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

Financial Data and Key Metrics Changes - In fiscal Q2 2026, total revenues were $20.7 million, up 2% 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] - Adjusted EBITDA increased by 41% year-over-year to $8 million, reflecting stronger natural gas revenues, realized gains on derivative contracts, and lower lease operating costs [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 year-ago period [13] Business Line Data and Key Metrics Changes - The company continues to benefit from a balanced mix of oil and natural gas assets with low base decline and modest capital requirements, contributing to improved profitability and cash flow [6][4] - Incremental contributions from minerals and royalty investments have been significant, with three wells converted to producing status during the quarter and 16 additional wells in progress [10] Market Data and Key Metrics Changes - Realized natural gas pricing improved compared to the prior year, although results were partially impacted by wider regional differentials due to mild winter conditions in the Western U.S. [12] - The company anticipates meaningful contributions from newly acquired Haynesville-Bossier Shale mineral and royalty assets, with production expected to ramp up quickly [20] Company Strategy and Development Direction - The company aims to build a portfolio that can perform across commodity price cycles, emphasizing diversification by commodity, basin, and operating partner to reduce concentration risk [6][4] - The strategy includes prioritizing assets with durable cash flow characteristics, modest capital requirements, and attractive risk-adjusted returns, while remaining opportunistic with acquisitions [9] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate commodity cycles while continuing to reward shareholders, highlighting the importance of operational flexibility and disciplined capital management [8][9] - The company remains focused on maintaining operational flexibility, managing costs, and deploying capital where returns are most compelling, especially in a volatile price environment [12] Other Important Information - Cash on hand totaled $3.8 million, with borrowings under the credit facility at $54.5 million, leading to 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, contributing positively to the company's performance [19] Question: Production levels from Haynesville-Bossier acquisitions - Management confirmed that these acquisitions will have a significant impact on production in the upcoming quarters, with many wells currently being completed [20] Question: Performance of the Delhi Field without CO2 injection - Management indicated that the field remains profitable despite reduced injection volumes, with expectations for production to stabilize as operational issues are resolved [29] Question: Interest in Northeast basins like Utica and Marcellus - Management acknowledged the potential of these basins but highlighted takeaway capacity constraints as a significant concern [54] Question: Outlook on reducing overall debt levels - Management stated a long-term target of 1x net debt, with plans to reduce leverage over time while maintaining comfort with current debt levels [57]