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

May 09, 2012, 23:50 ET from Evolution Petroleum Corporation

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



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