Evolution Petroleum Corporation (AMEX:EPM) Q3 2024 Earnings Call Transcript

Evolution Petroleum Corporation (AMEX:EPM) Q3 2024 Earnings Call Transcript May 8, 2024

Evolution Petroleum Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to the Evolution Petroleum Third Quarter Fiscal Year 2024 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. At this time, I’d like to turn the floor over to Brandi Hudson, Investor Relations Manager. Ma’am, please go ahead.

Brandi Hudson: Thank you. Welcome to Evolution Petroleum’s fiscal q3 2024 earnings call. I’m joined by Kelly Loyd, President and Chief Executive Officer; Mark Bunch, Chief Operating Officer; and Ryan Stash, Senior Vice President, Chief Financial Officer and Treasurer. We released our fiscal 2024 third quarter financial results after the market closed 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 today’s date, May 8, 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 filings. Actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statement. 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 overview 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.

Kelly Loyd: Thanks, Brandi. During our last quarterly call, we told you that we were working to increase our scale and economic efficiency. We told you that expanding regionally and further diversifying our production base are important goals for us. Most importantly, we also told you that the point of all this is to increase our cash flow and, therefore, either extend our dividend fairway, allow us to increase our dividend, or do both. With our current asset base and the additions of our recent SCOOP/STACK acquisitions and participation in the operations at Chaveroo, we’ve come a long way towards achieving what we set out to accomplish. And we have done so while keeping our balance sheet in our comfort zone and adding no incremental dilution.

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Q&A Session

In fact, we repurchased shares during the quarter. We added to our producing asset base and our portfolio of drilling locations. We entered into two prolific areas, the Permian Basin and the Anadarko Basin. We increased our oil production as a percent of sales. In fact, this quarter represented a record amount of oil production net to the Company. And by the end of the quarter, we had participated in 35 newly drilled wells or wells in progress, 32 in the SCOOP/STACK and three in Chaveroo, which represent some of the most economic returns the Company has seen to date. Evolution today versus Evolution a year ago looks very promising. Our oil production for the fiscal third quarter this year versus last year is up by approximately 19%. Our NGL production is the same, and our natural gas production is down by roughly 4%.

These numbers only include about half of the quarter for the SCOOP/STACK acquisitions as the transaction closed on 2/12, and less than 2/3 of the quarter for the new Chaveroo wells as all three wells were only finished being placed on production in early February and ramped up in production as frac fluid was recovered. Today, we have a much deeper and higher-quality inventory of drilling locations versus a year ago, with economics that are very compelling. We believe that with our current inventory of assets, we have the firepower to fund our dividend for many years to come with the potential for growth, particularly as natural gas prices recover as expected. And we certainly don’t intend to rest now. We’re always on the lookout for the next highly accretive transaction that will benefit our shareholders.

From October of 2019 through February of 2024, Evolution has 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. Since we began paying dividends 10 years ago, we have returned over $3.45 per share to shareholders in cash and another $0.26 per share in share repurchases. These six major transactions have added substantial volumes of proved oil, natural gas and NGLs, all of which gain us exposure into 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 operated by proven and experienced teams.

We can either choose to participate, non-consent or even sell many of these undeveloped locations, depending on which will bring the most value to our shareholders at the time. Throughout the years and across many diverse transactions, our goal remains the same as it has been since 2013, the year we paid our first of 42, 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 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.

Mark Bunch: Thanks, Kelly. I will focus on some of our notable items since our listeners can refer to our press release and 10-Q filings for additional details. Our latest acquisition, SCOOP/STACK, is a very exciting add to the Company’s portfolio. We closed on this acquisition on February 12. On a pro forma basis for the third quarter, the net production rate was approximately 1,550 BOE per day, which was essentially flat with the production rate at the effective date of the acquisition November 1, 2023. Also, on the effective date of the acquisition, we acquired over 300 gross drilling locations, 21 of which were DUCs. At the close of the third quarter, 19 of the 21 DUCs have been placed on production, and we have agreed to participate in additional 15 gross or 0.2 net new horizontal wells across the acreage, of which 13 are currently in progress.

Based on limited information, the completed wells have so far, on average, exceeded expectations. Based on current performance, we are confident that SCOOP/STACK will be a real value add for the long term. At Chaveroo, we brought our first three wells on production around February 1. All three wells’ gross production peaked at between 300 and 375 BOE per day, which is significantly better than our predrill estimates. On a pro forma basis for the third quarter, Chaveroo has produced approximately 290 BOE per day net to our interest. In conjunction with the operator, we are planning to drill the next four wells beginning in September 2024, followed by another six wells beginning in April 2025. We’re very pleased with the results of our drilling program at Chaveroo and believe will continue to support the dividend through a continual drilling program over the next decade.

Again, we would like to highlight that the addition of Chaveroo and SCOOP/STACK are perfect fits for our evolving strategy of both adding a long-life production during commodity price downswings and adding undeveloped locations by making acquisitions through the drill bit. We view this as crucial to enhancing our ability to maintain or increase production at an attractive rate of return for years to come. As for our legacy properties, we have had a successful third quarter. Jonah Field still receives a premium over Henry Hub pricing since we sell into the West Coast market and continues to perform as expected at its historical decline rate. The Williston asset production increased slightly due to the ONEOK Grassland System downtime in the prior quarter, even though we did experience some downtime due to winter storm in January.

The Barnett Shale asset experienced some downtime due to a winter storm in January as well. Subsequently, operations were resumed with production back on its historical decline rate. The operator continues to work on ways to reduce operating expenses there. Hamilton Dome continued to perform very well, even though experienced more downtime due to well workovers than usual at the beginning of the quarter. Net production was only slightly down from the previous quarter. At Delhi, production was affected during the quarter by winter storms that impacted oil production and repeated downtime from rental turbine failures impacting NGL production, both of which resolved by the end of the quarter. The CO2 purchase pipeline was taken offline for preventative maintenance at the end of February and the operator anticipates resuming CO2 purchases in June 2024.