Executive Summary / Key Takeaways

• Evolution Petroleum ($EPM) is a U.S. onshore independent energy company focused on maximizing shareholder returns through a diversified portfolio of long-life, low-decline oil and natural gas assets, underpinned by a consistent quarterly dividend program since 2013.
• The company's non-operated business model and strategic emphasis on enhanced oil recovery (EOR) technologies provide a cost-efficient and capital-light approach to asset management, driving stable cash flows and higher margins compared to typical shale operations.
• Recent accretive acquisitions, including the TexMex assets and the SCOOP/STACK mineral and royalty interests, have significantly bolstered production and cash flow, with new wells in SCOOP/STACK and Chaveroo outperforming initial expectations.
• EPM maintains a strong balance sheet and financial flexibility, supported by a recently amended $200 million credit facility with a $65 million borrowing base, enabling disciplined capital deployment for both organic growth and opportunistic M&A.
• While commodity price volatility remains a key risk, EPM's diversified commodity mix, robust hedging strategy, and adaptive capital allocation, including pacing development to market conditions, position it for sustained profitability and dividend dependability.

The Enduring Value of a Non-Operated, Diversified Portfolio

Evolution Petroleum Corporation ($EPM) stands as a distinctive player in the U.S. onshore independent energy sector. Founded in 2003, the company has meticulously crafted a strategy centered on maximizing total shareholder returns through the ownership and investment in long-life, low-decline oil and natural gas properties. EPM's core business model is built on non-operated interests, allowing it to benefit from production and development without incurring the direct operational overhead and staffing complexities of an operator. This approach has been foundational to its consistent financial management and its commitment to returning cash to shareholders, notably through a quarterly dividend program initiated in December 2013, which has now reached 48 consecutive payments.

The company's strategic journey has involved a series of accretive acquisitions designed to diversify its asset base across various basins and commodity types. Significant additions include properties in the Barnett Shale, Williston Basin, Jonah Field, and more recently, the SCOOP/STACK plays and the TexMex assets. This diversification is critical in mitigating exposure to commodity price volatility, a persistent challenge in the energy market. EPM's disciplined capital allocation framework prioritizes durable free cash flow, a reliable dividend, and accretive opportunities that compound per-share value over time.

Technological Edge in Mature Fields

A key differentiator for Evolution Petroleum lies in its strategic focus on enhanced oil recovery (EOR) projects and efficient operational techniques, particularly in mature fields. This technological expertise provides a significant competitive advantage.

At the Delhi Field in Northeast Louisiana, EPM participates in a CO2-EOR project. While such projects typically require substantial CO2 reserves and capital, the operator, Denbury Onshore LLC (a subsidiary of Exxon Mobil Corporation (XOM)), has committed these resources. A recent strategic shift at Delhi involved transitioning from purchasing approximately 80 million cubic feet per day of CO2 to injecting additional water, while continuing to utilize 300 million cubic feet per day of recycled CO2. This move is expected to yield substantial cost savings of $400,000 to $500,000 per month in operating expenses with minimal anticipated impact on production performance. This demonstrates EPM's ability to adapt and optimize operations for economic favorability.

Similarly, in the Chaveroo Field in New Mexico, EPM is planning to drill new horizontal wells using produced water, a technique expected to significantly reduce drilling fluid costs. These operational efficiencies, while seemingly incremental, collectively contribute to EPM's lower lifting costs and higher margins, particularly when compared to the higher operating expenses typically associated with secondary or tertiary recovery fields like Hamilton Dome and Delhi, which can be in the high $30s per barrel, versus the $10-$15 per barrel range for shale wells. This focus on optimizing existing assets through proven and cost-effective recovery methods enhances capital efficiency and pricing power, forming a crucial part of EPM's competitive moat.

Financial Performance and Operational Momentum

Evolution Petroleum delivered a solid financial performance in fiscal year 2025, demonstrating the resilience of its diversified portfolio. For the fiscal year ended June 30, 2025, the company reported total revenues of $85.84 million and net income of $1.47 million. Operating cash flow for the year stood at $33.05 million.

The fiscal fourth quarter of 2025 showcased material improvement, with net income rising to $3.4 million and adjusted EBITDA increasing 7% year-over-year to $8.6 million. This was achieved on average production of 7,198 BOE per day, with a revenue mix of 61% oil, complemented by meaningful contributions from natural gas and NGLs. For the full fiscal year 2025, average daily equivalent production increased 4.2% to 7,074 BOEPD, driven by recent acquisitions and new drilling activities.

Cost controls remain a priority. Other lease operating costs decreased by $1.1 million (3.2%) in fiscal year 2025, partly due to a $1.9 million credit from a joint venture audit at Barnett Shale and the cessation of CO2 purchases at Delhi. On a per-unit basis, other lease operating costs decreased to $12.50 per BOE from $13.41 per BOE in the prior year, primarily due to increased production. While depletion expense increased to $20.4 million due to a higher depletion rate from decreased reserve estimates, and interest expense rose to $2.97 million due to borrowings for acquisitions, the company's effective tax rate improved to 21.20% from 25.80% in the prior year, benefiting from federal tax credits on marginal natural gas wells.

EPM's liquidity and capital resources are robust. As of June 30, 2025, the company held $2.5 million in cash and cash equivalents. Its Senior Secured Credit Facility, recently amended and restated, boasts a maximum capacity of $200 million and a current borrowing base of $65 million, maturing on June 30, 2028. With $37.5 million outstanding, EPM had $27.5 million in available borrowing capacity. This financial flexibility was immediately utilized to fund the $17 million SCOOP/STACK mineral and royalty acquisition in August 2025, with $15 million drawn from the facility. The company also leverages an At-the-Market (ATM) equity sales program, which generated $3.5 million in net proceeds in fiscal year 2025, for general corporate purposes including debt repayment. EPM consistently complies with all credit facility covenants, underscoring its conservative financial management.

Competitive Landscape and Strategic Positioning

The oil and natural gas industry is intensely competitive, with EPM vying for prospects, acreage, and capital against a diverse group of players, from major integrated companies to numerous independent firms. Larger, well-established competitors like Devon Energy (DVN), Occidental Petroleum (OXY), ConocoPhillips (COP), and EOG Resources (EOG) possess substantially greater operating staff and capital resources. These larger entities often have superior scale, broader diversification, and greater investment in advanced technologies, allowing them to pursue expansive projects and achieve economies of scale that EPM cannot match.

However, EPM carves out a distinct niche. Its non-operated model allows for agility and a focused expertise in specific geographical areas and geological systems, particularly in enhanced recovery. While EPM's growth rates and overall market share may trail its larger rivals, its strength lies in efficient operational execution and disciplined risk management. The company's ability to acquire assets at compelling valuations, such as the TexMex acquisition at approximately 3.4 times forward adjusted EBITDA, demonstrates its opportunistic approach in a competitive M&A market. EPM's strategy to acquire low-decline, high-return, capital-light, and immediately cash-generative assets, whether working interests or minerals, allows it to compete effectively by focusing on cash flow accretion per share.

The company's non-operated model also provides a unique advantage when exploring new core areas, as it avoids the significant General & Administrative (G&A) expense increases that an operator would incur. This allows EPM to consider a broader range of acquisition targets without being constrained by the need to build out new operational teams for each basin.

Outlook and Growth Trajectory

Evolution Petroleum is well-positioned for fiscal year 2026, with several tailwinds supporting its growth trajectory. The company anticipates capital expenditures for fiscal year 2026 to be in the range of $4 million to $6 million, primarily allocated to SCOOP/STACK development, excluding potential acquisitions. This reflects a disciplined approach, with management explicitly stating a preference to defer oil-weighted drilling, such as the third development block at Chaveroo, until oil prices are more favorable. Drilling permits for the next six Chaveroo wells are expected by fiscal Q3 2026, with the final decision on timing dependent on commodity prices and well costs.

In SCOOP/STACK, EPM expects five gross wells to be brought online during fiscal year 2026, building on the strong performance of existing wells that have outperformed acquisition type curves by approximately 65%. The recent SCOOP/STACK minerals acquisition, adding 5,500 net royalty acres and 420 net BOEPD, is expected to see a gradual ramp-up in royalty cash flow starting in fiscal Q1 2026, providing high-margin, cost-free revenue. The TexMex acquisition, contributing over 440 net BOEPD of stable production, is also expected to meaningfully benefit fiscal Q4 2025 production and cash flow.

Management's outlook on commodity markets is nuanced. For oil, demand is expected to grow steadily at just over 1% annually. However, sustained WTI prices in the $60s are anticipated to lead to negative U.S. production responses and reduced CapEx, potentially setting the stage for higher near-term and long-dated prices. For natural gas, a strong forward demand curve is projected, driven by incremental LNG exports and increased industrial demand from data centers, AI, and cryptocoin mining, suggesting a need for Henry Hub prices above $3.50 to meet demand. EPM's diversified commodity mix and hedging strategy are designed to capitalize on these trends while mitigating downside risk.

Conclusion

Evolution Petroleum Corporation presents a compelling investment thesis rooted in its resilient, non-operated business model, strategic focus on accretive acquisitions, and a steadfast commitment to shareholder returns. The company's disciplined capital allocation, coupled with its technological expertise in optimizing mature oil and gas assets through methods like EOR, provides a stable foundation for cash flow generation. Recent acquisitions in SCOOP/STACK and TexMex, alongside strong organic development results, underscore EPM's ability to grow production and enhance profitability even in volatile commodity environments.

While the broader energy market faces inherent risks from price fluctuations, geopolitical events, and the ongoing energy transition, EPM's diversified portfolio, robust hedging program, and conservative financial management are designed to weather these challenges. The company's consistent dividend, now extended to 48 consecutive quarters, reinforces its dedication to delivering dependable returns. With a clear strategy to pursue cash-flow-accretive opportunities and adapt development plans to market conditions, Evolution Petroleum is well-positioned to continue compounding per-share value for its discerning investment audience.