Evolution Petroleum Reports Operating Results for First Quarter of Fiscal 2013
HOUSTON, Nov. 7, 2012 /PRNewswire/ — Evolution Petroleum Corporation (NYSE MKT: EPM) today reported operating and financial results for the quarter ended September 30, 2012, its first fiscal quarter of 2013 (“Q1-13″).
Highlights include:
- Earned $1.0 million of net income to common shareholders, up 7% from $0.9 million in the previous quarter (“Q4-12″) and essentially flat compared to the year-ago quarter (“Q1-12″)
- Produced an average 581 net barrels of oil equivalent (“BOE”) per day, essentially flat compared to the prior quarter and 14% higher than the year-ago quarter
- Drilled and completed two new Mississippian Lime oil wells, our first in the oil play out of an inventory of 114 gross drilling locations
- Completed our fourth successful commercial installation of GARP® technology with good results
Robert Herlin, CEO, said: “We are pleased to have maintained production, revenues and earnings for the quarter despite being adversely affected for most of the quarter by the operator’s temporary restricted production in the Delhi Field that carried over from the last quarter. As expected, cooler weather in September allowed the operator to restore production back to pre-summer rates, and we fully expect that equipment planned to be added will prevent a re-occurrence in the future. Indeed, current production has now achieved a record level, reflecting incremental oil response resulting from 2011 capital expenditures and resumption of CO(2) injections at normal rates.”
“We also have completed the drilling and hydraulic fracturing of our first two Mississippian Lime wells in Kay County, Oklahoma and expect to have both on production during the second fiscal quarter.”
“In the first quarter of our fiscal year, we continued to execute our strategy of redeploying internal cash flow generated from our foundation asset, the Delhi Field, into our emerging Mississippian Lime oil project where we have approximately 5,400 net acres, providing us ample running room for a multi-year development plan.”
Financial Results for the Quarter Ended September 30, 2012
Quarterly net income to common shareholders increased 7% to $1.0 million, or $0.03 per share diluted, compared to net income of $0.9 million, or $0.03 per share diluted, for the prior quarter. Current net income was flat compared to the year-ago quarter.
Revenues decreased 6% to $4.3 million compared to the prior quarter, but increased 11% compared to the year-ago quarter. The decline in revenues from the prior quarter was primarily due to a lower mix of oil in our volumes combined with lower oil and NGL prices, partially offset by higher natural gas prices. Revenue increases over the year- ago quarter were due to 14% higher volumes and a greater mix of oil in our volumes, offset by lower commodity prices.
Compared to the prior quarter, operating expense was down 4%, primarily due to lower lease operating expense. Operating expense increased 26% over the year-ago quarter due to the increased number of wells added in the Lopez Field, the Mississippian Lime project and our GARP® initiative, as well as higher depletion expense due to higher sales volumes and a 9% increase in the depletion rate to $5.33 per BOE. Operating expense compared to the year-ago quarter was further impacted by higher bonus accruals, legal expense and public company expense, offset by lower stock compensation expense. Results for all periods included significant non-cash stock compensation expense amounting to 21% of total general and administrative expense in the current quarter, as compared to 30% in the year-ago quarter.
Sales volumes of 581 BOE per day were flat compared to the prior quarter and increased 14% over the year-ago quarter. Compared to the prior quarter, volumes were impacted by a 3% decrease at Delhi as the result of the previously mentioned temporary operational constraint, offset by an 8% increase in other oil volumes due to the Lopez Field and our GARP® program, a 17% increase in NGL volumes and a 10% increase in natural gas volumes. Increases over the year-ago quarter were due primarily to a 15% increase at Delhi, a 44% increase in other crude oil volumes from additions at Lopez and in our GARP® program, and a 9% increase in gas volumes offset by a 4% decrease in NGL volumes.
Our blended product price decreased 8% from the prior quarter and 3% from the year-ago quarter to $80.30 per BOE, both due to a changing mix of volumes and lower overall oil and NGL prices. Our realized natural gas price in the current quarter was 38% lower than the year-ago quarter, but 19% higher than the prior quarter. Please see our 10-Q for the quarter ended September 30, 2012 for additional detail.
Delhi Field
Sales volumes at Delhi averaged 374 net barrels of oil (“BO”) per day (5,057 gross BO per day) during the current quarter, a 3% decrease from the prior quarter and a 15% increase over the year-ago quarter. As previously disclosed, the operator restricted production and CO(2) injection during the summer due to high ambient temperatures and limited cooling capacity that reduced the ability to handle recycle CO(2). As ambient temperatures declined in September, this restriction was lifted and field production was restored to pre-summer rates. Work is planned to add cooling capacity to prevent a re-occurrence. Due to the restriction being lifted and beginning contributions from 2011 capital expenditures, production is now exceeding pre-summer rates. Gross production is forecasted by our independent reservoir engineer to reach a peak level of 11,800 BO per day by late 2017. Project work has been focused since late calendar 2011 on the eastern half of the field.
Our realized oil price was $103.78 per barrel compared to $110.09 in the prior quarter and $105.78 in the year-ago quarter. In the current quarter, we realized a $10.88 premium on our Delhi volumes compared to our Texas oil volumes.
Mississippi Lime
Our primary focus for redeploying cash flow this year is the Mississippian Lime play in north central Oklahoma where we completed the drilling of our first two Mississippian Lime oil wells in Kay County, Oklahoma. In addition to our 45% working interest in a salt water disposal well completed last quarter, we own a 45% working interest in the Sneath #1-24H well and a 36.6% working interest in the Hendrickson #1-1H well. In the Sneath #1-24H, we hydraulically fractured a 3,100′ lateral section in late October, and recently completed the hydraulic fracturing of a 4,000′ lateral section in the Hendrickson #1-1H.
Industry experience to date shows that the Mississippian Lime formation requires dewatering before oil and gas production begins to increase to its peak rate. Consequently, we expect meaningful oil and gas production to begin in both wells during the second fiscal quarter as their reservoirs must be partially depressurized to allow oil and gas production from the rock matrix. We plan to monitor and evaluate the results from the Sneath and Hendrickson wells for the purpose of optimizing drilling and completion techniques in anticipation of full-scale development. We continue to look for opportunities to expand our position in the play.
These wells are the first of 114 gross probable drilling locations assigned by our independent reservoir engineer. Our capital program for fiscal 2013 is primarily focused on this project.
GARP®
We installed our artificial lift technology on a fourth well pursuant to our commercial agreements, converting a well with no production into a 20+ gross BOE per day producer, composed of 5-6 BO per day and more than 90 thousand cubic feet per day of liquids rich natural gas. We own a 99% working interest before payout and a 76.5% working interest after payout. Total gross production from our four commercial installations was 55-60 BOE per day (27-30 net BOE per day) in early November.
Other Fields
Production from our wells in the Giddings Field essentially maintained rates subject to natural declines. Pursuant to our focus on the Mississippian Lime and GARP® projects combined with continued low natural gas prices, we have elected to monetize much of our non-core Giddings interests through agreements in principle that are expected to close during our second fiscal quarter. The sales are expected to significantly lower our overall depletion rate due to the removal of future capital expenditures associated with proved undeveloped reserves having high natural gas content and relatively high development cost.
Lopez Field production continues to improve and benefit from the extensive work-over efforts during the latter portion of fiscal 2012. The Lopez #5 is averaging more than 15 BO per day and the Garcia #1 is averaging approximately 8 BO per day. Our third producer is still in the early stages of dewatering. Overall, we have 37 proved and probable drilling locations on our leases, but are evaluating the potential in South Texas compared to other projects as to scale, profitability and timing.
Capital Expenditures, Liquidity and Capital Resources
Capital expenditures during Q1-13 were $2.7 million, invested primarily to drill two new Mississippian Lime oil wells, one new GARP® installation and other projects. We are on track to achieve our planned 2013 capital plan of $10 million, of which 85% is targeted to drilling new oil wells in our Mississippian Lime growth asset.
At September 30, 2012 we had cash and cash equivalents of $13.1 million, up from $11.6 million from the same period last year, and ended the current quarter with no debt. Existing working capital of $12.8 million and projected cash flows from operations are more than sufficient to fund our remaining 2013 capital budget.
Conference Call
Evolution Petroleum will host a conference call on Thursday, November 8 at 11:00 a.m. Eastern Time (10:00 a.m. Central) to discuss these results. To access the call, please dial 1-800-860-2442 (U.S.), 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, 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 with PV-10* of $445 million and $174 million, respectively, and no debt. Producing assets include a CO(2)-EOR project with growing production in Louisiana’s Delhi Field, and producing wells and proved drilling locations in the Giddings Field of Central Texas and Lopez Field in South Texas. Other assets include a 45% interest in a joint venture with 114 gross (25 net to EPM) probable drilling locations 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 cannot 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
---------------------------
2012 2011
---- ----
Estimated future net
revenues $858,510,526 $741,212,773
10% annual discount for
estimated timing of future
cash flows (412,995,901) (365,874,315)
------------ ------------
Estimated future net
revenues discounted at 10%
(PV-10) 445,514,625 375,338,458
Estimated future income tax
expenses discounted at 10% (161,917,132) (146,890,504)
------------ ------------
Standardized Measure $283,597,493 $228,447,954
============ ============
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
September 30,
2012 2011
---- ----
Revenues
Crude oil $4,005,422 $3,448,595
Natural gas liquids 119,611 188,455
Natural gas 166,513 247,806
------- -------
Total revenues 4,291,546 3,884,856
--------- ---------
Operating Costs
Lease operating expenses 316,169 202,917
Production taxes 21,373 14,035
Depreciation, depletion
and amortization 296,917 236,891
Accretion of discount on
asset retirement
obligations 21,107 16,972
General and
administrative expenses
* 1,705,424 1,405,175
--------- ---------
Total operating costs 2,360,990 1,875,990
--------- ---------
Income from operations 1,930,556 2,008,866
Other
Interest income 5,616 7,246
Interest (expense) (16,428) ---
------- ---
(10,812) 7,246
Net income before income
taxes 1,919,744 2,016,112
Income tax provision 760,218 872,594
Net Income $1,159,526 $1,143,518
Dividends on Preferred
Stock 168,575 127,835
------- -------
Net income
available to
common
shareholders $990,951 $1,015,683
Basic $0.04 $0.04
Diluted $0.03 $0.03
Weighted average number
of common shares
Basic 27,938,297 27,669,355
========== ==========
Diluted 31,763,488 31,279,350
========== ==========
*General and administrative expenses
for the three months ended September
30, 2012 and 2011 included non-cash
stock-based compensation expense of
$353,790 and $416,695, respectively.
Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
September 30, June 30,
2012 2012
---- ----
Assets
Current assets
Cash and cash equivalents $13,134,457 $14,428,548
Certificates of deposit 250,000 250,000
Receivables
Oil and natural gas sales 1,616,515 1,343,347
Joint interest partner 30,390 96,151
Income taxes 92,885 92,885
Other 190 190
Deferred tax asset 325,235 325,235
Prepaid expenses and other current assets 176,803 233,433
------- -------
Total current assets 15,626,475 16,769,789
---------- ----------
Property and equipment, net of depreciation,
depletion, and amortization
Oil and natural gas properties - full-cost
method of accounting, of which $7,782,060 and
$6,042,094 at September 30, 2012 and June 30,
2012, respectively, were excluded from
amortization. 42,313,561 40,476,172
Other property and equipment 80,022 92,271
------ ------
Total property and equipment 42,393,583 40,568,443
---------- ----------
Advances to joint interest operating partner 325,995 1,366,921
Other assets 269,780 250,333
------- -------
Total assets $58,615,833 $58,955,486
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $438,238 $407,570
Due to joint interest partner 1,313,222 3,217,975
Accrued compensation 346,382 1,005,624
Royalties payable 242,203 294,013
Income taxes payable 183,289 91,967
Other current liabilities 256,759 71,768
------- ------
Total current liabilities 2,780,093 5,088,917
Long term liabilities
Deferred income taxes 6,804,145 6,205,093
Asset retirement obligations 998,342 968,677
Deferred rent 65,724 70,011
------ ------
Total liabilities 10,648,304 12,332,698
---------- ----------
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 authorized,
317,319 shares issued and outstanding at
September 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 28,840,163 shares
at September 30, 2012 and 28,670,424 at June
30, 2012; outstanding 28,051,963 shares and
27,882,224 shares as of September 30, 2012
and June 30, 2012, respectively 28,840 28,670
Additional paid-in capital 29,770,534 29,416,914
Retained earnings 19,049,860 18,058,909
---------- ----------
48,849,551 47,504,810
Treasury stock, at cost, 788,200 shares as of
September 30, 2012 and June 30, 2012 (882,022) (882,022)
-------- --------
Total stockholders' equity 47,967,529 46,622,788
---------- ----------
Total liabilities and stockholders'
equity $58,615,833 $58,955,486
Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
-------------
2012 2011
---- ----
Cash flows from operating activities
Net Income $1,159,526 $1,143,518
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 307,129 236,891
Stock-based compensation 353,790 416,695
Accretion of discount on asset retirement
obligations 21,107 16,972
Settlements of asset retirement obligations (22,211) (30,969)
Deferred income taxes 599,052 659,767
Accrued compensation Accrued compensation (180,000)
Deferred rent (4,287) (2,542)
Changes in operating assets and liabilities:
Receivables from oil and natural gas sales (273,168) 106,424
Receivables from income taxes and other Receivables from income taxes and other 28,678
Due to/from joint interest partner (49,344) (25,964)
Prepaid expenses and other current assets 56,630 (83,359)
Accounts payable and accrued expenses (637,799) (108,329)
Royalties payable (51,810) (387,747)
Income taxes payable 161,166 144,246
------- -------
Net cash provided by operating activities 1,619,781 1,934,281
--------- ---------
Cash flows from investing activities
Acquisitions of oil and natural gas properties (743,720) (167,964)
Development of oil and natural gas properties (1,868,892) (311,739)
Advances to joint venture operating partner (101,790) -
Other assets (14,684) (13,771)
------- -------
Net cash used in investing activities (2,729,086) (493,474)
---------- --------
Cash flows from financing activities
Proceeds from issuances of preferred stock,
net --- 6,054,456
Preferred stock dividends paid (168,575) (127,835)
Deferred loan costs (16,211) ---
------- ---
Net cash provided by (used in) by financing
activities (184,786) 5,926,621
-------- ---------
Net increase (decrease) in cash and cash
equivalents (1,294,091) 7,367,428
Cash and cash equivalents, beginning of period 14,428,548 4,247,438
---------- ---------
Cash and cash equivalents, end of
period $13,134,457 $11,614,866
Our supplemental disclosures of cash
flow information for the three
months ended September 30, 2012 and
2011 are as follows:
Three Months Ended
September 30,
2012 2011
---- ----
Income taxes paid $ - $ -
Non-cash transactions:
Change in accounts payable used to
acquire oil and natural gas
leasehold interests and develop
oil and natural gas properties 124,372 (136,610)
Change in due to joint interest
partner used to acquire oil and
natural gas leasehold interests
and develop oil and natural gas
properties (646,932) ---
Change in accounts payable related
to joint venture activities --- 225,438
Oil and natural gas properties
incurred through recognition of
asset retirement obligations 8,558 (30,969)
Results of Operations
Three Months Ended
September 30, %
-------------
2012 2011 Variance Change
---- ---- -------- ------
Sales Volumes,
net to the
Company:
Crude oil (Bbl) 39,082 33,160 5,922 17.9%
NGLs (Bbl) 3,381 3,522 (141) (4.0)%
Natural gas
(Mcf) 65,869 60,707 5,162 8.5%
------ ------ ----- ---
Crude oil, NGLs
and natural gas
(BOE) 53,441 46,800 6,641 14.2%
Revenue data:
Crude oil $4,005,422 $3,448,595 $556,827 16.1%
NGLs 119,611 188,455 (68,844) (36.5)%
Natural gas 166,513 247,806 (81,293) (32.8)%
------- ------- ------- ------
Total revenues $4,291,546 $3,884,856 $406,690 10.5%
Average price:
Crude oil (per
Bbl) $102.49 $104.00 $(1.51) (1.5)%
NGLs (per Bbl) 35.38 53.51 (18.13) (33.9)%
Natural gas (per
Mcf) 2.53 4.08 (1.55) (38.0)%
---- ---- ----- ------
Crude oil, NGLs
and natural gas
(per BOE) $80.30 $83.01 $(2.71) (3.3)%
Expenses (per
BOE)
Lease operating
expenses and
production
taxes $6.32 $4.64 $1.68 36.2%
Depletion
expense on oil
and natural gas
properties (a) $5.33 $4.89 $0.44 9.0%
(a) Excludes depreciation of office
equipment, furniture and fixtures,
and other assets of $12,249 and
$7,829, for the three months ended
September 30, 2012 and 2011,
respectively.
SOURCE Evolution Petroleum Corporation
