Organic Development Portfolio Creates Capital Allocation Choices
Encouraging initial results from both the Chaveroo Oilfield Strategic Partnership and the recently closed SCOOP/STACK acquisition point to the merits of adding an organic growth element to Evolution’s asset base. The addition increases management’s capital allocation choices to balance reinvesting in the underlying asset base, reducing leverage, and returning cash to shareholders. The first three horizontal wells in the Chaveroo field have met or exceeded pre-drill expectations. Nineteen of 21 gross (0.48 of 0.50 net) drilled uncompleted (DUC) wells in the SCOOP/STACK play have been completed at the sellers’ expense and placed on production. Evolution is moving ahead with incremental development in both Chaveroo and SCOOP/STACK. The company has opted into the second Chaveroo development block and committed to participate in 15 gross (0.2 net) horizontal wells in the SCOOP/STACK play. New production from both areas could become more impactful in 4QFY24 (June) and FY25. Oil accounts for ~90% of the expected reserves in the Chavroo field and ~42% of production in the SCOOP/STACK play. During 2QFY24, oil accounted for 27% of total production and 56% of total revenue. Evolution generated $6.7 million of adjusted EBITDA in 2QFY24 on average production of 6,306 BOE/d. Results were adversely affected by production downtime in the Williston Basin, Barnett Shale, and Hamilton Dome and by a 54% Y/Y decrease in realized natural gas prices. Evolution funded the ~$43.5 million SCOOP/STACK acquisition, which closed on February 12, 2024, with borrowings under its existing RBL and cash on hand. As of December 31, 2023, total liquidity was $58.5 million. Our modeling suggests Evolution could fund development capex and the dividend with discretionary cash flow. Join us for a fireside chat with CEO Kelly Loyd, CFO Ryan Stash, and COO Mark Bunch on Wednesday, March 20, 2024, at 2:00 pm ET. We will discuss how organic development exposure in the Chaveroo field and the SCOOP/STACK play complement management’s goal to drive total shareholder return. Registration link in our full report.Evolution Petroleum is an oil and gas company focused on the ownership, management and development of producing oil and gas properties. The company has interest in the oil recovery project in Louisiana's Delhi field.
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