Permian Strategic Partnership Provides Organic Growth Pathway
The Permian Strategic Partnership Evolution executed with PEDEVCO Corp. to jointly develop the latter’s Chaveroo oilfield on the Northwest Shelf in the Permian Basin exposes Evolution to an organic growth opportunity to augment its ongoing acquisition strategy. The Chaveroo field was discovered in 1965 and developed with vertical wells. The partnership plans to drill horizontal development wells in the San Andres Formation. The partnership acreage exposes Evolution to an estimated 81 gross horizontal locations on 12 separate development blocks. Evolution has the right to farm-in for an average 50% working interest on a block-by-block basis in ~16,000 acres for a fixed price of $450/acre. PEDEVCO will serve as operator. The first of three planned development wells in Evolution’s FY24 (June) is expected to spud before calendar YE23. The wells could be completed in the first calendar quarter of 2024 and begin to affect Evolution’s production in 4QFY24. Development could be more impactful to Evolution’s FY25 production levels. Evolution management estimates the San Andres development wells could generate >70% rates of return and achieve payout in ~16 months at $75/bbl oil and $4/Mcf gas prices and a gross well cost of ~$3.0 million. The partnership adds a capital allocation option to management’s strategy of driving total shareholder returns through a combination of asset growth, conservative financial posturing, and common stock dividends. Development drilling could supplement Evolution’s traditional acquisition efforts where success is driven by economic factors in the non-operated asset divestiture market. At FYE24, Evolution’s proved reserves totaled 31.2 MMBOE/d (32% oil/19% NGLs/49% gas), of which 88% were proved developed. The company’s three largest operating areas (Barnett Shale/Jonah Field/Williston Basin) accounted for 79% of FYE24 proved reserves and 87% of 4QFY24 production. Our updated FY24 adjusted EBITDA estimate is $39.5 million and suggests Evolution can comfortably fund its capital program and the dividend. Join us Tuesday, October 24, 2023, at 11:00 am ET for a fireside chat with CEO Kelly Loyd and COO Mark Bunch. The registration link can be accessed in our full report below.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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