Evolution's Q1 2026: Contradictions Emerge on Strategic Acquisitions, SCOOP/STACK LOE, Gas Hedging, and TexMex Costs

Date of Call: November 12, 2025

Financials Results

• Revenue: $21.3M, compared to $21.9M in the prior year (modest decline), and up sequentially versus fiscal Q4
• EPS: $0.02 per diluted share (net income $0.8M), compared to $0.06 per diluted share (net income $2.1M) in the year-ago quarter

Guidance:

• Declared Q2 cash dividend of $0.12 per share (14th consecutive at this rate)
• Fiscal 2026 capital expenditures expected to be $4M–$6M
• Production outlook described as roughly flattish year‑over‑year, subject to SCOOP/STACK and Chaveroo activity
• Hedging: >50% (closer to ~70%) of near‑term gas volumes hedged with floors ~$3.50–$3.60 and ceilings in the high $4s–$5 range
• Liquidity: $0.7M cash, $53M borrowings, $0.8M LC; total liquidity ≈ $11.9M and an expanded, more syndicatable RBL to support acquisitions

Business Commentary:

* Financial Performance and Revenue Trends: - Evolution Petroleum reported total revenue of $21.3 million for Q1 2026, marking a modest decline from the prior year period. - The decline was primarily due to lower realized oil and NGL prices, partially offset by a 43% increase in natural gas prices. - Despite these fluctuations, the company's assets performed in line with expectations, generating positive earnings and meaningful cash flow.

• Natural Gas Market Outlook:
• Natural gas revenues were up 38% over the year ago quarter, with Henry Hub only averaging $3.03 for the quarter, while the calendar 2026 strip is over $4.
• This trend is driven by ongoing electrification and carbon intensity reduction efforts, creating a rapidly growing demand environment expected to persist for at least the next decade.

• Acquisition Strategy and Mineral Assets:
• Evolution Petroleum closed its first acquisition consisting only of minerals and royalties in the SCOOP/STACK, expanding exposure to high-quality, long-lived reserves.

• The structure of this transaction allows for participation in future development with minimal operating expenses and no future capital commitments, presenting meaningful upside.

• Operational Consistency and Cost Management:

• The company's assets demonstrated operational consistency, with each delivering steady results during the quarter, reflecting the quality of fields and strong relationships with operating partners.
• Flexibility across the asset base allows for adjustments to development activity, balancing near-term returns with long-term value creation while maintaining financial strength.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described the company as in a "solid position," said assets "performed in line with expectations," highlighted the closing of an accretive minerals acquisition and declared the 49th consecutive quarterly dividend of $0.12. CFO noted cash from operations increased to $7.8M and liquidity of ~$11.9M. Operations team expects production increases and lower LOE going forward.

Q&A:

• Question from Jeffrey Grampp (Northland Capital Markets): Can you quantify a normalized LOE for TexMex and what upside you expect from the optimization/workover activities?
  Response: Management: TexMex lifting costs should decline (not remain at ~$47), trending toward levels similar to Williston-type assets as production is brought back online; some ongoing workover costs expected but initial workovers were under budget; no precise normalized LOE provided yet.

• Question from Jeffrey Grampp (Northland Capital Markets): Will you get some of that TexMex production benefit in the current fiscal quarter? What's the cadence?
  Response: Management: Yes — the lion's share of production restorations from recent workovers is expected to flow this quarter, though not necessarily at full-quarter run rate.

• Question from Jeffrey Grampp (Northland Capital Markets): Update on deal flow — any delta in bid/ask on oil vs gas deals and how you balance focus?
  Response: Management: Actively evaluating attractive opportunities across both oil and gas; gas deals attractive due to futures/hedgeability while minerals acquisitions (purchased at ~3–3.5x) are viewed as highly accretive and will remain a focus.

• Question from Jeffrey Robertson (Water Tower Research LLC): Over the next several quarters, what's the trajectory of TexMex workovers and will LOE normalize to Williston levels?
  Response: Management: Yes — TexMex should normalize toward Williston-like LOE over time; workovers are ongoing and may bleed into the next quarter as the operator completes repairs and brings wells back online.

• Question from Jeffrey Robertson (Water Tower Research LLC): Can you elaborate on Delhi margins and how expenses will trend over the next quarters now recycling CO2?
  Response: Management: Total costs expected to remain roughly consistent, but production recovery (turbine repaired, cooler months) should lower dollar-per-BOE lifting costs modestly.

• Question from Jeffrey Robertson (Water Tower Research LLC): Are you speaking with operators about plans for 2026 to maintain production levels?
  Response: Management: Operators intend to keep production as high as possible at current prices; limited levers to cut production absent much lower prices, with natural gas properties particularly prioritized.

• Question from Ron Aubrey (RJ Aubrey Investments): What percent of your future natural gas production is hedged?
  Response: Management: Over 50% hedged and closer to ~70% for the next year; using a mix of collars and swaps to preserve upside (floors ~$3.50–$3.60, ceilings in the high $4s–$5).

• Question from Ron Aubrey (RJ Aubrey Investments): What does the outlook look like for West Coast pricing as a premium to Henry Hub?
  Response: Management: Variable and weather‑dependent, but expect a healthy winter premium to Henry Hub (possible $1.50–$2+), noting limited West Coast storage can amplify spikes.

• Question from Ron Aubrey (RJ Aubrey Investments): Barnett LOE rose materially quarter-to-quarter — was that a one‑off?
  Response: Management: The prior quarter was reduced by an out‑of‑period audit settlement; current LOE reflects normal run rate.

• Question from Jeffrey Robertson (Water Tower Research LLC): Any color on the bank market and ability to increase the RBL for acquisitions?
  Response: Management: Bank market is healthy with lenders redeploying capital; terms flat-to-better and management believes they could increase facility size if needed for an accretive deal; RBL was expanded and syndicated to support that flexibility.

• Question from Charles Fratt (Alliance Global Partners): What did the minerals acquisition add in the quarter and was it for the full quarter?
  Response: Management: The minerals acquisition was included for a little under two months of the quarter; expect a full-quarter benefit in the current quarter with volumes and revenues in line with the press release.

• Question from Charles Fratt (Alliance Global Partners): Any take on full‑year production — is a flat fiscal '26 vs fiscal '25 a reasonable assumption?
  Response: Management: They don't provide formal annual production guidance; a flattish outlook is reasonable given puts and takes, but visibility is limited by reporting delays and activity timing (e.g., SCOOP/STACK, Chaveroo).

• Question from Charles Fratt (Alliance Global Partners): First‑quarter CapEx was $1.9M; is $15M for the year reasonable?
  Response: Management: No — guidance remains $4M–$6M for fiscal 2026; Q1 was about one‑third of that range due to front‑loaded items (e.g., replacing 5 ESPs at Chaveroo).

• Question from Charles Fratt (Alliance Global Partners): Any early read on Chaveroo given the operator's pivot to the Rockies?
  Response: Management: Discussions indicate 'business as usual' with the operator; timing and plans agreed and at current ~$60 oil they are not in a rush to accelerate drilling.

Contradiction Point 1

Strategic Focus on Mineral and Working Interest Acquisitions

It highlights a shift in the company's strategic focus regarding acquisitions, which could impact future investment decisions and revenue streams.

What is the current acquisition deal flow status, and is there a significant difference in bid-ask spreads between oil-weighted and gas-weighted deals? - Jeffrey Grampp (Northland Capital Markets)

2026Q1: We are seeing attractive opportunities across both oil and gas-weighted deals. The minerals deal completed at an attractive multiple (3x-3.5x) shows potential for significant upside in inventory. We remain opportunistic in our approach to acquisitions, considering both minerals and working interest buys. - Kelly Loyd(CEO, President & Director)

Can you elaborate on the recent SCOOP/STACK acquisition focused on mineral acreage? Is this a strategic shift or a focus on a specific opportunity, and how do you approach acquisitions involving working interest versus mineral rights? - Christopher Degner (Water Tower Research LLC)

2025Q4: The acquisition was done opportunistically. The deal was priced relatively low based on PDP alone. The minerals provide upside drilling locations without mineral costs, making the purchase appealing. The strategy remains flexible, focusing on what adds greatest cash flow per share. - Kelly Loyd(CEO, President & Director)

Contradiction Point 2

SCOOP/STACK Production and LOE Expectations

It involves differing expectations regarding the impact of an acquisition on SCOOP/STACK production and LOE, which are critical for operational and financial planning.

What's the current acquisition deal flow status, and is there a significant difference in bid-ask spreads between oil-weighted and gas-weighted deals? - Jeffrey Grampp (Northland Capital Markets)

2026Q1: LOE for SCOOP/STACK should improve with the minerals acquisition. - Kelly Loyd(CEO, President & Director)

What are the expected LOE trends in SCOOP/STACK, and what is the LOE run rate for Barnett in fiscal 2026? - Charles Fratt (Alliance Global Partners, Research Division)

2025Q4: Kelly Loyd: LOE for SCOOP/STACK should improve with the minerals acquisition. J. Bunch: SCOOP/STACK has been a cost-effective asset and is expected to stay so. - Kelly Loyd(CEO, President & Director), J. Bunch(Chief Operating Officer)

Contradiction Point 3

Natural Gas Production Hedging

It directly impacts the company's risk management strategy and potential financial exposure to changes in natural gas prices, which could affect investor expectations.

What percentage of natural gas production is currently hedged for the coming year, and what is the actual hedged percentage? - Ron Aubrey(RJ Aubrey Investments)

2026Q1: Over 50% of natural gas production is hedged, with a focus on maintaining upside potential through a mix of collars and swaps. - Ryan Stash(CFO)

Can you discuss gas hedging for 2026? - Rick Leslie (Roth Capital Partners)

2025Q3: In terms of gas hedging, we will have approximately 25% of 2026 production hedged. - Ryan Stash(CFO)

Contradiction Point 4

LOE Normalization at TexMex

It involves the expected trajectory of LOE costs at the TexMex asset, which impacts operational efficiency and financial performance.

Can you quantify the normalized LOE for the TexMex asset and the expected upside from optimization workovers identified to date? - Jeffrey Grampp (Northland Capital Markets)

2026Q1: There are extra costs anticipated upfront, but we expect the lifting costs to normalize to a more reasonable level once the new operator takes control and production is brought back online. - J. Bunch(COO)

What is the long-term impact of switching from CO2 floods to waterflood on LOE at the Delhi EOR project? - Chris Degner (Water Tower Research)

2025Q3: The switch from CO2 purchases to increased water injection is anticipated to save about $400,000-$500,000 per month without affecting performance. - Kelly Loyd(CEO)