Evolution Petroleum (NYSE American: EPM) Q4 2025 Earnings Call

0:00 Good morning, and welcome to the Evolution Petroleum Fourth Quarter and Fiscal Year twenty twenty five Earnings Conference Call. All participants are in listen only mode. Please also note today's event is being recorded. At this time, I would now like to turn the conference over to Brandy Hudson, Investor Relations Manager. Please go ahead. Thank you. Welcome to Evolution Petroleum's fiscal Q4 twenty twenty five earnings call. I'm joined by Kelly Lloyd, President and Chief Executive Officer Mark Bunt, Chief Operating Officer and Ryan Stash, Senior Vice President, Chief Financial Officer and Treasurer. We released our fiscal fourth quarter and full year 2025 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.

0:52 Please note that any statements and information provided in today's call speak only as of today's date, 09/17/2025, 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 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. Reconciliations of these measures the closest comparable GAAP measures can be found in our earnings release.

1:37 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 financial 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. Thank you, Brandy, and good morning, everyone. We demonstrated another solid quarter of execution in fiscal Q4. Evolution reported a material improvement in net income of $3,400,000 and adjusted EBITDA of $8,600,000 underpinned by a balanced commodity mix and prudent cost controls.

2:28 Average production was 7,198 BOE per day and our revenue mix was 61% oil with natural gas and NGLs providing a meaningful offset in a volatile oil backdrop. We also declared a zero one two dollars per share dividend for fiscal Q1 twenty twenty six, extending our record of dependable cash returns for shareholders. We have now consistently issued a dividend every quarter since 2013. We continued to upgrade the portfolio in ways that improve durability and capital efficiency. During the fiscal fourth quarter, we closed our highly accretive $9,000,000 Tex Mex acquisition, which included non operated oil and natural gas assets across New Mexico, Texas and Louisiana.

3:22 This acquisition adds roughly four forty net BOE per day of stable low decline production with a roughly sixty-forty mix of oil and natural gas with relatively low cost behind pipe upside potential. Subsequent to quarter end, we closed the largest minerals only acquisition in company history in the SCOOP STACK, approximately 5,500 net royalty acres with roughly four twenty net BOE per day at the effective date with years of upside drilling that comes with no net cost to Evolution. Minerals cash flows are very high margin as they come without lifting cost, which pairs beautifully with our existing position in the basin.

4:08 These acquisitions are a great example of the kind of low decline, high return exposure that we seek, scalable, capital light and immediately cash generative. They also represent a clear demonstration of our ability to effectively adapt to market environments and deploy capital in the most effective manner. When oil prices are low, it presents compelling M and A opportunities rather than drilling opportunities and vice versa. In the market environment and what's going on there, commodity prices remain choppy through the quarter. Our model, which is grounded in diversified commodity exposure and tight cost discipline did what it is designed to do.

4:53 It smoothed out cash flows and supported returns, which is further reflected by our improved profitability despite essentially flat revenue and production. For oil, we see the demand picture of kind of steady as she goes. Over the last ten years on average, demand has grown at a little over 1% per year and we expect this trend to continue. OPEC plus is continuing to add back supply. This has recently put the global speculative trading community on defense to the point where net positioning has reached some of the shortest net positioning observed in the past decade. On the other end of the spectrum, there's very little geopolitical risk priced into the forward curves, although potential disruptive hotspots are popping up all over from Russia to The Middle East, down to Southeast Asia and to South America.

5:48 Additionally, we all know the best cure for low oil prices is low oil prices, but it doesn't happen overnight. If prices stay in the 60s, we fully expect there to be a negative production response and we're already seeing many examples of CapEx budgets here in The U. S. Being reduced. If the demand picture holds, it's reasonable to assume that if more U. S. Barrels are needed, we will see higher near term prices as flowing barrels are more sought after as well as higher long dated prices to incentivize increased CapEx from the North American E and P community. We're certainly not calling for it, but we could see a sharp snapback just like we did the last time WTI averaged in the 60s at $68 a barrel in 2021 and twenty twenty two's average WTI price increased to roughly $95 a barrel.

6:45 For natural gas, we see the setup for a very strong forward demand curve. Current and planned incremental LNG exports as well as increased industrial demand tied to natural gases portion of incremental power generation are the main drivers behind this. What is driving the expected increase in power usage? Well, that's in large part related to new data centers, AI implementation and crypto coin mining. In most years, since the beginning of the shale era, producers have needed forward Henry Hub prices of greater than $3.50 to grow production sufficiently enough to meet these levels of forward demand expectations. However, we must always remember that weather is a huge player for natural gas prices and can cause sharp near term swings.

7:37 The weak weather scenario that requires a curtailment of supply has a far lesser financial impact on Evolution than the positive financial benefit that we would receive from the opposite weather scenario, one where it's so cold that there's much more demand than supply. Overall, our portfolio of low decline producing assets with additional upside potential from new drilling locations to behind pipe prospects is primed to both write out any weakness and flourish when there's strength. Regardless of the market environment, our capital allocation framework is unchanged. Prioritize durable free cash flow, return cash through a reliable dividend and pursue accretive low decline opportunities both organic and inorganic.

8:27 These will improve our per share value over time. The $0.12 per share dividend we recently declared for fiscal first quarter twenty twenty six reflects that discipline and our confidence in the portfolio and future cash flows. We also took a significant step to enhance flexibility with an amended and restatement of our senior secured reserve based credit facility. The intent is straightforward, maintain conservative leverage and position our balance sheet with ample dry powder to capitalize on accretive opportunities for shareholders, be it organic or inorganic. With that, I'll hand it over to Mark for more details on the assets. Thanks, 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.

9:22 Beginning with SCOOPSTACK, on our working interest position, activity moderated late in the quarter with several wells in progress and late quarter contributions beginning to come through now in the fiscal first quarter six. On the minerals package that closed after quarter end, we anticipate a gradual ramp up aligned to operator schedules with the majority of initial royalty cash flow beginning in fiscal 1Q twenty twenty six and building from there. As Kelly mentioned earlier, mineral interest provide royalty cash flows without typical working interest expenses and complement our existing footprint. In Chabaroo, we turned in line four gross wells on time and under budget and early results are ahead of plan.

10:09 We are advancing permits for the next phase and will pace activity to commodity prices to support returns and cash flow consistency. In Delhi, operations experienced downtime from shut ins related to facility safety upgrades. We also experienced some seasonal effects related to the high ambient temperatures limiting the amount of CO2 injection. The operator continues to inject only recycled CO2, which remains economically favorable for this field. And in Jonah, operations were stable with reported sales volumes lower due to pipeline balancing. We expect makeup volumes to contribute in the first quarter of fiscal twenty twenty six. Across the portfolio, our priorities are unchanged safety, cost control and capital efficiency.

11:00 We will continue to deploy capital where it competes best on a risk adjusted per share basis. Over to you, Ryan. Thanks, Mark, and good morning, everyone. As Brandy mentioned earlier, we released our earnings yesterday, which contains more information on our results. For today, I'd like to walk through our financial highlights. In fiscal Q4 twenty twenty five, we had total revenues of $21,100,000 essentially flat year over year. This reflected flat production at 7,198 BOE per day and overall pricing that was roughly unchanged on an aggregate basis given our diversified commodity mix. Realized natural gas prices increased 66% year over year. However, oil prices declined 20% year over year and NGL prices declined 12% year over year.

11:52 Operationally, temporary downtime at Delhi and pipeline balancing at Jonah weighed on reported sales volumes, while our four new Chavaroo wells turned in line and production from our Tex Mex acquisition helped to offset the downtime. Quarterly net income improved materially both sequentially and year over year to $3,400,000 or $0.10 per diluted share. Adjusted EBITDA for the quarter was $8,600,000 up 7% year over year and 16% sequentially driven by portfolio mix and cost discipline as well as positive impacts from our hedge portfolio. On a per unit basis, LOE was $17.35 per barrel and G and A excluding stock based compensation was $2.99 per barrel.

12:43 Cash provided by operating activities was $10,500,000 for the quarter and capital expenditures were $4,700,000 Our hedging program remains a core pillar of risk management. We maintain a balanced portfolio with our ultimate goal to protect downside while retaining prudent upside. We evaluate markets regularly and will layer in hedges when required by our credit facility covenants or when economic support our objectives, which are supporting our dividend program, locking in returns for capital plans and preserving balance sheet flexibility. We align hedge levels with expected volumes and the pace of development consistent with our focus on maintaining free cash flow through commodity cycles.

13:30 At 06/30/2025, we had cash and cash equivalents totaling $2,500,000 borrowings of $37,500,000 and total liquidity of approximately 30,000,000 As Kelly mentioned earlier, on June 30, we amended and restated our senior secured reserve based credit facility adding a second lender and establishing a $65,000,000 borrowing base under $200,000,000 revolving credit facility that matures on 06/30/2028. Subsequent to year end, we funded our acquisition of mineral and royalty interest in the SCOOPSTACK with $15,000,000 in borrowings under our revolver and cash on hand. We returned $4,100,000 through common dividends in the quarter and $16,300,000 in fiscal twenty twenty five.

14:23 On 09/11/2025, the Board declared a $0.12 per share dividend for fiscal 1Q twenty twenty six payable 09/30/2025 to holders of record 09/22/2025, marking the company's forty eighth consecutive quarterly dividend and thirteenth consecutive at the current level. Cumulatively, Evolution has returned approximately 134,800,000 or $4.05 per share in common stock dividends, reinforcing our priority of steady capital returns and a dividend program built to remain dependable through cycles. Now I'll hand it back over to Kelly for closing comments. Thanks, Ryan. To close, our team executed very well in both Q4 and fiscal twenty twenty five, especially when considering the volatile oil market we've been navigating this calendar year. We are very excited as we enter fiscal twenty twenty six.

15:22 We are well positioned to accelerate growth and advance the company's strategy with multiple tailwinds in place, including our recent acquisitions of Tex Mex and SCOOPSTACK Minerals, along with multiple organic opportunities across our asset base. At Chabaroo and across the portfolio, we will pace development to market conditions and stay focused on our core objectives creating durable free cash flow, a reliable dividend and disciplined accretive opportunities that compound per share value over time. With that, I'll turn it over to the operator to begin the Q and A session. Thank you very much. We will now begin the question and answer session.

16:34 And your first question comes from Poe Fratt with Alliance Global Partners. Please go ahead. Questions, if I may. The first of which is, can you just give me an idea of sort of where your run rates are right now for like the SCOOPSTACK and also Barnett and even Subaru, if you wouldn't mind? Sure. You're talking about on a production basis? Yes. BOE, however, the measure you want to use. Okay. Yes. So the SCOOPSTACK is I mean, it's in line with where we were on the quarter honestly. Chabaroo, where we're going with that. So you see that the wells came on and they're going to decline pretty what Mark on the first year average sort of 50% over the course of the year.

17:33 So we so I apologize, but we don't like to give out intra quarter sort of exact run rate. So I'm being a little evasive on purpose here for you. But it's in line with what we were in the quarter on the sort of natural declines we're talking about. Maybe on Chevrove, when did you hit full production there? When did all four wells hit full production? Like between in the first two weeks of May. Okay, great. And then can you talk about CapEx looking into fiscal twenty twenty six? Yes. So right now, we're and I'll let Mark and Kelly comment on Shaver specifically. But our budget currently is around 4,000,000 to $6,000,000 is what we're thinking for fiscal year 2026. And that's primarily SCOOPSTACK CapEx along with other maintenance CapEx that we typically see in our other area. So right now, we're not currently budgeting any CapEx in that range for Chavarria and that's obviously dependent on our partner and just the outlook for oil prices in general.

18:43 Yes. And I'd like to excuse me, I got choked for a second. Yes, I'd like to say, have we're continuing to process to permit the wells and get them ready to drill, but we haven't yet decided whether we're going pull the trigger on drilling them right now. It's going to depend upon commodity prices at the time. And we have a very similar viewpoint with our partner out there. So, we'll be making that decision sometime much closer when sometime in probably calendar year 2026. I'll just follow-up. Look, we consider these to be really valuable locations. And obviously, when you're drilling new wells, they come on flush production. And again, we'll make that decision later on. But we're doing everything we need to, we can dynamically change in response to prices. But we'd rather not go full board drilling when prices are in the low 60s. So we'd rather save that for when prices are better and take advantage of that.

19:42 Understood. Thank you for that. And just one last one if you wouldn't mind on the cost side. Can you just talk about where you might see LOE on SCOOPSTACK go? And also with the Barnett you had the audit benefit for the fiscal fourth quarter on that asset. And can you just talk about a run rate for LOE for the Barnett looking at fiscal twenty twenty six? Okay. So on the first question with regards to SCOOPSTACK LOE, the way we intend to do it, right, it's one asset for us and we're going to look at it together. So, we're still assessing the impact as cash flows come in.

20:27 But we definitely obviously, there will be a material improvement with the Minerals acquisition. Mark, did you want to add to that? Yes. I'd say on SCOOPS TACK, it's where it runs right. We don't expect on a BOE per basis for it to increase substantially. So, mean, we should stay right where it is. It's a good asset. Very, very profitable for us. But again, when you combine it with the minerals, it will be Yes. Even better. But I mean, I'm talking about just the well, I'm just talking about the operated side. I mean, it's been a star from a standpoint of cost per BOE. Yes. I'm guessing you see at least the 10% decline in your per BOE LOE on SCOOPSTACK in the fiscal first quarter or maybe for the full year?

21:16 We will obviously that will get refined as we sort of integrate more of these cash flows as they come in. But I mean for a starting point, I think that's a pretty good idea. Yes. On the Barnett to answer your question, obviously, we're looking at if you look at our last quarter in our press release, was about $18.50 a barrel all in for the Barnett. We do see some of those costs hopefully going down a little bit going forward. I mean, we do think there are going to be some benefits from the audit in terms of processes that were changed. But also, there were gathering contracts or were renegotiated by the operator diversified. It's going to have some benefit. So I would say run rate, we're seeing current levels be just slightly lower than that. So we should hopefully do a little better than that March 31 number that we have there in the press release.

22:08 Okay, great. Thank you so much. Your next question comes from Chris Stegner with Water Tower Research. Please go ahead. Good morning and thank you. Just wanted to ask a bit more about the recent SCOOPSTACK acquisition that was mostly mineral acreage. And curious if that's a shift in strategy or was more focused on that specific opportunity? And how you think about acquisitions and with working interest versus minerals? Thank you. Yes, Chris. Thank you. This is Kelly. I appreciate the question. This was done on a truly an opportunistic basis. As you know, we screen many, many, many deals every year. And what we look at chiefly is how accretive will it be to our cash flow per share, I. E, our ability to fund our dividend both near term and long term.

23:13 And this one, it fit perfectly. We bought it for what I think is a very reasonable price on PDP alone. I'd say more than 80% of the value we placed on just the PDP side of it. But of those 5,500 sorted it's actually 5,603 net royalty acres. There are a ton of upside drilling locations. And as you know, with minerals, you don't pay for those. So it worked out to be something that again, we're really happy with the deal and where it's looking. Plus, understand the basin really well. So we understood how those locations are probably going to perform. And anyway, I think it's a really good deal. So going forward, it'll be sort of the same strategy, Chris. If it's working interest, if it's minerals, we're going to go for whatever adds the most accretion to our cash flow per share going forward.

24:07 Excellent. Well, that's all I've got for today. Thank you. Terrific. 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 very much. And we want to thank everyone for taking the time to be here and to listen to us. As you know, you can follow-up with our IR department with Brandy Hudson if you want to arrange for any more questions. Like I said, just really proud of the team and all the great work they've done putting this portfolio together that is truly primed to do really, really well when we get some favorable tailwinds on pricing and ride out all the storms. So thank you very much for your time.

24:55 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.