Evolution Petroleum Corp (EPM) 2026 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Evolution Petroleum second-quarter 2026 earnings conference call. (Operator Instructions) Please also note, today's event is being recorded. (Operator Instructions)

At this time, I'd like to turn the call over to Brandi Hudson, the company's Investor Relations Manager. Ma'am, please go ahead.

Thank you. Welcome to Evolution Petroleum's fiscal Q2 2026 earnings call. I'm joined by Kelly Loyd, 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 second-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 in the Investors section of our website.

Please note that any statements and information provided today speak only as of today's date, February 11, 2026. Our discussion contains forward-looking statements of management's beliefs and assumptions based on currently available information and is subject to the risks, assumptions and uncertainties 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 to the most directly comparable GAAP measures are included in our earnings release.

Kelly will begin with opening remarks, followed by Mark with an operational update, and then Ryan will review the financial results. After our prepared comments, the management team will open the call for 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, everyone. This quarter demonstrated the resiliency of our portfolio and the benefits of the strategic steps we've taken over the past several years. Despite a mixed commodity price environment, we delivered improved profitability and stronger cash flow, reflecting the diversification of our asset base, increased exposure to natural gas and continued cost discipline. Importantly, these results were achieved without meaningfully increasing capital intensity, underscoring the durability of our underlying assets and the consistency of our strategy.

Stepping back, what stands out this quarter is the operating leverage embedded in Evolution's portfolio. Improved natural gas pricing, incremental contributions from our minerals and royalty investments and lower operating costs across several assets combined to meaningfully drive higher earnings and cash flow compared to the prior year. While commodity prices will always fluctuate, our goal has been to build a portfolio that can perform across cycles, and we believe this quarter is another example of that approach in action.

From a financial standpoint, that operating leverage clearly showed in our results. In fiscal second-quarter 2026, adjusted EBITDA increased by 41% year-over-year despite revenue increasing only 2%. From a portfolio perspective, we continue to benefit from a balanced mix of oil and natural gas assets with a low base decline and modest capital requirements.

Our assets are diversified not only by commodity, but also by basin and operating partners, which helps reduce concentration risk and smooth performance over time. This approach has been intentional and remains a core pillar of how we think about capital allocation and risk management.

A newer component of that diversification is our growing minerals and royalty platform. Over the past several months, we've been building a new network funnel and increasing our exposure to capital-light assets that generate high-margin production and long-lived inventory without imposing an incremental operating burden or requiring development capital from Evolution.

Recent activity across our SCOOP/STACK minerals demonstrates this strategy in action with several wells turning to sales or entering drilling and completion operations even ahead of schedule. This activity is already driving incremental cash flow and accelerating returns while reinforcing our emphasis on assets that combine current production, near-term zero-cost drilling exposure, and long-term upside.

As we move forward into quarter three and beyond, we anticipate meaningful contributions from our newly acquired Haynesville-Bossier Shale mineral and royalty assets. While we will always remain opportunistic with our A&D activities, we are confident that this new network will provide us with repeatable, highly accretive, tailored opportunities to enhance our portfolio. We believe this strategy enhances the durability of our cash flow profile and provides meaningful flexibility in how we deploy capital over time.

Operationally, we made progress during the quarter on cost control and efficiency initiatives across the portfolio. Several assets delivered meaningful improvements in operating margins driven by lower costs and better uptime. While certain fields experienced temporary downtime during the quarter, these issues were largely mechanical or timing-related rather than structural in nature. Importantly, field level profitability remains solid.

Our operating philosophy continues to emphasize flexibility. We work closely with our operating partners to adjust activity levels based on commodity prices, market conditions and expected returns. This approach allows us to protect capital during periods of volatility while remaining positioned to benefit when conditions improve. We believe this flexibility is especially important in today's environment where price signals can change quickly and disciplined capital management is critical. As always, we will continue to evaluate the most effective ways to deploy capital for long-term shareholder value.

Looking ahead, our strategy is consistent. We will continue to prioritize assets with durable cash flow characteristics, modest capital requirements, and attractive risk-adjusted returns. We will also continue to evaluate opportunities to expand our portfolio through acquisitions, particularly in areas where we can leverage our experience, relationships, and disciplined underwriting approach.

Our goal is not growth for growth's sake, but rather growth that enhances per share value and supports sustainable shareholder returns. Our recent mineral and royalty acquisitions fit those parameters very well. The combination of low decline assets, capital-light exposure and disciplined reinvestment gives confidence in our ability to navigate commodity cycles while continuing to reward shareholders.

With that, I'll turn the call over to Mark for more details on our operations.

Thanks, Kelly, and good morning, everyone. I will focus my remarks on key operational highlights from the quarter and encourage listeners to review our earnings and press release and filings for additional details across our asset base. Overall, our operations performed largely as expected during the quarter, with steady base performance across most assets and continued progress on optimization issues.

Starting with SCOOP/STACK, activity on our legacy working interest position remains steady with three additional wells in progress during the quarter. On the mineral and royalty side, activity continues to ramp. Three wells are converted to producing status during the quarter with 16 additional wells in progress, supporting incremental high-margin production. We expect to continue to benefit from these improved margins since royalty properties have inherently higher margins.

At Chaveroo, production increased year-over-year, reflecting wells brought online over the past 12 months. While no new drilling occurred during the quarter given low oil prices, we continue to advance permitting and planning activities to ensure we are well positioned when market conditions improve. We transitioned all but two of the wells from electric submersible pumps to rod pumps across the Chaveroo field.

This significantly improved lifting efficiency, reduced downtime, and stabilized production, resulting in field performance trending about 5% above initial expectations, thereby boosting capital efficiency and long-term asset value.

At TexMex, we focus on optimization initiatives across the assets. Progress was made through targeted workover activities and facility upgrades aimed at improving reliability and performance. While these efforts took time to implement during the transition, we believe the bulk of that work is now behind us. As additional workovers are completed and recently resolved downtime normalizes, we expect production and lifting costs to continue to improve and better reflect the underlying potential of the asset moving forward.

At Delhi, production was impacted during the quarter by equipment-related downtime primarily related to CO2 compressor issues that limited injection volumes for much of the period.

Importantly, field level profitability remained strong, aided by materially lower operating costs following the cessation of CO2 purchases. On a per BOE basis, operating costs at Delhi declined meaningfully year-over-year, and we expect sales volumes to improve moving forward as operational issues are resolved.

At Jonah and Barnett, production volumes were relatively stable on a sequential basis, consistent with the low decline nature of both assets. Realized natural gas pricing improved compared to prior year. The results during the quarter were partially impacted by wider regional differentials, driven by mild winter conditions in the Western US in calendar Q4. Across the portfolio, we remain focused on maintaining operational flexibility, managing costs, and deploying capital where returns are most compelling.

Over to you, Ryan.

Thanks, Mark, and good morning, everyone. 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 fiscal second-quarter financial highlights.

In fiscal Q2, we had total revenues of $20.7 million, up 2% year-over-year. The increase in revenues was primarily due to a 6% increase in production and higher realized natural gas prices, which were offset by lower oil and NGL pricing. The increase in production volumes was largely attributable to contributions from our mineral and royalty acquisitions in the SCOOP/STACK as well as steady base production across the majority of our portfolio.

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. Adjusted EBITDA increased 41% year-over-year to $8 million, reflecting stronger natural gas revenues, realized gains on derivative contracts and lower lease operating costs. Lease operating expenses improved to $11.5 million or $16.96 per BOE compared to $20.05 per BOE in the prior year quarter, reflecting both underlying cost improvements due to our mineral and royalty acquisitions and the cessation of CO2 purchases at Delhi, and the benefit of certain onetime items recognized during the quarter.

On the hedging front, our ongoing goal is to reduce downside commodity price risk while preserving the maximum potential upside. We have continued to add hedges, and we'll continue to use a mix of swaps and collars for both oil and gas, and we'll monitor the market for any additional hedge opportunities if market conditions present themselves.

Turning to the balance sheet. As of December 31, 2025, cash on hand totalled $3.8 million and borrowings under our credit facility stood at $54.5 million. Total liquidity, including cash and available borrowing capacity increased to approximately $13.5 million versus $11.9 million last quarter.

During the quarter, we paid dividends totalling $4.2 million. As previously announced, the Board declared a quarterly cash dividend of $0.12 per share. Overall, our strong asset base and financial position continue to support returning capital to shareholders and pursuing accretive opportunities that enhance long-term shareholder value.

I'll now hand it back over to Kelly for closing comments.

Thanks, Ryan. To sum it up, we're very pleased with our performance this quarter and encouraged by the tangible results we're seeing from our strategy, particularly the growing contribution from our minerals and royalty platform that we've built out and the momentum we continue to see in our acquisition pipeline. Our diversified asset base, growing minerals and royalty platform and disciplined approach to capital allocation, continue to support strong cash flow generation and consistent shareholder returns.

With that, I'll turn it over to the operator to begin the Q&A session.

(Operator Instructions)

Jeff Robertson, Water Tower Research.

Kelly, you talked about the diversity in Evolution's asset base. Can you talk about -- or can you provide an update or some color on how the minerals acquisitions that you have completed have affected the company's natural decline rate?

Yes, Jeff, thanks for the question. So what we -- the beauty of this is, over time, right, there are a lot of locations associated with these minerals, which we don't have to pay for. So as these locations get built out, it will add incremental production that doesn't have any cost.

Now on an individual basis, every well is different, right? Some of them are newer, some of them are older, and they're going to decline at different rates. But the fact that there's a bunch of inventory that's going to get added without any incremental cost to Evolution is one of the reasons we think it's so attractive.

Can you share any color on the -- what kind of production levels that the Haynesville-Bossier acquisitions will add? And given the late December and January closings, that impact, I assume, will be felt in the first -- or the -- I'm sorry, your third fiscal quarter and the fourth?

Yes, that's correct. They essentially had zero impact on the previous quarter that just ended. As we go forward, we will expect to see the production there both come on as well as our -- a lot of these wells are DUCs that are being completed right now, eyes on the ground seeing the completion rigs on there. So we expect to see it ramp up relatively quickly over the next few quarters.

So anyway, excited about the prospects there. And again, the PDP will start to hit, but we also have DUCs that are being converted as we speak.

Yes. Jeff, this is Ryan. The other thing too, obviously, as you know, on the royalty side, the production impact is going to be less impressive than the cash flow, right, because of the margin. So obviously, I think we're excited about the absolute free cash flow impact, but the production impact will be there, but it won't be as impactful as the cash flow impact.

One more, if I may, Kelly, can you share your thoughts on valuation comparisons that you see in today's market versus non-operating working interest opportunities and royalty opportunities.

So yes, as Ryan just mentioned, on a production sort of level metric, obviously, the royalties are going to look like they're more expensive. But from a cash flow level perspective, we are finding the opportunities to be very competitive relative to non-op working interest. As a matter of fact, most of these ones we're looking at now, the reason we went with them is because they were more attractive than what we've been seeing out there.

And the other thing I'd like to point out, most of our acquisitions over time had either been led by us doing a bunch of research and finding an opportunity out there or having an opportunity come to us. We think with this sort of network that we've built out and the partners we have that we can go be more proactive and go make offers and lots and lots of offers that are tailored to the kind of reserve categories that we want to see in our purchases. Like I said, we've seen some early success, and we're excited about where it's going forward from there.

(Operator Instructions)

Nicholas Pope, ROTH Capital.

The question I had, I'm kind of curious with the Delhi Field, you mentioned expectation of things kind of ramping back up after some downtime. But I'm more curious after the cessation of the third-party CO2 volumes going just recycle only, how, I guess, the field has performed and how you view the performance of that asset without that additional CO2 volume getting put into the reservoir?

Well, I mean -- this is Mark, and I'll answer the question. With all of the facilities issues that we've had with compressors and stuff going down and also coming out of the summertime where we have limited injectivity because of the heat. It's been kind of difficult really to quantify everything, what's going on. So we still think that from a standpoint of how the field is operated, it's very profitable because the -- if we don't inject CO2, even if we have a reduction in rate, we are much more profitable because we're spending a lot less money on operating costs every month.

So we're actually happy with the way it's performing right now. And we expect that it will level out here after we -- in the next few quarters after we get past this downtime at the plant and also get past the summer season. Then we'll have a much better idea about what it's doing.

So I guess with the expectation that you could see a return of production, I mean, are you all expecting production volumes to return to that 600 barrels a day rate in the field on the net to you guys?

Well, that's -- I think right now, the difficulty with what we've had -- with the amount of downtime we've had at the plant, it's honestly, it's really hard to quantify.

Yes. I mean -- so Nick, I mean their stated plan on the field, right, is that they're still injecting, what is it, like 84% of the injections were recycled anyway, right? And so that difference with increased water injection to makeup voidage, we have yet to see really the full results of how that will play out.

So as Mark said, it's kind of early because you have a compressor go down for basically the whole quarter, it makes things tough.

Got it. I'll drop the topic and move on. One other item, just kind of to clarify with the Haynesville minerals. It looked like there was some movement in and out just with the cash flow statement from the previous transactions. I was curious how much of that kind of $4.5 million spent is fiscal 2Q versus what's going to show up in fiscal 3Q?

Yes. So very -- this is Ryan. I'll take that real quick. So the majority of kind of the $4 million is going to be in our fiscal Q3. We ended up spending, call it, less than $1 million in actually at the very end of our last fiscal quarter. So the majority of that CapEx is going to be kind of in the beginning of this fiscal Q3.

Poe Fratt, Alliance Global Partners.

Just a quick question on OpEx or LOE. You had good gains on an absolute basis in Barnett, Delhi, and TexMex. Can you just talk about forward-looking into the March quarter? I think you said that -- Mark may have said that he expected an additional improvement in LOE. Can you just sort of quantify that? And then also where might we see additional improvement?

Yes. Yes, this is Mark. So I'd say like on -- I think you're talking about TexMex. And at TexMex, we had a -- transition was slower than we expected from the old operator to the new operator. That's kind of passed. And we had a bunch of catch-up work, workovers to do. So that came in. I think we told everybody last time, we look at this as like at least getting down to a dollar per BOE level of what the Williston runs.

And I think that's actually kind of what we're aiming for because we feel like that the cost will stay either flat or maybe go down slightly, but the BOE per day will be ramping up. So anyway, that kind of probably -- should help you answer your question about how to look at it.

Yes. I would just add, this is Ryan. Just to add I think some of it is going to -- remains to be seen as far as kind of how much the royalties will lower our overall LOE per barrel, right? You've seen a big improvement in SCOOP/STACK. Obviously, you're not really seeing that yet in the Haynesville-Bossier. And some of that is just based on data, right? On the royalty side, we get data much more slowly than we do on some of the other assets. So a little bit of that remains to be seen. So we do think that's going to help, over time, overall lower our LOE per barrel.

Yes. And one other quick deal, like we did 14 workovers at TexMex and spent a couple of hundred thousand dollars net to us, and it netted back about 80 barrels of net barrels of oil per day. Now that wasn't all at once, obviously, it was spread out over the quarter. So that kind of stuff is -- when you make the denominator a little bit bigger, it's going to drop the dollar per BOE.

A lot of those were sort of -- this is Kelly. A lot of those were catch-up workovers that we've overcome. We're obviously still going to have it in an old field. You're always going to have some workover activity, but that was a pretty high number.

Not 14.

Oh, excuse me.

Yes. No. I mean there shouldn't be 14 every quarter.

Going forward, correct.

And we do have a few additional workovers that we know we're going to be doing and their high impact, but there -- it's from a standpoint of production. But it's not -- it's only four additional workovers that we have identified right now.

Yes. I guess I was looking at -- thanks for the color on the TexMex, OpEx or I was looking more at the big number, a big downdraft in Barnett Shale production costs sequentially and then also year-over-year. Can you just highlight what's going on there? And then is that durable into the second half of the fiscal year?

So I think as we disclosed, there was some benefit from ad vol in that -- in the quarter. So on the ad vol, especially for all of them, we get a bill once a year, and so we make an accrual. And so it's an estimate for most of the year. And when we get to the bill at the end of the year, we make an adjustment.

Now obviously, the bill came in less than we had accrued. And we do think some of that's going to be sustainable going forward at the Barnett. So we do think ad vol will go down going forward. Is it going to be as low as this quarter? Probably not as low as it was this quarter, but we will see an improvement, we think, going forward from what we've seen historically.

But as we kind of mentioned too, any increase that we might see from this quarter in the Barnett, we will have offsets in obviously, SCOOP/STACK and as Mark mentioned, TexMex. So there are going to be offsets for the kind of that -- if that -- if the Barnett goes back up a little bit, we'll have some other offsets there.

John Bair, Ascend Wealth Advisors.

The last name is Bair, no L in there. In looking at your asset base, one very large basin is not represented, and that's the Northeast in the Utica and Marcellus. And I'm just wondering if that's an area that you're looking at been approached with any ideas there? What your outlook is on that? Any interest in that area?

Yes. Thanks, John. I think we've -- as we've spoken in the past, I think those are some tremendous wells on just a pure amount you get out for amount you put in. It's a tremendous basin. The problem is it has takeaway capacity. I think it's -- as opposed to the Haynesville, where we focused on here recently, which is sort of first to go to LNG. You could argue any incremental production up in the Northeast would be last to go to LNG.

So we -- again, like I said, a tremendous asset. It's got takeaway constraints that from what I understand, as soon as they put more on, frankly, the back pressure of the existing wells fill it up, they don't even have to drill anymore. So again, we'd have to find the right deal with the right sort of firm takeaway. And I'm sure we've looked and we just haven't had anything that meets our return expectations there.

Okay. Well, given that it's a very old area of production, there's probably a lot of properties that could conceivably fit into your business plan there. Another question I have is there's seeing more interest in the data center build out around production areas. I'm wondering if any of your assets might lend themselves to that idea of putting a data center in where they can directly tap resource rather than having to go through distribution lines.

So again, this is Kelly. We have talked to a couple of our operators where we thought this might make sense. And so far, we've kind of gotten -- they've explored it, and they're aware and they'd like to do something if the opportunity arose, but nothing has sort of presented itself. But yes, for sure, that's something, again, we're thinking along the same lines. If we can do direct-to-consumer and lock in long-term prices, that would be something -- they are fully aware that we'd be interested if the right opportunity came along.

Very good. And last question is, what is your outlook or focus on trying to reduce overall debt levels?

Yes. This is Ryan, John. As far as overall debt levels, I would say we've sort of said that our long-term target is one time net debt. Now we're a little bit higher than that. So yes, there is a plan to sort of reduce over time around to that level. But on an absolute debt basis, we certainly don't feel uncomfortable with the absolute debt levels out given the leverage and given kind of the outlook of the asset base.

And frankly, given we actually have quite a bit of production and cash flow hedged at fairly attractive prices. So we feel very comfortable on the debt level. But to answer your question, yes, over time, our goal is to get the leverage down closer to that one time.

And the other thing I'll just throw in there. This is Kelly. Look, if we have opportunities that we can invest the money in that earn significantly higher than what we're paying on our debt, it just makes a lot more sense to buy something at a 20% discount rate to use the capital to do that versus using capital to pay down, whatever, 6.8% interest on our debt.

(Operator Instructions)

Jeff Robertson, Water Tower Research.

Ryan, one question to follow on the LOE discussion. Gathering and transportation costs were much lower in the quarter versus where they had been in the second-quarter and a year ago. Is that part of the LOE reduction sustainable?

Overall, which area are you looking at, Jeff? Sorry.

I'm just looking at the table in the press release on -- in the detail where you have your cost per unit broken out. It's right above the production table.

Yes. So on the gathering side, so that's lumping in obviously a bunch of different areas. I would say area by area, there hasn't been a huge amount of movement. Now some of it's tied a little bit to commodity prices. There are some contracts that go into commodity prices.

So that does move around a bit, especially in the Barnett, right? So the largest gathering kind of costs we have are in the Barnett. There's some in -- obviously, some in Jonah where the gas processing is. So I would say some of that at a lower price, it is a little bit more sustainable, but there's nothing fundamentally different, John, other than -- the one point I will add, sorry, is the gathering -- I think we mentioned this, right?

So the gathering contract at Barnett did get restructured. There is going to be some benefit there going forward. But if prices go up, we will expect to see the cost -- gathering costs go up slightly if that makes sense.

And then lastly, Ryan, given you've got two more quarters in this fiscal year, can you share any color on what you think CapEx might be between now and June 30.

I mean I think the full range that we put out, we still feel good about, which is that $4 million to $6 million range. So at this point, it would just be any sort of capital projects we get from operators or could be some still, and we are still seeing some activity in AFEs, in SCOOP/STACK. So that we did actually put that in our budget. So I still think that's a good range. I mean, some of it is subject to if we get an AFE, right?

But we're not talking huge AFEs, as you know, in the SCOOP/STACK. And the ones we've seen have been very attractive. So we're generally consenting to the ones we see in the SCOOP/STACK.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Kelly Loyd for any closing remarks.

Thank you very much. We just want to say thank you to everyone for participating, and we look forward to moving forward with you guys. Thank you.

And with that, everyone, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.