Evolution Petroleum Corporation 2026 Q4 Earnings Call

Welcome to Evolution Petroleum's fiscal Q4 2026 earnings call. I am joined today 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 fourth quarter and full year 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 in today's call speak only as of today's date, September 16th, and any time since that 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 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 investor section of our website. With that, I will turn the call over to Kelly.

Thank you, Brandi, and good morning, everyone. As we look back at fiscal 2026, I want to put the year into perspective and talk about what we are building at Evolution. Over the past several years, we have deliberately broadened the business across assets, commodities, and operating partners. Those investments are shaping Evolution into a more diversified energy company with multiple complementary engines. Our legacy long life non-operated producing assets, meaningful working interest positions across several proved undeveloped and longer-term opportunities, and our growing mineral and royalty portfolio. Throughout that process, we have focused on the durability of cash flow and how much capital must go back into the assets to sustain them. Getting that balance right allows us to return cash to shareholders while continuing to invest in the future of the company. Our objective is to build greater value per share from across the entire portfolio.

This year, we made considerable progress toward that objective. Our minerals and royalty portfolio became a more important part of the business. We continued investing selectively in our working interest assets, and we maintained our commitment to returning cash to shareholders. We also finished the year with a meaningful improvement in performance in the fourth quarter, providing solid momentum as we enter into fiscal 2027. The fourth quarter deserves particular attention because it demonstrated the recovery that we told you to expect on our last call. Many of the temporary items that weighed on third quarter results rolled off. Production increased, and operating costs per barrel improved. Together with stronger oil and NGL realizations, those improvements drove a 20% sequential increase in revenue and more than doubled adjusted EBITDA. We achieved that recovery even as natural gas pricing remained a headwind.

What stands out to me is the portfolio's ability to absorb that pressure with stronger liquids pricing and improved operations across several properties, helping offset that weakness in gas. This resilience reflects the deliberate work we have done to diversify Evolution's sources of production and cash flow. This quarter also brought the reversal in unrealized hedge losses that we highlighted in May. Ryan will walk through the financial impact, but my broader point from our last call remains the same. Higher prices on the production we're selling is a good thing. We hedge a portion of our production to protect cash flow and support our capital commitments while retaining exposure to higher prices on our unhedged volumes. In Q4, our realized oil price before hedge settlements increased 49% year over year to $90.74 per barrel, while our entirely unhedged NGLs realized $32.49 per barrel, up 27%.

Hedge settlements offset part of the oil price benefit, but our unhedged production allowed us to participate in the stronger market. That is the balance we seek between protecting cash flow and preserving upside for shareholders. Looking at the full year, we dealt with operating interruptions and periods of unfavorable regional pricing, and those challenges affected our financial results. At the same time, average production was 7,077 BOE per day, slightly above 7,074 BOE per day in fiscal 2025, as acquisitions and development activity helped offset natural declines in downtime. Underpinning that stability is the continued renewal of our asset base. We produced approximately 2.6 million barrels of oil equivalent during the year and ended up with 27.2 million barrels of oil equivalent in proved reserves. Slightly above where we started.

For a company like ours with a strong commitment to issuing dividends, maintaining that reserve base remains an essential part of the job. That brings me to our minerals and royalty strategy and the role we expect it to play in Evolution's next stage of growth. Subsequent to the end of the fiscal year, we took another step in building our mineral and royalty business with our approximately $16 million acquisition in the core of the Permian Midland Basin. The transaction added approximately 3,420 net royalty acres and over 200 BOE per day of current production across Reagan, Upton, Glasscock, Midland, and Martin Counties in Texas. It increases our exposure to high margin current production. As operators in one of the country's most active basins continue to develop the acreage, the acquisition also provides CapEx free upside to both near-term and long-term field level production growth.

We believe this is the kind of investment that can strengthen Evolution's earning power over time. As operators develop additional wells, we benefit from new production and cash flow without funding the drilling and completion costs ourselves. Building on the positions we established in the SCOOP/STACK in Louisiana during fiscal 2026, the Permian minerals acquisition adds another durable capital-light source of growth and cash flow generation. With respect to our working interest assets, we believe they will continue to provide an established production base and opportunities to create value through workovers, production enhancements, and selective development. Alongside those assets, a growing royalty contribution gives us a better balance between cash flow that requires ongoing reinvestment and cash flow that benefits from development funded by others. We believe that combination strengthens our ability to sustain shareholder returns across commodity cycles.

The next step is for the investments we have made to contribute more fully. That will build as operators bring additional wells online in fiscal 2027. We are encouraged by the activity underway in Oklahoma and Louisiana, and we will be watching that progress closely as we move through the year. Mark will provide more details on the development activity across the portfolio. A quick word on how we see the market from here. On oil, our outlook for demand remains steady as she goes, and the fourth quarter showed how stronger prices can benefit our cash generation. On natural gas, we continue to see a constructive longer-term demand outlook as LNG export capacity expands and power demand grows, including from data centers. The challenge for us has been translating that broader demand picture into prices at the field level, where regional differentials have weighed on realizations.

As those differentials normalize, we expect better pricing across our affected gas assets, providing another potential source of improvement in the next few quarters. As we look forward to fiscal 2027, our capital allocation strategy is unchanged. We will continue to capture the contribution from the investments we have already made, work with our operating partners to maintain reliable base production, and direct additional capital toward opportunities with the most attractive returns. At the same time, we will continue evaluating acquisitions with the same discipline, including how they are financed and what they mean for existing shareholders. Our dividend remains central to those decisions. The board's latest declaration maintains the quarterly dividend at $0.12 per share for fiscal Q1 2027 and will mark our 52nd consecutive quarterly payment. Since December 2013, we have returned approximately $151.7 million or $4.53 per share to shareholders in common stock dividends.

As I've said before, we set the dividend at a level that we believe can be sustained for multiple years, given our strong outlook and the diversified platform we are building. We enter fiscal 2027 with a broader portfolio and more opportunities to build on that record. Our focus is now on translating the investments we have made into stronger cash generation while maintaining the balance sheet and capital discipline that underpin long-term value per share. With that, I'll turn the call over to Mark.

Thanks, Kelly. Good morning, everyone. I will focus my remarks on key operational highlights from the quarter and on what we see across the portfolio heading into fiscal 2027. I encourage the listeners to review our earnings press release and filings for additional details across our asset base. Overall, operating performance improved during the fourth quarter as several of the issues we described in May rolled off as expected and contributions from our recent investments continued to build. Turning to individual assets, at SCOOP/STACK, which was a clear bright spot for the year, fiscal Q4 production averaged 1,275 BOEPD, up approximately 14% from the prior year quarter, while per unit lease operating costs declined to $10.33 per BOE from $11.05. That combination, production up, unit cost down, reflects the growing contribution from our mineral and royalty interests layered on top of the working interest base.

Third-party operators remain active around our acreage. Across our combined SCOOP/STACK portfolio, operators brought online 31 gross wells during fiscal 2026. As of July 31, our interests have grown to 725 gross producing wells, 36 gross proved undeveloped locations or in various stages of drilling and completion, and more than 360 additional gross locations. During the fourth quarter, we also divested non-core, non-producing SCOOP/STACK mineral acreage for approximately $3.1 million, enabling us to monetize longer-dated development opportunities while retaining acreage with near-term cash flow potential. In Louisiana, operator activity across our Haynesville and Bossier positions continues to progress, with wells moving through drilling and completion and into production. We continue to add to this position through bolt-on acquisitions, and we expect the contribution from these royalty assets to keep building through fiscal 2027 and beyond, as operator development activity converts our inventory of locations into producing wells.