Evolution Petroleum Corp Q1 FY2026 Earnings Call

Good morning, and welcome to the Evolution Petroleum First Quarter and Fiscal Year 2026 Earnings Release Conference Call. Please note that today's event is being recorded. I would like to turn the conference over to Brandi Hudson, Investor Relations Manager. Please go ahead.

Thank you. Welcome to Evolution Petroleum's Fiscal Q1 2026 Earnings Call. I'm joined by Kelly Lloyd, President and Chief Executive Officer; Mark Bunch, Chief Operating Officer; and Ryan Stash, Senior Vice President, Chief Financial Officer and Treasurer. We released our fiscal first quarter 2026 financial results after the market closed yesterday. Please refer to our earnings press release for additional information containing these results. You can access our earnings release on the Investors section of our website. Please note that any statements and information provided on today's call speaks only as of today's date, November 12, 2025, 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 closest comparable GAAP measures can be found in our earnings release. Kelly will begin today's call with opening comments. Mark will provide an update on our properties and plans as they relate to our ongoing strategy of maximizing shareholder returns. Ryan will then provide a brief overview of our fiscal quarter highlights. 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 Investors section of our website. With that, I will turn the call over to Kelly.

Thank you, Brandi, and good morning, everybody. We entered fiscal 2026 in a solid position, building on the momentum we carried through last year. Our first quarter reflected continued execution across a broad and diversified portfolio, underscoring the resiliency of our business model through commodity price cycles. Total revenue was $21.3 million, a modest decline from the prior year period, driven primarily by lower realized oil and NGL prices partially offset by a 43% increase in natural gas pricing. Even in a softer pricing environment, our assets performed in line with expectations, generating positive earnings and meaningful cash flow. From a strategic standpoint, this was an important quarter for Evolution. We closed our first acquisition consisting only of minerals and royalties in the SCOOP/STACK, expanding our exposure to high-quality, long-lived reserves while maintaining the capital-light profile that defines our portfolio. The structure of this transaction allows us to participate in future development in over 650 gross locations across a highly active basin that we are very familiar with, given our other assets in the region with minimal operating expenses and no future capital commitments presents us with meaningful upside. We are maintaining a strong financial foundation with ample liquidity and low leverage, supported by the credit facility expansion completed at the end of fiscal '25. That flexibility continues to position us well to pursue accretive opportunities while maintaining a consistent return of capital to shareholders through our regular dividend. To that end, yesterday, we declared our 49th consecutive quarterly cash dividend and our 14th consecutive cash dividend of $0.12 per share for the fiscal second quarter. As for the macro outlook and how it will affect evolution, we'll start with crude oil. It's in the middle of a tug of war between OPEC+ trying to appease the U.S. by keeping prices lower and depleting sovereign wealth funds. When will we begin filling the strategic petroleum reserve? Will the ceasefires hold? With global supply and demand so close to being in balance, there are a lot of questions as to when and where the next marginal barrel will be needed. With the futures market at or near all-time net short levels at present, the herd has spoken and pushed crude to around $60 per barrel. A couple of points here. First, I don't think anybody would argue with this, but at $60 a barrel, CapEx budgets are beginning to be reduced which will lead to, at some point, prices needing to move higher to spur enough drilling to meet demand. Second, with the speculative net short position, any geopolitical catalysts can quickly trigger a short covering rally. With our resilient portfolio, whether the upswing in the cycle occurs in the next few quarters or next few years, Evolution and its shareholders will be there to reap the rewards. As for natural gas, the electrification of everything, everywhere and ongoing carbon intensity reduction efforts along with growing exports, create a rapidly growing demand environment set to persist for at least the next decade. Weather remains all-important. However, with an estimated 20 to 30 Bcf per day of coming demand over the next decade or so off of a current 105-ish Bcf per day supply base. There is a reason the futures curves for natural gas currently range from the high 3s to the high 4s for as far out as they trade. Of note, our natural gas revenues were up 38% over the year-ago quarter, and Henry Hub only averaged $3.03 for the quarter, whereas the calendar 2026 strip is currently over $4. Turning back to our assets. We were encouraged this quarter by the continued operational consistency across our portfolio. Each of our assets delivered steady results during the quarter reflecting the quality of our fields and the strong relationships we maintain with our operating partners. Importantly, we have flexibility across our asset base to adjust development activity based on market conditions which allows us to balance near-term returns with long-term value creation. We expand drilling when prices are high and acquire assets when prices are low, all while benefiting from our low decline producing reserves to maintain strong cash flows throughout the cycle. Our strategy remains consistent. Operate efficiently, allocate capital prudently and return capital to shareholders while maintaining financial strength. We remain focused on generating sustainable free cash flow that supports our regular dividend and positions us to take advantage of attractive acquisition opportunities as they arise. That discipline has been a cornerstone of Evolution's success for more than a decade, and it will continue to guide our decisions in fiscal 2026 and beyond. With that, I'll hand it over to Mark for more details on the assets.

Thanks, Kelly. Good morning, everyone. I will focus my remarks on key operational highlights from the quarter and encourage listeners to review our earnings press release and filings for additional details across our asset base. Starting with the SCOOP/STACK, 3 wells were turned to sales and 2 additional wells remain in progress from prior periods. Additionally, we have seen current drilling activity on 12 gross wells from our newly acquired mineral acreage. At Chaveroo, operations remained stable. We continue to build optimization efforts, including converting electric submersible pumps to rod lift on 5 of our 7 wells which should help lower our future operating costs. No new drilling occurred during the quarter and permitting continues for the next development pad with timing of drilling contingent on oil prices. In the Williston Basin, we continue to see horizontal drilling activity moving towards our approximately 40,000 net acres, and we are very excited to see what may come out of this. At Delhi, we continue to recycle CO2 with no new capital activity. Delhi production was impacted this quarter because of downtime related to the unscheduled turbine repair and higher summer temperatures, which reduced CO2 activity in the field. The turbine has been repaired and temperatures are already cooler. At Jonah, production increased in fiscal Q1 as the field worked off prior pipeline imbalance volumes from fiscal Q4 2025. With imbalanced corrections substantially completed by October, sales volumes have now returned to expected levels. Turning to the Barnett Shale, field performance remained consistent with expectations. Production was stable, supported by targeted workovers and higher realized gas prices versus the year-ago quarter. At Hamilton Dome, lease operating expenses normalized in fiscal Q1 following elevated workover activity in prior periods. A slower pace of workovers is expected during the fall and winter months with efforts focused on maintaining key wells. Finally, at TexMex, integration efforts progressed during the quarter, where we did see some higher operating costs resulting from the transition to the new operator, which is accounted for in the acquisition and is customary. The new operator performed repair and maintenance work on several existing wells and identified candidates for further reactivation as part of a broader field optimization plan. Ongoing activity remains focused on restoring production, evaluating future opportunities across the acquired acreage, consistent with our expectations at the time of the acquisition last fiscal year. All said, we expect production to increase and operating cost per barrel to decrease moving forward. Overall, our assets continue to perform as expected, and we remain disciplined in allocating capital to the highest return opportunities while maintaining operational flexibility. Over to you, Ryan.

Thanks, Mark, and good morning, everybody. As Brandi mentioned earlier, we released our earnings yesterday, which contains more information on our results. For today, I'd like to go through our financial highlights. For the first fiscal quarter of 2026, total revenue was $21.3 million compared to $21.9 million in the same period last year and up from fiscal Q4. The modest decline year-over-year was driven primarily by lower realized oil and NGL prices, down 14% and 8%, respectively, partially offset by a 43% increase in natural gas prices. The quarter's revenue mix was 60% oil, 28% natural gas and 12% NGLs, and our average realized price was $31.63 per BOE. Net income for the quarter was $0.8 million or $0.02 per diluted share compared to $2.1 million or $0.06 per share in the year-ago quarter. Adjusted EBITDA was $7.3 million compared to $8.1 million last year, reflecting the impact of lower oil and NGL prices and higher lease operating costs at our TexMex asset, as previously discussed. Cash provided by operating activities increased to $7.8 million for the quarter compared to $7.6 million last year, and capital expenditures incurred for drilling and completion activities were $1.9 million. At September 30, 2025, cash and cash equivalents totaled $0.7 million. We had $53 million of borrowings and $0.8 million in letters of credit outstanding under our revolving credit facility resulting in total liquidity of approximately $11.9 million, including cash and cash equivalents. The reduction in net working capital this quarter is related to the integration of two recent acquisitions, and we expect this to improve over the coming months. During the quarter, we returned $4.1 million to shareholders through our consistent $0.12 per share quarterly dividend, marking the 49th consecutive quarterly dividend and 14th consecutive at the current rate. To date, Evolution has returned approximately $139 million or $4.17 per share back to stockholders in common stock dividends. On the hedging front, we have continued to add hedges to maintain compliance with our credit facility covenants and protect cash flow for our shareholder return program. Overall, our strong asset base and financial position continue to support both the dividend and our ability to pursue accretive acquisitions that enhance long-term shareholder value. I'll now hand it back over to Kelly for closing comments.

Thanks, Ryan. As we progress with fiscal '26, we're encouraged by the continued consistency of our operations and the strength of our asset base. We'll continue to return meaningful capital to shareholders through our dividend program, maintaining our policy of setting the dividend at a level that we view to be sustainable for multiple years. We believe Evolution is well positioned for both the year ahead and many years to come, and we remain steadfast in executing on our strategy to deliver long-term shareholder value creation through disciplined capital management, strategic acquisitions and conservative cost management, all to ensure the strength and continuity of our quarterly cash dividend through all market environments. Listen, we've been doing this for many years, and we continue to do this for 2026 and beyond. With that, I'll turn it over to the operator to begin our Q&A session. Thank you.

The first question comes from Jeff Grampp with Northland Capital Markets.

I wanted to start with TexMex, as it seems the results from the quarter might not fully capture the potential of that asset in the upcoming quarters. I'm curious if there is a way to quantify what a normalized LOE would be for that asset and what kind of upside you are expecting from the optimization workover activities identified by you and the operator so far.

Okay. Yes, Jeff, I’ll address that. When we acquired this, we anticipated some additional upfront costs to bring it to the desired level, which we agreed upon with the new operator. However, we experienced a delay during the transition between operators, leading to a temporary decline in production that they couldn't immediately restore. We’ve started to rectify that now. With the production levels returning to our expectations and the baseline costs decreasing under the new operator’s management, we foresee the lifting costs returning to a more reasonable range. It won’t remain at $47, and while we expect some slight increases in workover costs moving forward, they shouldn't be excessive. So far, the three workovers conducted by the new operator have been significantly under budget, and we’re pleased with the performance of the asset. I view this asset as similar to lifting costs in areas like Williston on a going-forward basis. However, I can't provide further guidance right now as we haven’t gathered sufficient data with the new operator yet.

Understood. Just to follow up on that, do you expect to see some of the production benefits in the current fiscal quarter, or what is the timing for when some of these improvements might reflect in production results?

Once the new operator took control, they have already completed 3 of the 7 proposals they presented to us, and they will be making additional proposals. Therefore, I believe the majority of that will return this quarter.

But maybe not the full effect for the whole quarter, right, but as we progress through the quarter.

That's correct, Kelly.

Understood. Okay. That's really helpful. And for my follow-up, I'll ask the obligatory M&A question and just kind of get an update from you guys on deal flow. And I guess it's an interesting time with the dichotomy of gas versus oil prices. And just kind of wondering if you guys are seeing any major delta in terms of bid-ask spreads for oil-weighted deals versus gas-weighted deals and how you guys balance your focus?

Sure. Yes. Thanks, Jeff. This is Kelly. I'll take that. We are seeing a number of attractive or potentially attractive deals that we're looking at. And it is kind of across both fronts. The gas being attractive because they're sort of trading on current terms, whereas we have some futures markets where we can lock in nice returns. And then on the oil side, they're also trading on futures terms, which, again, are pretty muted at the moment. And at least our group doesn't think for the next 5 years, you're going to see oil prices at $60. We just don't think that's remotely sustainable to meet the demand going forward. So yes, we're seeing a lot of good stuff. I will say one of the things that's interesting on the acquisition front, we've been always opportunistic, and that's what we like to look at. I will say right now, looking at the minerals deal we did, buying that at 3x, 4x, 3.5x multiple, those are multiples that we consider really attractive for minerals with upside in inventory. So if minerals are going to be competitive with working interest buys, that's something we're going to continue to look at. So anyway, we're excited about what we're looking at going forward. Thanks for the question.

The next question comes from Jeff Robertson with Water Tower Research.

Mark, could you discuss the trajectory of workovers that will impact the LOE line over the next several quarters? I believe you mentioned that from an LOE perspective, the asset could normalize to a level similar to your Williston Basin properties. Is that accurate?

To answer your question, you mentioned the Williston Basin, and that's what I focus on since it's a similar type of property. I’m not certain if we will complete everything by the end of this quarter; it might extend into the next. This will be a process as we work on improvements. We secured a good deal on this for a reason, knowing that we would need to invest time and effort into it. Over time, I believe it will become a valuable asset for us.

But Jeff, to follow up on that, this is Kelly. We do expect to see the numerator and the denominator move, right? So we're putting production back online as we go too.

Yes. The transition time took significantly longer than anticipated, which was primarily an issue with the state rather than the operator. The requirements changed unexpectedly, causing a delay in maintaining production since the new operator couldn't access some of the wells. However, now that they have resumed work, they are progressing quickly and have accomplished more than I expected. Overall, we are pleased with the current developments.

Can you elaborate on the margin situation at Delhi and how you think expenses will trend over the next couple of quarters? I believe you are now recycling CO2 instead of purchasing and injecting it.

Yes. I believe that on a total cost basis, those costs will remain fairly consistent with where they have been. We anticipate that production rates will increase, which will aid in reducing lifting costs in dollars per BOE because we are approaching the cooler months and oil rates typically rise. Additionally, we have seen good run times from the NGL plants after fixing the turbine. Overall, I think you will notice a slight improvement in the cost per BOE.

Yes, I think that's right, Jeff. If you look at the total cost basis for sequential quarters, it was relatively flat, slightly down this quarter. However, production was impacted by some downtime due to summer weather. Therefore, on a dollar per BOE basis, it should trend down a little, but overall costs remain fairly consistent.

And lastly, are you having any conversations yet with the operators of some of your more significant properties on any plans they have as they look into 2026 to maintain production levels?

I'm sorry, Jeff, you broke up a little bit. Could you repeat that, please?

Sure. Kelly, are you all having any conversations that you can talk about with the operators of some of your major properties like the Barnett or like Jonah as far as what they intend to do or what they might think about doing in 2026 just to try to maintain production levels?

The honest answer is that given the current price levels, the operators have indicated they will do everything possible to maintain production as high as possible. There are not many options available to them. However, in previous instances where prices have dropped significantly, they have allowed those prices to remain low. This situation will not apply to the natural gas properties at this time.

The next question comes from Ron Aubrey with RJ Aubrey Investments.

Pretty much want to focus on natural gas. It looks like just revenues and production, healthy 5% quarter-on-quarter growth. And I'm just wondering, when you look at your hedging program for future natural gas production, what percent is that currently?

Yes. So on the hedging basis, because of our credit facility requirements, we're over 50% hedged, actually closer to probably 70% hedged for the next year. But what we've done on the hedging programs, we try to maintain upside, right? So we've done a mix of collars and swaps trying to lean more towards collars to range for the upside. So our floors are generally in the $3.50 to $3.60 range for next year. But in a lot of the ceilings for the cars, you've got almost $5, right, high 4s to $5. So we want to maintain that upside but protect the downside. And I think in the natural gas market, certainly, we're a little more apt to hedge into the contango, right, gas curve versus the crude, right? On crude, we're trying to stay much more near term as far as the crude because it's flat to backward-dated generally historically. So I'd say we're probably more hedged than typical on gas, but a lot of that is just because of the opportunity set too in the gas book.

Yes. That's very helpful. And nice to see Jonah coming back to normal sales volumes, especially going into winter. What does the outlook look like for West Coast pricing as a premium to Henry Hub?

It's Kelly. Thanks for the question. It's always pretty variable, but the expectations are for that area to be normal. I don't know if normal means plus $1.50 or plus $2, but we've certainly seen higher than that. In a severe winter, we've seen less than that. However, I think everyone's expectation now is for a pretty healthy premium.

A lot of it's going to depend on, obviously, it goes without saying weather, right? I mean some of the forecasts call for a colder West Coast, but we'll just see. The thing about the West Coast is the storage levels are just not very abundant. So it doesn't take a lot of cold weather to get spikes there, but we're just going to have to wait and see for the weather. But we generally will expect a premium to Henry Hub in the winter, barring a very warm winter. It should still be a premium to Henry Hub.

Ryan makes an excellent point. The storage levels on the West Coast are currently full, indicating a high level of coverage. However, under normal weather conditions, there is not nearly enough storage to meet the demand. This could lead to significant fluctuations in the market. That's why we purposefully aimed to gain exposure in that area.

Fair enough. And one final question on Barnett. It looks like their production was relatively flat quarter-by-quarter, which is fine, but saw a pretty significant increase in their LOEs. Was that a one-off thing? Or can you give me some color on that?

Yes. The reason for the increase from consecutive quarters is because we had an out-of-period adjustment due to an audit settlement with the operator, which caused it to drop below $9. Now, it's back up to a normal run rate.

The next question comes from Jeff Robertson with Water Tower Research.

Ryan, can you provide any insights on the bank market regarding acquisition opportunities and the potential for increasing the RBL if needed?

The bank market remains quite healthy. In my discussions with bankers, many are looking to deploy capital again and are becoming more aggressive. While we may not see the same terms and aggression as we did a few years ago, the terms currently are generally stable or slightly improved for borrowers. The market for the size of facilities we are exploring is strong, with many regional and some larger banks becoming more active in the oil and gas sector. It seems that there is a demand for returns from the banks. Therefore, we do not anticipate any issues in increasing the size of the facility if necessary for the right acquisition.

And to follow up with that, one of the reasons, Jeff, that we redid our RBL before the end of the year was to add other partners and have it be very syndicatable. So if something was highly accretive and would work out great for us that it needed some bank piece to it, we are well set up to be there for it.

The next question comes from Poe Fratt with Alliance Global Partners.

I have a couple of follow-up questions. What contribution did the Minerals acquisition make this quarter? Also, can we expect another increase next quarter, and was it included for the entire quarter?

Poe, this is Kelly. I appreciate the question. Yes. No, it was only for a couple of months of the quarter. A little less than 2 months of the quarter. So absolutely, we do expect that we'll see a full benefit of that coming in this quarter. And it's really in line with what we said in the press release. Volumes are coming in good, so are revenues.

Okay. Great. And then when I sort of look at SCOOP/STACK up a little bit, TexMex should be up a little bit, Delhi should be up a little bit for the next quarter. But would you take a stab at the full-year production guidance. I think with all the puts and takes, I'm looking at sort of a flat year from a production standpoint in fiscal '26 versus fiscal '25. Any comments on that would be helpful.

We haven't provided yearly guidance on production due to control factors. There will be various influences, particularly related to development in SCOOP/STACK, where we are seeing good activity. However, delays in reporting, especially on the royalty side, make it difficult to accurately predict production direction. Additionally, we are monitoring the permits and timing for the Chaveroo wells. A flat outlook might not be a bad assumption, but we can't give specific guidance until we observe more activity levels in SCOOP/STACK.

That's helpful information. Looking at the CapEx side, with $3.8 million in the first quarter, would $15 million for the year be a reasonable target despite some uncontrollable factors in that number?

No. In our year-end report, we indicated that our guidance range for 2026 was between $4 million to $6 million. However, we only reported about $2 million in capital for the first quarter, and some of that...

$1.9 million.

Yes, some of that's a little bit front-loaded in the front for some of the work we had to do on the wells out in Chaveroo to convert some of the pumps. So I still think $4 million to $6 million for a range still makes sense, all things considered for actually this upcoming fiscal year.

Okay. So about half of that was spent in the first quarter, the September quarter, right?

About 1/3 of it, yes.

Yes, about 1/3. And that was mainly because of the 5 pump jacks we put in at Chaveroo replacing the ESPs.

Okay. And then since you mentioned Chaveroo a couple of times, any early read on what's going to happen with Chaveroo considering the pivot by the operator to become more of a Rockies player?

We've had brief discussions with them, and we’ve been told that it’s business as usual. We maintain a strong relationship with them, and so far, that's the message we have received. We agree on timing and when to start things. As mentioned previously, we don’t feel an urgency to start drilling wells at around $60 per barrel right now.

Yes, I was just looking at more from a strategic standpoint for PEDEVCO.

Yes, if nothing changes for them, we've got plenty of ways that we can all work together on that as well. But again, from what they're telling us so far, it's business as usual, so.

This concludes our question-and-answer session. I would like to turn the conference back over to Kelly Lloyd for any closing remarks.

I appreciate that. Thank you. Listen, we want to thank everybody for taking the time and showing the interest and asking your questions. We really appreciate it. Just in summary, we're really excited about fiscal '26 and beyond, where our portfolio is and the outlook going forward. It's going just as we expected. So we're excited going forward and happy to have you all along with us. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.