Evolution Petroleum Corporation (AMEX:EPM) Q3 2023 Earnings Call Transcript May 10, 2023

Evolution Petroleum Corporation beats earnings expectations. Reported EPS is $0.41, expectations were $0.16.

Operator: Good afternoon and welcome to the Evolution Petroleum Fiscal Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to your host Brandi Hudson, Investor Relations Manager. Please go ahead.

Brandi Hudson: Thank you. Welcome to Evolution Petroleum’s fiscal third quarter earnings call. I’m joined by Kelly Loyd, President and Chief Executive Officer, Ryan Stash, Senior Vice President, Chief Financial Officer, and Treasurer, and Mark Bunch, Chief Operating Officer. We released our third quarter financial results after the market close yesterday. Please refer to our earnings press release for additional information concerning these results. You can access our earnings release and the Investor Relations section of our website. Please note that any statements and information provided in today’s speak only as of today’s date May 10, 2023, and any time-sensitive information may not be accurate at a later date. Today’s discussion will contain forward-looking statements of management’s beliefs and assumptions based on currently available information.

These forward-looking statements are subject to 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 and adjusted net income. Please refer to the reconciliations of these measures to the comparable GAAP measures in our earnings release. Kelly will begin today’s call with a few opening comments, followed by our operational results from COO, Mark Bunch and Ryan Stash, our CFO will review our third quarter financials before turning back over to Kelly for closing comments. 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 investor relations section of our website. With that I will turn the call over to Kelly.

Kelly Loyd: Thanks, Randy. Good afternoon, everyone. And thank you for joining us for today’s call. Our results in the third quarter of fiscal 2023 were excellent and continued to demonstrate our diversified portfolio of long-life low decline, oil and natural gas assets ability to generate strong free cash flow, even during periods of high commodity price volatility. A couple of highlights from the quarter are we reported record quarterly revenue of $36.9 million and record quarterly net income of $14 million or $0.41 per diluted share. We returned cash of roughly $8 million to shareholders via cash dividends and share repurchases. And we generated record adjusted EBITDA of $22 million, while maintaining zero debt outstanding and building our cash reserves to $18.4 million.

We continue generating meaningful free cash flow from the acquisitions completed over the last couple of years to fund our strategic objectives. Of course, our ongoing success is a direct reflection of the hard work and accomplishments of our team. I want to thank each and every member of the evolution team for their contributions and continued dedication to driving near and long-term value for our shareholders. During the third quarter, we paid a cash dividend of $0.12 per common share. This was 20% higher than the same period for fiscal 2022, which we view as a clear indicator of the growth and strength of our business. Our board recently declared a cash dividend of $0.12 per share for fiscal Q4, payable on June 30th to shareholders of record on June 15th.

Marking the payment of our 39th consecutive quarterly dividend and our fourth in a row at the $0.12 per share amount. Since the company began paying dividends in December 2013, we have returned approximately $98.4 million or $2.97 per share of capital to shareholders. As we’ve discussed in the past, there are very few small-cap E&P companies that can say that they have consistently paid a dividend for that length of time throughout several tumultuous commodity price cycles. We believe this reinforces the strategic view our board takes as we prudently grow the business through the targeted acquisition of solid, long-life, and low-decline assets that will continue to support a sustainable quarterly dividend for the immediate and long-term. In short, maintaining and ultimately growing the payment of a quarterly cash dividend remains front and center for our board and management team.

I will now turn the call over to Mark to discuss operations.

Mark Bunch: Thanks, Kelly. Third quarter fiscal 2023 production of 7,089 net BOE per day was down around 2% from 7,250 net BOE per day for fiscal Q2. In large part due to the extended recovery gas production in the Barnett associated with the severe winter storm at the end of Q2. Looking at third quarter results in more detail, net production at Jonah Field for Q3 was 1,844 BOE per day, with an average gas price of $20.31 per MCF for the quarter. The Jonah Field is our most recent acquisition, and we remain pleased with his performance. Similar to other assets, the field is highlighted by long life and low decline reserves that generate significant cash flow. In addition, the asset base provides access to attractive Western markets.

Third quarter net production in the Williston Basin was up 16% relative to last quarter at 567 BOE per day, of which approximately 76% was oil. The Williston Basin oil production was impacted by the winter storm during Q2 which has been restored in Q3. During the quarter we participated in a vertical balk and re-completion on our waiting results. We continue to work closely with our operator on high grading opportunities in the field, such as expense workovers, a discovery completions, and sidetrack drilling opportunities. Q3 net production for Barnett Shale was 3,156 BOE per day, of which approximately 76% was natural gas. As mentioned previously, production was lowered due to the effects of this severe winter storm. Production was down by 4.5% relative to last quarter.

Net production for Q3 and Hamilton down was essentially flat at 400 BOE per day. We continue to support the operator merit energy in their efforts to restore production, adjust water injection locations and volumes and execute on other targeted projects both maintenance and improvement. Third quarter net production at Delhi Field was essentially flat and approximately 1,111 BOE per day. We continue to work with our operator to perform conformance workovers, and upgrades to the facilities. With that, I will turn it over to Ryan to discuss our financial highlights.

Ryan Stash: Thanks Mark. As mentioned earlier, please refer to yesterday’s earnings release for additional information concerning our third quarter results. My comments today were primarily focused on financial highlights and comparative results between fiscal Q3 and Q2. The key highlight of the third quarter was our continued strong generation of cash flow, including adjusted EBITDA of 22 million. This was $34.42 on a per BOE basis, which was an increase from the second quarter. We have now generated $55.4 million and adjusted EBITDA for fiscal 2023 year-to-date. As Kelly discussed during the third quarter, we continue to fund our operations, development capital expenditures, cash dividends, and share repurchases out of operating cash flow, while also maintaining zero debt.

Supported by our continued strong operational and cash flow outlook, we paid a dividend of $0.12 per share in the third quarter, and declared a dividend of $0.12 per share for fiscal Q4, payable on June 30th to shareholders of record as of June 15th. Our cash dividend program has been and will continue to be a top priority, as we clearly recognize the strategic importance of returning value to our shareholders. During the third quarter, we maintained our debt-free balance sheet and ended the quarter with cash and cash equivalents of $18.4 million and working capital of $10.7 million. The result was increased liquidity of $68.4 million, up 85% since June 30, 2022. This is a direct result of our targeted and immediately accretive acquisitions over the past couple of years, as well as our continued focus on cost control.

We are ideally positioned for the continued execution of targeted future growth opportunities that meet our strategic vision. In May, we entered into the 10th amendment to our credit facility that extended the maturity date to April 2026. And also replace LIBOR as a benchmark interest rate was tougher, all the existing terms remained substantially the same. Now looking at the third quarter financials in more detail. Our total revenue of $36.9 million was up 9% from last quarter, due to a combination of factors including higher natural gas revenue due to a 34% increase in realized pricing partially offset by a 5% decrease in daily production, increase NGL revenue due to 10% higher realized pricing. This was offset by lower oil revenue associated with the 10% decreased in realized pricing.

The result was an average realized price per BOE increase of 14% to $55.79. Lease operating expenses decreased 10% sequentially to $13.6 million in the third quarter. On a per BOE basis, lease operating expenses were $21.26 for the third quarter, compared to $22.55 in the second quarter, primarily contributing to the decrease in LOE were lower cost of the Barnett Shale. The costs were partially offset by higher production taxes associated with higher natural gas prices at Jonah Field. Also contributing to the decrease was reduced CO2 costs at Delhi Field associated with a decrease in crude oil prices from the prior quarter. As a reminder, our CO2 costs at Delhi Field are directly impacted by the price of oil. Therefore, lower oil prices result in lower CO2 costs.

General and administrative expenses were $2.3 million for the third quarter versus $2.6 million for Q2. The decrease was primarily associated with lower consulting and audit fees. Net income for the third quarter was $14 million or $0.41 per diluted share, versus $10.4 million or $0.31 per diluted share in the second quarter. Adjusted net income for the quarter was $14.1 million or $0.42 per diluted share compared to $9.6 million or $0.28 per diluted share in the prior quarter. During the third quarter, we invested $2.3 million in development and maintenance capital expenditures. For fiscal 2023, we continue to expect total development capital expenditures of $6 million to $7 million. This estimate includes upgrades to the Delhi Field central facility workovers at Hamilton Dome Field, the Barnett Shale, and the Jonah Field and a vertical re-completion, and the Williston Basin.

We expect capital spending on our existing properties will continue to be met from cash flows from operations and current working capital. Of course, our spending outlook may change depending on conversations with our operating partners, commodity pricing, and other considerations. During the quarter, we re-purchase $3.9 million worth of common shares under our 10B5-1 plan. I will now turn the call back over to Kelly for his closing remarks.

Kelly Loyd : Thanks, Ryan. We continue to benefit from the targeted acquisitions we have completed over the past few years. As a result, we enjoy a larger and more geographically diverse asset base and commodity mix. This provides us with a solid platform for significant cash flow generation that we will continue to use to support and enhance our well-established shareholder capital return program. Our shareholders expect a consistent and meaningful cash return on their investment and we remain committed to maintaining and as appropriate, increasing our dividend and pay-out over time. Another component of our capital return strategy is the share repurchase program we put in place and began making purchases on after the end of the second fiscal quarter.

This provides us the optionality to opportunistically repurchase our shares from time to time through open market transactions, privately negotiated transactions, or by other means in accordance with federal securities laws. As in the past, we will maintain a conservative balance sheet and remain disciplined in our management of capital as we fully recognize the cyclicality of our business. Our ongoing commitment to remaining fiscally prudent is evidenced by our zero-debt balance in meaningful cash reserves at quarter’s end. As a result, we’re well positioned to execute on the targeted high rate of return in immediately accretive growth opportunities as appropriate. We will pursue initiatives designed to maximize total shareholder return by optimizing the value of every dollar we invest on a risk-adjusted basis, depending on where we are in the cycle.

Our approach of building a targeted asset base of oil and natural gas reserves capable of supporting cash payments to shareholders has served us well over the past decade, and will continue to benefit our shareholders for many years to come. As we have discussed in the past, we will closely evaluate and only execute on targeted acquisition opportunities that provide long-live production and strategically enhance our base of assets, and do not result in any material dilution. Any transaction must also clearly support our long-standing thesis of providing a significant total return for our shareholders. With that, we’re ready to take questions. Operator?

Q&A Session

Operator: [Operator Instructions] At this time, we will take our first question which will come from Donovan Schafer with Northland Capital Markets. Please go have to your question.

Operator: And our next question will come from John White with ROTH Capital.

Operator: And our next question will come from Bruce Brown with Brown Capital Management.

Operator: And our next question will come from John Bair with Ascend Wealth Advisors.

Operator: [Operator Instructions] Our next question here will come from Jeff Robertson with Water Tower Research.

Operator: And this concludes our question-and-answer session today. I would like to turn the conference back over to Mr. Kelly Loyd for any closing remarks.

Kelly Loyd: Thank you. And thanks again, everyone, for taking the time to listen. And we really do appreciate your participating in today’s call. As always, please feel free to contact us if you have any additional questions. We appreciate your continued support and look forward to updating you on our ongoing efforts when we report our fourth quarter and fiscal 2023 results in September. Thanks again.

Operator: The conference has now concluded. Thank you very much for attending today’s presentation. You may now disconnect your lines.