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Evolution Petroleum Reports Record Results for First Quarter Fiscal 2009

November 13, 2008

HOUSTON, Nov. 13 /PRNewswire-FirstCall/ — Evolution Petroleum Corporation today reported financial and operating results for the three month period ended September 30, 2008, the Company’s fiscal first quarter of 2009 (“Q1-09″).

Oil and gas revenues for Q1-09 increased 480% to approximately (“~”) $2.9 million from ~$502,000 for the three months ended September 30, 2007, (“Q1- 08″). The increase in quarterly revenues was due to a 385% increase in sales volumes and a 20% increase in blended oil and gas prices. The substantial increase in sales volumes for Q1-09 was a result of drilling operations in the Giddings Field in central Texas, which generated ~100% of Q1-09 revenues, compared to no revenue contribution in Q1-08. The properties that comprised 98% of Q1-08 revenues were sold in March 2008.

Net cash provided by operations for Q1-09 was ~$2.2 million, a substantial improvement over the net cash used in operating activities of ~$0.8 million during Q1-08. At September 30, 2008, working capital was ~$12.9 million, compared to ~$13.6 million at June 30, 2008. In both periods, the Company was debt-free. Of the $0.7 million net decrease in working capital since June 2008, cash of approximately $4.0 million was used for leasehold acquisition and drilling activities, offset by cash of ~$2.2 million provided by operations and an increase of approximately $1.1 million in net operating assets.

Net income in Q1-09 was $148,437, or $0.01 per diluted share, compared to a net loss of $641,381, or $(0.02) per share during Q1-08. Results for Q1-09 include ~$1.2 million of non-cash charges related to stock based compensation, depreciation, depletion, amortization and accretion on asset retirement obligations, compared to ~$0.5 million of comparable non-cash charges in Q1- 08.

Robert Herlin, President and Chief Executive Officer, commented, “We had a very good quarter and remained in a strong financial position. For the balance of the fiscal year, we expect to continue building intrinsic share value, while maintaining the liquidity to consider opportunities that may arise over the next year due to volatile and uncertain markets. As previously announced, we reduced our capital budget by about 50% in order to focus more on converting unproved resources into proved reserves in our shallow Woodford Shale project in Oklahoma and our new Neptune oil project in Texas. Consequently, our Giddings Field program has been reduced to drilling up to three horizontal re-entries from our inventory of 27 proved drilling locations, with the first well expected to spud by month’s end. Also, we believe that the recent repurchase of our common shares at a small fraction of our estimated intrinsic asset value has positively impacted our value per share. Our substantial working capital, no debt, no near term expiring leases, lower-cost projects and substantial operating control over our major projects in Texas and Oklahoma give us the flexibility to maintain a strong balance sheet while creating value for our shareholders.”

Mr. Herlin further added, “While the wells put on production in the Giddings Field during fiscal 2008 appear to have stabilized at or above September’s average daily sales of 247 net BOE (~309 BOEPD gross), substantially lower received oil and gas prices combined with the current modest production decline rate will adversely impact our results going forward until scheduled new drilling in the Giddings Field and in our other projects yield additional production. It should be noted that none of our projects depend on near term improvements in commodity prices.”

Production Volumes and Prices:

Net production volumes for Q1-09 were 23,772 barrels (“Bbl”) of oil and natural gas liquids and 61.1 million cubic feet of natural gas (“MMCF”), or 33,963 barrels of oil equivalent (“BOE”). This is an increase of 361% over production volumes of 7,360 Bbl of oil (“BO”) and no gas in Q1-08, and an increase of 25% over the 27,095 BOE produced in fiscal Q4-08. The average price of oil rose to $123.03 per BO in Q1-09, an increase of 72% from $71.41 per BO in Q1-08. The average price of natural gas was $9.49 per Mcf and was $68.29 per Bbl of natural gas liquids in Q1-09, with no natural gas or NGL’s produced in Q1-08. On a BOE basis, the blended effective price was $85.51 in Q1-09, an increase of 20% from Q1-08.

Costs and Expenses

Lease operating expenses per BOE for Q1-09 declined 73% over Q1-08 to $12.22, due to a much lower unit lifting costs in the Giddings Field as compared to the divested Tullos Field.

Depreciation, Depletion & Amortization Expense (“DD&A”) increased to $644,882 or $18.63 per BOE for Q1-09, from $110,443 or $13.11 per BO in Q1-08. The increase was primarily due to a higher depletion rate per BOE applied to higher sales volumes in the current period. The increase in the depletion rate is a result of the higher development cost of PUDs in the Giddings Field that we added in replacement of our lower cost PDP’s from our properties in the Tullos Field Area, which we sold in March 2008.

General and administrative (“G&A”) expenses increased 10% to ~$1.5 million for Q1-09, as compared to ~$1.3 million for Q1-08. Higher overall compensation expense for estimated bonuses and staff additions during fiscal 2008, including non-cash stock based compensation, accounted for the majority of the increase. Staff additions were associated with a build-up of infrastructure needed to execute EPM’s drilling program in the Giddings Field. Non-cash stock based compensation expense was $523,725 (36% of total G&A) and $376,008 (28% of total G&A) for Q1-09 and Q1-08, respectively.

Other Income and Expense

Q1-09 interest income decreased to $75,305, as compared to interest income of $341,081 for Q1-08. The decrease was due to lower available cash balances averaging ~$10 million during Q1-09 compared to ~$26.1 million in Q1-08, combined with a lower interest rate environment in Q1-09. The lower cash balance is mostly the result of cash used for drilling and leasehold capital expenditures.

Conference Call

Evolution Petroleum will host a conference call to discuss its fiscal first quarter 2009 results on Thursday, November 13, 2008, at 11:00 a.m. Eastern Time (10:00 a.m. Central). To access the call, please dial 303-262-2143 and ask for the Evolution Petroleum call at least 10 minutes prior to the start time. The conference call will also be broadcast live via the Internet and can be accessed through the investor relations section of Evolution’s corporate website, http://www.evolutionpetroleum.com/, where it will also be archived for replay. A telephonic replay of the conference call will be available until November 20, 2008 and may be accessed by calling (303) 590-3000 and using the pass code 11122120#. For more information, please contact Donna Washburn at DRG&E at (713) 529-6000 or email at dmw@drg-e.com.

About Evolution Petroleum

Evolution Petroleum Corporation (http://www.evolutionpetroleum.com/) acquires known, onshore oil and gas resources and applies conventional and specialized technology to accelerate production and develop incremental reserves and value. With no debt and a strong balance sheet, the Company is well positioned to carry out its initiatives in Enhanced Oil Recovery, Bypassed Resources and Unconventional Gas Development.

Principal assets as of July 1, 2008 include 4 MMBOE of proved and 3.1 MMBOE of probable reserves in the Giddings Field of central Texas, approximately 13 MMBO of probable reserves associated with the 13,636 acre Delhi Field Holt Bryant Unit currently being redeveloped with CO2-EOR technology in northeast Louisiana, and leases covering approximately 18,000 net acres in two Woodford gas shale projects in Oklahoma. The Company is also actively engaged in developing new projects within its initiatives.

Additional information, including the Company’s annual report on Form 10-KSB and its quarterly reports on Form 10-Q can be accessed on its website at http://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, 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     Lisa Elliott / lelliott@drg-e.com    Jack Lascar / jlascar@drg-e.com    DRG&E / 713-529-6600                             - Tables to Follow -                 Evolution Petroleum Corporation and Subsidiaries                   Consolidated Statements of Operations                                (Unaudited)                                                          Three Months Ended                                                            September 30,                                                          2008         2007   Revenues     Crude oil                                       $1,579,070     $502,273     Natural gas liquids                                755,445            -     Natural gas                                        580,471            -       Total revenues                                 2,914,986      502,273    Operating Costs     Lease operating expense                            335,904      310,310     Production taxes                                    85,996       17,556     Depreciation, depletion and amortization           644,881      110,443     Accretion of asset retirement obligation             5,737        4,695     General and administrative                       1,464,840    1,328,318       Total operating costs                          2,537,359    1,771,322    Income (loss) from operations                        377,627   (1,269,049)    Other income (expense)     Interest income                                     75,305      341,081     Other                                               (1,659)           -    Net income (loss) before provision for income    taxes                                               451,273     (927,968)    Income tax provision (benefit)                       302,836     (286,587)    Net income (loss)                                   $148,437    $(641,381)     Earnings (loss) per common share     Basic                                                $0.01       $(0.02)     Diluted                                              $0.01       $(0.02)    Weighted average number of common shares     Basic                                           26,845,670   26,776,234     Diluted                                         29,227,071   26,776,234                 Evolution Petroleum Corporation and Subsidiaries                        Consolidated Balance Sheets                                                  September 30,     June 30,                                                     2008            2008                       Assets                    (Unaudited)   Current Assets     Cash and cash equivalents                    $9,519,049    $11,272,280     Receivables         Oil and natural gas sales                   898,743      2,066,300         Income tax                                  170,730        478,599         Other                                       129,037         86,966     Income taxes recoverable                      3,625,987      3,625,987     Prepaid expenses and other current assets       509,588        270,938           Total current assets                   14,853,134     17,801,070    Property and equipment, net of depreciation,    depletion, and amortization     Oil and natural gas properties - full cost      method of accounting                        23,958,349     22,047,233     Other property and equipment                    176,712        161,027           Total property and equipment           24,135,061     22,208,260    Other assets, net                                 354,959        370,049            Total assets                          $39,343,154    $40,365,848         Liabilities and Stockholders' Equity   Current liabilities     Accounts payable                             $1,251,951     $2,892,459     Accrued expenses                                301,041        805,262     Royalties payable                               337,470        473,327           Total current liabilities               1,890,462      4,171,048    Long term liabilities     Deferred income taxes                         3,204,765      2,901,929     Asset retirement obligations                    328,544        215,056     Deferred rent                                    75,025         74,081            Total liabilities                       5,498,796      7,362,114    Commitments and contingencies (Note 11)    Stockholders' equity     Common Stock; par value $0.001; 100,000,000      shares authorized; 26,917,234 and      26,870,439 issued and outstanding as of      September 30, 2008 and June 30, 2008,      respectively.                                   26,917         26,870     Additional paid-in capital                   14,880,981     14,188,841     Retained earnings                            18,936,460     18,788,023            Total stockholders' equity             33,844,358     33,003,734            Total liabilities and stockholders'            equity                               $39,343,154    $40,365,848                 Evolution Petroleum Corporation and Subsidiaries                    Consolidated Statements of Cash Flow                                (Unaudited)                                                       Three Months Ended                                                         September 30,                                                      2008           2007   Cash flows from operating activities     Net income (loss)                              $148,437      $(641,381)     Adjustments to reconcile net income (loss)      to net cash provided by      (used in) operating activities:       Depreciation, depletion and amortization      644,882        110,443       Stock-based compensation                      523,725        376,007       Accretion of asset retirement obligations       5,737          4,695       Deferred income taxes                         302,836              -       Deferred rent                                     944         23,959       Changes in operating assets and        liabilities:          Receivables                              1,433,355       (654,061)          Prepaid expenses and other current           assets                                   (238,650)        98,695          Accounts payable and accrued expenses     (466,478)       121,992          Royalties payable                         (135,857)           120          Income tax payable                               -       (286,587)            Net cash provided by (used in)             operating activities                  2,218,931       (846,118)    Cash flows from investing activities       Development of oil and natural gas        properties                                (2,836,572)      (223,492)       Acquisitions of oil and natural gas        properties                                (1,111,640)    (1,406,637)       Capital expenditures for other equipment      (25,509)       (21,224)       Other assets                                    1,559         51,801            Net cash used in investing             activities                           (3,972,162)    (1,599,552)    Cash flows from financing activities       Proceeds from issuance of common stock              -              -            Net cash provided by financing             activities                                    -              -      Net decrease in cash and cash equivalents    (1,753,231)    (2,445,670)      Cash and cash equivalents, beginning of      period                                      11,272,280     27,746,942      Cash and cash equivalents, end of period     $9,519,049    $25,301,272      Supplemental disclosure of cash flow      information:      Income taxes paid                               $15,000             $-      Income tax refunds received                    $322,869             $-      Non-cash transactions:       Increase (decrease) in accounts payable        used to acquire oil and natural gas        leasehold interests and develop oil        and natural gas properties.              $(1,509,789)      $432,514       Oil and natural gas properties incurred        through recognition        of asset retirement obligations.            $107,751             $-       Common stock issued in lieu of a portion        of 2008 cash bonus accrued at June 30,        2008.                                       $168,462             $-  

Evolution Petroleum Corporation

CONTACT: Sterling McDonald, VP & CFO of Evolution Petroleum Corporation,+1-713-935-0122, smcdonald@evolutionpetroleum.com; or Lisa Elliott,lelliott@drg-e.com, or Jack Lascar, jlascar@drg-e.com, both of DRG&E,+1-713-529-6600, for Evolution Petroleum Corporation

Web site: http://www.evolutionpetroleum.com/




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