Entering text into the input field will update the search result below

Evolution Petroleum's Stock Price Appreciation Is Over

Jul. 11, 2017 2:37 PM ETDenbury Inc. (DEN), EPMEGC, BATL, SD50 Comments


  • The Delhi Field is managed by Denbury Resources.  This company has a lot of financial challenges and its outlook is very poor.
  • The financial challenges of the operator, Denbury Resources, will trump the bright outlook of the Delhi field prospects and Evolution Petroleum future prospects.
  • Instead Evolution Petroleum will have to navigate the Denbury Resources financial challenges as they apply to the Delhi field operations.
  • After the probable reorganization there will be a period of high expenses due to the deferred maintenance caused by all the Denbury Resources financial health challenges.
  • Evolution Petroleum does not control its future and the stock will be priced accordingly.

Evolution Petroleum (NYSE:EPM) stock is going nowhere except possibly down. The problems of Denbury Resources (DNR) are casting a long shadow over Evolution Petroleum common stock. Evolution Petroleum does not control its own future. Declining commodity prices are making the situation worse. So that shadow will prevent any Evolution Petroleum common stock appreciation for the foreseeable future. Instead, management should begin to prepare for the logical conclusion of the declining financial health of Denbury Resources.

Source: Evolution Petroleum April, 2017, Corporate Presentation

The main source of Evolution Petroleum income, the Delhi Field, is operated by Denbury Resources. This joint venture is therefore out of the control of Evolution Petroleum.

Current Denbury Situation

Source: Seeking Alpha Website, Market Close On July 10, 2017

The market perception of financial problems appears to be fairly accurate. A drop below $1 for the common shares is probably not that far off unless oil prices rally well above the WTI $60 price. Many of the operations are fairly high cost. So the decreasing oil prices this calendar year are beginning to put nails in the coffin. Denbury has a lot of debt that is not adequately serviced. Plus the company has yet to state how it would fund a capital budget that exceeds cash flow. The lenders will allow debt expansion to a point. However a crackdown by lenders will dampen capital expenditures fast.

But high cost operators are the first to experience reserve re-evaluations that end up as decreases. Unless the outlook for oil prices changes substantially in the near future, Denbury Resources could be looking at a very tough November borrowing base evaluation. Even though the company only has a small amount of debt on the credit line, the banks could still begin a domino effect. Right now, the company is in compliance with all of its covenants and

This article was written by

Long Player profile picture
Get analysis on under followed Oil & Gas companies with an edge.
I am a high school teacher for a decade. I am now retired.  Before that I was an analyst (operations and financial) and for a short time a Controller I have a B.S. with an emphasis in Accounting and an MBA (for which I studied Finance, Economics, and Management) I passed the CPA exam on the first try and am a retired CPA in the state of Maryland. I have a high school teaching credential and an MA in Math Education

Occassionally write articles for Rida Morwa''s High Dividend Opportunities https://seekingalpha.com/author/rida-morwa/research

Occassionally write articles on Tag Oil for the Panick High Yield Report


Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.