Evolution Petroleum Reports Fiscal 2012 Third Quarter Results - Net Income increased 3% on record volumes and lower prices

- New oil development project in Mississippian Lime

- Positive results in GARP™ applications

HOUSTON, May 9, 2012 /PRNewswire/ -- Evolution Petroleum Corporation (NYSE Amex: EPM) today reported results for the third fiscal quarter ended March 31, 2012 ("Q3-12" or the "current quarter"), with comparisons to the three months ended December 31, 2011 (the "prior quarter") and the three months ended March 31, 2011 (the "year-ago quarter").

Record net income of $1.3 million, or $0.04 per diluted share attributable to common stockholders ($0.05 basic) was due to record sales volumes, partially offset by reduced margins.  Q3-12 net income increased 3% sequentially over the prior quarter net income of $1.26 million, or $0.04 per diluted share attributable to common stockholders, while increasing 663% over net income of $0.2 million in the year-ago quarter.  The current quarter included approximately $0.35 million of non-cash stock-based compensation expense, down 10% from the year-ago quarter. The current and prior quarters reflect preferred stock dividends of $0.17 million each, with none in the year-ago quarter.

Revenues in Q3-12 increased 4% sequentially to $4.8 million, a 140% increase over the year-ago quarter's $2.0 million. The sequential increase in revenues was due primarily to higher oil and natural gas volumes, partially offset by lower prices for all products. The increase in revenues over the year-ago quarter was primarily due to increased oil and natural gas sales volumes and higher oil prices, partially offset by lower NGL and natural gas prices.

Net oil, NGL and gas volumes for Q3-12 were 56,327 barrels of oil equivalent (619 BOE per day), an 8% increase from the prior quarter's 52,306 BOE (569 BOE per day) and a 95% increase over the year-ago quarter's sales volumes of 28,840 BOE (320 BOE per day). Total volumes in Q3-12 were 72% crude oil and 77% total liquids, essentially unchanged from the prior quarter, providing 96% of total revenues. Compared to the year-ago quarter, sales volumes were favorably impacted by a 177% increase in Delhi production and the addition of two wells completed during Q3-11 in the Giddings Field.

Our blended product price declined 3% sequentially to $86.08 per BOE and increased 23% from the year-ago quarter's $69.94. Our oil price declined 1% sequentially and increased 15% over the year-ago quarter to $111.71 per barrel. NGL prices declined 28% sequentially and 16% over the year-ago quarter to $42.15 per barrel. Our natural gas price for the quarter declined 26% sequentially and declined 37% over the year-ago quarter to $2.46 per thousand cubic feet.

Lease operating expense ("LOE") and production taxes were $0.7 million in Q3-12, a 57% increase compared to $0.4 million in the prior quarter and a 118% increase compared to the year-ago quarter. On a BOE basis, LOE increased 46% and 12% over the prior and year-ago quarters, respectively.  The sequential increase was due primarily to extensive workovers in the Lopez Field in South Texas to determine optimum water disposal methods, and in the Giddings Field where we re-installed gas lift on a well and temporarily incurred higher water hauling costs during a workover of our wholly owned water disposal well. The increase over the year-ago quarter was due also to the addition of four additional wells in the Lopez Field in Q2-12 and two additional wells at Giddings during Q3-11. 

Depreciation, depletion and amortization expense ("DD&A") in Q3-12 increased 13% to $0.32 million over the prior quarter's $0.28 million, and 139% over the year-ago quarter's $0.13 million, all on higher unit sales volumes. On a BOE basis, the 25% year-over-year increase in our depletion rate ($5.38 vs. $4.31 per BOE) is primarily due to the accelerated projected working interest reversion date in the June 30, 2011 reserve report for Delhi that resulted in our bearing a pro rata share of capital expenditures for the last phase of development, partially offset by increased proved reserves.

Working capital increased to $15.9 million on March 31, 2012 compared to $13.9 million on December 31, 2011 and $4.1 million on June 30, 2011, our fiscal year-end.  We remain debt free. The $11.8 million increase in working capital during the fiscal year was due primarily to $6.9 million of net proceeds from sales of our preferred stock and $8.0 million provided by operations before changes in working capital, offset by $2.7 million of capital expenditures, and the payment of $0.5 million of preferred stock dividends. No sales of our preferred stock have occurred since late October.

Robert Herlin, President and Chief Executive Officer, said: "Delhi continues to perform well and current production reflects only a small portion of the extensive work done in 2011. The operator is now expanding the project into the eastern half of the field, which is consistent with our long-term forecast.

We have added a new project in the Mississippian Lime play, providing us an attractive, oil-prone play in which to reinvest our near-term Delhi cash flows, thereby growing oil production, reserves and value per share.

We are also very pleased with the results to date in our South Texas oil project and in our initial GARP™ commercial installations. Results encourage us that our South Texas redevelopment concept now appears to be working as expected and that our artificial lift technology has commercial viability.  We look forward to expanding both projects."

Delhi CO2 – Enhanced Oil Recovery Project (EOR)
Delhi Field sales volumes averaged 5,474 gross (405 net) barrels of oil ("BO") per day during Q3-12, up 9.5% sequentially over the 4,946 gross (366 net) BO per day rate in the prior quarter and 177% over the 2,003 gross (148 net) BO per day in the year-ago quarter. All net sales at Delhi are currently generated by our 7.4% royalty interest.   

During Q3-12, the average price we received for Delhi crude oil was $113 per barrel, down 2% sequentially from $115 in the prior quarter and up 14% from $99 in the year-ago quarter.  In Q3-12 Delhi's Louisiana Light Sweet pricing continued to receive a  premium, averaging 10% higher than the average daily spot price for WTI at Cushing. 

The field operator, Denbury Resources, continued to expand the EOR project into the eastern half of the Delhi Field during the quarter. Projected gross capital expenditures during calendar 2012 are expected to reach $64 million. We do not bear any capital expenditures in the project until our working interest reversion occurs, which is projected in our independent reserves report to occur in late 2013.

Artificial Lift Technology (GARP™)
Two commercialization demonstrations of our patented gas assisted rod pump technology ("GARP™") with industry partners are underway. 

The first application was installed in December 2011.  Excluding downtime to replace worn-out pre-existing equipment, our GARP™ installation has yielded stable production averaging in excess of 7 BO per day and 26 thousand cubic feet per day over four months and at a relatively high rate of utilization. We project incremental gross recovery of up to 50 MBOE, and potentially more.

The second application was completed in March 2012 and placed on production shortly thereafter.  Production testing is ongoing and the initial rates suggest a stable rate of 10-15 BO per day to date.

These results indicate that the technology has extended the lives of wells that previously had declined to marginal or uneconomic production levels, while adding up to 25% more reserves. In both demonstration agreements, we are paying the installation cost of the technology and are operating the wells in return for an equity ownership equivalent to a 50% net profits interest in the producing reservoir in the first agreement and a 99% before payout working interest and 76.5% after payout working interest in the second well. One of our partners has already agreed to install GARP™ in a third well in the Giddings Field.

Lopez Oil Field, South Texas
During the quarter we expended considerable efforts and lease operating expense to test and determine the optimum water disposal methods in the Lopez Field, where our oil wells produce at a low decline rate with a high rate of water production. Full installation of these methods requires additional regulatory permits that are pending. Oil production from the first producing oil well drilled and completed in the previous quarter is currently exceeding expectations and production testing of the second drilled oil producer is pending receipt of permits. We are planning further development in the field to begin this summer.

Giddings Field, Central Texas
Sales volumes at Giddings increased 4.9% sequentially from the prior quarter to 210 BOE per day, mostly due to successful well work-overs, and 24.5% over the year-ago quarter due to 0.6 new net wells (3 gross) being brought online in fiscal Q2-11 and Q3-11. During Q3-12 we completed the farmout of our Woodbine rights in 258 net acres in northern Grimes County in exchange for cash, a 5% royalty and a 15% reversionary working interest.  Subsequent to the quarter, we completed a second farmout of our Woodbine rights in 670 net acres in the same area in exchange for cash and a 5% royalty interest. We still retain Woodbine rights in about 1,151 net acres in northern Grimes County that may be prospective.

With remaining proved undeveloped locations in the field averaging less than 50% liquids, we are exploring options to maximize our Giddings asset values.

Mississippi Lime Joint Venture
We previously announced our plan to redeploy near-term Delhi cash flows into one or more new development projects that are oil-focused, utilize our horizontal drilling expertise, have substantial room to expand, have reasonable drilling and completion costs and are easily accessible.

Subsequent to the end of Q3-12, we entered the oil-prone Mississippi Lime play by way of a joint venture ("JV") with a private company based in Tulsa, Oklahoma. The JV initially covers 11,700 net acres in central Kay County in north central Oklahoma, with the Mississippian Lime formation well-defined by previous vertical development. We own a 45% interest in the JV, which is committed to drill between six and fourteen gross wells over the next twelve months.

Our initial cash outlay of $4 million included the purchase of our 45% share of the JV leasehold and prepayment of a portion of our drilling and completions costs for the first three commitment wells.  Our acquisition cost also includes carrying our partner for a minor portion of their drilling and completion costs over the twelve months totaling an incremental $2.0 million cash outlay.

Our initial position is equivalent to 5,265 net acres and up to 25-33 net drilling locations, providing multi-year visible growth potential that we expect to expand through additional leasing and forced pooling.

Earnings Call
Evolution Petroleum will host an investor conference call to review third quarter results on Thursday, May 10, 2012 at 11:00 a.m. Eastern (10:00 a.m. Central).  The call will be led by Robert Herlin, Chairman and CEO, and Sterling McDonald, CFO. The conference can be accessed by calling 877-317-6789 (in the U.S.), 866-605-3852 (in Canada) or 412-317-6789 (International) and reference passcode 10014136.  A replay will be available until 9:00 a.m. ET on May 14, 2012 at 877-344-7529 (U.S.) or 412-317-0088 (International) and again callers must reference passcode 10014136. An archive of the webcast will be available after the call on the Company's website.

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, 2011 include 13.8 MMBOE of proved and 6.2 MMBOE of probable reserves with a PV10* of $375 million and $76 million, respectively, and no debt.  Producing assets include a CO2-EOR project with growing production in Louisiana's Delhi Field, horizontal wells in the Giddings Field of Central Texas and producing test wells in South Texas.  Other assets include a 45% interest in a joint venture that holds 11,700 net acres in the Mississippian Lime play in Oklahoma and 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.

* PV-10 of proved reserves is a pre-tax non-GAAP measure reconciled to the after-tax Standardized Measure of Future Net Cash Flows below.  We believe that the presentation of the non-GAAP financial measure of PV-10 provides useful and relevant information to investors because of its wide use by analysts and investors in evaluating the relative monetary significance of oil and natural gas properties, and as a basis for comparison of the relative size and value of our reserves to other companies' reserves.  We also use this pre-tax measure when assessing the potential return on investment related to oil and natural gas properties and in evaluating acquisition opportunities.  Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating our Company.  PV-10 is not a measure of financial or operating performance under GAAP, nor is it intended to represent the current market value of our estimated oil and natural gas reserves. PV-10 should not be considered in isolation or as a substitute for the Standardized Measure as defined under GAAP, and reconciled below.  Probable reserves are not recognized by GAAP, and therefore the PV-10 of probable reserves can not be reconciled to a GAAP measure.

The following table provides a reconciliation of PV-10 of each of our proved properties to the Standardized Measure.


For the Years Ended June 30





2011



2010











Estimated future net revenues

$

741,212,773


$

571,052,096



10% annual discount for estimated timing of future cash flows


(365,874,315)



(305,073,753)



Estimated future net revenues discounted at 10% (PV-10)


375,338,458



265,978,343



Estimated future income tax expenses discounted at 10%


(146,758,468)



(104,351,694)



Standardized Measure

$

228,579,990


$

161,626,649




Company Contact:

Sterling McDonald, VP & CFO

(713) 935-0122

smcdonald@evolutionpetroleum.com



- Financial Tables to Follow -

 

 

Evolution Petroleum Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)









Three Months Ended


Nine Months Ended




March 31,


March 31,




2012


2011


2012


2011


Revenues










Crude oil


$

4,532,942


$

1,607,521


$

12,212,738


$

3,034,333


Natural gas liquids


128,319


228,050


499,745


669,463


Natural gas


187,273


181,504


667,609


661,807


Total revenues


4,848,534


2,017,075


13,380,092


4,365,603












Operating Costs










Lease operating expenses


662,461


284,577


1,277,848


950,382


Production taxes


15,165


26,308


47,925


54,084


Depreciation, depletion and amortization


316,665


132,516


834,351


358,963


Accretion of asset retirement obligations


20,124


16,233


56,712


43,314


General and administrative expenses *


1,560,658


1,359,161


4,454,091


3,976,115


Total operating costs


2,575,073


1,818,795


6,670,927


5,382,858












Income (loss) from operations


2,273,461


198,280


6,709,165


(1,017,255)












Other income (expense)










    Interest income


6,205


1,562


20,163


13,034


Deferred loan cost amortization and bank fees


(5,577)


---


(5,577)


---












Net income (loss) before income tax benefit


2,274,089


199,842


6,723,751


(1,004,221)












Income tax (provision) benefit


(805,989)


(29,416)


(2,686,778)


227,778












Net Income (loss) attributable to the Company


$

1,468,100


$

170,426


$

4,036,973


$

(776,443)












Dividends on Preferred Stock


168,575



461,815













Earnings (loss) attributable to common shareholders


$

1,299,525


$

170,426


$

3,575,158


$

(776,443)












Basic


$

0.05


$

0.01


$

0.13


$

(0.03)












Diluted


$

0.04


$

0.01


$

0.11


$

(0.03)












Weighted average number of common shares




















Basic


27,816,963


27,521,957


27,759,487


27,379,023












Diluted


31,785,184


30,833,505


31,558,152


27,379,023



*General and administrative expenses for the three months ended March 31, 2012 and 2011 included non-cash stock-based compensation expense of $354,469 and $392,533, respectively.  For the corresponding nine month periods' non-cash stock-based compensation expense was $1,126,034 and $1,143,413, respectively.



Evolution Petroleum Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)









March 31,


June 30,




2012


2011


Assets






Current assets






Cash and cash equivalents


$

15,223,417


$

4,247,438


Certificates of deposit


250,000


250,000


Restricted cash from joint interest partner


60,565


118,194


Receivables






Oil and natural gas sales


2,082,481


1,559,404


Joint interest partner


20,622


86,105


Income taxes


20,224


28,680


Other


311


167


Prepaid expenses and other current assets


149,275


67,852


Total current assets


17,806,895


6,357,840








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






Oil and natural gas properties — full-cost method of accounting, of which $695,544 and $2,940,199 at March 31, 2012 and June 30, 2011, respectively, were excluded from amortization.


35,189,511


33,447,564


Other property and equipment


89,943


69,262


Total property and equipment


35,279,454


33,516,826








Other assets


260,753


77,287








Total assets


$

53,347,102


$

39,951,953








Liabilities and Stockholders' Equity






Current liabilities






Accounts payable


$

534,544


$

514,177


Joint interest advances


60,565


105,567


Accrued compensation


620,099


682,850


Royalties payable


529,335


742,651


Income taxes payable


116,224


82,122


Other current liabilities


61,493


84,565


Total current liabilities


1,922,260


2,211,932








Long term liabilities






Deferred income taxes


5,308,762


3,330,266


Asset retirement obligations


945,265


859,586


Deferred rent


74,297


85,412


Unsecured revolving credit agreement


---


---








Total liabilities


8,250,584


6,487,196








Commitments and contingencies`












Stockholders' equity






Preferred stock, par value $0.001; 5,000,000 shares authorized: 8.5% Series A Cumulative Preferred Stock, 1,000,000 shares designated, 317,319 shares issued and outstanding at March 31, 2012, with a total liquidation preference of $7,932,975 ($25.00 per share)


317



Common stock; par value $0.001; 100,000,000 shares authorized and 28,605,163 shares issued; outstanding 27,816,963 shares and 27,612,916 shares at March 31, 2012 and June 30, 2011, respectively.


28,605


28,400


Additional paid-in capital


28,817,290


20,761,209


Retained earnings


17,132,328


13,557,170




45,978,540


34,346,779


Treasury stock, at cost, 788,200 shares as of March 31, 2012 and June 30, 2011.


(882,022)


(882,022)








Total stockholders' equity


45,096,518


33,464,757








Total liabilities and stockholders' equity


$

53,347,102


$

39,951,953




Evolution Petroleum Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)







Nine Months Ended

March 31,




2012


2011


Cash flows from operating activities






Net Income (loss) attributable to the Company


$

4,036,973


$

(776,443)


Adjustments to reconcile net income (loss) to net cash provided by operating activities:






Depreciation, depletion and amortization


837,673


358,963


Stock-based compensation


1,126,034


1,143,413


Accretion of asset retirement obligations


56,712


43,314


Payments on asset retirement obligations


(30,969)


(1,847)


Deferred income taxes


1,978,496


(261,965)


Deferred rent


(11,115)


2,833


Other




32,080


Changes in operating assets and liabilities:






Receivables from oil and natural gas sales


(523,077)


(526,375)


Receivables from income taxes and other


8,346


1,125,374


Due from joint interest partner


78,110


(230,227)


Prepaid expenses and other current assets


(81,423)


(70,060)


Accounts payable and accrued expenses


32,397


273,286


Royalties payable


(213,316)


433,113


Income taxes payable


34,102


(7,683)


Net cash provided by (used in) operating activities


7,328,943


1,537,776








Cash flows from investing activities






Proceeds from asset sale


103,184


231,326


Development of oil and natural gas properties


(2,386,332)


(2,320,102)


Acquisitions of oil and natural gas properties


(304,272)


(814,323)


Capital expenditures for other property and equipment


(47,475)


---


Maturities of certificates of deposit


---


1,100,000


Other assets


(27,295)


(25,532)


Net cash used in investing activities


(2,662,190)


(1,828,631)








Cash flows from financing activities






Proceeds from the issuance of restricted stock


---


28


Proceeds from the exercise of stock options


---


106,049


Proceeds from issuances of preferred stock, net


6,930,535


---


Preferred stock dividends paid


(461,815)


---


Deferred loan costs


(159,494)


---


Net cash provided by financing activities


6,309,226


106,077








Net increase (decrease) in cash and cash equivalents


10,975,979


(184,778)








Cash and cash equivalents, beginning of period


4,247,438


3,138,259








Cash and cash equivalents, end of period


$

15,223,417


$

2,953,481




Our supplemental disclosures of cash flow information for the nine months ended March 31, 2012 and 2011 are as follows:




Nine Months Ended




March 31,




2012


2011


Income taxes paid


$

610,000


$

152,000


Income tax refunds and carry backs received


$

28,680


$

979,177


Non-cash transactions:






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


$

(97,853)


$

(196,557)


Increase in accounts payable related to joint venture activities


$

---


$

144,942


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


$

(59,936)


$

(25,115)




Results of Operations - Quarter











Three Months Ended








March 31




%




2012


2011


Variance


change












Sales Volumes, net to the Company:




















Crude oil (Bbl)


40,576


16,604


23,972


144.4

%











NGLs (Bbl)


3,044


4,533


(1,489)


(32.8)

%











Natural gas (Mcf)


76,244


46,220


30,024


65.0

%

Crude oil, NGLs and natural gas (BOE)


56,327


28,840


27,487


95.3

%











Revenue data:




















Crude oil


$

4,532,942


$

1,607,521


$

2,925,421


182.0

%











NGLs


128,319


228,050


(99,731)


(43.7)

%











Natural gas


187,273


181,504


5,769


3.2

%

Total revenues


$

4,848,534


$

2,017,075


$

2,831,459


140.4

%











Average price:










Crude oil (per Bbl)


$

111.71


$

96.82


$

14.89


15.4

%

NGLs (per Bbl)


42.15


50.31


(8.16)


(16.2)

%

Natural gas (per Mcf)


2.46


3.93


(1.47)


(37.5)

%

Crude oil, NGLs and natural gas (per BOE)


$

86.08


$

69.94


$

16.14


23.1

%











Expenses (per BOE)










Lease operating expenses and production taxes


$

12.03


$

10.78


$

1.25


11.6

%

Depletion expense on oil and natural gas properties (a) 


$

5.38


$

4.31


$

1.07


24.8

%


(a)  Excludes depreciation of office equipment, furniture and fixtures, and other of $10,242 and $8,215, for the three months ended March 31, 2012 and 2011, respectively.  For the three months ended March 31, 2012, amortization of deferred loan costs of $3,323 is also excluded.



Results of Operations – YTD











Nine months Ended








March 31




%




2012


2011


Variance


change












Sales Volumes, net to the Company:




















Crude oil (Bbl)


111,250


34,670


76,580


220.9

%











NGLs (Bbl)


9,711


14,621


(4,910)


(33.6)

%











Natural gas (Mcf)


206,841


163,735


43,106


26.3

%

Crude oil, NGLs and natural gas (BOE)


155,435


76,580


78,855


103.0

%











Revenue data:




















Crude oil


$

12,212,738


$

3,034,333


$

9,178,405


302.5

%











NGLs


499,745


669,463


(169,718)


(25.4)

%











Natural gas


667,609


661,807


5,802


0.9

%

Total revenues


$

13,380,092


$

4,365,603


$

9,014,489


206.5

%











Average price:










Crude oil (per Bbl)


$

109.78


$

87.52


$

22.26


25.4

%

NGLs (per Bbl)


51.46


45.79


5.67


12.4

%

Natural gas (per Mcf)


3.23


4.04


(0.81)


(20.1)

%

Crude oil, NGLs and natural gas (per BOE)


$

86.08


$

57.01


$

29.07


51.0

%











Expenses (per BOE)










Lease operating expenses and production taxes


$

8.53


$

13.12


$

(4.59)


(35.0)

%

Depletion expense on oil and natural gas properties (a) 


$

5.17


$

4.35


$

0.82


18.9

%


(a)  Excludes depreciation of office equipment, furniture and fixtures, and other of $26,794 and $25,555 for the nine months ended March 31, 2012 and 2011, respectively.  For the nine months ended March 31, 2012, amortization of deferred loan costs of $3,323 is also excluded.

SOURCE Evolution Petroleum Corporation



RELATED LINKS
http://www.evolutionpetroleum.com

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.