Evolution Petroleum (EPM) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In fiscal Q2 2026, total revenues were $20.7 million, a 2% increase year-over-year, primarily due to a 6% increase in production and higher realized natural gas prices, offset by lower oil and NGL pricing [13][14] - Net income for the quarter was $1.1 million, or $0.03 per diluted share, compared to a net loss of $1.8 million, or $0.06 per share, in the prior year [13] - Adjusted EBITDA increased by 41% year-over-year to $8 million, reflecting stronger natural gas revenues and lower lease operating costs [14] Business Line Data and Key Metrics Changes - The company reported improved profitability and stronger cash flow, driven by diversification into natural gas and minerals and royalty investments [4][5] - Production increased year-over-year, particularly from mineral and royalty acquisitions in the SCOOP/STACK, contributing to steady base production across the portfolio [13][10] - Lease operating expenses improved to $11.5 million, or $16.96 per BOE, down from $20.05 per BOE in the prior year, due to cost improvements and cessation of CO2 purchases at Delhi [14] Market Data and Key Metrics Changes - Realized natural gas pricing improved compared to the prior year, although results were impacted by wider regional differentials due to mild winter conditions in the western U.S. [12] - The company continues to benefit from a balanced mix of oil and natural gas assets, which helps reduce concentration risk and smooth performance over time [5] Company Strategy and Development Direction - The company aims to build a portfolio that can perform across commodity price cycles, focusing on assets with durable cash flow characteristics and modest capital requirements [5][9] - The strategy includes expanding the minerals and royalty platform, which is expected to enhance cash flow durability and provide flexibility in capital deployment [7][8] - The company remains opportunistic in acquisitions, particularly in areas where it can leverage its experience and relationships [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate commodity cycles while continuing to reward shareholders, emphasizing the importance of disciplined capital management [8][9] - The company anticipates meaningful contributions from newly acquired Haynesville-Bossier Shale mineral and royalty assets in the upcoming quarters [7][20] - Management highlighted the importance of operational flexibility and cost control in the current volatile market environment [8] Other Important Information - Cash on hand totaled $3.8 million, with borrowings under the credit facility at $54.5 million, resulting in total liquidity of approximately $13.5 million [15] - The board declared a quarterly cash dividend of $0.12 per share, totaling $4.2 million in dividends paid during the quarter [15] Q&A Session Summary Question: Update on minerals acquisitions and natural decline rate - Management noted that minerals acquisitions will add incremental production without additional costs, enhancing the attractiveness of the portfolio [18] Question: Production levels from Haynesville-Bossier acquisitions - Management confirmed that the acquisitions will have no impact on the previous quarter but expect production to ramp up quickly in the upcoming quarters [20] Question: Performance of the Delhi Field without CO2 injection - Management indicated that the field remains profitable without CO2 injection due to lower operating costs, despite some production rate reductions [29] Question: Outlook on overall debt levels - Management stated that the long-term target is to reduce net debt to 1x, but they feel comfortable with the current debt level given the production and cash flow hedged at attractive prices [58]