Evolution Petroleum Reports Fiscal 2011 First Quarter Financial and Operational Results

HOUSTON, Nov. 11, 2010 /PRNewswire-FirstCall/ -- Evolution Petroleum Corporation (NYSE Amex: EPM) today reported financial and operational results for the three months ended September 30, 2010, the Company's first quarter of fiscal year 2011 ("Q1-11").  

Oil and gas revenues in Q1-11 were $1.2 million, flat compared to the three months ended September 30, 2009 ("Q1-10"), due to a 37% increase in blended oil and gas prices to $45.63 per BOE in Q1-11 from $33.43 per BOE in Q1-10.  Oil and gas volumes in Q1-11 decreased 16% sequentially to 25,621 barrels of oil equivalent ("BOE"), or 278 BOE per day, compared to the three months ended June 30, 2010 ("Q4-10"), and were down 27% year-over-year compared to Q1-10. The decline in Q1-11 sales volumes compared to Q1-10 was due to natural production decline in the Giddings Field, partially offset by production in the Delhi Field CO2-EOR project. Volumes in Q1-11 were 34% crude oil, 20% natural gas liquids ("NGLs") and 46% natural gas, compared to 22% oil, 25% NGLs and 53% natural gas in Q1-10.

Net loss in Q1-11 improved to $485,334, or $(0.02) per share, compared to a net loss in Q1-10 of $704,825, or $(0.03) per share, due primarily to a 20% reduction in operating costs, partially offset by a reduction in income tax benefit.  The depreciation, depletion and amortization declined sharply in Q1-11 to $124,018, or $4.50 per BOE, from $617,757, or $17.17 per BOE, in Q1-10 as a result of the addition of 9.4 million proved oil reserves at Delhi that have associated legacy costs of only $1.2 million.  Q1-11 and Q1-10 results also include non-cash stock-based compensation expense of approximately $354,486 and $391,636, respectively.  

Working capital was $4.3 million on September 30, 2010, as compared to $4.9 million on June 30, 2010, and we ended the fiscal first quarter with no outstanding debt.  Capital expenditures during the quarter totaled $0.9 million and comprised of $0.46 million for leasehold acquisitions and $0.45 million for development activities in the Giddings Field and Lopez Field in Texas and our gas shale project in Eastern Oklahoma.

Robert Herlin, President and Chief Executive Officer, commented, "We are carrying out our 2011 Plan through joint venture drilling in the Giddings Field and initial testing of the substantial potential in our mid-depth Woodford Shale project in eastern Oklahoma.  Going forward, our financial and operating results should improve due to increasing production in Delhi, new production from our joint venture wells in Giddings and our test wells in Oklahoma.  The higher oil prices now being realized will further improve our operating results as well as our underlying asset value, particularly in Delhi."

Delhi CO2 – Enhanced Oil Recovery Project (EOR)

Our net production in the Delhi Field in Louisiana during the first quarter of fiscal 2011 was 4,558 barrels of oil resulting from our 7.4% royalty interest, which carries no operating expense or capital costs.  Production from phase I, the first twenty wells of approximately 250 planned wells in the project, was temporarily limited by a flow line repair.  Production has since  increased back to previous levels and is expected to continue growing. In the meantime, CO2 injection has progressed at planned rates and Denbury has continued its field work to expand the project, which should contribute significant incremental production in 2011.

Giddings Field, Central Texas

We sold 21.1 thousand barrels of oil equivalent ("MBOE") of production at Giddings Field in Q1-11, a 40% decrease from Q1-10 and 15% decrease from Q4-10 due to natural production decline in the field.  Total lease operating expense ("LOE") and production taxes were 4% lower in Q1-11 compared to Q1-10 due to lower salt water disposal costs offset by higher workover costs.  LOE per BOE increased to $14 in Q1-11 from $11 in Q4-10 primarily due to lower production volumes in Q1-11.  Volumes in Q1-11 were composed of 20% crude oil, 24% NGLs and 56% natural gas.

Development drilling at our Giddings Field resumed during the fiscal first quarter in conjunction with our joint venture to drill up to five wells.  The first location, the Supak-Brinkman-1H in Burleson County, was a re-entry operation to add a single 4,100' Austin Chalk lateral to an existing wellbore.  The well is currently in completion operations as we first produce back a portion of the fluid typically lost during drilling.   In October, we began drilling the Dodd #1H in northern Grimes County to complete two opposing laterals with total lateral extension of approximately 7,600' in the Georgetown formation at a vertical depth of about 10,000'.  Under the terms of the joint venture, we pay 10% of the drilling and completion costs for the two wells and have a 20% working interest (16% revenue interest) before payout and a 38% working interest (30.4% revenue interest) after payout.

We also installed our artificial lift technology on a third wholly owned well in the Giddings Field and again achieved the targeted increased production.

Woodford Shale Gas, Eastern Oklahoma

We began field operations to recomplete our vertical Limon well in Wagoner County, Oklahoma from the Caney Shale into the Woodford Shale at a depth of 1,500'.  We also began operations to re-enter and test the Woodford Shale in two vertical wells in Haskell County at depths of approximately 5,000'.

Lopez Field (Neptune Oil Project)

Continued testing of our infill oil project in the Lopez Field in South Texas is on hold pending receipt of a water injection permit, which has been delayed due to a regulatory agency backlog.  Following receipt, we plan to add up to two additional producer tests.

Conference Call

Evolution Petroleum will host a conference call today at 11:00 a.m. Eastern Time (10:00 a.m. Central) to discuss these results. To access the call, please dial 480-629-9643 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 November 18, 2010 and may be accessed by calling 303-590-3030 and using the pass code 4381461#. For more information, please contact Donna Washburn at DRG&L at (713) 529-6600 or email at [email protected].

About Evolution Petroleum

Evolution Petroleum Corporation acquires known, onshore oil and gas resources and applies conservative financing with conventional and specialized technology to accelerate production and develop incremental reserves and value.  The Company is positioned to continue its growth through development projects. Principal assets as of June 30, 2010 include 12.4 MMBOE of proved reserves with PV10 of $266 million and 7.2 MMBOE of probable reserves with PV10 of $64 million in the producing Delhi Field EOR project in Louisiana, the Giddings Field of Central Texas, Woodford shale gas in Eastern Oklahoma and Lopez Field in South Texas. Other assets include approximately 17,000 net acres in the Woodford shale gas project and a proprietary artificial lift technology intended 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.

SOURCE Evolution Petroleum Corporation

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