I'm pleased to welcome Evolution Petroleum for this session. Joining us for today's discussion are CEO, Kelly Loyd, CFO, Ryan Stash, and Director of Operations and Engineering, Peter Pham. I am Jeff Robertson, Managing Director of Natural Resources. Before we begin, I would like to note that Evolution's safe harbor disclosures regarding forward-looking statements can be found under the Investors tab of the company's homepage. Also, investors can submit questions through the conference portal, which we will seek to address in the follow-up management series report, and indications of interest in meeting with management, and our teams will work to coordinate those. Kelly, Ryan, Peter, thank you for taking the time to join us today.
Thanks for having us, Jeff.
Appreciate it.
Evolution Petroleum is an independent energy company focused on maximizing total shareholder returns through the ownership of and investment in working in royalty interests in onshore U.S. oil and gas properties. The company strives to build and maintain a diversified portfolio of long-life properties through acquisitions, selective development opportunities, production enhancements, and other exploitation efforts. Kelly, I'd just like to start off today's discussion with strategy. Evolution's asset base includes both non-operating working interests that have been augmented in the past year with a growing portfolio of royalty and mineral interests. How do these types of assets support the company's total shareholder return framework, and really guide your efforts to deliver value for shareholders?
Yeah. Perfect, Jeff. Thanks for doing this for us. We think about our model in terms of total return per share. Our working interest assets really give us long life base production, plus opportunities to add value through selective development and workovers and production enhancements. The mineral and royalty side, it brings high margin cash flow and operator funded growth without requiring us to pay for any of the drilling and completion. Really, when you put those two together, it gives us much more flexibility to support the dividend, and reinvest selectively and pursue potentially further acquisitions. I think in 2026 you really could see that balance. We held production at a little over 7,000 BOE per day, and we replaced more than 100% of the 2.6 million barrels of oil equivalent that we produced, and also kept our dividend.
The company owns assets in multiple geographies and producing basins. How important is geographic diversity and also commodity diversity in how you think about running the company?
Easy for you to say, right? Look, Jeff, we think it's really important to our model. We got exposure to oil, we got exposure to natural gas and NGLs across several basins, and with several different operators. Really no single field or commodity or partner will drive the result. Fiscal Q4 is a good example. Natural gas realizations were really still a headwind, but stronger liquids pricing and better operations elsewhere helped us to increase our revenue 20% sequentially. Our adjusted EBITDA was able to more than double quarter versus the previous quarter. Diversity, it doesn't remove all the risks, but it certainly does make our cash flow more resilient through the cycle.
The company closed its first royalty acquisition in August of 2025 and has closed several since then. Can you talk about how that asset class fits into the portfolio to support the long-term cash flow profile?
Yeah. We really like what that does for the quality of our cash flows. Minerals and royalties generally have very low field level operating cost and come with no future drilling and completion expenses to us. So we benefit when strong operators develop the acreage. We also get current production with a long inventory of future wells, and that fits very nicely alongside our working interest portfolio, where we tend to have, in some cases, some more influence with operators. They generally, if we're developing, we got to pay our share, right? And you got to pay your LOE costs. The two very much complement each other.
Pro forma for the latest mineral deal, which closed in August, just a few weeks ago in the Midland Basin. The mineral royalty cash flow side of the house represents about 20% of pro forma total company cash flow. Is there a target you have in mind for how large or how big of a contribution you would like to see from that asset class, or is it all just opportunity driven or where you see the best values?
Yeah. It's really the latter. I would say the reason that that's grown there, again, we strategically did want to have a significant piece. Like I said, it has future drilling without CapEx, which is huge for us. But we don't have a target. We do want to always look for the most accretive opportunity and frankly, with some of what we've been able to put together with our relationships and partners, that's where we're starting to see the value. But no specific model.
Speaking of relationships and partners, how does a company go about sourcing transactions in today's A&D market?
There's a few ways. We're always going to look at the marketed side of the business, because honestly, you'd be a fool not to. To be frank, we're seeing deals where we can create the deal from scratch, and we're having a lot of traction there, where literally there's not a deal. We go out with our partners and offer at a certain different reserve categories, meaning PDP or DUCs or future locations. We want to have them a certain mix of those that fit our profile, and go out and offer those. They may be small little bolt-ons like we're doing in the Haynesville-Bossier Shale, but over time, they really add up and can be quite impactful.
We've seen M&A continue to be a part of the industry, even with the oil price volatility that's been taking place since the Persian Gulf War started. Kelly, can you share your perspective on the current status of the A&D market, especially with respect to that pipeline that Evolution is exposed to?
Yeah. We're starting to see more stuff sort of come out and hit the marketing side of the world. Peter and the rest of the folks over there are really always looking into those. But in that case, you've got to kiss a lot of frogs to find the prince, right? We're always going to look at those, and there have been more out there that we're obviously taking a look at. I would say on our sort of built from scratch model, we're still seeing some traction there. I think we're going to be able to keep finding creative deals. They're not always going to be big and meaningful in one fell swoop, sort of like our Midland deal.
But like I said, for us, the smaller ones where I think we have a competitive advantage, because it matters to us and some of the huge funds it wouldn't be worth doing. I think we're seeing a lot of value there still.
How do valuations compare between those two type of classes, non-operated interest and royalties?
Yeah, as you can imagine, we've done the math on this. The old rule of thumb was kind of 3 x, but when you actually do the math, it depends on a lot of things. It's the commodity, how much PDP relative to undrilled locations, what basin it's in, and so on. But we generally see them at anywhere from about 2x to 4x+ times the amount of a similar working interest package. So valuable stuff, high margin, and again, if there's drilling that you don't have to pay for, it's worth something.
How important is the operator for both non-operated interests and the operator who controls the mineral acreage that you all want to participate in?
Hey, Jeff, I'll take this one. The operator actually matters a great deal to us, especially in non-op in minerals packages. We definitely take into consideration their operating history and reputation within the basin. Not only that, but their balance sheet and capital discipline as they do control the pace of development. Also in the working interest side, the operator heavily influences both the operating and the capital costs. A good reservoir is just more valuable to us when we have a quality operator.
Organic growth opportunities have been part of what you've talked about, both on the non-op side and now the mineral and royalty interest side. How should investors think about Evolution's exposure to organic growth opportunities, that in some cases cost capital on the working interest side and other cases on the royalty side are cost free to the company?
Yeah, Jeff, I'll jump on this one. Obviously, it's really important to us. Organic growth allows us, really to help renew our production reserve base outside of acquisitions. With the working interest properties you mentioned, obviously there's capital required, but we can participate selectively, and we evaluate each project on its own merits to make sure it meets our hurdles and for returns. With minerals, obviously, the beauty of minerals is we don't have to put up capital, and we're willing and we're able to get additional production and value from the operators turning locations into productive wells. An important part is if we're not really just chasing growth, we want development that builds shareholder value, over time and supports our cash flow profile.
An example, and I think Kelly might mention this, on our reserves, we actually ended the fiscal year with reserves slightly higher than last year, even while producing call it 2.6 million barrels. So that's a good example of how the portfolio continues to replace reserves and really grow over time.
Peter, I'd like to come back to you and talk about the engineering side of the house. How do you manage your relationships with the non-operated working interest owners, in the various fields?
Yeah. We've actually developed a great working relationship with most of our major non-op working interest operators, and we hold regular meetings with them. We even contact directly through cell phone when things arise. I think, we've been able to develop that relationship.
Are some of them more receptive to others to your suggestions about how to either lower costs or improve production?
Yes. Some are more receptive than others, just take a bit more time and effort, but it really also depends on our level of ownership within those fields. At the end of the day, they are the operator and this is where it really helps us when we have quality operators.
If I recall correctly, Evolution teamed with a specific operator to execute the TexMex transaction, in April of last year. Do you see opportunities to work with specific operators targeting assets, where you want to take a non-op position and they might become the asset operator?
Yes. As mentioned before, the operator makes a great deal to us. When we have a chance to select the operator along with now the ability to evaluate operated deals as a non-operator, it expands on the opportunities and more deals that we can look at, to find an accretive acquisition. Yes, we will continue to work with operators to target acquisitions whenever we are aligned with them and when the opportunities arise.
At Chaveroo, I think you all have said you have six drilling permits in hand. This is for anybody. How do you think about the economics of drilling those wells and committing to them in the current oil price and cost environment?
Yeah, at the current pricing cost environment, the returns on here are attractive. As we said, we are interested in developing them, and we are currently in discussions with the operator as to the timing. As of right now, we do not really have much else to report on that.
Peter, are you seeing any indications from operators in some of the other assets where you have interests that are maybe more oil-oriented, that they are looking at either projects to enhance production through workovers or even, in some cases, drill new wells?
Yeah. Across our areas, we have seen some increased workover activity. But really over in the SCOOP STACK, or primarily the SCOOP and more oil-weighted parts in Oklahoma, we have seen increased activity there. For example, last year we had 10 wells converted into PDP through the entire fiscal year, and so far we already have visibility on 10, and we do expect more wells to be proposed there throughout the year.
Peter, that is just on the working interest side, right?
Yes.
Yeah. We are also seeing more additions come on the mineral side in the SCOOP STACK.
Yeah. Over that area, we had 21 conversions over to PDP on the mineral side during this past fiscal year.
I would like to come back and touch on the Midland Basin minerals acquisition that you closed in August. Evolution added about 3,400 net royalty acres in the Midland Basin in a transaction valued at $60 million. Why enter the Midland Basin now, and what really attracted you to that package?
Yeah. The Midland Basin is a premier oil basin with exceptional rock qualities, multiple productive benches, high levels of activity, and the economics are just there. It is a great basin that we have always really wanted to get into. What really attracted us about this particular deal was that it had a combination of current cash flow and visible CapEx free development in the core of the Midland Basin. When we underwrote the $16 million purchase, we primarily did it on the existing production, and we risked the near term development and had longer dated inventory as additional upside. It really did fit our strategy by providing the immediate high margin cash flow, in one of the country's most active basins.
Speaking of how active it is, how do you characterize the level of development on that footprint in recent years, and how were you thinking about it when you underwrote the acquisition?
Yeah. The acreage has been extremely active in the recent years and, at the time that we made the acquisition, there were already 832 producing wells there. There was a lot of activity going on with 40 wells in progress and another 27 active drilling permits. That activity continues to be strong right now. We currently have eight rigs running on the acreage and, since the acquisition date, we have already converted 20 of those wells to PDP, with another 20 wells that are currently in progress. There has been a lot of permitting activity in the area, and we have over 1,200 additional upside locations there. When we were underwriting the deal, we just valued the PDP, and we definitely risked the timing and the economics based on development status, operator plans, and commodity assumptions.
So far, we've been really pleased with the level of activity that we're seeing.
Peter, who are some of the primary operators on that acreage base?
ExxonMobil's probably our biggest one. We have SM Energy, Double Eagle, and ConocoPhillips. So a lot of top tier operators in that basin.
This is good to own.
I'll just add recently, Jeff, we're seeing activity right now. Peter mentioned Double Eagle, but Apache has recently filed quite a few permits, in and around their acres, too. They're getting active there in Upton County, too.
I guess part of that message is it's good to own minerals under well capitalized independents who are able to fund drilling.
Yes.
Yes.
The net production on that package, I think, when you all closed the deal, was a little over 200 BOE per month. Do you have any flavor for what you think production could do on that footprint over the next couple of years based on what you're seeing from activity levels?
Yeah. The activity levels we're seeing right now, production has already increased since we've closed on the deal and, with our conservative profile of the upcoming completions and everything, we do see this property growing during the fiscal year and can potentially be pretty significant over the next coming years if the activity continues.
Yeah, Jeff, to add, look, it could be. Again, we try to model things really conservatively and, still, we could see production doubling over the next few years.
Evolution's royalty and mineral flag is now planted in three areas, SCOOP STACK, where you also own non-operated working interests, the Haynesville-Bossier Shale area of northwestern Louisiana, and now the Midland Basin. Can you talk a little bit about, from your perspective, the opportunity set in each area to expand the mineral acreage footprint, and are there other basins that you would like to have exposure to?
I'll stick with the first part of the question first. Each area is kind of a somewhat different opportunity, right? In SCOOP STACK, we've already got a platform across our working interests and our minerals, which is unique. If you own working interest and you're getting AFE, you kind of know where you might want to buy minerals, right? We've got active operators and room to keep hydrating that portfolio.
In Louisiana, we're seeing lots of gas-weighted Haynesville and Bossier Shale activity, and so we're finding ways to sort of build from scratch bolt-ons around that. As I mentioned, the stuff, it may be 3, 400 at a time, but think about that. In largely small deals, we've got now 90 + producing wells and another 40 or 50 that we have a piece of in progress. Either that or have already started permitting. We're excited about being able to move there. And yeah, look, the Midland, it gives us a large sort of core liquids-oriented footprint with extensive operator activity. I think we can add around all three positions, but I think Ryan touched on this, but really only if it's pricing development activity and most importantly, if it meets our per share return threshold.
Well,
Jeff, sorry. On the other basins, look, the beauty of being non-op and/or owning minerals and royalties is you don't have to have a large splashy entrance into a basin. We have engineers here who have over many years of experience, and Peter can tell you this, they've evaluated deals in every basin in the U.S. We don't need to have some huge scale to get into something. Our model allows us to move in even in small pieces. If the deal's there and we like everything about it, we like the operator, we like the infrastructure, the potential, what kind of sub-market it'll be for pricing. If it hits our returns, it's something we could absolutely jump on. We're always looking at things.
Ryan, let's come back to you. The Midland Basin deal was financed with a combination of equity and debt. How do you think about managing the balance sheet to provide long-term support for a consistent dividend?
Yeah, so we've kind of mentioned here quite a few times. The strategy obviously is to maximize shareholder value, and really this comes down to us being able to make acquisitions, grow our asset base organically with returns that exceed our cost of capital, right? The mix of equity and debt that we use to finance this growth is really just designed to minimize that cost of capital and make our returns obviously as high as possible above this cost of capital. Obviously, from a pure accretion standpoint, using debt to fund every acquisition would be great, but clearly, we're mindful of taking on too much leverage on the balance sheet, especially in, honestly, a business where revenue is driven by commodity prices that are out of our control and can be cyclical.
We'll use equity either internally generated from excess cash flow or externally raised to manage the leverage on the balance sheet to minimize our cost of capital and make sure we have enough liquidity and flexibility to continue to grow.
One aspect that you all executed in fiscal 2026 was the sale of some what became non-strategic mineral interests that were generating no current cash flow. Is that part of the way you think about managing the asset base to create the most flexibility with respect to capital decisions?
Yeah, absolutely. We view our asset base as a portfolio, right? We look at all our assets constantly, and we'll evaluate ways to maximize value. That's a perfect example of being able to sell off acreage that was going to get developed but just pretty far in the future, right? We were kind of trading now cash flow for now that we can redeploy for cash flow that was going to happen later. That's a perfect example of how we can kind of manage the balance sheet.
As a part of the Midland Basin deal, the lending group and the RBL increased their commitment to make room for that deal, increased it from $65 million to $73 million. Was that increase based on the year-end 2026 reserve report plus the inclusion of the Midland Basin assets? Ryan, do you have any expectations you can share for the fall redetermination that's upcoming?
Yeah. So yeah, to be clear, the additional $8 million liquidity was based on the reserves from that deal that we provided our lender. For the remaining kind of quote $65 million of our existing base, that is going to be redetermined here in a couple of weeks in October when we go through our fall redetermination. Obviously, working in a bank for a long time, it is kind of a black box sometimes in terms of how they are going to view it. The asset themselves, they all have their own price decks and policies and ways they evaluate it. But what I can say is if you are just taking a step back, obviously, we increased our reserves year-over-year on an SEC basis. The oil price market is pretty strong right now.
So obviously, we are hopeful that based on that, the termination is going to result in us having at least that kind of $73 million borrowing base. But we will know that in the next, we will start the process in the next couple of weeks, so we will have some more information then.
Back to the funding structure, Ryan, how do you think about the mix between debt and equity that we have kind of talked a little bit about when you evaluate incremental acquisitions from here?
Yeah. So we look at each acquisition kind of on its own, and it has got to be accretive to free cash flow per share after adjusting for how we are going to finance it. That will probably result in us using, obviously, a combination of excess cash flow we generate, incremental borrowings and equity from raising external equity. It really depends on the size and timing of the acquisition, right? Obviously, I would say one of the key benefits of our recent royalty deals is given the high margin cash flow and the cost-free development, those are going to be really helpful in generating this excess cash flow that will help us redeploy.
Well, do you have in mind what an optimal capital structure looks like for Evolution?
Yeah, from the debt perspective, we are really comfortable in the 1x to 2x leverage range. Really primarily due to, if you look at our asset base, so really long life, PDP loaded column, low capital intensity kind of assets. We obviously use hedges to minimize our downside risk. Our overall goal again is to have cost of capital as low as possible and keep the flexibility we need and liquidity we need to capitalize on opportunities that we see either organically or inorganically through acquisition. I can see us continuing to use a mix of these, debt and equity going forward just to, like I said, minimize our cost and providing this flexibility.
Kelly, I would like to come back to you to close up our discussion today. Evolution's executed transactions valued at $91 million since February of 2024, including $39 million of royalty deals since August of 2025. How do you think the company is positioned to maintain a consistent dividend and grow the asset base in the future from where you sit today?
Yeah. Terrific, Jeff. One of the things we talked about on this call has been acquisitions, but if I take a step back and just look at what we have now and what we have been able to put together, it is nice to be in a position where if we did not have any further acquisitions, where does that put us? Well, it puts us very comfortably able to cover our dividend. I think right now we are in a position that is much better today than it was yesterday, if you want to look at it in the broader sense. Going forward, we are going to be able to keep balancing the potential for accretive acquisitions with development and financing against our sustainable cash generation and balance sheet capacity, and really importantly, our value per share.
Our dividend, it's going to remain central to what we do, and we think fiscal 2027, again, based on what we already have, fiscal 2027 and beyond, it's in a great place from a cash flow per share perspective. We expect to see some of our other assets, which were a little beaten up in our fiscal third quarter, got most of the way back. We expect to see them get all the way back to where they should be on some of our legacy properties. I think we touched on this a little bit, but increased contributions from across our mineral and non-op portfolio. In the Haynesville-Bossier Shale, as we mentioned, there's been significant activity, which is going to really start to be a meaningful contribution.
Obviously, with what we got going on in Midland and all the activity there, which you never know, it's early days, but it looks like it's going to outpace our conservative development plan. SCOOP STACK keeps going well. Again, Chaveroo, working on that with the operator. There's plenty of opportunities that we're super excited about in this year and that will fund our dividend now and beyond, based on what we got on the books. Yeah, look, acquisitions are great, but you never know when you're going to get a really accretive one. I'm just excited about what we currently have, and how that leads to our dividend sustainability for a long time based on what we already have.
I think it's important to remember that the acquisitions also added growth opportunities, both organically or organic growth opportunities in multiple areas that back to where we started with diversity that sets Evolution Petroleum up with a supportive asset base over the next several years.
That's 100% correct, Jeff, and that's one of the reasons we're so excited about where we sit today and how we look going forward. Yeah, really, Jeff, thanks so much for letting us talk to you.
Kelly, Ryan, Peter, thank you for taking the time to join our conference today. As a reminder for the participants, questions can be entered through the meeting portal, and if you would like to request a meeting with management, we can also take those requests through the meeting portal. Our next session will commence in just a few minutes. Thank you.
Thank you.
Thanks, Jeff.