Evolution Petroleum Reports Fiscal Year 2012 Financial Results

HOUSTON, Sept. 13, 2012 /PRNewswire/ -- Evolution Petroleum Corporation (NYSE MKT: EPM) today reported financial results for its fourth quarter and fiscal year-ended June 30, 2012 ("Q4-12" and "FY-12"). The Company earlier reported operating results for FY-12, year-end reserves and a capital plan for fiscal year 2013 on September 5, 2012.

Highlights include:

• Net income of $4.5 million in fiscal 2012, up from a $0.2 million loss in fiscal 2011
• Increased full-year production rate by 79% to 569 barrels of oil equivalent ("BOE") per day
• Increased proved and probable PV-10* to $446 million and $174 million, respectively
• Approved capital expenditure budget of $10 million for fiscal 2013 focused on the Mississippian Lime play
• Reduced lease operating expense per unit by 25% to $8.21 per BOE in fiscal 2012

Robert Herlin, CEO, said "Fiscal 2012 was another transition year for Evolution Petroleum as we continued our rapid growth in production, revenues, earnings and value per share. We are pleased to report continued year over year improvements across the board, but particularly in earnings and cash flow. The temporary reduction in CO2 injection at Delhi Field in the latter portion of the fourth quarter did impact our sequential results, but we expect to resume production growth there as ambient temperatures decline prior to equipment changes that should prevent a repeat next summer.  Importantly, we added a major new growth asset to our portfolio in the Mississippian Lime oil play in Kay County, Oklahoma and have already begun drilling operations.

"With our Delhi payout balance rapidly diminishing, we are looking forward to realizing the substantial revenues associated with our reversionary 24% working interest that is additive to our existing royalties and expanding the redeployment of that cash flow into growth projects to increase long term value per share."

Revenues for Q4-12 decreased to $4.6 million compared to $4.8 million in Q3-12.  Quarterly net income to common shareholders decreased 28% sequentially to $0.9 million, or $0.03 per share diluted, compared to net income of $1.3 million, or $0.04 per share diluted, for Q3-12.  The decline in revenue was primarily due to temporary equipment issues at Delhi that should be remedied soon.  A sequential decline in lease operating expense largely offset the deferred Delhi revenue loss, and year-end accruals for higher incentive compensation and income tax true-ups generated most of the $0.37 million decline in sequential quarterly net income.  Compared to the year-ago quarter, current quarter net income increased 74% over Q4-11's net income of $0.5 million, or $0.02 per share diluted, on revenues of $3.2 million. Results for all periods included significant non-cash stock compensation expense. 

As previously reported, quarterly sales volumes for Q4-12 decreased 6% sequentially to 579 net BOE per day compared to 619 BOE per day for Q3-12 due primarily to temporarily reduced CO2 injections, turnaround of the Delhi processing plant and normal depletion at Giddings, partially offset by the addition of new production from GARP™ and Lopez Field operations in South Texas.  Compared to the year-ago quarter, sales volumes in Q4-12 increased 32% due primarily to increases at Delhi, full year contributions of wells drilled during FY-11 at Giddings and producing wells added during FY-12. Our blended product price in Q4-12 increased 1% sequentially over Q3-12 and 9% over the year-ago quarter to $86.91 per BOE due to the increased content of oil, which offset decreases in oil, NGL and natural gas prices.

Lease operating expense decreased 35% from the prior quarter to $0.4 million, or $8.16 per BOE compared to $11.76 per BOE in Q3-12. The decrease from Q3-12 was due primarily to reduced field costs in the Lopez field following extensive work in Q3-12 to improve water disposal methods. Total lease operating expense in Q4-12 was 24% higher than the year-ago quarter, due primarily to the addition of wells drilled or acquired during FY-12.

General and administrative ("G&A") expense in Q4-12 increased 8% over the prior quarter and 24% over the year-ago quarter to $1.7 million, due primarily to an accrual for higher than expected annual incentive payments to staff. Non-cash stock-based compensation of $0.35 million in Q4-12 (21% of total G&A expense) was flat compared to the prior quarter and down 11% from the year-ago quarter.

Financial Results for the Year Ended June 30, 2012

For fiscal year 2012, net income to common shareholders improved to $4.5 million, or $0.14 per share diluted, compared to a loss of $0.2 million, or $(0.01) per share, in FY-11. Revenues in FY-12 increased 139% to $18.0 million compared to $7.5 million in FY-11. The increase in revenues was due to a 79% increase in volumes to 569 BOE per day, compared to 319 BOE per day in FY-11, and a 33% increase in blended product price to $86.29 per BOE, compared to $64.68 per BOE in FY-11. The year over year increase in revenues and sales volumes were driven primarily by a 208% increase in Delhi volumes and a 12% increase in average realized crude oil price.

For the full year, lease operating expense increased 31% to $1.7 million from $1.3 million, but decreased 26% on a units-of-production basis to $8.21 per BOE from $11.15 per BOE in the prior year.  The absolute increase was due primarily to the addition of wells drilled in FY-11 and FY-12, the addition of wells acquired in our GARP® business and the extensive field work conducted in the Lopez Field to improve water disposal methods, while per unit declines were largely due to increased production. Depletion expense increased to $1.1 million, or $5.22 per BOE, compared to $0.5 million, or $4.55 per BOE, in FY-11. The increase in depletion was due to higher sales volumes and the inclusion of all remaining unevaluated leaseholds outside of our Mississippi Lime project and a small amount of additional future capital expenditures at Delhi resulting from acceleration of our reversion date. Depletion was partially offset by the nonrenewal of leases covering certain proved undeveloped drilling locations in the Giddings Field.

G&A expense for FY-12 increased 15% over FY-11 to $6.1 million due mostly to higher incentive payouts, legal expenses and board fees. Non-cash stock-based compensation for FY-12 totaled $1.5 million, or 24% of total G&A expense, compared to $1.5 million, or 29% of total G&A expense in FY-11.

Reserves as of June 30, 2012

As previously reported, and including related PV-10* estimates, our independent reservoir engineers assigned the following reserves as of June 30, 2012: 

FY 2013 Capital Budget

The board of directors has approved a FY-13 capital budget of $10 million plus the remaining balance of the Mississippian Lime project purchase obligation. Of the total approved expenditures, about 80% is dedicated to our Mississippian Lime project. Working capital on hand is sufficient to meet this base level of activity, and expanded investments  will be funded from projected cash flows from operations, supplemented as needed from divestments of noncore assets, joint ventures and our credit line.   

Conference Call

Evolution Petroleum will host a conference call on Thursday, September 13 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 the investor relations section of 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 CO₂-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.

- Financial Tables to Follow -

The following table sets forth certain financial information with respect to our oil and natural gas operations:

SOURCE Evolution Petroleum Corporation

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