Evolution Petroleum Corporation (AMEX:EPM) Q1 2024 Earnings Call Transcript
Evolution Petroleum Corporation (AMEX:EPM) Q1 2024 Earnings Call Transcript November 8, 2023
Operator: Good morning, and welcome to the Evolution Petroleum First Quarter Fiscal Year 2024 Earnings Release Conference Call. All the participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brandi Hudson, Investor Relations Manager. Please go ahead.
Brandi Hudson: Thank you, and welcome to Evolution Petroleum's fiscal first quarter 2024 earnings call. I'm joined by Kelly Loyd, President and Chief Executive Officer and Ryan Stash, Senior Vice President, Chief Financial Officer, and Treasurer. We released our fiscal 2024 first quarter financial results after the market closed yesterday. Please refer to our earnings press release for additional information concerning these results. You can access our earnings release in the Investor Relations section of our website. Please note that any statements and information provided in today's call speak only as of today's date November 8, 2023, and any time-sensitive information may not be accurate at a later date. Our discussion today will contain forward-looking statements of management's beliefs and assumptions based on currently available information.
These forward-looking statements are subject to the risks, assumptions, and uncertainties as described in our SEC filings. Actual results may differ materially from those expected. We undertake no obligation to update any forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures including adjusted EBITDA and adjusted net income. Reconciliations of these measures to the closet comparable GAAP measures can be found in our earnings release. Ryan will begin today's call with a brief review of our fiscal quarter highlights, and then we’ll turn over the call to Kelly for an update on our properties and plans as they relate to our ongoing strategy of maximizing total shareholder returns. After our prepared remarks, the management team will be available to answer any questions.
As a reminder, this conference call is being recorded. If you wish to listen to a webcast replay of today's call, it will be available on the Investor section of our website. With that, I will turn the call over to Ryan.
Ryan Stash: Thanks, Brandi. As Brandi just mentioned, we released our earnings yesterday, which contains more information on our results. My comments will focus mainly on the highlights of the current quarter. In September, we entered into a participation agreement to horizontally develop a portion of the Chaveroo oilfield in the Permian Basin and New Mexico. This is exciting to us for a number of reasons. It provides Evolution with over 80 gross and 40 net locations to horizontally develop an enormous proven oil field with an estimated 700 million barrels of original oil in place with only 5% having been recovered to date. Of all of our development opportunities, we expect the Chaveroo field to provide the most economic and largest upside opportunity.
Additionally, the deal was structured in a way where Evolution only pays upfront acreage costs for locations to be drilled within the upcoming development block. And the majority of the money we spend on this project goes where it will benefit shareholders the most into the ground and towards producing oil. This quarter, we had total revenues of $20.6 million, net income of $1.5 million and adjusted EBITDA of $6.7 million, all significantly higher than last quarter, primarily as a result of improved commodity prices and also due to improved operations at most of our properties. Negatively impacting this quarter was $500,000 in adjustments related to ownership updates received from the operator of our Barnett properties. These adjustments covered a 22-month period beginning in September 2021.
These adjustments affected the top line and therefore, reduced revenue, net income before taxes and adjusted EBITDA, each by $500,000. For production, we were able to achieve a net 0% decline in production from the previous quarter to this quarter. We saw operational improvements in our Williston and Delhi assets from last quarter offsetting declines in the Barnett Shale properties due to some continued operational challenges there. On the development side, we brought on two new producing wells at Delhi at the end of the current quarter and subsequent to quarter end, drilled and cased one well and spud another at our Chaveroo field in the Permian Basin. Our second fiscal quarter will benefit from a full quarter of production from the two new wells at Delhi, while the Chaveroo wells are expected to begin impacting financial results by the end of the third fiscal quarter and be more fully reflected in the fourth fiscal quarter.
After fully funding our operations, field development expenditures and paying our dividends, we ended the quarter with increased working capital and maintain liquidity of approximately $60 million between cash on hand and $50 million in borrowing capacity. On the shareholder return front, we paid $0.12 dividend in September and declared another $0.12 dividend to be paid in December which will mark our 40th and 41st consecutive quarterly dividends and fifth and sixth consecutive dividends at the current level. I'll hand it over to Kelly now.
Kelly Loyd: Thanks, Ryan. At Evolution, we accomplished our strategy of maximizing total shareholder returns by carefully weighing the use of every dollar we put to work for all of our stakeholders always with an eye towards increasing or extending the runway of our dividend. In order to generate the return on capital we use to fund our dividend program while maintaining our asset base for years to come, we have assembled a group of producing assets that is diverse, both in terms of commodity mix and in terms of regionality If oil is selling for a premium near the Gulf Coast, we have assets that will benefit from that. If natural gas is selling for a premium on the West Coast, we have assets will benefit from that and so on.
We have always sought and will continue to seek acquisitions of accretive strategic producing properties that meet our criteria to allow us to support our dividend for years to come. As announced earlier this quarter, through our participation agreement in the Permian Basin to horizontally develop the Chaveroo field, we now have an additional strategic property that we expect will bring organic growth to the company further diversify our asset base and be very supportive of our dividend for many years. Now we will give you a bit of the state of the union on our various properties. We'll discuss the state of our properties as we stand today where appropriate versus during our fiscal year 2024 first quarter and versus our fiscal year 2023 fourth quarter.
Since Mark Bunch, our COO, is traveling today, Ryan will cover the Jonah field, Williston Basin and Barnett Shale properties, and I'll discuss our Hamilton Dome Field, Delhi Field and Chaveroo Field properties.
Ryan Stash: Thanks, Kelly. At our Jonah Field, production for this first quarter of fiscal year 2024 was slightly stronger than it was for the fourth quarter of fiscal year 2023 and in current operations as of today are continuing as expected. For our Williston Basin, as we previously disclosed, during our fiscal year 2023 fourth quarter production was subdued due to certain wells having production issues and needing workovers as well as downtime related to the compressor station at [indiscernible]. The workovers that were completed during the fourth quarter of fiscal year 2023 and continued into the first quarter of fiscal year 2024 led to increased oil production during the current quarter versus last quarter. The compressor station issues that began last quarter continued during this quarter affecting our natural gas and NGL production.
As we stand today, these issues are largely resolved. At our Barnett Shale properties beginning in April 2023 and continuing to varying degrees through October of 2023, our production suffered from the ill effects of compressor-related issues due to the extreme heat experienced this summer, excessive downtime within EnLink's gathering and processing system, pipeline rerouting and optimization and our operator's decision to temporarily shut in low-margin wells that were largely brought on to take advantage of the high natural gas prices realized during the second half of 2022. These effects were felt during the last and current quarters and led to an overall production decline that was well above the natural production decline. As of today, EnLink has finished their major overhaul at the Corvett processing plant.
The summer heat has abated, and the pipeline optimization project has been completed. We were glad to see production remain relatively flat from last quarter to this quarter, and we will continue to closely monitor this. We believe the largest declines are substantially done and things should begin to normalize there. Now Kelly will discuss our Hamilton Dome field, Delhi Field and Chaveroo field properties.
Kelly Loyd : Thanks, Ryan. At Hamilton Dome field, our current quarter production remained very flat relative to last quarter, and we're continuing to see strong performance from this field. At Delhi, as stated previously, our fourth quarter fiscal year 2023 production was impacted by downtime associated with the installation of the heat exchanger project, a full field shutdown for maintenance heat-related compression issues and downtime at the NGL plant due to turbine issues. During our first fiscal quarter, we began to see benefits from our heat exchanger project and didn't experience a full field shutdown for maintenance. Oil production was impacted by the extreme summer temperatures, somewhat limiting the heat exchangers ability to cool the CO2.
We believe that the heat exchanger was still key to preventing a larger impact on the field as seen in previous summers. Delhi NGLs were up 40% from the previous quarter. However, we did continue to be affected by turbine issues at the NGL plant, which led to downtime and a lessened ability to optimize it. Overall, we saw a sequential production increase of roughly 6% at Delhi and as we stand today, the NGL plant is fully operational and being optimized to achieve higher rates as a result of the heat exchanger and increased run time. As Ryan mentioned in the highlights, at the end of Q1, we were able to bring on two newly drilled wells, the Delhi 11910 [ph] and the Delhi 12323 [ph]. While these did not have much of an impact on Q1, given the short amount of time that they were on during the quarter, the early results of these wells are positive, and we are encouraged with them going forward.
Regarding the future of Delhi, I'm sure many of you saw that the Exxon acquisition of Denbury was finalized. I was able to speak with some of the operators Delhi team, and they are very positive about the outlook for Delhi going forward. Their priorities seem to align with ours, and they are already working to get improved contracts for the area. Continuing Denbury's previous efforts, Exxon is moving fully forward through the process of getting Delhi certified as a carbon capture utilization and storage site and have every reason to believe that they will be successful. We will report more on this as developments occur. Lastly, our newest venture, the Chaveroo field. We finalized the participation agreement during the current quarter only about 1.5 months ago, and we are pleased to report that we have already drilled and cased the first partnership well and are well underway drilling the second well of a three-well pad with the third well to follow.
Completion work on the three wells is expected to commence at the end of this calendar year, with first production expected in early 2024. For now, we can say that we are very pleased with the progress we've made with our partner, Pedevco and look forward to sharing our results with you at the appropriate time. With that, I'll hand it over to the moderator to begin the Q&A session. Thank you very much.
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