Evolution Petroleum (NYSEAMERICAN:EPM) reported fiscal second-quarter 2026 results that management said highlighted the “resiliency” of its portfolio and the impact of a growing minerals and royalty business, even as commodity prices remained mixed. Executives emphasized stronger cash flow and profitability driven by improved natural gas pricing, incremental contributions from recent minerals acquisitions, and lower operating costs, achieved “without meaningfully increasing capital intensity.”
Quarterly results show higher profitability on modest revenue growth
For the fiscal second quarter, Evolution posted total revenues of $20.7 million, up 2% year-over-year. Chief Financial Officer Ryan Stash said the increase was primarily driven by a 6% increase in production volumes and higher realized natural gas prices, partially offset by lower oil and NGL pricing.
Lease operating expenses were $11.5 million, or $16.96 per BOE, versus $20.05 per BOE in the year-ago quarter. Stash said the improvement reflected underlying cost reductions tied to the company’s mineral and royalty acquisitions, the cessation of CO2 purchases at the Delhi field, and “certain one-time items” recognized during the quarter.
Minerals and royalties expand capital-light exposure
Chief Executive Officer Kelly Loyd pointed to “operating leverage” in the company’s portfolio, citing improved natural gas pricing, contributions from minerals and royalty investments, and lower operating costs across several assets. Loyd said the company has been building a “new network funnel” to increase exposure to capital-light assets that provide high-margin production and long-lived inventory without requiring development capital from Evolution.
Management highlighted recent activity in the company’s SCOOP/STACK minerals, noting several wells turned to sales or entered drilling and completion ahead of schedule. Loyd said the company expects “meaningful contributions” in coming quarters from newly acquired Haynesville-Bossier Shale mineral and royalty assets, describing a mix of producing wells and drilled-but-uncompleted wells that are being completed.
In the Q&A session, Loyd said the appeal of the minerals model includes “a bunch of inventory that’s going to get added without any incremental cost to Evolution,” though he noted decline profiles vary by well. Stash added that royalty assets can appear “more expensive” on a production metric, but management views opportunities as competitive on a cash-flow basis due to higher margins.
Operational update: optimization efforts and downtime issues
Chief Operating Officer Mark Bunch said operations were “largely as expected” during the quarter, with steady performance across most assets and continued optimization work. Key operating notes included:
- SCOOP/STACK: Three additional wells were in progress on the legacy working-interest position. On the mineral and royalty side, three wells were converted to producing status during the quarter, with 16 additional wells in progress. Bunch said royalty properties carry inherently higher margins.
- Chaveroo: Production increased year-over-year due to wells brought online over the past 12 months. No new drilling occurred during the quarter due to low oil prices, though the company continued permitting and planning. Evolution transitioned all but two wells from electric submersible pumps to rod pumps, which Bunch said improved lifting efficiency, reduced downtime, stabilized production, and resulted in field performance trending about 5% above initial expectations.
- Tex-Mex: The company continued workovers and facility upgrades to improve reliability. Management said transition-related delays are largely behind them and expects production and lifting costs to improve as workovers are completed and downtime normalizes. Bunch said Evolution conducted 14 workovers during the quarter at a net cost of about $200,000, adding roughly 80 net barrels of oil per day, and noted future workovers are expected to be fewer, with four additional high-impact workovers identified.
- Delhi: Production was impacted by equipment downtime tied to CO2 compressor issues that limited injection volumes for much of the period. Bunch said field-level profitability remained strong due to lower operating costs after stopping CO2 purchases, and management expects volumes to improve as issues are resolved.
- Jonah and Barnett: Production was relatively stable sequentially. Realized natural gas pricing improved versus the prior year, though results were pressured by wider regional differentials linked to mild winter conditions in the Western U.S. during calendar Q4.
Asked about Delhi’s performance after moving to recycle-only CO2 injection, Bunch said downtime and seasonal factors have made it difficult to quantify impacts so far. He said management expects a better view in coming quarters after plant downtime and the summer season.
Costs, hedging, and capital plans
On unit costs, management discussed both lease operating expenses and gathering/transportation. Stash said the Barnett benefited from an ad valorem tax adjustment, as a bill came in lower than prior accruals; he said some of that reduction is expected to be sustainable, though likely not at the same level as the quarter. In a separate exchange, Stash said gathering costs have not changed materially by area, but Barnett gathering contracts were restructured, which he said should provide some benefit going forward; he also noted that certain gathering costs can move with commodity prices.
Evolution reiterated its approach to hedging, stating the objective is to reduce downside commodity price risk while preserving upside. Stash said the company has continued adding hedges and expects to use a mix of swaps and collars for both oil and gas, monitoring the market for additional opportunities.
For capital spending, Stash said the company still feels good about its previously stated capital expenditure range of $4 million to $6 million, with activity influenced by operator AFEs, including projects in SCOOP/STACK that management described as attractive.
Balance sheet, dividends, and leverage targets
As of December 31, 2025, Evolution reported $3.8 million in cash and $54.5 million of borrowings under its credit facility. Total liquidity, including cash and available borrowing capacity, rose to about $13.5 million from $11.9 million in the prior quarter. The company paid $4.2 million in dividends during the quarter and reaffirmed a quarterly cash dividend of $0.12 per share.
Management said it remains focused on disciplined capital allocation, balancing shareholder returns with acquisitions. In response to a question on debt reduction, Stash said Evolution’s long-term target is 1x net debt and that leverage is currently above that level, with an intention to reduce over time. Loyd added that if acquisition opportunities offer returns significantly above the company’s interest cost, management may prioritize investment over debt paydown.
Looking ahead, Loyd said the company remains focused on durable cash flow assets with modest capital requirements and attractive risk-adjusted returns, while continuing to evaluate acquisitions that improve per-share value rather than pursuing growth “for growth’s sake.”
About Evolution Petroleum (NYSEAMERICAN:EPM)
Evolution Petroleum Corporation (NYSE American: EPM) is an independent oil and natural gas company focused on enhanced oil recovery (EOR) through the use of carbon dioxide. Headquartered in Houston, Texas, the company specializes in acquiring and developing mature hydrocarbon reservoirs that benefit from CO₂ injection to increase production efficiency. Evolution Petroleum’s business model combines property acquisition, reservoir engineering, and CO₂ management to optimize recovery of oil and associated gas.
The company’s primary asset is the Jackson Dome CO₂ field in southwestern Mississippi, where natural carbon dioxide is produced, separated and reinjected into adjacent oil-bearing formations.
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