Evolution Petroleum Posts Record Results for the Third Quarter of Fiscal 2013 Compared to our Second Fiscal Quarter Record Results:

-- Earnings per share climbed 24%

-- Revenues 6% higher

-- Delhi daily sales volumes up 11%

HOUSTON, May 7, 2013 /PRNewswire/ -- Evolution Petroleum Corporation (NYSE MKT: EPM) today reported operating highlights for the quarter ended March 31, 2013, its third quarter of fiscal 2013 ("Q3-13").

Highlights include:

  • Earned $2.2 million, or $0.07 per diluted share, a 24% sequential increase
  • Total daily sales volumes declined 10% sequentially to 626 net barrels of oil equivalent ("BOE") due to Giddings asset sales during the prior quarter
  • Delhi daily volumes increased 11% over prior quarter to 566 net gross barrels of oil ("BO") (7,645 gross BO per day)
  • Reached agreement to install GARP® technology on a fourth joint venture well and acquired leases to install on fifth Company owned well

Robert Herlin, CEO, said: "We are pleased to report that Delhi production has continued to outperform expectations, and its contribution to revenue has more than offset the sale of our Giddings Field production. We also anticipate that our 24% back-in working interest in the Delhi Field should begin contributing to financial results early in our fiscal 2014 second quarter ending December 31, 2013. Our GARP® business continues to move forward and we acquired enough new leases to begin installation of the technology in a previously abandoned well to further demonstrate incremental hydrocarbon recoverability at a low cost and an increase in well life. 

"Conversely, our first two Mississippian Lime wells that were completed in the prior quarter have not yet performed to expectations. Although we are dissatisfied with the results to date, we are still early in the process of cracking the code for successful development of this potential growth asset and plan to drill a third evaluation well that will apply what we learned to date."

Quarterly Financial Results

The Company posted back-to-back records in recurring earnings per share, excluding the capital gain recorded in Fiscal 2006. Quarterly earnings to common shareholders increased 24% to $2.2 million, or $0.07 per diluted share, compared to $1.8 million, or $0.06 per diluted share in the prior quarter. Net income increased 71% over the year-ago quarter's $1.3 million.

Revenues also reached an all-time high by increasing 6% to $6.0 million, compared to last quarter's record $5.6 million, and increasing 24% compared to the year-ago quarter's $4.8 million. The increase over the prior quarter was primarily due to a higher rate of Delhi oil production at an oil price of $111.41 per barrel, which was seven dollars higher than the previous quarter and more than offset the loss of Giddings production divested during the second fiscal quarter. The increase over the year-ago quarter was due primarily to higher Delhi oil production, partially offset by the loss of divested Giddings production.

Lease operating expense (LOE) results were mixed, increasing 25% to $0.5 million compared to the prior quarter due primarily to the addition of wells in our Mississippian Lime project and well repairs in retained Giddings Field wells, certain Lopez Field wells and GARP® wells. Compared to the year ago quarter, however, LOE declined 21%. On a BOE basis, LOE during Q3-13 was $9.32 per BOE compared to $6.55 and $11.76 in the sequential and year-ago quarters.

General and administrative expense decreased 2% from the prior quarter to $1.8 million, which was an increase of 14% over the year-ago quarter.  The increase over the prior year was primarily due to higher personnel costs, litigation and other legal expense and transaction costs related to divestments. Results for all periods included significant non-cash stock compensation expense, amounting to 22% of total general and administrative expense in the current quarter and 23% in the year-ago quarter.

Delhi Field, Louisiana

The Company again achieved record sales volumes at Delhi. Sales volumes averaged 566 net BO per day (7,645 gross BO per day) during the current quarter. Current quarter daily volumes were 11% higher than the prior quarter (9% higher in total volumes) and 40% higher than the year-ago quarter (38% higher in total volumes). The increase was due to production response from the capital expenditures in the project during calendar 2012. Net sales volumes from Delhi for all periods were solely from our 7.4% royalty interest that bears no operating expense or capital expenditure obligation. We continued to realize a significant premium in oil price that averaged more than $111 per barrel during the quarter, compared to the $98 per barrel we averaged in our other fields.

Current field production is outperforming the production rate projected in our June 30, 2012 independent reserves report. We now expect that the reversion date of our 23.9% working interest will be accelerated by one or two months, as compared to the projected reversion date in our 2012 reserves report. At reversion, our net revenue interest will more than triple from 7.4% to 26.5%, while our cost bearing working interest will increase from zero to 23.9%.  The operator's calendar 2013 capital expenditures are focused on expanding the CO2 flood within the previously developed western half of the field based on interpretation of 3D seismic data and field performance. The expansion of the CO2 flood into the balance of the eastern half of the field is now projected to occur in 2014 and 2015, and we have sufficient working capital on hand to fund our expected share of 2014 capital expenditures in the field.

Mississippian Lime Project, Oklahoma

Our first two Mississippian Lime wells were completed and hydraulically fractured late in the prior quarter. Both wells initially produced saltwater at rates less than 3,000 barrels per day to begin reducing reservoir pressure and salt water content, a precursor to achieving projected oil and liquids-rich natural gas production. The high volumes of salt water are economically disposed into our joint venture's wholly owned disposal well.  Subsequently, the operator installed higher capacity pumps to increase salt water production closer to 4,000 to 8,000 barrels per day rates that other operators in the area have identified as sometimes required.  Reservoir pressure in each well has gradually declined and both wells are now producing modest amounts of oil and gas production. We have analyzed our wells in comparison to nearby wells drilled by other operators with good reported results to determine possible causes for our less than expected oil and gas rates and have determined that the laterals in our wells are located approximately 40'-50' lower in zone. Consequently, we have proposed to drill a third well higher in the reservoir to further test this project. Our independent reservoir engineer assigned 114 total gross drilling locations to our joint venture leasehold, and we expect to ramp up our development drilling activity in fiscal 2014 assuming that the third well test is successful. Subsequent to the end of the quarter, we elected to reduce our interest in the joint venture's remaining undeveloped leasehold from 45% to 34% by not paying the remaining balance of the initial purchase price. Those funds will instead be redeployed in the drilling the third evaluation well.

GARP® Technology Commercialization

We reached agreement to install our GARP® artificial lift technology in a third joint venture well with one partner in the Giddings Field, the Appelt #1G, and expect to complete the installation during the fourth quarter of fiscal 2013. We also acquired sufficient new leases to begin work on the installation of GARP® on a previously abandoned well in the Giddings Field, the Philip DL #1, in which we will own 100% of the working interest. The Select Lands #1 joint venture well, in which we successfully installed GARP® during Q2-13 and dramatically increased production, was adversely impacted by the hydraulic fracturing of an offset well, and we have temporarily shut in the well.

We are continuing the commercialization effort for GARP® and are in discussions with multiple parties to demonstrate or launch a broad program of GARP® installations.

Other Fields

We are continuing efforts to monetize the remaining non-GARP® properties in the Giddings Field, excluding our retained royalty interests, and reached a tentative agreement for their sale subsequent to the end of the quarter.  

Our first two Mirando Sand oil wells in the Lopez Field in South Texas continue to produce at better than expected rates and a third lease oil well is producing small amounts of oil.  Although the performance to date has confirmed the project potential and we have numerous additional drilling locations, the long lead time to achieve material economic results in an expansion of the project outside of the Lopez Field has led to a noncore designation and consideration for divestment.

Capital Expenditures and Liquidity

Capital expenditures during the quarter were minimal due to our deferral of drilling in the Mississippian Lime project. Capital expenditures through the rest of Fiscal 2013 are expected to be focused on the two pending GARP® installations and initial costs of drilling a third producer well in the Mississippian Lime project. 

At March 31, 2013, we had cash and cash equivalents of $22 million compared to $18.0 million as of the end of the previous quarter and $14 million as of June 30, 2012.  Our current working capital of $21 million is more than sufficient to meet our projected capital expenditures during the balance of Fiscal 2013, any likely expansions and projected capital expenditures through the balance of the calendar year. We continue to be debt free.

Conference Call

Evolution Petroleum will host a conference call on Wednesday, May 8th at 11:00 a.m. Eastern Time (10:00 a.m. Central) to discuss results of the quarter. To access the call, please dial 1-800-860-2442, 1-412-858-4600 (International) or 1-866-605-3852 (Canada).  The conference call will also be broadcast live via the Internet and can be accessed through Evolution's corporate website at www.evolutionpetroleum.com.

About Evolution Petroleum

Evolution Petroleum Corporation develops incremental petroleum reserves and shareholder value by applying conventional and specialized technology to known oil and gas resources, onshore in the United States.   Principal assets as of June 30, 2012 include 13.4 MMBOE of proved reserves and 12.7 MMBOE of probable reserves and no debt, which do not include the effect of the Giddings Field divestments and interest reduction in the Mississippian Lime project.  Producing assets include a CO2-EOR project with growing production in Louisiana's Delhi Field, and noncore producing properties and drilling locations in the Giddings Field of Central Texas and Lopez Field in South Texas.  Other assets include a patented artificial lift technology designed to extend the life of horizontal wells with oil or associated water production.  Additional information, including the Company's annual report on Form 10-K and its quarterly reports on Form 10-Q, is available on its website at (www.evolutionpetroleum.com).

Cautionary Statement

All statements contained in this press release regarding potential results and future plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update or review any forward-looking statement, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, those factors that are disclosed under the heading "Risk Factors" and elsewhere in our documents filed from time to time with the United States Securities and Exchange Commission and other regulatory authorities. Statements regarding our ability to complete transactions, successfully apply technology applications in the re-development of oil and gas fields, realize future production volumes, realize success in our drilling and development activity and forecasts of legal claims, prices, future revenues and income and cash flows and other statements that are not historical facts contain predictions, estimates and other forward-looking statements. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved and these statements will prove to be accurate. Important factors could cause actual results to differ materially from those included in the forward-looking statements.

 

Company Contact:

Sterling McDonald, VP & CFO

(713) 935-0122

smcdonald@evolutionpetroleum.com

 - Financial Tables to Follow -

 


Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)












Three Months Ended



Nine Months Ended





March 31,



March 31,





2013



2012



2013



2012


Revenues














Crude oil


$

5,947,015


$

4,532,942


$

15,331,836


$

12,212,738


Natural gas liquids



27,067



128,319



233,234



499,745


Natural gas



36,485



187,273



385,101



667,609


Total revenues



6,010,567



4,848,534



15,950,171



13,380,092
















Operating Costs














Lease operating expenses



525,425



662,461



1,260,922



1,277,848


Production taxes



13,895



15,165



56,131



47,925


Depreciation, depletion and amortization



281,306



316,665



928,342



834,351


Accretion of discount on asset retirement obligations



17,232



20,124



56,090



56,712


General and administrative expenses *



1,778,178



1,560,658



5,298,878



4,454,091


Total operating costs



2,616,036



2,575,073



7,600,363



6,670,927
















Income from operations



3,394,531



2,273,461



8,349,808



6,709,165
















Other














Interest income



5,495



6,205



16,725



20,163


Interest (expense)



(16,308)



(5,577)



(49,300)



(5,577)





(10,813)



628



(32,575)



14,586
















Net income before income taxes



3,383,718



2,274,089



8,317,233



6,723,751
















Income tax provision



986,676



805,989



2,801,393



2,686,778
















Net Income


$

2,397,042


$

1,468,100


$

5,515,840


$

4,036,973
















Dividends on Preferred Stock



168,575



168,575



505,726



461,815
















Net income available to common shareholders


$

2,228,467


$

1,299,525


$

5,010,114


$

3,575,158
















Basic


$

0.08


$

0.05


$

0.18


$

0.13
















Diluted


$

0.07


$

0.04


$

0.16


$

0.11
















Weighted average number of common shares




























Basic



28,201,106



27,816,963



28,069, 285



27,759,487
















Diluted



32,090,152



31,785,184



31,911,808



31,558,152

















*General and administrative expenses for the three months ended March 31, 2013 and 2012 included non-cash stock-based compensation expense of $392,433 and $354,469, respectively. For the corresponding nine month periods, non-cash stock-based compensation expense was $1,139,802 and $1,126,034, respectively.

 


Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)












March 31,



June 30,





2013



2012


Assets








Current assets








Cash and cash equivalents


$

21,694,734


$

14,428,548


Certificates of deposit



250,000



250,000


Receivables








Oil and natural gas sales



2,125,506



1,343,347


Joint interest partner



10,529



96,151


Income taxes



92,885



92,885


Other



21,267



190


Deferred tax asset



162,746



325,235


Prepaid expenses and other current assets



144,149



233,433


Total current assets



24,501,816



16,769,789










Property and equipment, net of depreciation, depletion, and amortization








Oil and natural gas properties — full-cost method of accounting, of which $5,349,286 and $6,042,094 at March 31, 2013 and June 30, 2012, respectively, were excluded from amortization



40,251,521



40,476,172


Other property and equipment



58,962



92,271


Total property and equipment



40,310,483



40,568,443










Advances to joint interest operating partner



--



1,366,921


Other assets



261,695



250,333










Total assets


$

65,073,994


$

58,955,486










Liabilities and Stockholders' Equity








Current liabilities








Accounts payable


$

296,845


$

407,570


Due joint interest partner



1,317,559



3,217,975


Accrued compensation



882,298



1,005,624


Royalties payable



177,942



294,013


Income taxes payable



426,693



91,967


Other current liabilities



199,805



71,768


Total current liabilities



3,301,142



5,088,917










Long term liabilities








Deferred income taxes



8,069,553



6,205,093


Asset retirement obligations



824,815



968,677


Deferred rent



57,151



70,011










Total liabilities



12,252,661



12,332,698










Commitments and contingencies (Note 11)
















Stockholders' equity








Preferred stock, par value $0.001; 5,000,000 shares authorized:8.5% Series A Cumulative Preferred Stock, 1,000,000 shares authorized, 317,319 shares issued and outstanding at March 31, 2013, and June 30, 2012 with a liquidation preference of $25.00 per share 



317

 



317


Common stock; par value $0.001; 100,000,000 shares authorized; issued 29,190,858
shares at March 31, 2013, and 28,670,424 at June 30, 2012; outstanding 28,400,041
shares and 27,882,224 shares as of March 31, 2013 and June 30, 2012, respectively  



29,190



28,670


Additional paid-in capital



30,626,695



29,416,914


Retained earnings



23,069,023



18,058,909





53,725,225



47,504,810


Treasury stock, at cost, 790,817 shares and 788,200 shares as of March 31, 2013 and
 June 30, 2012, respectively



(903,892)



(882,022)










Total stockholders' equity



52,821,333



46,622,788










Total liabilities and stockholders' equity


$

65,073,994


$

58,955,486


 

Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)









Nine Months Ended
March 31,





2013



2012


Cash flows from operating activities








Net Income


$

5,515,840


$

4,036,973


Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation, depletion and amortization



958,566



837,673


Stock-based compensation



1,139,802



1,126,034


Accretion of discount on asset retirement obligations



56,090



56,712


Settlements of asset retirement obligations



(52,905)



(30,969)


Deferred income taxes



2,026,948



1,978,496


Deferred rent



(12,860)



(11,115)


Changes in operating assets and liabilities:








Receivables from oil and natural gas sales



(782,159)



(523,077)


Receivables from income taxes and other



(21,077)



8,346


Due to/from joint interest partner



20,105



78,110


Prepaid expenses and other current assets



89,284



(81,423)


Accounts payable and accrued expenses



(117,183)



32,397


Royalties payable



(47,339)



(213,316)


Income taxes payable



334,726



34,102


Net cash provided by operating activities



9,108,950



7,328,943










Cash flows from investing activities








Proceeds from asset sales



3,054,976



103,184


Capital expenditures for oil and natural gas properties



(4,395,350)



(2690,604)


Capital expenditures for other property and equipment



--



(47,475)


Other assets



(29,083)



(27,295)


Net cash used in investing activities



(1,369,457)



(2,662,190)










Cash flows from financing activities








Proceeds from issuances of preferred stock, net



--



6,930,535


Preferred stock dividends paid



(505,726)



(461,815)


Proceeds from exercises of stock options



70,500



---


Purchases of treasury stock



(21,870)




Deferred loan costs



(16,211)



(159,494)


Net cash provided by (used in) financing activities



(473,307)



6,309,226










Net increase in cash and cash equivalents



7,266,186



10,975,979










Cash and cash equivalents, beginning of period



14,428,548



4,247,438










Cash and cash equivalents, end of period


$

21,694,734


$

15,223,417


















 

Our supplemental disclosures of cash flow information for the nine months ended March 31, 2013 and 2012 are as follows:

 



Nine Months Ended




March 31,




2013


2012


Income taxes paid

$

304,874

$

610,000








Income tax refunds received



28,680








Non-cash transactions:






Change in accounts payable used to acquire oil and natural gas leasehold interests
and develop oil and natural gas properties


(58,675)


(97,583)


Change in due to joint interest partner used to acquire oil and natural gas leasehold
interests and develop oil and natural gas properties


(467,978)



Oil and natural gas properties incurred through recognition of asset retirement
obligations


8,558


59,936


 

Results of Operations – Quarter











Three Months Ended
March 31,




%




2013


2012


Variance


Change












Sales Volumes, net to the Company:




















Crude oil (Bbl)


53,699


40,576


13,123


32.3

%











NGLs (Bbl)


857


3,044


(2,187)


(71.8)%












Natural gas (Mcf)


10,743


76,244


(65,501)


(85.9)%


Crude oil, NGLs and natural gas (BOE)


56,347


56,327


20


0.0

%











Revenue data:




















Crude oil

$

5,947,015

$

4,532,942

$

1,414,073


31.2

%











NGLs


27,067


128,319


(101,252)


(78.9)%












Natural gas


36,485


187,273


(150,788)


(80.5)%


Total revenues

$

6,010,567

$

4,848,534

$

1,162,033


24.0

%











Average price:










Crude oil (per Bbl)

$

110.75

$

111.71

$

(0.96)


(0.9)%


NGLs (per Bbl)


31.58


42.15


(10.57)


(25.1)%


Natural gas (per Mcf)


3.40


2.46


0.94


38.2

%

Crude oil, NGLs and natural gas (per BOE)

$

106.67

$

86.08

$

20.59


23.9

%











Expenses (per BOE)










Lease operating expenses

$

9.32

$

11.76

$

(2.44)


(20.7)%


Production taxes

$

0.25

$

0.27

$

(0.02)


(7.4)%


Depletion expense on oil and natural gas
properties (a)

$

4.81

$

5.38

$

(0.57)


(10.6)%






















(a) Excludes depreciation of office equipment, furniture and fixtures, and other assets of $10,305 and $10,242, for the three months ended March 31, 2013 and 2012, respectively.

 

Results of Operations – YTD











Nine Months Ended
March 31,




%




2013


2012


Variance


Change












Sales Volumes, net to the Company:




















Crude oil (Bbl)


145,051


111,250


33,801


30.4

%











NGLs (Bbl)


6,616


9,711


(3095)


(31.9)%












Natural gas (Mcf)


132,822


206,841


(74,019)


(35.8)%


Crude oil, NGLs and natural gas (BOE)


173,804


155,435


18,369


11.8

%











Revenue data:




















Crude oil

$

15,331,836

$

12,212,738

$

3119098


25.5

%











NGLs


233,234


499,745


(266,511)


(53.3)












Natural gas


385,101


667,609


(282,508)


(42.3)%


Total revenues

$

15,950,171

$

13,380,092

$

2,570,079


19.2

%











Average price:










Crude oil (per Bbl)

$

105.70

$

109.78

$

(4.08)


(3.7)%


NGLs (per Bbl)


35.25


51.46


(16.21)


(31.5)%


Natural gas (per Mcf)


2.90


3.23


(0.33)


(10.2)%


Crude oil, NGLs and natural gas (per BOE)

$

91.77

$

86.08

$

5.69


6.6

%











Expenses (per BOE)










Lease operating expenses

$

7.25

$

8.22

$

(0.97)


(11.8)%


Production taxes

$

0.32

$

0.31

$

0.01


3.2

%

Depletion expense on oil and natural gas
properties (a)

$

5.13

$

5.17

$

(0.04)


(0.8)%












(a) Excludes depreciation of office equipment, furniture and fixtures, and other assets of $37,017 and $26,794 for the nine months ended March 31, 2013 and 2012, respectively.

 

SOURCE Evolution Petroleum Corporation



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