Evolution Petroleum Corporation — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019, the first quarter of fiscal 2020. The filing is unaudited. This is not calendar-year 2019 Q1. The company’s production was concentrated in its Delhi field interests in northeast Louisiana.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2019 | Quarter ended Sep. 30, 2018 |
|---|---|---|
| Revenue | $9.15 million | $12.31 million |
| Income from operations | $3.27 million | $5.99 million |
| Net income | $2.79 million | $5.80 million |
| Diluted earnings per share | $0.08 | $0.17 |
| Cash from operating activities | $5.04 million | $7.66 million |
| Capital expenditures | $0.52 million in cash-flow statement | $3.09 million in cash-flow statement |
Revenue fell 25.6% year over year, reflecting lower realized commodity prices and a 4.2% decline in equivalent production volumes. Realized oil price was $59.32 per barrel, down 17.3%; realized NGL price was $11.54 per barrel, down 69.0%. Net production averaged 1,910 BOEPD, down 4.1% year over year. Operating income margin was approximately 35.8%, compared with 48.7% a year earlier; net margin was approximately 30.5%, compared with 47.1%.
Production costs declined 10.7% to $3.09 million; DD&A decreased 6.4% to $1.45 million. General and administrative expense increased 2.5% to $1.34 million, including $332,013 of non-cash stock compensation. The prior-year quarter included a $1.1 million Enduro transaction breakup fee; its absence also contributed to the lower year-over-year pretax and net income.
At September 30, 2019, cash was $31.40 million, working capital was $31.7 million, total assets were $94.67 million, and total liabilities were $16.08 million. The company had no borrowings under its credit facility and reported $40 million of elected borrowing-base availability; it was in compliance with facility covenants. The facility matures April 11, 2021. The filing does not identify conventional funded debt outstanding. Cash decreased approximately $0.15 million during the quarter, after $3.31 million in dividends and $1.36 million in share repurchases, partly offset by operating cash flow.
Changes and operating developments
- Compared with the immediately preceding quarter, revenue declined 11.8%, net income declined from $3.3 million to $2.8 million, and net Delhi production declined 7% to 1,910 BOEPD. Management attributed field production constraints in part to seasonal heat limiting CO₂ recycle capacity; NGL facility modifications also did not sustain earlier volume gains, and the operator was reviewing solutions.
- The company paid its 24th consecutive quarterly dividend of $0.10 per share and declared another $0.10 dividend, payable December 31, 2019. It repurchased 222,437 shares under the open-market program at an average $5.89 per share; reported total treasury shares acquired, including shares withheld for employee tax obligations, were 231,376.
- Jason E. Brown became President and CEO, succeeding Robert S. Herlin, who remained non-executive Chairman.
- After quarter-end, the company agreed to acquire a 23.51% non-operating working interest and 19.70% revenue interest in Wyoming’s Hamilton Dome field for $9.5 million cash plus assumed asset-retirement obligations. The acquisition was effective October 1 and completed November 1, 2019. Management estimated approximately 450 barrels per day of net oil production, a roughly 23% production increase and a 30% increase in proved reserves; these are management estimates, not quarter-end results.
Outlook, risks, and contingencies
Management expected approximately $3.0 million of net Delhi capital spending for the remainder of fiscal 2020, including Phase V development, and budgeted another $3.0 million for Phase V completion in fiscal 2021. It expected to fund Delhi spending from operating cash flow and working capital, with development timing dependent partly on the operator’s plans, infill results, and CO₂ requirements. Management said it intended to continue pursuing acquisitions and viewed the Hamilton Dome purchase as supportive of profitability and the dividend, while noting that its operating costs per barrel could be higher and realized oil prices lower than at Delhi.
Key risks include volatile oil and NGL prices, which could reduce revenue, cash flow, borrowing capacity, and potentially trigger a full-cost ceiling impairment; field operating and production constraints; and the timing and cost of development. The company disclosed ordinary-course claims and contingencies but reported no legal proceedings. It reported no material change to previously disclosed risk factors. A new office operating lease was recognized under ASC 842; the reported September 30 operating lease liability was $167,602 in total, including $41,369 current and $126,233 long term.
Important facts for investors to verify
- Whether Delhi’s CO₂ recycle and NGL separation constraints are resolved and production recovers.
- The achieved production, realized pricing, operating costs, and reserve impact of the Hamilton Dome acquisition, including assumed abandonment obligations.
- Actual timing and spending for Delhi Phase V development and whether it remains funded from internal cash resources.
- Dividend sustainability under lower commodity prices, considering cash generation, capital needs, share repurchases, and the credit facility’s covenants and availability.
- Whether commodity-price changes affect proved reserves or require a full-cost accounting impairment.