On September 16, Evolution Petroleum Corporation (NYSEAMERICAN:EPM) held its fiscal fourth-quarter and full-year 2026 earnings call, and the numbers told a story of a company climbing out of a rough patch. Revenue jumped 20% sequentially to $24.2 million as oil prices realized before hedge settlements shot up 49% year over year to $90.74 a barrel. Adjusted EBITDA more than doubled to $6.5 million. After a bruising third quarter, the fourth quarter finally looked like the recovery management had promised investors back in May.
Oil Prices Did The Heavy Lifting
The fourth-quarter turnaround wasn’t just about crude. NGL prices realized $32.49 a barrel, up 27% year over year, and because Evolution leaves its NGL production entirely unhedged, every dollar of that gain flowed straight through. That combination of higher liquids pricing, growing production, and the roll-off of a prior-period transportation adjustment at the Delhi Field pushed operating cash flow to $6.8 million in the quarter, nearly double the $3.5 million generated in the third quarter.
Behind the quarterly numbers sits a longer-term shift in how Evolution makes money. The company closed a roughly $16 million acquisition of mineral and royalty acreage in the Permian’s Midland Basin after the fiscal year ended, adding about 3,420 net royalty acres and more than 200 barrels of oil equivalent per day of current production, all without Evolution spending a dime on development. That mirrors what’s already happening in the SCOOP/STACK play, where fourth-quarter production climbed 14% year over year to 1,275 BOE per day while unit operating costs fell to $10.33 a barrel. Evolution also replaced more than 100% of the 2.6 million barrels of oil equivalent it produced during the year, ending fiscal 2026 with 27.2 million barrels of proved reserves, an outcome that matters directly to a dividend now in its 52nd consecutive quarter.
Natural Gas Keeps Holding It Back
Not every part of the business bounced back. Average daily production fell 4% year over year to 6,901 barrels of oil equivalent per day, largely because the flush production from new Chaveroo wells that boosted last year’s fourth quarter has since tapered off. Natural gas pricing remained the softest spot in the portfolio, especially at the Jonah Field, where CEO Kelly Loyd said “regional differentials have weighed on realizations” even as broader demand for gas keeps growing. CFO Ryan Stash noted that stronger oil and NGL results helped offset “continued weakness in natural gas realizations, particularly at Jonah.”
The quarter’s swing to profitability also leaned heavily on paper gains rather than operations. Net income of $4.6 million, or $0.13 per diluted share, included a $5.8 million unrealized gain on derivative contracts, a reversal from the $7.6 million unrealized hedge loss that dragged the company to an $8.9 million net loss in the third quarter. Full-year operating cash flow fell to $23.6 million from $33.1 million in fiscal 2025 because of working capital swings, and Evolution still carried $56.5 million in credit facility borrowings at a 6.69% weighted average interest rate as of June 30. A temporary increase in the borrowing base to $73 million runs only through Oct. 20, leaving the size of Evolution’s credit cushion an open question heading into fiscal 2027.
Funds Trim As Skepticism Lingers
The number of hedge funds holding Evolution Petroleum fell from 12 in the prior quarter to 8 in the most recent one, a pullback in institutional conviction even as fourth-quarter results improved. Short interest sits at 8.91% of the float, a level that points to a real bear camp rather than casual hedging. That combination of departing funds and elevated shorts suggests the market hasn’t fully bought the recovery story management laid out on the call. With gas realizations still lagging at Jonah and leverage sitting near $56.5 million, some investors seem to be waiting for more than one strong quarter before changing their minds.
What Has To Go Right
Evolution Petroleum’s fourth quarter showed what the business looks like when liquids pricing cooperates, one-time drags roll off, and the Permian Minerals deal adds another capital-light source of growth for fiscal 2027. But that same quarter also leaned on a derivative swing and a gas market that hasn’t turned yet at Jonah. For the recovery to hold, oil and NGL strength needs to keep offsetting weak gas differentials without hedge accounting doing the heavy lifting on the income statement. For the skeptics to be vindicated, leverage and working capital pressures would need to outpace the growth building in Evolution’s expanding royalty portfolio.
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