Taking Stock of Evolution Petroleum’s Risk Factors

Shares of oil and natural gas company Evolution Petroleum, Corp. (EPM) are up 99.6% over the past 12 months. Its long-term strategy is to create a diversified portfolio of oil and natural gas assets mainly through acquisitions and seek opportunities to maintain and increase production on its properties.

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Recently, EPM delivered a 3x jump in its fourth-quarter top-line and raised its quarterly dividend. Let’s take a look at the company’s financials and understand what has changed in its key risk factors that investors should know.

In the fourth quarter, EPM registered total revenue of $13.7 million versus $3.35 million a year ago. Compared to the third quarter, while oil revenue increased 20% to $8.5 million owing to higher commodity price, revenue from natural gas liquids (NGLs) increased 362% to $2.6 million on the back of EPM’s acquisition of the Barnett shale assets. In the fourth quarter, EPM produced 4,378 net barrels of oil equivalent per day (BOEPD).

The President and CEO of EPM, Jason Brown, said, “We are very pleased with how the company has positively responded to the extraordinarily volatile market over the past year and a half.

As we look to the future, we expect to continue to benefit from the improved price environment, particularly for natural gas, as we generate strong cash flow from our newly diversified portfolio and continue to pay out meaningful dividends to our shareholders.”

EPM’s production costs in the fourth quarter increased to $7.6 million from $3.6 million in the third quarter due to higher CO2 costs and costs from the Barnett Shale acquisition. While its depletion, depreciation and amortization costs increased 24%, general and administrative expenses decreased 2% due to lower acquisition-related legal and tax expenses.

Owing to higher income from operations, EPM’s net income per share came in at $0.07, as compared to a net loss per share of $0.07 a year ago. (See Evolution Petroleum stock chart on TipRanks)

For the first quarter of 2022, EPM has announced a cash dividend of $0.075 per share. This dividend is payable on September 30 to stockholders of record on September 20.

Now, let’s look at what’s changed in the company’s key risk factors.

According to the new Tipranks’ Risk Factors tool, EPM’s main risk category is Finance & Corporate, which accounts for 41% of the total 32 risks identified. Since June, the company has added one key risk factor under the Macro & Political risk category.

EPM acknowledges that its operations are subject to various risks stemming from concerns regarding climate change. These include regulatory, political, litigation and financial risks. These could lead to higher operating and compliance costs and limit areas in which oil and natural gas production may occur.

Moreover, the limitation of investments and financings in the energy industry may mean restriction, delay, or cancellation of drilling programs, development, or production activities.

The Finance & Corporate risk factor’s sector average is at 37%, compared to EPM’s 41%.