Q2 2025 Evolution Petroleum Corp Earnings Call

Speaker Change: [music].

Good morning, everyone and welcome to the evolution Petroleum fiscal second quarter 2025 earnings Conference call. All participants are in a listen only mode. Please also note today's event is being recorded at this time I'd like to turn the call over to Randy Hudson The Companys Investor Relations manager Ma'am. Please go ahead.

Thank you welcome to evolution Petroleum fiscal second quarter 2025 earnings call I'm joined today by Kelly Loyd, President and Chief Executive Officer, Martin Bunge, Chief Operating Officer, Brian Fashion, Senior Vice President Chief Financial Officer and Treasurer.

At least our fiscal second quarter 2025 financial results. After the market close yesterday. Please refer to our earnings press release for additional information containing 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 12, 2025, 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 filings.

Actual results may differ materially from those expected we undertake no obligation to update any forward looking statements.

During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA Reconciliations of these measures to the closest comparable GAAP measures can be found in our earnings release.

Kelly will begin today's call with 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 overview of our fiscal second quarter highlights. After our prepared remarks, the management team will be available to answer any questions.

Speaker Change: 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.

Thank you Brandy and good morning, everyone.

Speaker Change: Our team continues to execute a disciplined strategy that balances organic growth with high quality acquisitions, all while maintaining a strong financial foundation, our ability to adapt to market conditions capitalize on strategic opportunities and drive consistent returns has been central to our long term.

Speaker Change: Access.

Speaker Change: As we sit here today I would describe the outlook for M&A as highly encouraging. We're currently evaluating multiple acquisition opportunities all of which have the potential to enhance our long term growth strategy and further improve our cash flow generation right from the get go.

Speaker Change: We're seeing opportunities for negotiated transactions across several fronts all at highly compelling valuations that if we were able to close will be materially accretive in.

Speaker Change: In the last five years, we have invested over $118 million in shareholder capital to grow production by 200% and expand our portfolio with hundreds of high quality and drilled locations all secured at exceptional value, we take great pride in our track record of acquiring assets at attractive values.

Speaker Change: <unk> that deliver meaningful cash flow and long term shareholder returns and thus we are confident in our ability to deliver on these initiatives and drive cash flow towards our dividend program for years to come.

Speaker Change: The energy market remains dynamic presenting both challenges and opportunities while the first half of fiscal year 'twenty. Five has been marked by significantly lower realized commodity prices versus the same period in fiscal year 'twenty for particularly for natural gas. We're excited about the expectations for the rest of the year.

Speaker Change: Natural gas prices throughout the futures curve look much more favorable and look to have staying power as the outlook for increased demand only gets stronger with expected easing of LNG export restrictions and increased commercial and residential demand for natural gas fired electricity.

The front month pricing of crude oil has tended to roll month over month towards spot pricing bucking the obvious backwardation in the W. Ti futures curves.

Speaker Change: With supply and demand remaining fairly tight and threats of increased sanctions and other potential disruptions remaining ever present, we see this trend is likely to continue all of this makes for a very very promising setup for the second half of our fiscal year 'twenty five.

Speaker Change: Despite this volatility our diversified portfolio continues to demonstrate resilience, allowing us to sustain strong production growth and effectively manage market fluctuations our ability to navigate these market conditions through a combination of strategic investments and disciplined capital management.

Speaker Change: <unk> remains a key differentiator for evolution.

Speaker Change: Our total production grew 10% year over year to 6935 Boe per day.

Speaker Change: Reflecting strong contributions from our geographically and commodity type diversified portfolio of long life low decline producing assets and our organic growth components. This double digit production growth was in spite of temporary downtime in Williston and <unk> that resulted in approximately 90.

<unk> Boe per day of deferred production for the quarter.

Speaker Change: The downtime issues have since been resolved with rates fully restored by January.

Speaker Change: In the Scoop stack, which we acquired based on accretive metrics to the then existing production exclusive of any future new drills.

Speaker Change: Has and continues to impress with the results from new wells that had been drilled <unk> completed since the acquisition.

Speaker Change: Our partnership with Chevron field with its measured pace is progressing nicely as planned.

Speaker Change: With overall, well results coming in at or better than expectations, and an estimated 300, plus additional gross locations between scoop stack and share of Peru.

Speaker Change: These properties represent the most exciting current components of our organic growth portfolio, which is a crucial component to our more stable proved developed production base and driving future cash flows and feeding the company's dividend machine for many years to come.

Speaker Change: We're pleased to announce that this quarter marks our 46th consecutive dividend payment maintaining our quarterly payout at 12 cents per share for the past 11 quarters. This consistency underscores the strength of our asset base, our ability to generate reliable cash flow and our commitment to returning value to shareholders.

Speaker Change: Through all market cycles.

Speaker Change: To date evolution has returned approximately $126 6 million or $3 81 per share back to shareholders and common stock dividends in fiscal Q2, we returned $4 1 million to shareholders through dividends.

Speaker Change: Yeah.

Speaker Change: Looking ahead, we remain focused on driving long term shareholder value through disciplined asset acquisitions strategic drilling expansion and return of capital our focus on high quality low decline assets ensures sustainable growth.

Speaker Change: Ports, our dividend program and positions us to thrive amid commodity price volatility.

Speaker Change: With a strong portfolio of history of disciplined capital allocation and our commitment to shareholder value. We are well positioned to continue executing on our strategy for years to come.

Speaker Change: With that I'll turn the call over to our COO Mark a bunch to review our operations in more detail.

Speaker Change: Mark.

Speaker Change: Thank you Kelly and good morning, everyone I will focus my remarks on key operational highlights from the quarter and encourage listeners to review our earnings press release and filings for additional details across our asset base.

Speaker Change: Three new wells at Scoop stack were brought online during the quarter, adding to the seven gross wells completed in fiscal Q1 2025. We also agreed to participate in eight additional horizontal wells positioning us for continued up production additions in the region.

Speaker Change: Since the effective date of the Acquisition's, a total of 32 gross wells or <unk> five net wells have commenced first production.

Speaker Change: We continued to outperform our type curves as well.

Speaker Change: Our production in fiscal Q1 was higher than Q2 due in large part to inclusion in Q1 of unaccounted for production related to prior periods with the ongoing activity at Scoop stack in Yokohama statutes that allow operators to delay payment. Our first production to working interest owners for up to several months, we could have the <unk>.

Speaker Change: Thing happened in future future quarters on newly drilled wells. However, with many operators were able to gain access to near real time daily production, that's allowing us to account for a new well production during the same period.

Speaker Change: At <unk> production this quarter was temporarily impacted by gas interference issues of the downhole pumps, which reduced flow rates. The operator resolve the problem inexpensively and production has stabilized back to its forecasted levels at the beginning of January we commenced drilling on the four new gross wells in our second development block.

Speaker Change: As of today, we have finished two wells out of the four and expect to finish drilling the remaining two wells by early March completions are scheduled to start in April.

Speaker Change: We are preliminarily agreed to six additional horizontal wells and drilling block three which are expected to come online in early fiscal 2026.

Speaker Change: At Delhi C O two injections resumed during our fiscal second quarter and contributed to our production growth. Following the quarter end, one new producing well was drilled to test site five we're awaiting the results.

Speaker Change: In the Williston basin, a compressor failure on a third party operated gathering system caused temporary downtime for approximately 30 days at the start of fiscal Q T.

Speaker Change: Leading to lower natural gas and NGL sales for the period oil volumes were impacted by delays in year end sales in December which were subsequently sold in January looking ahead, we remain focused on maintaining reliable production optimizing efficiency and ensuring the long term value of our Williston assets.

Speaker Change: At Hamilton Dome, Jonah field and Barnett production has performed as expected for the quarter and we're pleased with the results.

Brian Fashion: With that I will turn the call over to our CFO Ryan Stash to review our financials in more detail Brian.

Brian Fashion: Thank you Mark and good morning, everyone as Brian mentioned earlier, we released our earnings yesterday, which contains more information on our results now I'd like to go through our fiscal second quarter financial highlights and.

Brian Fashion: In fiscal Q2, we had total revenues of $20 3 million down 4% year over year.

Brian Fashion: The decline in revenues was a result of lower realized commodity prices, which were down approximately 12% year over year. However, we were able to largely offset the lower commodity prices with a 10% increase in production volumes due to our scoop stack acquisitions in February 2024, and subsequent drilling and completion.

Brian Fashion: Activities as well as new wells at <unk> that came online at the same time.

Brian Fashion: We have continued to add hedges to meet the requirements of our credit facility and protect cash flow. Our ongoing goal for the hedging program continues to be to reduce downside commodity price risk, while preserving the maximum potential upside.

Brian Fashion: Accordingly, we will continue to monitor the market and may add additional opportunistic hedges.

Brian Fashion: On the balance sheet as of December 31, 2024, our cash on hand totaled $11 7 million, providing us with a strong financial position.

Brian Fashion: Borrowings under our credit facilities stood at $39 5 million supporting our ongoing operational and strategic initiatives total liquidity, including cash and borrowing capacity amounted to $22 2 million, ensuring financial flexibility as we continue to execute our growth strategy.

Brian Fashion: We declared a quarterly cash dividend of <unk> 12 per share payable on March 31 2025.

Brian Fashion: This marks our 46th consecutive quarterly dividend underscoring our commitment to returning capital to shareholders and maintaining a stable and reliable dividend policy.

Kelly Loyd: I'll now hand, it back over to Kelly for closing comments.

Speaker Change: Thanks, Ryan it should be clear that our strategic initiatives, both through acquisitions and organic development have positioned evolution for continued success, our track record of acquiring high quality low decline assets at compelling valuations expanding our drilling pause.

Speaker Change: Folio and maintaining financial strength reinforces our long term growth trajectory.

Speaker Change: Looking ahead, we remain focused on disciplined capital allocation maximizing shareholder returns and sustaining our dividend program.

With this approach, we're very confident in our ability to navigate market conditions executed on strategic opportunities and drive meaningful value for our shareholders well into the future.

Speaker Change: With that I'll turn it over to the operator to begin the Q&A session. Thank you.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: Ask a question you May press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: And the first question will come from booby Brooks with Northland Capital markets. Please go ahead.

Booby Brooks: Hey, guys.

Booby Brooks: I just wanted to ask first obviously it seems like M&A is still a top focus for the team and seems like the pipeline is really healthy I just wanted to get a sense of would you guys be comfortable doing multiple transactions at once or maybe it's in a short window of a month or two where you guys executed.

Booby Brooks: Or would you or the preference would be to rather space at al. Maybe also if you could just give us a sense of the size of these targets in your pipeline are they similar to what you've done in the past or bigger.

Booby Brooks: Yeah. Thanks, Bobby appreciate the call.

Booby Brooks: In general right I would say most of the things that we are taking a quick look at a deep look at frankly are in line with what we've done in the past nothing sort of out of bounds on that front for the most part.

Booby Brooks: We generally try to do things on a digestible basis. So if it turned out that doing one or two in cereal sort of back to back order made sense from how you finance at all this and it was very digestible and still highly accretive to our dividend per share.

It would be something absolutely we would consider but it has to be the right deal and as you know they both have to make sense together, if we went that way.

Booby Brooks: Yeah.

Booby Brooks: Yes.

Booby Brooks: I would just add Bob I mean, if you look back historically, we did our Williston and Jonah deals pretty close within a couple of months of each other right. So that's certainly something we've done in the past and as Kelly said it you know it will.

Booby Brooks: Just need to be the right two types of deals or multiple deals, but theres certainly a chance we could do the scoop stack and our share of root partnership, we're very close and timing as well again, the cash flows needed for those and received from those.

Booby Brooks: We will be the main contributing factor.

Booby Brooks: Got it.

Booby Brooks: And then maybe just it seems like the pipe. It seems that it's just accelerating a bit kind of the opportunities in front of opportunity sets for M&A targets could you maybe just discuss a bit.

Booby Brooks: As to why that maybe maybe I'm reading into it too much but it seems like there's an acceleration why has that happened could you maybe just give us a sense as to why that is happening from a macro perspective.

Booby Brooks: [laughter], Yeah, it's always interesting to tell.

Booby Brooks: You think at this point in time in the commodity cycle, there ought to be a ton of deals going on and we've seen certain times when there's really nothing out there sellers or just.

Booby Brooks: Expecting some current price to last forever or they are expecting some futures price that yeah sure you'll make money on the futures price, but you'll have to lose money right now to do the deal.

Booby Brooks: Sometimes they just don't line up a buyers' and sellers' expectations and we just happen to be at a point right now where we are finding.

Booby Brooks: That we can make a reasonable offer and a buyer or seller will make a reasonable response to it so.

Booby Brooks: Again, it just seems like sometimes all the stars line up and sometimes none of them do.

Booby Brooks: Got it.

Mark: And then maybe just last one for me I think Mark you mentioned kind of the dynamic that.

Booby Brooks: In the Scoop stack, where.

There's a bit of a delay that the operator can pay out.

Booby Brooks: Non op guys, but then you said that that could be in the future. It.

Booby Brooks: It could be the impact in the future, but it's balanced off with something else I don't know could you just kind of rehash that statement I wanted to understand kind of what that balances.

Booby Brooks: Yeah, It basically boils down to our knowledge because we are the problem is as we only have a small working interest in most of these wells you know say, 2%. So we don't have these tight relationships with the operators that we have in our other areas well what's happened sometimes as wells will participate in <unk>.

Booby Brooks: Wells that we won't get information about being online until after.

Booby Brooks: Until we get the first check which might be for like four or five months of revenue and we didn't accrue for it because we didn't know are we are we didn't know that we might have notes online, but we might not know the numbers because we couldnt get the information now the good news is is going forward, we're getting more available data electronically from.

Booby Brooks: <unk> participated in the system that we subscribe to.

Booby Brooks: So that probably gets better over time that occasionally that can still happen. So it's just it just realizing revenue at in a period in a quarter that maybe after it actually already produced.

Booby Brooks: Got it thank you guys.

Booby Brooks: And congrats on the quarter and I'll return back to the queue.

Speaker Change: Thank you Bonnie.

Speaker Change: The next question will come from Jeff Grant with Alliance Global Partners. Please go ahead.

Jeff Grant: Good morning.

Speaker Change: To start first on the Scoop stack side.

Speaker Change: Side of the business for you guys you talked about continuing to have some above average results are.

Speaker Change: Can you give us a sense any materiality there relative to either type curve or expectations you have for some of these new wells.

Speaker Change: Yes sure thing.

Speaker Change: So it looks like.

Speaker Change: On average we're about 10% high on an R. R.

Speaker Change: What we're actually what's actually occurring is about 10% above our type curve for gas and were like pretty much dead on oil.

Speaker Change: Okay.

Speaker Change: Got it that's really helpful. Thank you and on <unk>.

Speaker Change: So I think you mentioned Mark April four completions to begin.

Speaker Change: Upcoming wells should we expect much of any contribution in fiscal Q4 from those wells or I know, there's typically a flow back period for those where you don't get much of any of any oil. So just I guess trying to level set expectations for what kind of contribution you get this fiscal year if any from this.

Speaker Change: Youre not going to get a lot youll, maybe like you know.

Speaker Change: I don't know, maybe month, and a half or something like that.

Speaker Change: Okay.

Speaker Change: Great and if I can sneak one more in maybe this is for Ryan or for whoever else wants to take this.

Speaker Change: Capex I know when you guys came into the fiscal year was budgeted kind of and now like 12 to 14 range I think in that ballpark.

Speaker Change: Obviously kind of way under spending that on a run rate basis in the first half of the fiscal year is that range still pertinent or how should we think about capital spending in the back half of the year.

Speaker Change: Yeah, I mean, it's going to be back half weighted Jeff I mean, it's the majority of it being obviously drilling and completion at chaparral and and I think as we mentioned too in kind of in our remarks in the press release you know there is some activity in scoop stack. So we do have some some money budgeted in scoop stack, but as we said we've had other asp's come in that we may.

Speaker Change: We weren't expecting and some maybe get push but you know there is some we are going to expect some capital there and then majority of our.

Speaker Change: Drilling and completion costs for <unk> four O is going to happen in the second half of the year, but we haven't seen any reason to adjust that overall the range, we still feel comfortable with.

Speaker Change: Got it okay perfect. Thank you guys appreciate it.

Jeff Grant: Thank you Jeff.

Speaker Change: Our next question will come from John White with Roth Capital. Please go ahead.

John White: Good morning, everyone.

Speaker Change: Thanks for all the updates on the call.

John White: Hi, John I appreciate the color.

Speaker Change: On the subject of acquisitions are you concentrating on.

Speaker Change: <unk> core areas or could.

Speaker Change: Could we see you opened up a new core area with an acquisition.

Speaker Change: I would say that some of what we're looking at has a bit of an overlap and then some of the stuff would be really new core areas, but as you know well as a non op rather than if you were an operator would require a whole new team and you'd have to have a team for new area X.

Speaker Change: Whereas for a non op.

That doesn't really apply to us so it's not a G&A bump that would you might expect from somebody who's operating in a new area. That's the beauty of us and our model being none of them.

Speaker Change: Okay. Thanks for the additional detail I'll pass it back.

John White: Thank you John it's John.

John White: And the next question will come from Jeff Robertson with water Tower Research. Please go ahead.

Jeff Robertson: Thanks Mark.

Jeff Robertson: On a micro level. The interference you spoke about at <unk> was that on the on the new wells that have been drilled or was that on.

Jeff Robertson: Existing producing wells.

Jeff Robertson: That was on the three producing wells that we had.

Jeff Robertson: From drilling a lot more.

Jeff Robertson: Yes.

Speaker Change: Does that issue make you think any differently with how you complete or stimulate the upcoming four wells.

Speaker Change: It doesn't affect the stimulation on the completion side it could.

Speaker Change: We are looking.

Speaker Change: Looking at different ways to lift it.

Speaker Change: So as opposed to doing an ESP, we could try like a jet pump or something like that but we have that we kind of have to figure that out. The nice deal is is we've got an inexpensive way to kind of get around the problem. If we need to and we could also so we can do that deciding the best bet is still to do ESP that work is still left to be done and Jeff.

Speaker Change: For context, it's a real simple kind of plumbing problem.

Speaker Change: By aligning and dumped some water down the backside.

Speaker Change: And in this particular case the line was already laid from that facility back to the wells anyway, We just had to separate it out so that we could that we could dump water down the backside of each of the wells It was really inexpensive.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Kelly are Ryan that the last two acquisitions that evolution completed obviously you had some organic growth in both the scoop stack and Shabu.

Speaker Change: When you think about the.

Speaker Change: The profile of the company today.

Speaker Change: Would you like to add inventory would you like to add PDP would you is the best outcome of mix can you just talk about it at a high level, how you think about where the asset bases today and what you'd like to accomplish with.

Speaker Change: Incremental acquisitions.

Speaker Change: So.

Jeff Robertson: Where we sit today I mean listen Jeff in the way we looked at it certainly the way we looked at Scoop stack.

Jeff Robertson: We bought that because it was a nice accretive acquisition on PDP right without taking into account all the benefit from all the upside that was a good deal on PDP.

Jeff Robertson: Came with a bunch of upside that frankly like Mark mentioned is performing better than we thought when we acquired it. So I would say, we're never going to turn down great opportunities for additional upside and anything we look at we like to have some ability to have some upside however.

Jeff Robertson: It is something that we are focusing on now would be immediately cash flow accretive. So whatever we do is going to be high on the PDP front.

Jeff Robertson: And again, we will get that lagniappe as you guys down in New Orleans, I'd like to say from additional upside.

Speaker Change: If I can ask one more Ryan you talked about the balance sheet I think you all issued a little bit of equity in the quarter under your ATM program.

Speaker Change: Can you talk about how you think about financing alternatives between.

Speaker Change: Debt and equity for acquisitions at this point.

Speaker Change: Yes, so I mean from a from a balance sheet perspective, and a leverage we feel we're within kind of our stated target right. One times leverage. So I think you know and you can anticipate any acquisition. We do if we added some debt we would stay within those bounds and so you know, we're obviously in consultation with with our lender and others just to make sure we have.

Speaker Change: The availability, we would need to consummate an acquisition if it were to be a large acquisition. We obviously have said before if it's large and accretive and it makes sense, we could look to use potentially some more under the ATM or.

Speaker Change: Issuing equity in the market again as long as it's accretive to the shareholders and it makes sense from a free cash flow per share, which is obviously, what we're really focused on.

Speaker Change: Okay. Thank you.

Jeff: Yes, Thanks, Jeff.

Speaker Change: Yeah.

Kelly Loyd: Please ask a question and answer session I would like to turn the conference back over to Kelly Lloyd for any closing remarks.

Kelly Lloyd: We just want to thank everybody for taking time out of your busy day to join us and happy to have you here, we're always available for any follow ups. So thank you again.

Kelly Lloyd: And with that the conference is now concluded. Thank you for attending today's presentation you may now disconnect.

Kelly Lloyd: [music].

Kelly Lloyd: Yeah.