Evolution Petroleum Announces Delhi Field Has Reached Payout and Reports Results for Quarter Ended September 30, 2014

News provided by

Evolution Petroleum Corporation

Nov 06, 2014, 07:00 ET

HOUSTON, Nov. 6, 2014 /PRNewswire/ -- Evolution Petroleum Corporation (NYSE MKT: EPM) today announced that the Delhi Field has reached payout status and further reported operating results for its first quarter of fiscal 2015 ended September 30, 2014, with comparisons to the previous quarter ended June 30, 2014, and the year-ago quarter ended September 30, 2013. 

Delhi Field Payout

Denbury Resources, Inc. ("Denbury"), operator of the Delhi Field in northeast Louisiana, has informed the Company of its preliminary determination that Payout occurred during the month of October 2014 and that the Company will earn its reversionary working interest of 23.9% and associated revenue interest of 19.1% in the Delhi Field effective November 1, 2014. When combined with our existing 7.4% royalty and overriding royalty interests, our total net revenue interest will increase to 26.5%. We will also be responsible for paying 23.9% of the operating costs and capital expenditures going forward.

Results for the Quarter Ended September 30, 2014

  • Earnings of $1.0 million, or $0.03 per diluted common share, a 26% decrease from the year-ago quarter and a 33% decline from the previous quarter
  • Total revenues of $4.0 million, a 14% decrease from the year-ago quarter and a 7% decline from the previous quarter
  • Delhi production of 425 net barrels of oil per day ("BOPD") (5,739 BOPD gross), down slightly from both the year-ago and previous quarters
  • Dividends of $3.3 million paid to common shareholders

Results for the current quarter were adversely impacted by lower production volumes and lower oil prices in the Delhi Field, as compared to the year-ago and previous quarters. As previously disclosed, the operator has deferred capital spending in the field since early 2013 pending reversion of our working interest, and has also elected to operate the field at a slightly lower reservoir pressure, which lowers the rate of oil production without reducing miscibility or lowering ultimate reserves. With the reversion of our working interest, we and the operator have plans underway to resume expansion of the CO2 flood to the eastern half of the field and begin construction of a recycle gas processing plant in the field to recover methane and natural gas liquids while making the flood more efficient.  We believe that these actions bode well for future increases in production rates from the field. 

Robert Herlin, Chairman and CEO, said: "We are very pleased that the long-awaited and very impactful reversion of our interests in Delhi has occurred, as reported to us by the operator. The reversion is an important value creation milestone for the Company and our shareholders.  With the divestiture of our non-core oil and gas properties and restructuring of our overhead, we are now wholly focused on the further development of the Delhi Field and the marketing of our GARP® technology.

"Our strong balance sheet has no debt and, combined with the dramatically increased revenue and cash flow associated with the Delhi reversionary interests, positions the Company to comfortably weather a lower oil price environment.  Looking to the future, we remain very optimistic about the prospects for the Company and expect our shareholders to further benefit from our growth and expected increases in common stock dividends based on projected cash flow."

Delhi Field

Delhi volumes declined 3% from the previous quarter to 425 net BOPD per day (5,739 BOPD gross). Realized prices also declined from $103.74 to $98.96 per barrel. Production continues to be impacted by the temporary suspension since early 2013 of capital expenditures necessary to expand the project into the eastern half of the field and add recycle gas processing to recover natural gas liquids and methane. It has been further impacted by the previously disclosed reduction in the rate of CO2 injection in order to lower reservoir operating pressure. This change in operations was intended to substantially reduce the risk of well bore leaks while maintaining miscibility of the CO2 in the reservoir. As a result, production is projected to return to growth on or about the end of 2015 and continue to grow for many years while utilizing less purchased CO2 and recovering the same approximate amount of ultimate aggregate proved and probable oil reserves.

With the working interest reversion, we expect to approve projects to both expand the project to the eastern portion of the field and install a recycle gas processing facility that will extract methane and high value natural gas liquids. We are confident these projects will increase production and enhance the value of our interests in the field.

Gas Assisted Rod Pump (GARP®)

During the quarter, we began installation of the first of two additional installations of our patented artificial lift technology (GARP®) under the previously announced contract with a large independent operator. The second of the two installations was in progress at the end of the quarter.  We have seen a positive response from the first two productive GARP® wells under this agreement completed during the previous quarter, although high operating costs and a low net back from gas processing under the customer's pre-existing gas sales contract in the first few months have limited the revenues from our net profits interest. 

Artificial lift financial results were adversely affected by major workover operations on two of our three Company-operated wells, which temporarily suspended production during portions of the quarter and substantially reduced GARP® revenues.

Other Properties

Subsequent to the end of the quarter, we closed on the sale of all of our remaining interests in the Mississippian Lime project in Oklahoma for cash proceeds of approximately $400,000, subject to customary closing adjustments.  This transaction completes the process of divesting all of our non-core oil and gas properties, which we commenced in 2013.

General and Administrative Expenses

General administrative expenses were $1.5 million for the quarter, 22% lower than the year-ago quarter and relatively flat compared to the previous quarter.  The decline reflects the reduced costs from the organizational restructuring undertaken in December 2013, partially offset by incremental staff for a portion of the quarter. 

Conference Call

As previously announced, Evolution Petroleum will host a conference call on Thursday, November 6, 2014 at 11:00 a.m. Eastern (10:00 a.m. Central) to discuss results. To access the call, please dial 1-877-300-8521 (U.S.), 1-412-317-6062 (International) or 1-855-669-9657 (Canada).

To listen live or hear a rebroadcast, please go to http://www.evolutionpetroleum.com. A replay will be available one hour after the end of the conference call through November 21, 2014 at 9:00 a.m. Eastern Time by calling 1-877-870-5716 (U.S.) or 1-858-384-5517 (Canada and International) and providing the passcode 10055122. The webcast will also be archived on the Company's website.

Expected Tax Treatment of Dividends

Based on a November 1, 2014 effective date for the reversion of our working interest in the Delhi Field, our current projections would indicate that the majority, if not all, of our cash dividends will be treated as qualified dividend income and not as a return of capital. We will make a final determination regarding the tax treatment of dividends for the current fiscal year when we report this information to recipients on Form 1099-DIV.

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 include interests in a CO2-EOR project in Louisiana's Delhi Field and a patented technology designed to extend the life and increase ultimate recoveries of depletion drive oil and gas wells. 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. Additional information regarding GARP® is available on the www.garplift.com website.

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. 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, income, cash flows, dividends 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. Many factors could cause actual results to differ materially from those included in the forward-looking statements.

Company Contact:
Randy Keys, President and CFO
(713) 935-0122
[email protected]

Financial Tables to Follow

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Statements of Operations

(Unaudited)


Three Months Ended

 September 30,

2014

2013

Revenues




Delhi field

$

3,868,602

$

4,429,811

Artificial lift technology

115,856

142,091

Other properties

20,369

61,797

Total revenues

4,004,827

4,633,699

Operating costs




Production costs - artificial lift technology

197,360

163,749

Production costs - other properties

88,022

254,501

Depreciation, depletion and amortization

369,350

309,673

Accretion of discount on asset retirement obligations

4,636

12,928

General and administrative expenses *

1,504,593

1,928,951

Total operating costs

2,163,961

2,669,802

Income from operations

1,840,866

1,963,897

Other




Interest income

12,763

7,703

Interest (expense)

(18,460)

(16,513)

Net income before income taxes

1,835,169

1,955,087

Income tax provision

706,159

482,636

Net income attributable to the Company

$

1,129,010

$

1,472,451

Dividends on preferred stock

168,575

168,575

Net income available to common stockholders

$

960,435

$

1,303,876

Earnings per common share




Basic

$

0.03

$

0.05

Diluted

$

0.03

$

0.04

Weighted average number of common shares




Basic

32,682,401

28,607,320

Diluted

32,826,250

32,211,265

* General and administrative expenses for the three months ended September 30, 2014 and 2013 included non-cash stock-based compensation expense of $243,337 and $373,438, respectively.

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

(Unaudited)



September 30,

 2014

June 30,

 2014

Assets




Current assets




Cash and cash equivalents

$

21,368,144

$

23,940,514

Receivables




Oil and natural gas sales

1,268,122

1,456,146

Other

23,524

1,066

Deferred tax asset

159,624

159,624

Prepaid expenses and other current assets

632,706

747,453

Total current assets

23,452,120

26,304,803

Oil and natural gas property and equipment, net (full-cost method of accounting)

37,651,450

37,822,070

Other property and equipment, net

444,942

424,827

Total property and equipment

38,096,392

38,246,897

Other assets

527,341

464,052

Total assets

$

62,075,853

$

65,015,752

Liabilities and Stockholders' Equity




Current liabilities




Accounts payable

$

611,547

$

441,722

State and federal income taxes payable

44,173


—

Accrued liabilities and other

874,013

2,558,004

Total current liabilities

1,529,733

2,999,726

Long term liabilities




Deferred income taxes

10,021,875

9,897,272

Asset retirement obligations

209,028

205,512

Deferred rent

31,434

35,720

Total liabilities

11,792,070

13,138,230

Commitments and contingencies (Note 12)




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, 2014, and June 30, 2014 with a liquidation preference of $7,932,975 ($25.00 per share)

317

317

Common stock; par value $0.001; 100,000,000 shares authorized: issued and outstanding 32,797,743 shares and 32,615,646 as of September 30, 2014 and June 30, 2014, respectively

32,797

32,615

Additional paid-in capital

35,357,362

34,632,377

Retained earnings

14,893,307

17,212,213

Total stockholders' equity

50,283,783

51,877,522

Total liabilities and stockholders' equity

$

62,075,853

$

65,015,752

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited)


Three Months Ended

 September 30,

2014

2013

Cash flows from operating activities




Net income attributable to the Company

$

1,129,010

$

1,472,451

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation, depletion and amortization

381,509

319,885

Stock-based compensation

243,337

373,438

Accretion of discount on asset retirement obligations

4,636

12,928

Settlements of asset retirement obligations

(226,008)

—

Deferred income taxes

124,603

72,395

Deferred rent

(4,286)

(4,286)

Changes in operating assets and liabilities:




Receivables from oil and natural gas sales

188,024

11,133

Receivables from income taxes and other

(22,458)

918

Due from joint interest partner

—

(14,614)

Prepaid expenses and other current assets

114,747

53,948

Accounts payable and accrued expenses

(1,345,875)

(1,146,080)

Income taxes payable

44,173

404,677

   Net cash provided by operating activities

631,412

1,556,793

Cash flows from investing activities




Proceeds from asset sales

—

66,753

Capital expenditures for oil and natural gas properties

(1,136)

(594,214)

Capital expenditures for other property and equipment

(156,798)

—

Other assets

(55,046)

(1,913)

   Net cash used in investing activities

(212,980)

(529,374)

Cash flows from financing activities




Cash dividends to preferred stockholders

(168,575)

(168,575)

Cash dividends to common stockholders

(3,279,341)

—

Acquisitions of treasury stock

(55,452)

(117,182)

Tax benefits related to stock-based compensation

537,282

—

Recovery of short swing profits

—

6,850

Deferred loan costs

(24,716)

—

   Net cash used in financing activities

(2,990,802)

(278,907)

Net increase (decrease) in cash and cash equivalents

(2,572,370)

748,512

Cash and cash equivalents, beginning of period

23,940,514

24,928,585

Cash and cash equivalents, end of period

$

21,368,144

$

25,677,097

Supplemental disclosures of cash flow information:


Three Months Ended

 September 30,

2014

2013

Income taxes paid

$

—

$

—

Non-cash transactions:




Change in accounts payable used to acquire property and equipment

(31,806)

(136,436)

Oil and natural gas property costs incurred through recognition of asset retirement obligations

—

45,172








Supplemental Information on Oil and Natural Gas Operations (Unaudited)


Three Months Ended September 30,






2014

2013

Variance

Variance %

Delhi field:










Crude oil revenues

$

3,868,602

$

4,429,811

$

(561,209)

(12.7)%

Crude oil volumes (Bbl)

39,094

40,279

(1,185)

(2.9)%

Average price per Bbl

$

98.96

$

109.98

$

(11.02)

(10.0)%












Artificial lift technology:










  Crude oil revenues

$

74,980

$

101,873

$

(26,893)

(26.4)%

  NGL revenues

22,227

23,196

(969)

(4.2)%

  Natural gas revenues

15,552

17,022

(1,470)

(8.6)%

  Service revenue

$

3,097

$

—

3,097



  Total revenues

$

115,856

$

142,091

$

(26,235)

(18.5)%












  Crude oil volumes (Bbl)

772

946

(174)

(18.4)%

  NGL volumes (Bbl)

744

768

(24)

(3.1)%

  Natural gas volumes (Mcf)

4,439

5,889

(1,450)

(24.6)%

  Equivalent volumes (BOE)

2,256

2,696

(440)

(16.3)%












  Crude oil price per Bbl

$

97.12

$

107.69

$

(10.57)

(9.8)%

  NGL price per Bbl

$

29.88

$

30.20

(0.32)

(1.1)%

  Natural gas price per Mcf

$

3.50

$

2.89

0.61

21.1%

    Equivalent price per BOE

$

49.98

$

52.70

$

(2.72)

(5.2)%












  Artificial lift production costs (b)

$

197,360

$

163,749

$

33,611

20.5%

  Artificial lift production costs per BOE

87.48

60.74

$

26.74

44.0%












Other properties:










  Revenues

$

20,369

$

61,797

$

(41,428)

(67.0)%

  Equivalent volumes (BOE)

285

668

(383)

(57.3)%

  Equivalent price per BOE

$

71.47

$

92.51

$

(21.04)

(22.7)%












  Production costs

$

88,022

$

254,501

$

(166,479)

(65.4)%

  Production costs per BOE

$

308.85

$

380.99

$

(72.14)

(18.9)%












Combined:










Oil and gas DD&A (a)

$

260,160

$

301,752

$

(41,592)

(13.8)%

Oil and gas DD&A per BOE

$

6.25

$

6.91

$

(0.66)

(9.6)%

(a)

Excludes depreciation of artificial lift technology equipment, office equipment, furniture and fixtures, and other assets of $109,190 and $7,921, for the three months ended September 30, 2014 and 2013, respectively.


(b)

Includes workover costs of approximately $149,000 and $42,000, for the three months ended September 30, 2014 and 2013, respectively.  Note:  There were three producing wells in the period ending 2014 versus four in the period ending 2013.   

SOURCE Evolution Petroleum Corporation

Related Links

http://www.evolutionpetroleum.com

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