Earnings Results to Track: Evolution Petroleum Corporation (NYSE: EPM)

On Friday, Shares of Evolution Petroleum Corporation (NYSE: EPM) showed the bullish trend with a higher momentum of 0.71% and ended its trading session at $9.92. The company traded total volume of 57,476 shares as contrast to its average volume of 213.68K shares. The company has a market value of $324.85M and about 32.98M shares outstanding.

Evolution Petroleum Corporation (NYSE American: EPM) recently stated financial and operating highlights for its fiscal year ended June 30, 2018 and the fiscal fourth quarter, with comparisons to the fiscal third quarter ended March 31, 2018 (the “prior quarter”) and the quarter ended June 30, 2017 (the “year-ago quarter”), as well as the fiscal year ended June 30, 2017 (the “prior year”). Evolution also stated a comparison of year-end reserves as of June 30, 2018 to the prior year reserves.

Results for the Quarter Ended June 30, 2018:

In the fourth quarter, Evolution stated operating revenues of $11.40M, up 9% from the prior quarter, based on an average realized oil price of $67.41 per barrel and an average realized NGL price of $38.39 per barrel, and generated $5.20M in income from operations. In the prior quarter, Evolution stated income from operations of $3.70M on lower revenues of $10.20M, which was because of lower commodity prices of $63.56 and $34.05 per barrel for oil and NGL’s, respectively, and lower production volumes of 1,884 BOEPD contrast to 1,978 BOEPD in the fourth quarter.

Production costs in the Delhi field reduced to $3.00M from $3.40M in the prior quarter, mainly driven by a 40% decrease in purchased CO2 volumes, from 76 MMCF/D to 45 MMCF/D, partially offset by an 11% increase in other production costs. Depletion, depreciation and amortization (“DD&A”) expense increased slightly to $1.50M from $1.40M in the prior quarter, because of a small increase in the DD&A rate per barrel. The Company’s general and administrative (“G&A”) expenses were $1.70M for the quarter, a decrease of 8% from the prior quarter. Costs associated with the formerly declared Enduro acquisition opportunity and severance costs were mainly responsible for the increase from the year-ago quarter.

The above factors combined to increase pretax income for the fourth quarter to $5.20M, a 42% increase from the prior quarter. Income taxes increased 10% because of a lower effective tax rate reflecting a boostd benefit from depletion. Net income for the quarter increased 48% to $4.50M.

Results for the Fiscal Year 2018:

Revenues for the year increased by 20% from $34.50M to $41.30M because of higher commodity prices partially offset by a 3% decline in volumes from 2,105 to 2,042 BOEPD. The Company’s average realized oil price was $58.52 per barrel and our average NGL price was $33.50 per barrel, contrast to $46.31 and $21.28 per barrel, respectively, in fiscal 2017.

Production costs for the year totaled $12.20M or $16.36 per barrel of oil equivalent (“BOE”), contrast to $10.80M, or $14.10 per BOE in the prior year. CO2 costs are the leading single production cost in the field and are tied directly to the price of oil realized in the field, thus providing some natural hedge against changes in oil price. CO2 costs for the current year were $4.70M, about 6% higher than the prior year because of higher realized oil prices partially offset by an 11% decline in purchased CO2 volumes. Other lease operating expenses, totaling $7.40M, increased about 17% year over year mainly because of higher Delhi NGL plant expenses, reflecting a full year of operation contrast to a half year in fiscal 2017, and increased work over expenses in the field. Evolution’s depreciation and depletion expense in fiscal 2018 was $6.00M, a 5% increase from the prior year, mainly because of a small increase in the DD&A rate. The Company has not had any write-downs of oil and gas property costs in the history of the Company.

General and administrative expenses increased 36% to $6.80M in the current year, which included some non-typical amounts counting Enduro acquisition expenses subsequently recovered after year-end. Specifically, these items include $0.70M of acquisition and due diligence expenses ($0.40M of which was recovered through the receipt of a $1.10M break-up fee subsequent to year-end), $0.60M of legal expense for a legacy matter settled in the current year, $0.30M for severance costs, and $0.20M for higher board compensation reflecting an additional director. If adjusted for these items, total G&A expense is flat year over year at about $5.00M.

Pretax income for the year increased 26% to $16.20M because of the above factors. Income tax expense (benefit) reduced from an expense of $4.80M in the prior year to a benefit of $(3.4)0M for fiscal 2018 as a result of the lower blended statutory federal income tax rate of 27.55%, a one-time $6.10M tax benefit from the revaluation of deferred tax balances for the new rate and a higher depletion deduction. The fiscal 2018 statutory tax rate of 27.55% resulted from transitioning a June 30 year end company from the formerly enacted 34% federal statutory rate to the newly enacted federal statutory rate of 21% at December 31, 2017. After fiscal 2018 the Company’s federal statutory tax rate will be 21%.

For fiscal 2018, net income to common shareholders increased 189% over the prior year to $19.60M, or $0.59 per common share. Fiscal 2017 net income to common shareholders was influenced by $1.30M in preferred dividends and deemed preferred stock dividends resulting from the retirement of our outstanding preferred stock.

Fiscal 2019 Capital Budget and Financial Outlook:

During the year ended June 30, 2018, Evolution incurred $5.40M of capital expenditures at Delhi. This spending included $0.40M for capital upgrades to the recycle plant, $1.10M for CO2 conformance projects and capital maintenance, $1.10M for Test Site 5 infrastructure (i.e. water curtain wells) in the eastern portion of the field that is expected to be developed next, and $2.80M for the 2018 infill drilling program.

The twelve-well infill drilling program in the Delhi field begind March 2018 and all twelve wells have been drilled to date with a few wells remaining to be accomplished with the program on budget in the aggregate. The total program has an estimated net cost of $4.70M, with about sixty percent of those costs incurred in fiscal year 2018 and the balance to be incurred in the first fiscal quarter of 2019. All twelve wells are expected to be in operation by the end of October 2018 and the operator anticipates uplift in oil volumes over the next few quarters. The program includes four CO2 injection wells and eight production wells and targets productive oil zones which we believe were not being swept effectively by the current CO2 flood, thereby adding incremental production.

Evolution formerly approved net capital expenditures totaling $2.80M for water injection wells, flowlines and other infrastructure projects in preparation for the Test Site 5 development, or Phase V. Such development requires participation by both the operator and Evolution, and the operator has not yet finalized its capital expenditure budget for 2019. About $1.10M of these costs have been incurred as of June 30, 2018. In addition, the Company anticipates to continue to perform conformance workover projects and will likely incur additional maintenance capital expenditures. Such amounts cannot be estimated accurately at this time, but are not expected to be material to our financial position.

As of June 30, 2018, the Company had $27.70M in working capital with no outstanding balance on its bank revolver. In addition, the Company on August 31, 2018 received $1.10M as a break-up fee and reimbursed expenses for its role as the Enduro Package IV stalking horse bidder, the expected receipt of which was formerly declared. Oil and NGL prices continue to hold at levels higher than those realized in fiscal 2018, thus we expect for the foreseeable future to continue to generate free cash flow well in excess of our current cash dividend to shareholders.

As formerly stated, for the year ended June 30, 2018, net proved reserves in the Delhi field totaled 9.40M barrels of oil equivalent (“MMBOE”), a reduction of 0.7 MMBOE from the prior year. Substantially all of this reduction results from production in fiscal 2018. Net revisions to prior year reserves was positive, albeit negligible. Our trailing twelve-month average oil price, as determined in accordance with SEC guidelines, was $58.31 per barrel of oil, based on a $57.50 per barrel NYMEX WTI reference price. Our NGL price was $38.97 per barrel.

The Company offered net profit margin of 47.50% while its gross profit margin was 70.50%. ROE was recorded as 26.30% while beta factor was 0.59. The stock, as of recent close, has shown the weekly downbeat performance of -3.24% which was maintained at 43.80% in this year.

Chad Pitman

Chad Pitman

I am Chad Pitman and I focus on breaking news stories and ensuring we (“Stocks Market Cap”) offer timely reporting on some of the most recent stories released through market wires about “Emerging Stocks”. I have formerly spent over 3 years as a trader in U.S. Stock Market and is now semi-stepped down. I work on a full time basis for stocksmarketcap.com specializing in quicker moving active shares with a short term view on investment opportunities and trends.

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