UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Item 1.01 Entry into a Material Definitive Agreement.
On January 5, 2024, Evolution Petroleum Corporation (the “Company”) entered into separate Purchase and Sale Agreements (“PSAs”) with Red Sky Resources III, LLC, Red Sky Resources IV, LLC, and Coriolis Energy Partners I, LLC. Pursuant to the PSAs, the Company will acquire non-operating working interests in oil and natural gas assets in the SCOOP and STACK plays in central Oklahoma for a combined purchase price of approximately $43.5 million in cash. Contemporaneous with the execution of the PSAs, the Company paid deposits totaling $3.26 million. The Company expects to fund the balance of the consideration to be paid in the transactions with a combination of cash on hand and borrowings under its senior secured credit facility.
The acquired assets consist of an average working interest of approximately 3% net to Evolution, in 230 producing wells in the SCOOP and STACK plays of the Anadarko Basin in Blaine, Canadian, Carter, Custer, Dewey, Garvin, Grady, Kingfisher, McClain, and Stephens counties, Oklahoma. The acquisitions also include approximately 3,700 net acres with more than 300 associated potential drilling opportunities. The acquired assets currently produce approximately 1,550 barrels of oil equivalent per day, with a commodity mix of approximately 42% oil, 43% natural gas, and 15% natural gas liquids.
The effective date of these acquisitions is November 1, 2023 and each transaction is expected to close in mid-February during the Company’s third quarter of fiscal 2024. The PSAs governing each transaction contain customary representations and warranties, covenants, indemnification, closing conditions and termination provisions and also provide for various purchase price adjustments to be calculated as of the closing date.
The foregoing description of the PSAs and the transactions contemplated therein does not purport to be complete and is qualified in its entirety by reference to the PSAs, which will be filed at a later date.
There is no assurance that the Company will complete all or any of these acquisitions on the terms contemplated in this Current Report on Form 8-K or at all.
Item 7.01 Regulation FD Disclosure.
On January 9, 2024, the Company issued a press release disclosing the transactions. A copy of the press release is included herewith as Exhibit 99.1 and the information in the press release is incorporated by reference into this Item 7.01. Exhibit 99.1 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. | Description |
Evolution Petroleum Corporation Press Release dated January 9, 2024. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Evolution Petroleum Corporation (Registrant) | |||
Date: January 10, 2024 | By: | /s/ RYAN STASH | |
Name: | Ryan Stash | ||
Title: | Senior Vice President and Chief Financial Officer | ||
EXHIBIT 99.1
Evolution Petroleum Announces Acquisition of Non-operated Oil and Gas Assets
HOUSTON, TX — January 9, 2024 (GLOBE NEWSWIRE) — Evolution Petroleum Corporation (NYSE American: EPM) ("Evolution" or the “Company”) announced today that it has entered into definitive agreements to acquire non-operated oil and natural gas assets in the SCOOP and STACK plays in central Oklahoma (the "Acquisitions") from Red Sky Resources III, LLC, Red Sky Resources IV, LLC, and Coriolis Energy Partners I, LLC. The combined purchase price of the Acquisitions is $43.5 million in cash, subject to customary closing adjustments, with an effective date of November 1, 2023, and an expected closing date in mid-February during the Company’s third quarter of fiscal 2024. Evolution expects to fund the acquisition with cash on hand and borrowings from EPM’s revolving credit facility.
| ● | Production of approximately 1,550 barrels of oil equivalent per day (“BOEPD”) and commodity mix of 42% oil, 15% natural gas liquids, and 43% natural gas as of the effective date. |
| ● | Approximately 230 producing wells (average working interest of ~3%) in the SCOOP and STACK plays of the Anadarko Basin in Blaine, Canadian, Carter, Custer, Dewey, Garvin, Grady, Kingfisher, McClain, and Stephens counties, Oklahoma. |
| ● | Significant upside associated with approximately 3,700 net acres in the SCOOP and STACK plays with more than 300 gross undeveloped locations, with an average working interest of approximately 3%. |
| ● | Highly accretive to key valuation metrics, including TEV/EBITDA, EPS, and CFPS. |
| ● | Acquisitions and associated development drilling expected to be self-funding and generate incremental cash flow to further support the Company's quarterly dividend while adding minimal additional overhead. |
| ● | As of the effective date, there were 22 gross wells in process, 21 of which were drilled but uncompleted (“DUC”) to be paid through completion by the Seller. As of today, 13 of these DUCs have been completed and are producing. |
| ● | Assets managed by best-in-class operators, including Continental, Ovintiv, EOG, Marathon, and Gulfport. |
Management Comments
Kelly Loyd, President and Chief Executive Officer, commented, “We are pleased to announce these Acquisitions, which together equal the largest transaction in Evolution's history. This is a significant achievement for our Company and demonstrates our ability to successfully procure high-quality assets in a core basin with best-in-class operating parties. The strategic addition of these non-operated assets to our increasingly diversified portfolio is a testament to our prudence in growing our business for the long-term benefit of our shareholders. The asset's high-quality, proved developed producing base (“PDP”) and long-dated inventory have the potential to generate significant free cash flow, contribute to higher per-share profits, and extend and potentially enhance our dividend capacity. Evolution has a proven track record of executing its strategy of buying long-life production based on current commodity pricing during the downswings with the potential for significant upside associated with an upswing in the commodity price cycle.”
Mr. Loyd continued, “In addition to the roughly 1,550 BOEPD of production, these transactions further our strategy of “making acquisitions through the drill bit” which was emphasized in our Permian drilling partnership in Chaveroo. We view this as crucial to enhancing our ability to accretively maintain or increase production at an attractive rate of return outside of making acquisitions. Importantly, these Acquisitions are more than self-funding, meaning they are expected to generate sufficient free cash flow to both participate in future wells and to contribute excess free cash flow back to the Company to be used for dividends, debt repayment, and other corporate uses.”
Mr. Loyd added, “These Acquisitions continue our strategy to diversify our asset base within targeted areas and give us exposure to another world-class producing basin with ample takeaway and processing infrastructure and well-established end sales markets. They also greatly diversify our portfolio classification by adding not just PDP wells but also low working interest exposure to more than 300 gross, high-quality undeveloped locations. We are excited about the potential of these Acquisitions and the opportunities they present for our continued growth and success.”
Transaction Consideration and Capital Available
Evolution expects to fund the transactions from cash on hand and borrowings from the Company's senior credit facility with MidFirst Bank. As of December 31, 2023, and prior to the transaction, the Company had approximately $8 million in cash on hand and had no outstanding borrowings under the credit facility. The Company estimates that net debt after giving effect to the Transaction will be within the Company's targeted leverage ratio of one-times pro forma Adjusted EBITDA1.
Investor Presentation
Evolution plans to post a presentation highlighting additional details of the Acquisitions on the Company's website this evening: www.evolutionpetroleum.com.
About Evolution Petroleum
Evolution Petroleum Corporation is an independent energy company focused on maximizing total shareholder returns through the ownership of and investment in onshore oil and natural gas properties in the U.S. The Company aims to build and maintain a diversified portfolio of long-life oil and natural gas properties through acquisitions, selective development opportunities, production enhancements, and other exploitation efforts. Properties include non-operated interests in the following areas: the Chaveroo Oilfield located in Chaves and Roosevelt Counties, New Mexico; the Jonah Field in Sublette County, Wyoming; the Williston Basin in North Dakota; the Barnett Shale located in North Texas; the Hamilton Dome Field located in Hot Springs County, Wyoming; the Delhi Holt-Bryant Unit in the Delhi Field in Northeast Louisiana; as well as small overriding royalty interests in four onshore Texas wells. Visit www.evolutionpetroleum.com for more information.
Cautionary Statement
All forward-looking statements contained in this press release regarding the Company's current expectations, potential results, and future plans and objectives involve a wide range of risks and uncertainties. Statements herein using words such as “believe,” “expect,” “plans,” “outlook,” “should,” “will,” and words of similar meaning are forward-looking statements. Although the Company’s expectations are based on business, engineering, geological, financial, and operating assumptions that it believes to be reasonable, many factors could cause actual results to differ materially from its expectations and can give no assurance that its goals will be achieved. These factors and others are detailed under the heading "Risk Factors" and elsewhere in our periodic documents filed with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statement.
Investor Relations
(713) 935-0122
info@evolutionpetroleum.com
1) Adjusted EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization and is a non-GAAP financial measure. The Company defines Adjusted EBITDA as net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization (DD&A), stock-based compensation, other amortization and accretion, ceiling test impairment and other impairments, unrealized loss (gain) on change in fair value of derivatives, and other non-cash expense (income) items.