Evolution Petroleum, an energy company focused on onshore oil and gas production, may be sitting on a gold mine. While most analysts are excited about the recent SCOOP/STACK acquisitions and promising Chaveroo drilling program, a far more subtle development in the Q3 2024 earnings call transcript hints at a potential dividend doubling, or even tripling, in the years to come.

The key lies in the seemingly innocuous statement about Delhi field's carbon capture certification. Exxon, the operator of Delhi field, is expected to receive certification as a carbon capture utilization and storage (CCUS) site this summer. This alone isn't groundbreaking, as it's been in the works for a while. What's interesting is the combination of this certification with Exxon's simultaneous push for "Phase 5" development at Delhi, which would significantly expand the field's footprint.

Here's why this is explosive. CCUS sites, particularly those used for enhanced oil recovery (EOR), attract lucrative tax credits. The current 45Q tax credit offers $50 per ton of CO2 permanently stored and $35 per ton used for EOR. Exxon, a company with a notoriously sharp pencil, wouldn't pursue Phase 5 unless it was economically viable. Adding the potential revenue stream from carbon capture creates a powerful incentive.

Let's do some back-of-the-envelope math. Delhi currently injects roughly 1 million tons of CO2 annually. Assuming Phase 5 doubles the injection capacity (a conservative estimate given Exxon's ambition), the potential tax credit revenue could reach $70 million per year. Evolution Petroleum, with a 25% working interest in Delhi, stands to gain roughly $17.5 million annually.

Compare this to their current annual dividend payout of roughly $13.3 million. The potential windfall from carbon capture alone could more than cover their current dividend, leaving ample room for increases.

Now, this is a simplified calculation. Exxon hasn't publicly released Phase 5 plans, and the precise impact of carbon capture revenue on Evolution's bottom line remains unclear. However, the potential is undeniable.

Further bolstering this hypothesis is Evolution's conservative hedging strategy. Unlike many peers, they hedge minimally, maximizing their exposure to commodity price upswings. A recovery in natural gas prices, combined with the CCUS revenue stream, could create a cash flow bonanza.

Evolution Petroleum has a long history of rewarding shareholders. Over the last decade, they've returned over $3.33 per share in cash dividends and share buybacks. Their current strategy, focused on diversification, organic growth, and financial prudence, lays the groundwork for sustained shareholder returns.

"Evolution Petroleum's production has steadily increased over the last three quarters. This is driven by new wells coming online at Chaveroo and the recent acquisition of SCOOP/STACK assets."

The carbon capture certification at Delhi, coupled with Exxon's ambitious development plans, may be the catalyst for an unprecedented dividend growth trajectory. While the market is focusing on the immediate impact of SCOOP/STACK and Chaveroo, a silent CO2 revolution is brewing at Delhi, one that could silently double or even triple your dividend in the years to come.

"Fun fact: Evolution Petroleum owns a stake in Jonah Field, which supplies natural gas to the West Coast market, enjoying premium pricing compared to the benchmark Henry Hub. This strategic positioning provides a hedge against regional gas price volatility."