Evolution Petroleum (EPM) - 2020 Q3 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) Unaudited Q3 2020 financial statements reflect decreased assets and equity, with declining revenues but a tax-boosted net income Consolidated Condensed Balance Sheets The balance sheet as of March 31, 2020, shows slightly decreased total assets and equity, driven by reduced cash and increased liabilities Consolidated Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | June 30, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $20,693 | $31,553 | | Total current assets | $26,219 | $35,179 | | Oil and natural gas properties, net | $67,669 | $60,346 | | Total assets | $94,219 | $95,762 | | Liabilities & Equity | | | | Total current liabilities | $3,108 | $2,753 | | Total liabilities | $17,298 | $15,636 | | Total stockholders' equity | $76,920 | $80,126 | | Total liabilities and stockholders' equity | $94,219 | $95,762 | Consolidated Condensed Statements of Operations Q3 2020 revenues decreased due to lower commodity prices, but net income rose significantly from a tax benefit, contrasting with nine-month declines Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | Nine Months Ended Mar 31, 2020 | Nine Months Ended Mar 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $7,713 | $9,501 | $26,246 | $32,856 | | Income from Operations | $952 | $2,953 | $6,476 | $13,682 | | Net Income | $3,710 | $2,399 | $8,268 | $12,099 | | Diluted EPS | $0.11 | $0.07 | $0.25 | $0.36 | Consolidated Condensed Statements of Cash Flows Nine-month cash flow shows decreased operating activities, increased investing for acquisitions, and higher financing outflows Cash Flow Summary (Nine Months Ended March 31, in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,233 | $18,333 | | Net cash used in investing activities | ($10,693) | ($6,372) | | Net cash used in financing activities | ($12,400) | ($10,092) | | Net change in cash | ($10,859) | $1,869 | Notes to Unaudited Consolidated Condensed Financial Statements Notes detail accounting policies, the Hamilton Dome acquisition, a significant EOR tax benefit, and post-quarter hedging and dividend reduction - On November 1, 2019, the company acquired a 23.51% working interest in the Hamilton Dome field for a cash purchase price of $9.5 million, which was settled for a net $9.3 million after adjustments[48][118] - The company recorded a net tax benefit of $2.8 million during the nine months ended March 31, 2020, principally from claiming Enhanced Oil Recovery (EOR) credits by amending prior years' tax returns[79] - Subsequent to quarter end, on April 6, 2020, the company entered into NYMEX WTI oil swaps for 1,400 barrels per day through December 2020 at a fixed price of $32.00 per barrel[92] - On May 5, 2020, the company reduced its quarterly dividend from $0.10 to $0.025 per share, effective for the quarter ending June 30, 2020, to conserve cash amid declining oil prices[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's impact on oil prices, highlighting the Hamilton Dome acquisition, Q3 tax benefit, strong liquidity, and proactive hedging and dividend reduction Executive Overview Executive overview details the strategy for sustainable dividends via diversified assets, highlighting Q3 net income, cash, and COVID-19 responses - The company's producing assets consist of interests in the Delhi Holt-Bryant Unit in Louisiana and the Hamilton Dome field in Wyoming[101] - Reported net income of $3.7 million for Q3 2020, which includes a $2.8 million one-time income tax benefit related to Enhanced Oil Recovery credits[104] - The company expects crude oil prices to be depressed and volatile in the near term due to the COVID-19 pandemic and other market factors[107][112] Liquidity and Capital Resources As of March 31, 2020, the company maintained strong liquidity with cash and an undrawn credit facility, but a reduced borrowing base led to a dividend cut and share repurchases - Ended the quarter with $20.7 million in cash and cash equivalents and an undrawn credit facility[117] - The credit facility's borrowing base was reduced from $40 million to $27 million on April 27, 2020, due to lower crude oil prices[119] - The quarterly dividend was adjusted from $0.10 per share to $0.025 per share, effective in the quarter ending June 30, 2020, to enhance financial flexibility[124] - Capital expenditures for the nine months totaled $11.5 million, including $9.3 million for the Hamilton Dome acquisition. No material net capital spending is anticipated for the rest of fiscal 2020[130][131] Results of Operations Operational results show decreased revenues in both periods due to lower commodity prices, partially offset by increased production, with Q3 net income rising from a tax benefit while nine-month net income declined Three-Month Operational Highlights (YoY Comparison) | Metric | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $7.7M | $9.5M | (18.8)% | | Equivalent Volumes (BOE) | 199,144 | 181,429 | 9.8% | | Equivalent Price per BOE | $38.73 | $52.37 | (26.0)% | | Total Production Costs | $3.9M | $3.8M | 2.7% | | Net Income | $3.7M | $2.4M | 54.7% | Nine-Month Operational Highlights (YoY Comparison) | Metric | 9M 2020 | 9M 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $26.2M | $32.9M | (20.1)% | | Equivalent Volumes (BOE) | 570,263 | 551,798 | 3.3% | | Equivalent Price per BOE | $46.03 | $59.54 | (22.7)% | | Total Production Costs | $11.2M | $10.7M | 4.8% | | Net Income | $8.3M | $12.1M | (31.7)% | Quantitative and Qualitative Disclosures about Market Risks The company's primary market risk is commodity price volatility for crude oil and NGLs, mitigated by oil swaps covering significant anticipated production - The most significant market risk is commodity price risk for crude oil and NGLs[174] - To mitigate price risk, the company entered into oil swaps on April 6, 2020, covering 1,400 barrels per day at a fixed price of $32.00/barrel through December 2020[175] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective[180] - No material changes to internal controls over financial reporting were identified during the quarter[181] Part II. Other Information Legal Proceedings The company reported no legal proceedings - None[183] Risk Factors A new risk factor addresses the material adverse effects of pandemics like COVID-19 on financial markets, oil demand, and prices - A new risk factor was added concerning the potential material adverse effects of pandemics, such as COVID-19, on the business[184][185] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company repurchased 150,519 shares of common stock, with approximately $1.0 million remaining for future repurchases Issuer Purchases of Equity Securities (Quarter Ended March 31, 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | January 2020 | 2,934 | $5.05 | $1.7 million | | February 2020 | 68,437 | $4.99 | $1.3 million | | March 2020 | 79,148 | $4.76 | $1.0 million | Defaults Upon Senior Securities Not applicable - Not applicable[188] Mine Safety Disclosures Not applicable - Not applicable[190] Other Information The company reported no other information - None[191] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files