Evolution Petroleum (US:EPM)2021-09-14 20:05Company Strategy and Goals - The company focuses on delivering a sustainable dividend yield through the ownership, management, and development of producing oil and natural gas properties[39] - The long-term goal is to build a diversified portfolio of oil and natural gas assets primarily through acquisition[39] - The company plans to experience growth through acquisitions and development activities, but this may strain its financial and operational resources[161] Asset Overview - Producing assets include interests in the Delhi Holt-Bryant Unit, a CO enhanced oil recovery project, and the Hamilton Dome field utilizing water injection wells[40] - The company also has interests in the Barnett Shale, a natural gas producing shale reservoir, and overriding royalty interests in two onshore central Texas wells[40] - The company holds a 23.9% working interest and a total net revenue interest of 26.2% in the Delhi field, which is operated by Denbury Onshore LLC[41] - The company acquired a 23.5% working interest and a 19.7% revenue interest in the Hamilton Dome field on November 1, 2019, aligning with its strategy to add long-lived reserves[42] - The Barnett Shale Acquisition on May 7, 2021, included approximately 21,000 net acres with an average working interest of 17.3% and an average revenue interest of 14.2%[43] Production and Reserves - As of June 30, 2021, total proved reserves at the Delhi field were 8.5 MMBOE, comprising 6.5 MMBOE of oil and 2.0 MMBOE of NGLs[57] - Average gross daily oil production at the Delhi field was 4,281 BOPD and 977 bbls NGLs per day, totaling 5,258 BOEPD for fiscal 2021[53] - The Hamilton Dome field averaged gross daily production of 1,987 BOPD for the year ended June 30, 2021, with total net proved reserves of 1.9 MMBOE[61] - The Barnett Shale assets had total net proved reserves of 13.1 MMBOE as of June 30, 2021, with an average net daily production of 4.3 MBOE per day from the acquisition date[70] - As of June 30, 2021, total proved reserves were estimated at 23,386 MBOE, consisting of 8,420 MBbls of oil, 6,871 MBbls of NGLs, and 48,571 MMcf of natural gas[76] - Developed producing reserves accounted for 92% of total proved reserves, while undeveloped reserves made up 8%, totaling 1,813 MBOE[76] Financial Performance - The company returned $4.3 million in cash dividends to shareholders in fiscal 2021, totaling over $74.5 million since the inception of the dividend program in December 2013[46] - The company recognized a net loss of $16.4 million, or $(0.49) per common share, primarily due to proved oil and gas property impairments of $24.8 million in fiscal 2021[49] - The company funded operations, development capital expenditures, and dividends from operating cash flow, generating $3.7 million in operating income before impairments[47] - The average price per barrel of oil for the fiscal year ended June 30, 2021, was $47.60, compared to $44.76 in the previous year, reflecting a 4% increase[93] - Total production costs for the fiscal year ended June 30, 2021, were $16,587,052, with an average cost of $18.70 per BOE[93] Market and Price Risks - The company is heavily impacted by movements in natural gas and oil prices, which significantly influence revenue, profitability, and access to capital[136] - The company’s revenues are concentrated in three assets: the Delhi field in Louisiana, the Hamilton Dome field in Wyoming, and the Barnett Shale in Texas[138] - In fiscal 2021, production was negatively impacted by the operators of the Delhi and Hamilton Dome fields due to financial strains and lack of investment[141] - Denbury, the operator of the Delhi field, announced a restructuring plan to eliminate $2.1 billion of bond debt, which may improve future operations[144] Operational Dependencies and Risks - The company does not operate the Hamilton Dome field or the Barnett Shale assets, making it dependent on the operators' success for revenue and growth[146][147] - The company maintains insurance for its oil and natural gas properties, but not all losses are insured, retaining certain risks[129] - The future annual capital cost of complying with regulations is uncertain and may be influenced by unpredictable changes in regulatory requirements[127] - The company’s growth is partially dependent on the success of its future development program, which involves numerous risks and substantial uncertain costs[150] Financial and Stock Market Considerations - One purchaser accounted for approximately 62% of the company's total oil revenues for the year ended June 30, 2021, indicating a significant reliance on a single buyer[153] - The company’s oil and natural gas reserves are only estimates and may prove to be inaccurate due to various uncertainties in the estimation process[154] - The estimated discounted future net cash flows from proved reserves are based on the 12-month average price, which may not reflect actual future prices and costs[155] - The company may be required to write down the carrying value of its oil and natural gas properties if oil and natural gas prices are depressed, which could adversely affect financial covenants under its credit facility[156] - The company plans to plug four wells in the Hamilton Dome field in the first half of fiscal year 2022[98] Regulatory and Cybersecurity Risks - Government regulations regarding oil and natural gas operations may change, potentially increasing costs and affecting operational feasibility[171] - Cybersecurity threats pose risks to the company's operations, potentially leading to financial losses and operational disruptions[180] Stock Performance and Shareholder Information - The company's stock price ranged from $2.75 to $5.15 during the fiscal year ended June 30, 2021, indicating significant volatility[197] - As of June 30, 2021, executive officers and directors owned approximately 8.0% of the common stock, with significant shareholders like Blackrock and Arrowmark each holding around 6.1%[199] - The average daily trading volume of the company's stock was 169,054 shares in fiscal 2021, compared to 155,691 shares in fiscal 2020, reflecting limited liquidity[200] - The company has the authorization to issue up to 100 million shares of common stock and 5 million shares of preferred stock, which could dilute existing shareholders[204] - The quarterly dividend was reduced from $0.10 to $0.025 per share during the 3rd quarter of fiscal 2020, with a subsequent increase to $0.05 in the 4th quarter of fiscal 2021[205] Derivative and Financial Instruments - The company is exposed to interest rate changes, with borrowings under the Senior Secured Credit Facility bearing interest at LIBOR plus 2.75% or the Prime Rate plus 1.00%[310] - The company entered into NYMEX WTI oil swaps covering approximately 42,000 barrels per month at a fixed price of $32 per barrel to mitigate commodity price volatility[311] - The company faces risks related to the availability and cost of oilfield services and materials, which could impact production and project economics[183] - The company relies on third-party services for marketing its oil and natural gas, and any unavailability could adversely affect financial conditions[186] - The ongoing COVID-19 pandemic has significantly impacted demand for oil and natural gas, affecting prices and overall business operations[192] - The company is exposed to market risk on open derivative contracts related to potential non-performance by counterparties[312] - The policy is to enter into derivative contracts only with creditworthy institutions deemed competitive market makers[312] - For fiscal 2021, the company did not post collateral for derivative contracts as it was an uncollateralized trade[312] - Derivative activities are accounted for under ASC 815, which requires every derivative instrument to be recorded on the balance sheet as either an asset or liability measured at fair value[312]