Exchange: AMEX | Sector: Energy | Industry: Oil Gas Exploration Production
Q2 2025
Published: Feb 12, 2025
Earnings Highlights
Revenue of $20.28M down 3.6% year-over-year
EPS of $-0.06 decreased by 285.2% from previous year
Gross margin of 10.1%
Net income of -1.83M
"The outlook for M&A is highly encouraging. We're currently evaluating multiple acquisition opportunities, all of which have the potential to enhance our long-term growth strategy and further improve our cash flow generation right from the get-go." - Kelly Loyd
Evolution Petroleum Corporation (EPM) QQ2 2025 Earnings Review: Production Growth From SCOOP/STACK and Delhi CO2 EOR, Dividend Stability, and an Active M&A Pipeline
Executive Summary
Evolution Petroleum reported Q2 2025 results with production growing 10% year over year to 6,935 BOE per day, driven by a diversified asset base including SCOOP/STACK, Chaveru, Delhi CO2 EOR, and Williston assets. Revenue totaled $20.3 million, down 4% YoY due to lower realized prices, while EBITDA of $3.66 million and operating cash flow of $7.72 million supported positive free cash flow of $6.89 million. The net loss of $1.83 million reflects a low-margin environment in the quarter, but the company maintained a disciplined capital program and a robust dividend policy (46th consecutive quarterly dividend of $0.12 per share, $4.1 million paid in the quarter). The balance sheet remains solid with $11.7 million of cash and liquidity of $22.2 million, and long-term leverage held at a manageable level as Evolution pursues accretive M&A and PDP-led organic growth. Management expressed confidence in a stronger second half of FY2025 on improving natural gas demand and LNG export dynamics, while reiterating a strategy of selective, high-quality acquisitions that are immediately cash-flow accretive and PDP-rich. The quarter also featured a healthy M&A pipeline and continued capital discipline, including hedging to mitigate downside price risk. Overall, Evolution’s outlook blends near-term margin compression with mid-to-long-term earnings upside from asset diversification, production growth, and an active, value-enhancing acquisition program.
Operating Income: -$0.605 million (operating margin -2.98%).
Net Income: -$1.825 million (net margin -9.0%).
EPS: -$0.06 (diluted).
Financial Highlights
Revenue: $20.275 million, down 3.56% YoY and 7.40% QoQ.
- Gross Profit: $2.049 million, gross margin 10.1% (YoY margin -49.6%, QoQ -53.2%).
- EBITDA: $3.661 million, EBITDA margin 18.1% (EBITDARatio 0.1806).
- Operating Income: -$0.605 million (operating margin -2.98%).
- Net Income: -$1.825 million (net margin -9.0%).
- EPS: -$0.06 (diluted).
- Production: 6,935 boe/d, up 10% YoY; 90 boe/d of deferred production due to downtime in Williston/Chaveru during the quarter; downtime resolved by January.
- Cash Flow: Operating cash flow $7.719 million; Free cash flow $6.892 million; Net change in cash $4.73 million; Cash at end of period $11.667 million.
- Balance Sheet: Total assets $160.217 million; total liabilities $83.915 million; total equity $76.302 million. Long-term debt $39.513 million; total debt $39.613 million; net debt $27.946 million.
- Liquidity: Cash on hand $11.7 million; total liquidity $22.2 million.
- Dividends: $0.12 per share quarterly dividend; 46th consecutive dividend.
- Valuation context: P/S ~8.50, P/B 2.26; negative trailing P/E; dividend yield ~2.37%.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
20.28M
-3.56%
-7.40%
Gross Profit
2.05M
-49.63%
-53.23%
Operating Income
-605.00K
-138.63%
-132.63%
Net Income
-1.83M
-268.67%
-188.38%
EPS
-0.06
-285.19%
-195.09%
Key Financial Ratios
currentRatio
1.64
grossProfitMargin
10.1%
operatingProfitMargin
-2.98%
netProfitMargin
-9%
returnOnAssets
-1.14%
returnOnEquity
-2.39%
debtEquityRatio
0.52
operatingCashFlowPerShare
$0.23
freeCashFlowPerShare
$0.21
dividendPayoutRatio
-224%
priceToBookRatio
2.26
priceEarningsRatio
-23.6
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and M&A: Management emphasized an “highly encouraging” M&A outlook and a pipeline of accretive opportunities, noting that deals could be executed serially if right and digestible from a financing standpoint. They highlighted Williston/Jonah sizing and SCOOP/STACK as ongoing catalysts and stressed the importance of maintaining cash flow to support the dividend.
- Operational execution: Production rose 10% YoY to 6,935 boe/d, aided by SCOOP/STACK acquisitions and new wells (three new SCOOP/STACK wells and eight additional horizontal wells contemplated). Chaveru faced a short-term gas-interference issue that was resolved inexpensively, with completions for new wells planned for April and potentially online in early FY2026. Delhi CO2 injections resumed in Q2 and contributed to production growth; 32 gross wells (0.5 net) have commenced first production since acquisitions.
- Market dynamics and hedging: The company noted lower realized prices in H1 FY25, particularly for natural gas, but sees stronger gas demand into 2H with LNG export expectations and electricity demand. Hedges continue to be added to protect cash flow and meet credit facility requirements.
- Financial policy and capital allocation: The company underscored a disciplined capital program, maintaining a $0.12 per share dividend and returning about $126.6 million to shareholders historically, with $4.1 million in dividends in Q2. They reiterated a preference for PDP-rich, high-quality assets that are immediately cash-flow generative and highlighted flexibility to fund acquisitions with debt or equity, as long as ROIC is accretive.
- Balance sheet and liquidity: As of 12/31/2024, cash was $11.7 million and total liquidity $22.2 million, with 1x leverage target. CFO Ryan Stash reaffirmed capacity to fund accretive acquisitions within leverage guidelines and potential ATM or equity issuance for larger deals if warranted by value and free cash flow per share.
- Management quotes (representative):
1) Kelly Loyd stated, The outlook for M&A is highly encouraging... opportunities for negotiated transactions… materially accretive.
2) Mark Bunch noted that Williston/Chaveru execution has been close in timing historically, with production data now closer to near real-time, underscoring the company’s ability to monetize new wells promptly.
The outlook for M&A is highly encouraging. We're currently evaluating multiple acquisition opportunities, all of which have the potential to enhance our long-term growth strategy and further improve our cash flow generation right from the get-go.
— Kelly Loyd
We did our Williston and Jonah deals pretty close within a couple of months of each other, right? So certainly, something we've done in the past. And there’s a chance we could do that again if two opportunities are right and digestible.
— Mark Bunch
Forward Guidance
- Near-term outlook: Management anticipates a favorable 2H2025 backdrop driven by stronger natural gas prices along the futures curve, aided by LNG export expansion and higher demand for gas-fired electricity. This should support production growth and free cash flow generation as new SCOOP/STACK and Chaveru wells come online.
- Capex and growth plan: Capex is back-half weighted, with continued drilling and completion activity in Chaveru (four wells with two finished and two remaining in Q3/Q4 2025; completions begin in April) and ongoing SCOOP/STACK activity. Six additional horizontal wells in Block Three could come online in early FY2026. Management intends to prioritize PDP-rich acquisitions that are immediately cash-flow accretive and maintain a disciplined capital allocation framework.
- Balance sheet and financing: The company targets about 1x leverage and will consider debt or equity for large, accretive acquisitions, including ATM equity if needed to preserve value creation.
- Key factors for monitoring: (1) progress on Chaveru block development and well optimization including completion strategies (ESP vs jet pump alternatives), (2) the pace and success of Delhi CO2 EOR injections and Test Site five developments, (3) Williston Basin reliability and any recurring downtime, (4) the evolution of the M&A pipeline and execution risk, (5) commodity price trajectory and hedging effectiveness.
- Bottom line for investors: Evolution’s strategy remains to grow production through low-decline, high-quality assets while returning capital via a stable dividend. The combination of an expanding PDP base, accretive acquisitions, and hedging should support cash flow durability even in a volatile commodity environment, albeit with near-term earnings pressure from lower prices.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
EPM Focus
10.11%
-2.98%
-2.39%
-23.60%
BRN
0.00%
0.00%
-15.20%
-2.65%
EGY
55.10%
17.50%
5.70%
5.73%
EPSN
40.50%
16.00%
0.82%
36.08%
MXC
43.00%
23.40%
1.81%
19.84%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Neutral-to-moderately bullish with cautious optimism. Evolution is executing a strategy centered on high-quality PDP assets and accretive acquisitions, supported by a disciplined capital framework and a stable dividend. Near-term earnings are pressured by weaker prices, but cash flow generation remains positive and resilient due to production growth and hedging. The stock’s valuation implies a premium relative to some peers, reflecting growth optionality from the M&A pipeline and PDP upside, but investors should monitor M&A execution risk, commodity price trajectories, and ongoing capex allocation in H2 2025. A constructive stance hinges on continued progress in 2H FY2025 on asset deliveries (Chaveru, SCOOP/STACK, Delhi), a successful integration of acquisitions, and visibility into PDP/logical upside opportunities that drive per-share value through free cash flow and dividend sustainability.
Key Investment Factors
Growth Potential
Growth rests on accretive PDP-rich acquisitions and organic expansion in SCOOP/STACK/Chaveru. Management targets high-quality, low-decline assets with upside from additional gross locations (expected 300+ in SCOOP/STACK) and continued first-production from new wells. The 2H2025 expectations include six further horizontal wells in Block 3 with early FY2026 online, plus Delhi CO2 EOR upside.
Profitability Risk
Commodity price volatility (gas and oil price mix), execution risk on acquisitions, integration risk of new assets, Williston downtime exposures, and potential data lag in non-operational partnerships that could affect near-term revenue recognition.
Financial Position
Solid liquidity (cash $11.7m; total liquidity $22.2m) with a manageable debt load ($39.6m total debt; net debt $27.9m) and a stated target leverage around 1x. The company emphasizes hedging to protect cash flows while preserving upside; capital allocation remains disciplined with a preference for PDP-rich, accretive opportunities.
SWOT Analysis
Strengths
Diversified, long-life oil and gas assets with low decline profiles (SCOOP/STACK, Chaveru, Delhi CO2 EOR, Williston)
Successful track record of accretive acquisitions that enhance PDP and cash flow
Non-operator model lowers G&A overhead in new areas and supports scalable growth
Consistent dividend payment (46th consecutive) and measured capital returns to shareholders
Active hedging program to mitigate downside price risk while preserving upside
Weaknesses
Near-term net losses due to weak commodity prices and margin compression
Smaller cap asset base with high sensitivity to commodity cycles
Reliance on acquisitions for growth trajectory may introduce execution risk
Valuation metrics imply a premium multiple versus some peers (P/S, EV/EBITDA) in a volatile market
Opportunities
Robust M&A pipeline with multiple accretive targets
Upside in SCOOP/STACK and Chaveru through higher-than-expected well performance (gas and oil mix)
Delhi CO2 EOR expansion potential and additional Test Site developments
Increased LNG exports and natural gas demand supporting higher gas realizations
Ability to fund attractive acquisitions through either debt or equity within 1x leverage bandwidth
Threats
Commodity price volatility and potential downside price shocks
Delays in acquisition approvals or integration challenges
Operational outages (Williston downtime) and well interference issues (Chaveru)
Regulatory and geopolitical risks impacting LNG and energy markets
Competition for attractive PDP-rich assets in a tightening M&A market
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