capture utilization and storage side designated for enhanced oil recovery with this process.
Mark Bunch: We continue to believe Exxon's priorities align with ours, and at Dell High, we will be a certified carbon capture utilization storage site designated for enhanced oil recovery, with this process expected to become official coinciding with the end of our fiscal year. We will provide updates on this when appropriate. Delhi production increased despite more downtime than expected at the NGL plant. The heat exchanger installed last year performed very well during the recent polar vortex that hit northern Louisiana, and we did not experience any cold weather interruptions at the plant.
Expected to become official coinciding with the end of our fiscal year, we will provide updates on this when appropriate.
Delhi production increase despite more downtime than expected at the NGL plant the heat exchanger installed last year performed very well during the recent polar vortex that hit Northern Louisiana, and we did not experience any cold weather interruptions at the plant as mentioned on the last earning call. We brought on two new infill wells at Delhi.
Mark Bunch: As mentioned on the last earnings call, we brought on two new infill wells at Delhi and are very, very pleased with the results and hope to see more future proposed locations here. In the Chavaroo field, we're pleased to announce we drilled, fracked, and modified existing facilities for our first three wells before the end of the second quarter. In February, we finished drilling out the plugs and installing artificial lift on all three wells.
And I'm very very pleased with the results and hope to see more future proposed locations here.
In the chaparral field, we're pleased to announce we drilled fracked and modified existing facilities for our first three wells before the end of the second quarter in February we finish drilling out the plugs and installing artificial lift on all three wells the fiber for H was bought online burst and is currently in the process.
Mark Bunch: The 504H was brought online first and is currently in the process of cleaning up. Even though it's early in the cleanup process, we're encouraged by its performance. After some additional minor facility modifications, we expect to begin producing the 502H and the 503H very soon. We will provide information on this important project as it becomes available. Finally, on January 5th, we announced the acquisition of a non-operating working interest in the Scoop Stack in central Oklahoma with a November 1st effective date. As of the effective date, the assets consist of 231 producing wells with an average 3% working interest producing roughly 1,550 BOE per day. 21 ducks to be paid for by their sellers and up to 300 gross drilling locations. Currently, 18 ducts have been converted to prove developed producing, and 2 are in process.
Cleaning up even though it's early in the cleanup process. We're encouraged by its performance. After some additional minor facility modifications. We expect began producing the 502 H and the poverty three H very soon we will provide information on this important project as it becomes available.
Finally on January 5th we announced the acquisition of nonoperating working interest in the Scoop stack in Central Oklahoma with the November 1st effective date as of the effective date. The assets consist of 231, producing wells with an average 3% working interest producing roughly 1005.
550 Boe per day 21 deaths to be paid for by their seller and up to 300 gross drilling locations.
Currently 18 deaths had been converted to proved developed producing and two are in process. In addition, 12 pads that E. P. M will pay the capex on it is but we have also begun reviewing other drilling proposal. So we do shortly after closing.
Ryan Stasch: In addition, 12 pods that EPM will pay the CAPEX on have been sped. We have also begun reviewing other drilling proposals that we will do shortly after closing. This asset is a perfect fit for our evolving strategy of both adding on long-life production based on current commodity pricing during the downswings and adding undeveloped locations by making acquisitions through the drill bit. We view this as crucial to enhancing our ability to creatively maintain or increase production at an attractive rate of return for years to come. I'll turn it over to Ryan to discuss the highlights of the quarter. Thanks, Mark.
This asset is a perfect fit for our evolving strategy, both adding on long life production based on current commodity pricing during the downswing and adding undeveloped locations by making acquisitions through the drill bit we view this as crucial to enhancing our ability to accretively maintain or increase production at an attractive rate of return.
Turn for years to come.
I'll turn it over to Ryan to discuss the highlights of the quarter.
Yes.
Thanks, Mark as Brandon mentioned earlier, we released our earnings yesterday, which contains more information on our results My comments will focus mainly on the highlights of the current quarter.
Ryan Stasch: As Brandy mentioned earlier, we released our earnings yesterday, which contains more information on our results. My comments will focus mainly on the highlights of the current quarter. This quarter, we had total revenues of $21 million, net income of $1 million, and adjusted EBITDA of $6.8 million. Negatively impacting this quarter were approximately 500,000 adjustments related to ownership updates received from the operator of our Barnett properties covering a 22-month period beginning in September 2021. These adjustments affected the top line and therefore reduced revenue, net income before taxes, and adjusted EBITDA each by approximately $500,000. Earnings per share was also negatively impacted by one cent.
This quarter, we had total revenues of 21 million net income of 1 million and adjusted EBITDA of $6 8 million.
<unk> negatively impacting this quarter were approximately 500000 adjustments related to ownership updates received from the operator over Barnett properties covering 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 approximately five.
500000.
Earnings per share was also negatively impacted by one said, we don't expect to see further impacts from these nonrecurring ownership adjustments.
Ryan Stasch: We don't expect to see further impacts from these non-recurring ownership adjustments. On the development side, we spent $3.9 million in CapEx, primarily related to the drilling and completion of the three wells at Chevreuse. We ended the quarter with liquidity of $58.5 million between cash on hand and an undrawn $50 million credit facility. Going forward, we expect to use borrowings under our credit facility to close on our ScoopStack acquisitions and for working capital needs related to the acquisition and timing of capital expenditures in our Shavaroo asset and ScoopStack acquisition. We plan to remain below our leverage target of one times pro forma EBITDA.
Our development side, we spent $3 9 million capex, primarily related to the drilling and completion of the three wells at Chevron.
We ended the quarter with liquidity of $58.5 million between cash on hand, and an undrawn $50 million credit facility going forward, we expect to use borrowings under our credit facility to close on our scoop stack acquisitions and for working capital needs related to the acquisition and timing of capital expenditures and our Chevron.
Asset and Scoop stack acquisition, we plan to remain below our leverage target of one times pro forma EBITDA.
Kelly Lloyd: We entered into oil hedges at the end of January during a brief uptick in prices and plan to enter into additional hedges to fully comply with the terms of our credit facility. We expect to be required to hedge 25% of our oil and gas production on a rolling 12-month basis once we complete the scoop stack acquisitions. However, depending on the hedging terms available, we may consider hedging beyond 12 months to capitalize on contango structures such as those currently available in the natural gas market. Our goal for our hedging program will continue to be to reduce downside commodity price risks while maintaining the maximum amount of upside available. On the shareholder return front, we paid a 12-cent dividend in December and declared another 12-cent dividend to be paid in March, which will mark our 41st and 42nd consecutive quarterly dividends and 6th and 7th consecutive dividends at the current level. I'll hand it over to Kelly now for a closing comment. Thanks, Ryan. At 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 for many years to come.
We entered into oil hedges at the end of January during our brief uptick in prices and plan to enter into additional hedges to fully comply with the terms of our credit facility, we expect to be required to hedge 25% of our oil and gas production on a rolling 12 month basis. Once we complete the scoop stack acquisitions. However.
Depending on the hedging terms available we may consider hedging beyond 12 months to capitalize on contango structures such as is currently available in the natural gas market.
Our goal for our hedging program, we will continue to be to reduce downside commodity price risk, while maintaining the maximum amount of upside available.
On the shareholder return front, we paid a 12 cent dividend in December and declared another 12 sort of dividend to be paid in March which will mark our 40, <unk> and 42nd consecutive quarterly dividends and sixth and seventh consecutive dividends at the current level.
I'll hand, it over to Kelly now for closing comments.
Thanks Ryan.
The 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 for many years to come.
We have a track record of paying dividends with stronger yields than the S&P 500, and our peers returning cash to shareholders of over $3.33 per share over the last 10 years.
Kelly Lloyd: We have a track record of paying dividends with higher yields than the S&P 500 and our peers, returning cash to shareholders of over $3.33 per share over the last 10 years. We are building our company into one that can cover our dividend and our capital spending in a much lower commodity price environment, like we see today, while maintaining ample capacity to return cash to shareholders. We have built and continue to build a diverse, resilient set of assets strategically designed to facilitate and complement our consistent approach to returning cash to shareholders. In building this base, our balance sheet has remained rock solid, and we've had no material deletions.
We are building our company into one which can cover our dividend and our capital spending and a much lower commodity price environment like we see it today, while maintaining ample capacity to return cash to shareholders.
We have built and continue to build a diverse resilient set of asset strategically designed to facilitate and complement our consistent approach to returning cash to shareholders in.
In building this base our balance sheet has remained rock solid and we've had no material dilution.
With that I'll turn it over to the moderator to begin the Q&A session. Thank you very much.
Operator: With that, I'll turn 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 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
Donovan Schaefer: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster, and our first question will come from Donovan Schaefer of Northland Capital. Please go ahead.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
Okay.
No.
And our first question will come from Donovan Schafer of Northland Capital. Please go ahead.
Donovan Schaefer: Hey guys, thanks for taking the questions. So first, just in my own modeling, I made the mistake of giving you additional revenue in the second fiscal quarter for November and December production from the Scoop Stack acquisition based on the November 1st effective date. That's why I had you at $25 million in revenue versus the $21 you reported. And when I go back and correct for that, it looks like your results are right in line.
Hey, guys. Thanks for taking the questions. So.
First just in my own modeling.
I made the mistake of giving you additional revenue in the second fiscal quarter.
For November and December production from the Scoop stack acquisition based on the November 1st factor day that's.
That's why I had you at $25 million in revenue versus the 'twenty. One you reported and you know when I go back and correct for that it looks like your results are right in line. So I just want to acknowledge my my error there.
But now that it's clear that you'll be accounting for this incremental production as a discount to the purchase price when you do close.
Ryan Stasch: So I just want to acknowledge my error there, but now that it's clear that you'll be accounting for this incremental production as a discount, to draw on your revolver in order to close the transaction. So Donovan, yeah, thanks for calling, and I appreciate you mentioning the modeling correction you made. Honestly, the way this works is that a lot of times, if the companies that you're acquiring are profitable, right, then you can do a preliminary settlement statement, and then later on, you sort of true it up with the finals.
Do you have any rough can you give us any rough sense for what that discount might be.
And kind of related could you share with us how much you you expect you might need to draw on your revolver in order to close the transaction.
So donovan, yeah, thanks for calling and and I appreciate you.
Mentioning.
The modeling correction you made.
So yeah.
Honestly the way. This works is a lot of times what happens is if the company that you're acquiring a crew right. Then you can do a preliminary settlement statement and then later on you sort of true it up with the finals.
Not all of the three companies that were acquiring actually do accruals.
Ryan Stasch: Not all of the three companies that we're acquiring actually do accruals. So some of it will sort of be real time coming in. So I mean, ultimately, we have a very solid estimate for what the reduced purchase price will be, but when the timing of that comes in, it will be a little different among the entities. So the actual draw, it may go up and down a little bit between the Preliminary Closing Settlement Statement and the actual final one. Which would be, I mean, it takes 60 days for gas production, you know, so it's, how many days out there is it? Yeah, I mean, Donald, we're reviewing the settlement statement now, to be honest, so, you know, as Kelly mentioned, we may not have an answer quite yet for you, unfortunately, but we are still set to close likely next week, and so we'll have a better answer then, and it's just going to depend on what revenue they've received versus, you know, the month.
So some of it all sort of be real time coming in so I mean ultimately we are we have a very solid estimate for what the reduced purchase price will be but.
When the timing of that comes in will be a little different amongst the entities. So the actual draw. It may go up and down a little bit between preliminary closing settlement statement and the actual final.
What should be I mean, it takes 60 days for gas production. So it's how many days out there isn't right.
Yeah, I mean look so down on when we were reviewing the settlement statement now to be honest so.
As Kelly mentioned, we may not have an answer quite yet for you. Unfortunately, but we are still set to close likely next week and so.
We'll have a better answer than and it's just going to depend on what revenue days received versus.
Ryan Stasch: It's generally going to be a 60-day lag for all their operators, so, you know, if you're looking at sitting here in February through the end of January, they probably would have only gotten through November production, so there may be a couple of months of production that they're still owed us, so the adjustment may not be as big as in the preliminaries. Too confusing, but net net, when it washes out, you know, I don't think your number was way off.
The month, it's generally going to be 60 day lag for all of their operators. So if youre looking at sitting here in February through the end of January they probably wouldn't have only gotten through November production.
So there maybe a couple of months of production, they're still owed us. So we just may not be as big as in the preliminary there's on the final hopefully that's not too confusing, but but net net when it washes out you know I don't think your number was way off and it could be a little bit either way one way or the other.
Donovan Schaefer: It could be a little bit either way, one or the other. Okay, okay. And then I want to talk about turning to the third fiscal quarter. So in mid January, you know, there were some fairly severe winter freeze weather conditions that hit North Dakota and also Texas and Louisiana. You know, I don't think they were as extreme as some maybe we've seen in the past, but there were, you know, Reuters and some other outlets talking about impacts. I think actually the Bakken, you know, kind of shocking, but it was only, I think, for a couple of days.
Okay. Okay.
And then I wanted to talk about turning to third.
Third fiscal quarter. So in mid January yeah, there was some.
Fairly severe winter freeze whether conditions are there.
That hit North Dakota, and also Texas, and Louisiana I'm, you know I don't think they were as extreme as some maybe we've seen in the past, but there were you know Reuters and some other.
Outlets talking about impacts I think actually the backend.
Yeah, it's kind of almost shockingly, but it was only I think for a couple of days, but like statewide Bakken production in Salt Lake, 50% for a couple of days because of the freeze was so bad.
Donovan Schaefer: But like, state-wide Bakken production fell like 50% for a couple days because of the freeze, so bad and, I'm just curious if you can talk through what kind of impacts those events may have or how we should expect that to impact production for FQ3. Hey Donovan, thanks for the question. This is Mark Bunch.
The LNG processing, I think or something so.
I'm just curious if you can talk through what kind of impacts.
Those events may have.
Or what kind of how we should expect that to impact production for F Q3.
Hey, David Thanks for the question this is mark bunch and.
Mark Bunch: Actually, this year the winter storm, like the one you're referring to, didn't affect us as much as the winter storms have in the past. Like in Delhi, because we had the new heat exchanger in, we didn't have any issues with the plant at all. So that was great. At Williston, there was some shutdown, but it was only for about five days. And everything was brought back online very quickly, so I'd say the reaction time on that was pretty good.
Actually this year the winter storm that you're referring to was it didn't affect us as much as the winter storms have in the past like at Delhi.
Because we had the new heat exchanger in we didn't have any issues at the plant at all.
So that was great at Williston, there was some shut down but it was only for about five days and that everything can't was brought back online very quickly. So I'd say the reaction time and that was pretty good and then in the Barnett.
Mark Bunch: And then in the Barnett, there was about the same amount of time, about four or five days, but everything came back online real quickly. In previous years, one of the problems that have been in the Barnett is that they were unable to get production back on as fast, but this time they got everything back on really quickly. So I'd say the effect is fairly minimal. Okay, and then I'll just, if I can squeeze in one last question. You know, you guys have relatively lower exposure to the box than say some of your peers.
There was about the same amount of time about four five days, but everything.
<unk> came back online real quickly in past years, one of the problems. It had been in the Barnett as they were unable to get our production back honest fast, but this time it they've got everything back on really quickly. So I would say this that the effect is fairly minimal.
Okay, and then I'll just what I can squeeze in one last question.
Yeah, you guys are relatively lower exposure to the Bakken.
I'd say in some of your peers you know what I mean, there are some there are some pure play parking companies out there and other ones.
Donovan Schaefer: I mean, there are some pure play Bakken companies out there, and other ones that, you know. So it's a smaller piece of the pie for you guys, all things considered, but it's still relevant. So I want to talk about the Trans Mountain pipeline in Canada. In the past, I've asked some folks about, you know, when this new capacity comes online, could it actually improve Bakken prices? by alleviating some congestion from Alberta production in Canada. And the answer I usually got was like, no, we don't really think that's going to have any kind of impact or positive impact on us.
So it's a smaller piece of the pie for you guys all things considered but it's still relevant so when I talk about the trends on pipeline.
In Canada.
In the past I've I've asked some folks about you know Gee when this new capacity comes online.
It could actually improve Bakken pricing by alleviating some congestion from the Alberta production in Canada Yeah.
And the answer usually got was like no. We don't we don't really think that's going to have any kind of impact or positive impact for us, but now we're seeing sort of just the opposite where that capacity is expected to come online.
Donovan Schaefer: But now we're seeing sort of just the opposite, where that capacity was expected to come online. So the producers in Alberta started ramping production, but then that pipeline capacity got delayed. And so you got this like excess Canadian production that actually seems like it puts some downward pressure on regional pricing in North Dakota. So I'm just curious, can you talk about those impacts as you guys are seeing them? And, you know, how do you expect it to unfold going forward? Do you think this is a case where things would just normalize back to whatever the historical, you know, discount was for crude production in that region? Or could we actually get, you know, at the end of the day, once the capacity comes online and that benefit is realized, the pricing in the area, just any color there would be helpful. And I'll take that offline. Sure. So this is Kelly.
So the producers in Alberta started ramping production.
But then that that pipeline capacity, you got delayed and so you've got this like excess Canadian production that's actually.
Seems like it puts some downward pressure on the regional pricing in North Dakota. So I'm. Just curious can you talk about those impacts as you guys are seeing them and how you expect that to unfold going forward do you think this is the case, where things would just normalize back to whatever the historical.
Discount was for crude production in that region or could we actually get yeah at the end of the day. It once the capacity comes online and that benefit the pricing in the area.
Just just any color there would be helpful and I'll take care of it offline.
Sure. So this.
Kelly Lloyd: Thanks, Donovan, for the question. In the Williston, I think you framed it correctly. I think, You know, a lot of people thought that Trans Mountain was supposed to have been on in December.
This is kelly thanks for the question in the Williston I think you've framed it correctly I think.
A lot of people thought the Trans mountain was supposed to have been on in December I mean, they've talked about it for years and then there was I think a mile and a half section.
Kelly Lloyd: I mean, they'd talked about it for years, and there was, I think, a mile and a half section where I think they ran into some First Nations issues, which caused a delay. But, obviously, for some of these larger projects in Canada, it takes a while to ramp them up. So people had been ramping up production in expectation that Trans Mountain would be on in December. So you have seen increased flows going into that area with really nowhere to go. So, yeah, our Williston differential was affected a little bit this quarter compared to past quarters. I think it was a couple bucks a barrel.
Where I think they ran into some first nations issue, which caused a delay.
But obviously for some of these larger projects in Canada. It takes a while to ramp them up so people had been ramping up production in expectation that the trans mountain would be on in December. So you have seen increased flows going into that area with really nowhere to go so yeah. Our williston differential was affected this quarter.
A little bit versus past quarters.
I think it was a couple of Bucks a barrel, we do expect as Trans Mountain comes on which I think will be June.
Kelly Lloyd: We do expect, as Trans Mountain comes on, which I think will be in June, that should alleviate that issue. And then the other effect that Trans Mountain should have for us would be on our Hamilton Dome property. Again, the oil from Canada was really not a whole lot of place to go.
That should alleviate that issue and then the other effect.
Trans Mountain should have for us would be on our Hamilton dome property.
Again, the oil from Canada, with really not a whole lot of place to go.
Kelly Lloyd: Hamilton Dome trades on WCS, Western Canadian Select. So with the Canadian market in Trans Mountain opening up and being able to move oil east and throughout the system versus having to go down towards our system, it should absolutely, we think it will have a positive effect on the differentials for Hamilton Dome. I read somewhere, as much as some people thought, $4 or $5 a barrel of incremental, better differential there.
Hamilton Dome trades on WCS or western Canadian select.
So with the Canadian market and Trans mountain opening up and being able to move oil east and throughout the system versus having to go down towards our system.
It should absolutely we think it will have a positive effect on the differentials for Hamilton dome.
Well I read somewhere as much as some people thought for a $5 a barrel of incremental.
Better differential there so anyway, we're excited about that.
Kelly Lloyd: So anyway, we're excited about, Okay. Thanks, guys. The next question comes from John White of Roth Capital; please go ahead. Good morning, everyone. Mornin' John.
Okay. Thanks, guys.
Okay.
The next question comes from John White of Roth Capital. Please go ahead.
Good morning, everyone.
Good morning, John.
John Marshall White: Yeah, so it's good to see Shavaroo going well. Have you talked about the number of potential locations in connection with that prospect? Yeah, right now we have roughly about 80 total locations, including the three that we just drilled. They're spread out over, you know, basically the average is kind of close to eight wells, seven or eight wells per year.
Yeah, So it's a.
Good to see <unk> going well.
Have you.
Talked about the number of potential locations in connection with that prospect.
Yeah, Yeah. There's you know right now we have roughly about 80 total locations not included including the three that we just drilled.
They're spread out over you know basically the averages kind of close to eight wells seven or eight wells per year.
Mark Bunch: So it's kind of a measured drilling program. That has quite a bit of potential, it sounds. Yeah, that's actually the biggest reason why we're so interested in the project, because it gives us a lot of running room, and the operators, like us, don't want to race out there and drill everything up in one year. They'd like to see it brought on slowly, and that kind of fits our capital.
So it's kind of a measure drilling program.
That's quite a bit of potential in the sandbox.
Yeah, Yeah, that's actually the biggest reason why we were so interested in the project because it gives us a lot of running room and the operators like us doesn't want to like race out there drill everything up in one year. They wanted they they'd like to see it.
Brought on slowly that kind of fits our capital program.
Right.
Mark Bunch: Right. And on this carbon capture designation. Is that going to have any positive income tax benefits? So, John, that's something. It's a sticky wicket, as they say across the pond.
And on this carbon capture designation.
<unk>.
Is that you don't have any positive income tax benefits.
So John that's something.
It's a sticky wicket is they say across the pond, we were trying to figure it out.
Mark Bunch: We're trying to figure it out, and we have some time. We don't expect this to happen until the end of June, is what they're telling us. Either it will have a direct impact on us, or more likely, what will happen is it will affect the price of CO2 that we get there. So, I don't know; it's still to be researched. I can't think of anything negative that would happen because of it, so I think there's only upside potential with it. I know a lot of people are still trying to figure it out, so you're not alone.
And we have some time, we don't expect this to happen until the end of June is what they're telling us.
Either it will have a direct impact to us.
Or more likely what'll happen is it'll affect the price of C. O two that we'd get there.
So I.
I dunno still to be to be researched.
I can't think of anything negative that would happening because of it. So I think there's only upside potential with that.
I know a lot of people are still trying to figure it out so you're not alone.
John Marshall White: Okay, nice quarter, and uh... I'll pass it back to the moderator. Great, thanks John. Thanks John. The next question comes from Jeff Robertson of Water Tower Research. Please go ahead.
Okay.
Nice quarter and.
I'll pass it back to the moderator.
Great. Thanks, Joe Thanks, John Deere John.
The next question comes from Jeff Robertson of water Tower Research. Please go ahead.
Jeffrey Woolf Robertson: Thanks, Kelly. I missed a part of your opening remarks. I apologize if you addressed this, but now with the ScoopStack acquisition on top of the Shavaroo acquisition, you all now have two assets where you have some influence perhaps on controlling your own capital outlays. I'm just wondering how that fits into your overall strategy of allocating capital between some of the non-op assets that you all have traditionally focused on versus having some control over maybe trying to encourage drilling activity on these new assets and then the obvious choices of Sure. Yeah, Jeff. Thanks for asking. And I would say what the real takeaway is, what's different, right?
Thanks, Kelly I missed a part of your opening remarks, so I apologize if you addressed this but I'm curious now with the scoop.
Scoop stack acquisition on top of the <unk> acquisition you. All now have two assets, where you have some influence perhaps on controlling your own capital outlays I'm.
I'm, just wondering how that fits into your overall strategy of allocating capital between.
Some of that non op assets that you all have.
Traditionally focused on versus having some control over maybe trying to encourage drilling activity on these new assets and then the obvious choices of.
Leverage reduction in.
And the dividend.
Sure Yeah, Jeff.
Thanks for asking and I would say what really the takeaway what's different right well now with with what we've got going on at chaparral and with the additional assets from the Scoop stack acquisitions in the locations there plus what's going on with Delhi right.
Kelly Lloyd: Well, now with what we've got going on at Shavaroo and with the additional assets from the SKU stack acquisitions and the locations there, plus what's going on with Del High, right? We've had a couple of wells that we're super encouraged with there, and still our Williston pods. What we have now is really some investment portfolio flexibility. Generally, in the past, to maintain or increase production, we needed to be in an acquisition market that had more favorable trade wins, which, by the way, we have a terrific record of doing that. And honestly, on the PDP side, with our scoop stack acquisition, I couldn't be more excited about this purchase. But it also comes with these additional locations.
We've had a couple of wells that we're super encouraged with their.
And still our Williston pads, what what we have now is really some investment portfolio flexibility.
Largely in the past two to maintain or increase production.
We needed to be in a acquisition market that had more favorable trade wins, which by the way we have a terrific record of doing that and we honestly on the PDP side with our Scoop stack acquisition I couldnt be more excited about this purchase but it also comes with these additional.
Kelly Lloyd: And again, the flexibility. By flexibility, you may be wondering, look, you're a non-op. What flexibility do you have? Well, these locations have value, right? We can drill them, we can sell them, but there's a whole lot of options there. So what we're going to do, we'll tailor this to fit nicely with our expected CapEx as we go forward. It'll obviously be dynamic, but again, it's just another sort of really viable tool for us to put to work for the best interests of our shareholders. Thanks to you. Do you see more opportunities like the ScoopStack acquisition where, because of some of the consolidation that's taken place in the industry, owners of non-operated assets are trying to reposition their portfolios? We do. Yeah, we look at them. Honestly, as you know, Jeff, we, as we've spoken in the past, we look at these sorts of acquisitions a lot. And, It doesn't always come together with the kind of pricing you need to really have a great return like we expect to get here. So we're constantly evaluating. Yeah, they're out there.
<unk> and again the flexibility by flexibility you may be wondering look you're a non op what flexibility do you have well these locations have value right. We could we can drill them, we can sell them, but theres a whole lot of options. There. So what we're going to do we'll tailor this to fit nicely with our expected capex.
As we go forward it will obviously be dynamic but.
Again, it's just another sort of really viable tool for us to put to work for the best interest of our shareholders.
Thanks to you do you see more opportunities like the Scoop stack acquisition, where.
Either because of some of the consolidation that's taken place in the industry.
Yes.
Owners of non operated assets are trying to reposition their portfolios.
We do yeah, we look at them honestly as you know Jeff we.
As we've spoken in the past when we look at these sort of acquisitions a lot and.
It doesn't always come together with the kind of pricing you need to.
To really have a great return like we expect to get here. So we're constantly evaluating other out there were just a word.
Kelly Lloyd: We just. We're not out of the accretive acquisition game. We never will be here at Evolution, but we're excited with what we have here. Very. All right, thank you.
We're not out of the the accretive acquisition game, we never will be here at evolution.
But we are we're excited with what we have here very.
Great. Thank you.
Kelly Lloyd: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Kelly Lloyd for any closing remarks. Thank you. Just a quick one. I'll tell you, here at Evolution, we're really excited about what we have going on. The scoop stack acquisitions that we expect to close next week, I think we're going to have some of the strongest production we've really ever had. And obviously, with what's going on at Shavaroo with the exciting drilling program there and the hundreds of low working interest upside scoop stack locations, and our recent successes at Dell High and our Williston PUDs, we now have really significant investment flexibility. Plus, we've got this fantastic team here, which I would be remiss in not mentioning now has Kelly Beatty as our Chief Accounting Officer. So yeah, we're happy here, and I appreciate everyone joining us on the call today. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect. www.TheBusinessProfessor.com www.youtube.com or www.youtube.com. Thanks for watching!
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Kelly for any closing remarks.
Thank you.
Just a quick one I mean I'll tell you here at evolution.
We're really excited about what we have going on the scoop stack acquisitions that we expect to close.
Next week I think we're going to have some of the strongest production, we've really ever had and obviously with what's going on at <unk> with the exciting drilling program. There in the hundreds of low working interest upside scoop stack locations and our recent successes at Delhi and in our Williston pads, we now have real.
Significant investment flexibility.
Plus we've got this fantastic team here, which I would be remiss in not mentioning now has Kelly Beatty as our Chief Accounting officer. So yeah. We're we're happy here and I appreciate everyone joining us on the call today.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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