Evolution Petroleum Reports Fiscal 2011 Third Quarter Results
HOUSTON, May 12, 2011 /PRNewswire/ — Evolution Petroleum Corporation (NYSE Amex: EPM) today reported results for the third fiscal quarter ending March 31, 2011 (“Q3-11″). The Company earned net income of $0.01 per diluted share in Q3-11, compared to a $(0.02) net loss in the third quarter of fiscal 2010 (“Q3-10″).
The turnaround in net income to $170,426 in the current quarter from the $551,521 net loss in Q3-10 was due to a 56% improvement in oil and gas revenue and a 14% decrease in operating costs. Q3-11 and Q3-10 results included non-cash, stock-based compensation expense of $392,533 and $384,701, respectively.
Oil and gas revenues in Q3-11 were $2.0 million compared to Q3-10 revenues of $1.3 million and $1.2 million for the second quarter of fiscal 2011 (“Q2-11″). The revenue increase in Q3-11 was due primarily to increased sales volumes of oil and higher realized oil prices.
Net oil and gas volumes for Q3-11 were 28,840 barrels of oil equivalent (320 BOE per day), a slight increase from Q3-10 production of 28,710 BOE (319 BOE per day) and a 30% increase over Q2-11 net sales volumes. Total volumes in Q3-11 were 57% crude oil, 16% natural gas liquids and 27% natural gas, compared to 21% oil, 22% NGLs and 57% natural gas in Q3-10. Crude oil sales volumes for Q3-11 included 13,329 barrels from our net interests in the Delhi Field and 3,275 barrels from our net interests in the Giddings Field, as compared to Q3-10 net crude oil sales of 558 barrels from Delhi and 5,525 barrels from the Giddings Field. All of our NGL and natural gas volumes in Q3-11 and Q3-10 were from Giddings. Blended oil and gas prices in Q3-11 averaged $69.94 per BOE compared to $44.98 per BOE in Q3-10 and $53.32 per BOE in Q2-11. The improvement was due to an increased proportion of oil sales on higher liquid prices.
Lease operating expense (“LOE”) and production taxes were 23% lower in Q3-11 compared to Q3-10 due largely to no well workovers in Q3-11 compared to $130,000 of workovers in Q3-10. On a BOE basis, LOE and production taxes decreased to $10.78 per BOE in Q3-11 compared to $14.12 per BOE in Q3-10.
Depreciation, depletion and amortization expense (“DD&A”) decreased 74% in Q3-11 to $132,516 from $505,445 in Q3-10. The reduction in our DD&A was due to the significant decline in our depletion rate from $17.23 in Q3-10 to $4.31 in Q3-11 following the addition of 9.4 million barrels of proved oil reserves at Delhi at June 30, 2010.
Operating results for the nine months ended March 31, 2011 also improved compared to the nine months ended March 31, 2010. Net loss for the first nine months of fiscal 2011 declined by 60% to $776,443, or $(0.03) per share, versus a loss of $1,958,286, or $(0.07) per share in the comparable period of fiscal 2010. The current nine month improvement was due to a 19% increase in revenues and an 18% decrease in operating costs.
Working capital was $3.1 million on March 31, 2011 compared to working capital of $3.2 million on December 31, 2010 and $4.9 million at June 30, 2010. The $1.8 million decrease in working capital since June 30, 2010 was due primarily to investments of $2.9 million in oil and natural gas properties (consisting of $0.8 million for leasehold acquisitions and $2.1 million for development activities), offset by an asset sale of $0.2 million and positive cash flows from operations before changes in working capital. We continued to be debt free.
Robert Herlin, President and Chief Executive Officer, commented, “The combination of higher realized oil prices and increasing oil production has allowed us to turn the corner on profitability. With production volumes growing at our Delhi Field and contributions from our new Giddings wells, we expect to see continued improvement in our financial results going forward, assuming current commodity prices. Additionally, because we do not incur field operating costs at Delhi, increases in Delhi revenues have a disproportionately higher impact on our cash flows and income.”
Delhi CO2 – Enhanced Oil Recovery Project (EOR)
Gross sales volumes at Delhi averaged 2,003 BO per day during Q3-11, more than double the 920 BO per day rate in the immediately prior Q2-11. Gross sales volumes increased steadily throughout Q3-11 from Phase I of the CO2-EOR project and accounted for approximately 98% of total Delhi volumes in Q3-11. All net sales at Delhi are currently generated by our 7.4% royalty interest that is free of all cost and expense.
Implementation of Phase II, which is more than double the size of Phase I, commenced with incremental CO2 injection at the end of December 2010. First tertiary oil response from Phase II occurred during March 2011, ahead of the expected mid-year 2011 first production date, and accounted for approximately 2% of Q3-11 sales volumes. Phase I similarly responded earlier than expected in 2010. We expect significant increases in EOR production from Phase II during the remainder of fiscal 2011 and into fiscal 2012.
Phase III is currently being installed with first CO2 injection expected during calendar 2011. We expect that the remaining phases IV-VI will be installed similarly over the next few years and are scheduled to include similar numbers of wells as in Phase II, compared to the much smaller Phase I.
An oil sales pipeline connection completed early in Q3-11 increased the realized oil price at Delhi through elimination of trucking charges. Furthermore, changes in domestic market conditions have resulted in a premium price for Delhi’s Louisiana Light Sweet crude oil compared to oil fields in other states. During Q3-11, Delhi oil sales realized a 12% price premium over the sales price we received from Giddings in central Texas, for example. We expect that a similar market differential may continue into fiscal 2012.
As of June 30, 2010, our independent reservoir engineer estimated our Delhi net reserves at 9.4 million barrels of proved oil reserves and 5.7 million barrels of probable oil reserves, based on SEC NYMEX pricing of $76.21 per barrel of oil in effect then.
Giddings Field, Central Texas
We sold 15,511 BOE of production at Giddings Field in Q3-11, a 45% decrease from Q3-10 and 2% decrease from Q2-11 due to natural production decline in the field and a short-term loss of production from our best well through 2011, the Pearson #1H. The decline was partially offset by the February start of production from our 20% working interest in one of the newly drilled joint venture wells. In February 2011, Pearson #1H production was re-established to pre-loss rates.
Development activities in Giddings Field continued during Q3-11 through a previously announced industry joint venture (“JV”). Three wells have been drilled to date, and in Q3-11 we completed infrastructure and pipelines for the second and third JV wells. The Lightsey-Lightsey #1H was put on production in early February at an initial flowing rate of 124 BO and 1,235 MCF of rich natural gas per day, and the Dodd #1H was put on production in early April at a pipeline constrained flowing rate of approximately 2,700 MCF of rich natural gas and 17 BO per day. Extensive gas sales lines were completed to two gas purchasers for the Dodd #1H in addition to a salt water disposal pipeline connection to our wholly owned disposal well. To date, our share of capital expenditures in the JV program is approximately $0.9 million. Continuation of the program will depend upon our partner’s election following our recent submittal of drilling proposals for the fourth and fifth wells. We are also exploring opportunities to enter into a second joint venture to develop our remaining drilling locations.
Unconventional Gas, Eastern Oklahoma
In Oklahoma during Q3-11, we focused on testing our 5,000′ depth unconventional gas project in the John Wells #1 well in Haskell County, a vertical well we re-entered in Q2-11. Prior to the single stage hydraulic fracturing stimulation scheduled for May 2011, the gas sales rate in the John Wells #1-28 was approximately 40-50 MCF per day while dewatering. We also are unitizing acreage around our second Haskell County vertical test well. The unitization process allows us to force unleased mineral and third party lease owners within a 640 acre section to lease or farm-out their acreage, thereby increasing our net leasehold position, or to participate as a working interest owner.
Further testing of our Wagoner County Woodford shale acreage is on hold while we focus on the bigger potential in Haskell County. To date, we have been able to establish attractive production in one of the three tested acreage blocks in Wagoner County and have elected to not exercise lease renewal options in certain blocks while maintaining our leasehold in the block containing our successful test.
Artificial Lift Technology
We are continuing our negotiations with two companies to demonstrate our proprietary artificial lift technology with the intent of gaining an interest in the newly re-established production. We believe that we have reached agreement on principle terms with our first candidate and are finalizing the joint venture agreement. Negotiations with the second candidate are less mature.
Conference Call
Evolution Petroleum will host a conference call today at 10:00 a.m. Eastern Time (9:00 a.m. Central) to discuss these results. To access the call, please dial 480-629-9818 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, www.evolutionpetroleum.com, where it will also be archived for replay. A telephonic replay of the conference call will be available until May 19, 2011 and may be accessed by calling 303-590-3030 and using the pass code 4436768#. For more information, please contact Donna Washburn at DRG&L at (713) 529-6600 or email at dmw@drg-l.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, 2010 include 12.4 MMBOE of proved and 7.2 MMBOE of probable reserves with a PV10 of $266 million and $64 million, respectively. 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 initial test wells in south Texas and eastern Oklahoma. Other assets include approximately 14,900 net acres in an emerging Woodford shale gas project in Eastern Oklahoma and a proprietary artificial lift technology designed to extend the life of horizontal wells with oil or associated water production.
Additional information, including the Company’s annual report on Form 10-K and its quarterly reports on Form 10-Q, is available on its website at (www.evolutionpetroleum.com)
Cautionary Statement
All statements contained in this press release regarding potential results and future plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update or review any forward-looking statement, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, those factors that are disclosed under the heading “Risk Factors” and elsewhere in our documents filed from time to time with the United States Securities and Exchange Commission and other regulatory authorities. Statements regarding our ability to complete transactions, successfully apply technology applications in the re-development of oil and gas fields, realize future production volumes, realize success in our drilling and development activity and forecasts of legal claims, prices, future revenues and income and cash flows and other statements that are not historical facts contain predictions, estimates and other forward-looking statements. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved and these statements will prove to be accurate. Important factors could cause actual results to differ materially from those included in the forward-looking statements.
Company Contact:
Sterling McDonald, VP & CFO
(713) 935-0122
smcdonald@evolutionpetroleum.com
Lisa Elliott / lelliott@drg-l.com
Jack Lascar / jlascar@drg-l.com
DRG&L / 713-529-6600
- Financial Statements to Follow -
Evolution Petroleum Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2011 2010
Revenues
Crude oil $1,607,521 $469,418
Natural gas liquids 228,050 282,400
Natural gas 181,504 539,563
------- -------
Total revenues 2,017,075 1,291,381
--------- ---------
Operating Costs
Lease operating expense 284,577 399,833
Production taxes 26,308 5,432
Depreciation, depletion and
amortization 132,516 505,445
Accretion of asset retirement
obligations 16,233 15,562
General and administrative * 1,359,161 1,194,872
--------- ---------
Total operating costs 1,818,795 2,121,144
--------- ---------
Income (loss) from operations 198,280 (829,763)
Other income
Interest income 1,562 18,776
----- ------
Net income (loss) before
income tax benefit 199,842 (810,987)
Income tax (provision)
benefit (29,416) 259,466
------- -------
Net income (loss) $170,426 $(551,521)
======== =========
Earnings (loss) per common
share
Basic $0.01 $(0.02)
===== ======
Diluted $0.01 $(0.02)
===== ======
Weighted average number of
common shares
Basic 27,521,957 27,144,174
========== ==========
Diluted 30,833,505 27,144,174
========== ==========
Nine Months Ended
March 31,
2011 2010
Revenues
Crude oil $3,034,333 $1,428,915
Natural gas liquids 669,463 847,923
Natural gas 661,807 1,385,872
------- ---------
Total revenues 4,365,603 3,662,710
--------- ---------
Operating Costs
Lease operating expense 950,382 1,134,607
Production taxes 54,084 40,258
Depreciation, depletion and
amortization 358,963 1,673,344
Accretion of asset retirement
obligations 43,314 45,100
General and administrative * 3,976,115 3,701,584
--------- ---------
Total operating costs 5,382,858 6,594,893
--------- ---------
Income (loss) from operations (1,017,255) (2,932,183)
Other income
Interest income 13,034 47,785
------ ------
Net income (loss) before
income tax benefit (1,004,221) (2,884,398)
Income tax (provision)
benefit 227,778 926,112
------- -------
Net income (loss) $(776,443) $(1,958,286)
========= ===========
Earnings (loss) per common
share
Basic $(0.03) $(0.07)
====== ======
Diluted $(.03) $(0.07)
===== ======
Weighted average number of
common shares
Basic 27,379,023 26,959,713
========== ==========
Diluted 27,379,023 26,959,713
========== ==========
*General and administrative expenses for the three month period ended
March 31, 2011 and 2010 included non-cash stock-based compensation
expense of $392,533 and $384,701, respectively. General and
administrative expenses for the nine month period ended March 31,
2011 and 2010 included non-cash stock-based compensation expense of
$1,143,413 and $1,201,137, respectively.
Evolution Petroleum Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
2011 2010
---- ----
Assets
Current assets
Cash and cash equivalents $2,953,481 $3,138,259
Certificates of deposit 250,000 1,350,000
Restricted cash from joint interest
partner 225,847 -
Receivables
Oil and natural gas sales 1,062,741 536,366
Joint interest partner 363,390 -
Income taxes 25,200 25,200
Other 862 147,059
Income taxes recoverable - 716,973
Prepaid expenses and other current
assets 267,274 315,494
------- -------
Total current assets 5,148,795 6,229,351
--------- ---------
Property and equipment, net of
depreciation, depletion, and
amortization
Oil and natural gas properties - full-
cost method of accounting, of which
$4,987,112 and $7,851,068 at March
31, 2011 and June 30, 2010,
respectively, were excluded from
amortization. 33,151,080 30,803,061
Other property and equipment 76,443 101,998
------ -------
Total property and equipment 33,227,523 30,905,059
---------- ----------
Other assets 54,117 60,665
------ ------
Total assets $38,430,435 $37,195,075
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $511,926 $678,609
Joint interest advances 214,068 -
Accrued compensation 501,323 75,692
Royalties payable 654,175 221,062
Income taxes payable 139,620 202,334
Other current liabilities 72,725 110,002
------ -------
Total current liabilities 2,093,837 1,287,699
Long term liabilities
Deferred income taxes 2,886,870 2,949,880
Asset retirement obligations 827,987 811,635
Stock-based compensation - 587,033
Deferred rent 84,468 81,635
Total liabilities 5,893,162 5,717,882
--------- ---------
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock, par value $0.001;
5,000,000 shares authorized; no
shares issued or outstanding. - -
Common stock; par value $0.001;
100,000,000 shares authorized;
issued 28,342,766 shares; 28,342 27,849
outstanding 27,554,566 shares and
27,061,376 shares as of March 31,
2011 and June 30, 2010, respectively.
Additional paid-in capital 20,368,673 18,532,643
Retained earnings 13,022,280 13,798,723
---------- ----------
33,419,295 32,359,215
Treasury stock, at cost, 788,200
shares as of March 31, 2011 and June
30, 2010. (882,022) (882,022)
-------- --------
Total stockholders' equity 32,537,273 31,477,193
---------- ----------
Total liabilities and stockholders'
equity $38,430,435 $37,195,075
=========== ===========
Evolution Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months
Ended
March 31,
---------
2011 2010
--
Cash flows from operating
activities
Net loss $(776,443) $(1,958,286)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation, depletion and
amortization 358,963 1,673,344
Stock-based compensation 1,143,413 1,201,137
Accretion of asset retirement
obligations 43,314 45,100
Payments on asset retirement
obligations (1,847) -
Deferred income taxes (261,965) (867,207)
Accrued compensation - 315,000
Deferred rent 2,833 2,833
Other 32,080 4,678
Changes in operating assets
and liabilities
Receivables from oil and
natural gas sales (526,375) (84,866)
Receivables from income taxes
and other 1,125,374 2,137,875
Due from joint interest
partner (230,227) -
Prepaid expenses and other
current assets 48,220 (38,614)
Accounts payable and accrued
expenses 273,286 (121,058)
Royalties payable 433,113 (54,539)
Income taxes payable (125,963) (157,736)
-------- --------
Net cash provided by
operating activities 1,537,776 2,206,739
--------- ---------
Cash flows from investing
activities
Proceeds from asset sale 231,326 -
Development of oil and
natural gas properties (2,320,102) (2,767,758)
Acquisitions of oil and
natural gas properties (814,323) (185,141)
Maturities of certificates of
deposit 1,100,000 2,059,147
Purchases of certificates of
deposit - (1,350,000)
Other assets (25,532) (8,851
------- ------
Net cash used in investing
activities (1,828,631) (2,252,603)
---------- ----------
Cash flows from financing
activities
Proceeds from the issuance of
restricted stock 28 42
Proceeds from the exercise of
stock options 106,049 -
Net cash provided by
financing activities 106,077 42
------- ---
Net decrease in cash and cash
equivalents (184,778) (45,822)
Cash and cash equivalents,
beginning of period 3,138,259 3,891,764
--------- ---------
Cash and cash equivalents,
end of period $2,953,481 $3,845,942
========== ==========
Our supplemental disclosures of cash flow
information for the nine months ended
March 31, 2011 and 2010 are as follows:
Nine Months
Ended
March 31,
---------
2011 2010
- -
Income taxes paid $152,000 $251,800
Income tax refunds and carry
backs received $979,177 $2,095,126
Non-cash transactions
Decrease in accounts payable
used to acquire oil and
natural gas leasehold
interests and develop oil
and natural gas properties: $(196,557) $(187,681)
Increase in accounts payable
related to joint venture
activities: $144,942 $ -
Oil and natural gas
properties incurred through
recognition of asset
retirement obligations: $(25,115) $70,871
Results of Operations for three month period ended March 31, 2011 and
2010
Three
Months
Ended
March 31 %
--------
2011 2010 Variance change
---- ---- -------- ------
Sales Volumes, net
to the Company:
Crude oil (Bbl) 16,604 6,083 10,521 173%
NGLs (Bbl) 4,533 6,217 (1,684) (27)%
Natural gas (Mcf) 46,220 98,458 (52,238) (53)%
------ ------ ------- ----
Crude oil, NGLs
and natural gas
(BOE) 28,840 28,710 130 0%
Revenue data:
Crude oil $1,607,521 $469,418 $1,138,103 242%
NGLs 228,050 282,400 (54,350) (19)%
Natural gas 181,504 539,563 (358,059) (66)%
------- ------- -------- ----
Total revenues $2,017,075 $1,291,381 $725,694 56%
Average price:
Crude oil (per
Bbl) $96.82 $77.17 $19.65 25%
NGLs (per Bbl) 50.31 45.42 4.89 11%
Natural gas (per
Mcf) 3.93 5.48 (1.55) (28)%
---- ---- ----- ----
Crude oil, NGLs
and natural gas
(per BOE) $69.94 $44.98 $24.96 55%
Expenses (per BOE)
Lease operating
expenses and
production taxes $10.78 $14.12 $(3.34) (24)%
Depletion expense
on oil and
natural gas
properties (a) $4.31 $17.23 $(12.92) (75)%
(a) Excludes depreciation of office equipment, furniture and
fixtures, and other of $8,215 and $10,797, for the three months
ended March 31, 2011 and 2010, respectively.
Results of Operations for nine month period ended March 31, 2011 and
2010
Nine
Months
Ended
March 31 %
--------
2011 2010 Variance change
---- ---- -------- ------
Sales Volumes, net
to the Company:
Crude oil (Bbl) 34,670 19,781 14,889 75%
NGLs (Bbl) 14,621 21,979 (7,358) (33)%
Natural gas (Mcf) 163,735 319,154 (155,419) (49)%
------- ------- -------- ----
Crude oil, NGLs
and natural gas
(BOE) 76,580 94,952 (18,372) (19)%
Revenue data:
Crude oil $3,034,333 $1,428,915 $1,605,418 112%
NGLs 669,463 847,923 (178,460) (21)%
Natural gas 661,807 1,385,872 (724,065) (52)%
------- --------- -------- ----
Total revenues $4,365,603 $3,662,710 $702,893 19%
Average price:
Crude oil (per
Bbl) $87.52 $72.24 $15.28 21%
NGLs (per Bbl) 45.79 38.58 7.21 19%
Natural gas (per
Mcf) 4.04 4.34 (0.30) (7)%
---- ---- ----- ---
Crude oil, NGLs
and natural gas
(per BOE) $57.01 $38.57 $18.43 48%
Expenses (per BOE)
Lease operating
expenses and
production taxes $13.12 $12.37 $0.75 6%
Depletion expense
on oil and
natural gas
properties (a) $4.35 $17.22 $(12.87) (75)%
(a) Excludes depreciation of office equipment, furniture and
fixtures, and other of $25,555 and $38,223, for the nine months
ended March 31, 2011 and 2010, respectively
SOURCE Evolution Petroleum Corporation