Evolution (EPM) Expands Asset Base, Signs $43.5M Contract
Evolution Petroleum Corporation EPM, the U.S.-based independent energy company, has announced that it has entered into a deal to acquire non-operated oil and natural gas assets in Oklahoma in an attempt to diversify its asset base.
Per the agreement, the company will purchase assets in the SCOOP and STACK plays in central Oklahoma from Red Sky Resources III, LLC, Red Sky Resources IV, LLC and Coriolis Energy Partners I, LLC. The $43.5 million deal is the largest transaction of Evolution to date. The acquisition is expected to be completed in mid-February.
The acquisition will add 230 producing wells in the SCOOP and STACK plays of the Anadarko Basin to Evolution’s asset portfolio, with an average working interest of 3%. Along with this, nearly 1,550 barrels of oil equivalent per day (42% oil, 15% natural gas liquids and 43% natural gas) will be added to production.
In addition to the high-quality and proven developed producing asset base, 3700 net acres in the SCOOP and STACK plays are poised to offer significant upside potential. This acreage holds more than 300 underdeveloped locations, which can help the company diversify its asset portfolio, with its working interest being on the lower side at 3%.
The upstream energy player has disclosed that the deal will be financed using cash in hand and borrowings through its senior credit facility.
Upon closing, the debt profile of the company will still align comfortably with its targeted leverage ratio of 1X projected adjusted EBITDA as opposed to its prior position of $8 million in cash and no outstanding debt under the credit facility.
According to representatives at Evolution, the acquisition of these high-quality assets in a core basin managed by well-known E&P operators like Continental, EOG and Marathon, among others, is a significant milestone for the company. The acquired non-performing assets are a strategic addition to EPM’s asset base and believed to generate increased free cash flows for the company that will not only cover future development expenses but also revert cash flows that can be used for higher dividends or debt repayment purposes.
In conclusion, this transaction demonstrates that the energy player is committed to growing the business, diversifying its asset base and contributing to greater shareholder value in the form of increased dividends or higher return per share.
Founded in 2003, Evolution is an independent upstream operator engaged in the exploration, development and production of onshore oil and natural gas properties in the United States.
Zacks Rank & Stocks to Consider
Currently, Evolution has a Zacks Rank #4 (Sell).
Investors can also look at some better-ranked stocks in the energy sector, such as Sunoco LP SUN, Vaalco Energy EGY and Enbridge Inc. ENB. While Sunoco and Vaalco Energy sport a Zacks Rank #1 (Strong Buy) each, Enbridge carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sunoco is one of the largest independent distributors of motor fuels to customers across the United States. Its current annual dividend yield is 5.8% compared with the industry’s average of 4.7%.
Vaalco Energy is an independent energy company involved in upstream operation business with a diversified presence in Africa and Canada. The company has a very positive outlook for fiscal 2024. The bottom-line estimate is pegged at $1.49 per share, indicating a 325.7% increase from 35 cents in the previous year.
Enbridge is an energy infrastructure company with a diversified portfolio of midstream assets. It currently pays investors $2.60 in dividend payments annually. The company’s current dividend yield is 7.1% compared with the industry’s average of 6.4%.
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