Exchange: AMEX | Sector: Energy | Industry: Oil Gas Exploration Production
Q3 2024
Published: May 8, 2024
Earnings Highlights
Revenue of $23.03M down 37.6% year-over-year
EPS of $0.01 decreased by 98% from previous year
Gross margin of 19.5%
Net income of 289.00K
""It's really steady as she goes. The updates are no, they still expect it to be in the same time frame they did."" - Kelly Loyd
Evolution Petroleum Corporation (EPM) QQ3 2024 Financial Analysis: Oil‑Focused Growth via SCOOP/STACK and Chaveroo; Dividend Resilience in a Volatile Energy Landscape
Executive Summary
Evolution Petroleum reported a Q3 2024 that underscored a pivot toward higher-oil production through recent acquisitions and development programs, notably SCOOP/STACK and Chaveroo. Revenue was $23.0 million with gross profit of $4.50 million and EBITDA of $8.66 million, yielding an EBITDA margin of approximately 29.8%. Net income was $0.289 million, and EPS was $0.0086, reflecting the quarter’s lean bottom line amid meaningful capital deployment and a higher oil mix. Oil production rose about 19% year over year, while overall net production reached 7,209 boe/d in the quarter, up 14% versus the prior quarter, driven by the SCOOP/STACK and Chaveroo contributions that more than offset routine declines and weather-related downtime. The company continued to deploy capital into growth initiatives (CapEx of ~$2.6 million in Q3 for Chaveroo) and monetized the portfolio through strategic acquisitions, while maintaining a disciplined balance sheet aimed at leverage below 1x pro forma EBITDA. Management reiterated a commitment to maximize total shareholder returns via dividends, share repurchases, and replenishing/expanding cash-flow assets, with an explicit plan to systematically participate in further development blocks at Chaveroo and capitalize on SCOOP/STACK economics. The Delhi field remains a focal point for future growth (including Phase 5 discussions and CO2 EOR certification anticipated by summer), with near-term LOE reductions anticipated from a CO2 pipeline maintenance downtime resolved by June 2024. Going forward, Evolution intends to preserve balance-sheet strength, pursue accretive opportunities, and manage downside risk through hedging while preserving upside exposure to commodity prices.
Key Performance Indicators
Revenue
23.03M
QoQ: 9.52% | YoY:-37.55%
Gross Profit
4.50M
19.55% margin
QoQ: 10.64% | YoY:-77.40%
Operating Income
2.08M
QoQ: 33.08% | YoY:-88.19%
Net Income
289.00K
QoQ: -73.29% | YoY:-97.93%
EPS
0.01
QoQ: -73.46% | YoY:-97.95%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $23.03 million (YoY down 37.6%, QoQ up 9.5%)
- Revenue: $23.03 million (YoY down 37.6%, QoQ up 9.5%)
- Gross Profit: $4.50 million; gross margin 19.55% (YoY -77.4%, QoQ +10.6%)
- Operating Income: $2.08 million; operating margin ~9.05% (QoQ +33.08%)
- Net Income: $0.289 million; net margin 1.26% (YoY -97.9%, QoQ -73.3%)
- EPS: $0.0086; diluted EPS $0.0086 (YoY -97.95%, QoQ -73.46%)
- EBITDA: $6.864 million; EBITDA margin ~29.8%
- Cash Flow from Operations: $3.364 million
- CapEx: $2.60 million; Free Cash Flow: -$43.07 million (reflecting substantial capex and asset acquisitions)
- Net Debt: $39.61 million; Total Debt: $42.68 million; Cash: $3.07 million
- Production: 7,209 boe/d (Q3); Oil up ~27% QoQ; Oil up ~19% YoY; Gas and NGLs up ~10% QoQ; 4Q-3D mix shifting toward oil due to SCOOP/STACK and Chaveroo
- Leverage target: below 1x pro forma EBITDA; Hedging: 40% of oil or 25% of oil+gas monthly available; currently hedging oil due to weak gas prices in 2024
- Dividends: $0.12 per share paid in March; $0.12 per share declared for June; 42nd and 43rd consecutive quarterly dividends at current level; ~42 quarters of cash dividends and $0.26 per share in buybacks over time
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
23.03M
-37.55%
9.52%
Gross Profit
4.50M
-77.40%
10.64%
Operating Income
2.08M
-88.19%
33.08%
Net Income
289.00K
-97.93%
-73.29%
EPS
0.01
-97.95%
-73.46%
Key Financial Ratios
currentRatio
1.49
grossProfitMargin
19.5%
operatingProfitMargin
9.05%
netProfitMargin
1.26%
returnOnAssets
0.17%
returnOnEquity
0.35%
debtEquityRatio
0.51
operatingCashFlowPerShare
$0.1
freeCashFlowPerShare
$-1.32
dividendPayoutRatio
1385%
priceToBookRatio
2.39
priceEarningsRatio
172.85
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and capital allocation: Evolution aims to maximize total shareholder returns while maintaining no material balance-sheet dilution; management highlights growth via SCOOP/STACK and Chaveroo as a core part of expanding oil production and undeveloped locations.
- Operational execution: SCOOP/STACK pro forma Q3 production ~1,550 boe/d with >300 gross drilling locations (21 DUCs; 19 on production by quarter end); Chaveroo produced ~290 boe/d net in Q3 with plans for four wells beginning Sep 2024 and six more in 2025; Delaware/Delhi CO2 EOR remains a long-term growth vector with Phase 5 potential and anticipated summer certification for CCS.
- Financial discipline and risk management: Revenue benefited from acquisitions despite lower realized gas prices; the company hedged oil production and gas strategically to manage downside risk while preserving upside; interim settlement receivable of $3.3 million to be collected in Q4; leverage targeted to remain at or below 1x pro forma EBITDA; cash flow from operations modest, with heavy CapEx driving negative free cash flow in the quarter.
- Market context and guidance signals: Delhi field downtime due to CO2 pipeline maintenance is temporary; management expects CO2 purchases to resume in June 2024, potentially reducing LOE; the company is evaluating additional organic and potentially opportunistic growth while maintaining dividend coverage.
"It's really steady as she goes. The updates are no, they still expect it to be in the same time frame they did."
— Kelly Loyd
"Yes, honestly, is the answer to that. It's -- we've got more data, we're more comfortable than we were. Look, everything is subject to change. But as of now, we intend to systematically keep going with it."
— Kelly Loyd
Forward Guidance
- Leverage and capital allocation: Evolution reiterates a target to stay at or below 1x pro forma EBITDA; given Q3 2024 cash flow and the ongoing SCOOP/STACK and Chaveroo activity, management believes this is achievable with disciplined capex and potential debt paydown when price cycles permit.
- Growth trajectory and timing: Chaveroo drilling remains on schedule, with four wells planned for Sept 2024 and six for Apr 2025; SCOOP/STACK activity implies continued oil-focused production mix, which should support cash flow resilience even in gas-price downturns.
- Hedging and price risk: The hedging framework was adjusted to allow up to 40% of oil production or 25% of oil+gas production per month; as gas prices recover, Evolution may opportunistically hedge additional volumes or adjust hedging mix to balance downside protection with upside capture.
- Key monitoring metrics: Wacht on Delhi Phase 5 progression and CCS certification timeline; progression of Chaveroo and SCOOP/STACK wells reaching sustained production; surveillance of commodity price environment (oil and gas), capital availability for PDP vs. growth capex, and the ongoing ability to sustain the dividend as production and cash flow evolve.
- Bottom line: Investors should monitor production mix shifts (oil vs gas), the pace and economics of Chaveroo/SCOOP/STACK wells, Delhi CCS milestones, and the company’s leverage trajectory around 1x pro forma EBITDA while hedging remains a risk mitigant rather than a driver of earnings.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
EPM Focus
19.55%
9.05%
0.35%
172.85%
BRN
15.90%
-10.00%
-8.31%
-4.65%
EGY
35.20%
28.60%
1.38%
19.00%
EPSN
27.40%
3.30%
0.37%
87.85%
MXC
51.60%
31.00%
1.98%
13.89%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Overall, Evolution Petroleum presents a cautiously optimistic investment thesis anchored in a diversified long-life asset base, a shift toward oil-weighted production via SCOOP/STACK and Chaveroo, and a strong track record of returning capital to shareholders. The company’s leverage target (below 1x pro forma EBITDA) and ongoing capex into high-return drilling locations provide a framework for dividend sustainability even in mid-cycle price environments. The near-term catalysts include Delhi CCS certification and potential Phase 5 developments, Chaveroo drilling progress (4 wells in Sept 2024, 6 wells in Apr 2025), and the final SCOOP/STACK purchase price adjustments, all of which could meaningfully uplift cash flow and reduce unit costs per barrel if realized as projected. However, investor risk stems from continued gas price weakness (which pressured realized prices in Q3 2024), the timing and economics of Delhi Phase 5 and CCS-related approvals, and execution risk across a broad operating footprint. Investors should monitor production mix shifts toward oil, hedging effectiveness, capex cadence, CO2 pipeline reliability, and the company’s ability to maintain leverage near the 1x target while continuing dividend payments.
Key Investment Factors
Growth Potential
- Oil-weighted production mix is increasing via SCOOP/STACK and Chaveroo, driving higher cash flow resilience; Chaveroo adds ~69 undisclosed future locations with systematic participation; potential capacity to sustain or grow the dividend as cash flow compounds.
- Significant undeveloped locations across SCOOP/STACK and Williston will provide optionality for future PDP and development, potentially expanding free cash flow generation if commodity prices improve.
Profitability Risk
- Reliance on oil and gas prices; gas prices weakness in 2024 reduced realized prices despite higher volumes; CO2 supply disruptions or Delhi Phase 5 delays could impact cash flow and LOE optimization.
- Capex intensity and negative free cash flow in the near term as investments roll forward; execution risk on shale drilling results and DUC conversions; environmental and regulatory risks around CCS certification and CO2 pipeline operations.
Financial Position
- Solid liquidity with $3.07 million cash and $42.68 million total debt; net debt of $39.61 million; current ratio 1.49; debt-to-capitalization ~33.8%; the company targets leverage at or below 1x pro forma EBITDA, supported by cash flow from newly acquired assets and a return-focused dividend strategy.
SWOT Analysis
Strengths
Oil-focused growth via SCOOP/STACK and Chaveroo delivering higher oil mix and cash flow diversification
Long track record of dividend payments (42 consecutive quarterly dividends; $3.45 per share in cash over 10 years)
Undeveloped locations and drilling inventory providing future upside; CCS/C02 EOR potential with Delhi field
Disciplined capital allocation with focus on shareholder returns and avoidance of material dilution
Weaknesses
Small-cap E&P with limited scale relative to peers
Near-term negative free cash flow due to heavy capex and acquisitions
Exposure to commodity price volatility, particularly natural gas pricing
Reliance on operational execution across multiple basins and partner/operators
Opportunities
Expansion of oil-weighted production (SCOOP/STACK, Chaveroo)
Delhi CO2 EOR certification and Phase 5 expansion potential
Further bolt-on acquisitions leveraging drill-bit approach to add undeveloped locations
Electrification and efficiency upgrades to reduce LOE and improve margins
Threats
Commodity price volatility (oil and gas) impacting cash flow and dividend coverage
Permitting, regulatory developments, and CO2 pipeline reliability
Operational risks across multiple fields (weather, downtime)
Counterparty and operator concentration risk in SCOOP/STACK (multi-operator exposure)
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