Evolution Petroleum Corporation Reports Third Quarter 2014 Operating Results

PR Newswire

HOUSTON, May 7, 2014 /PRNewswire/ -- Evolution Petroleum Corporation (NYSE MKT: EPM) today reported operating highlights for the current quarter of fiscal 2014 ended March 31, 2014 with comparisons to the previous quarter ended December 31, 2013 (the "previous quarter") and the year ago quarter ended March 31, 2013 (the "year-ago quarter").

Current quarter operating highlights include:

  • Return to profitability following last quarter's restructuring charge with earnings of $0.8 million
  • Delhi operator announced that remediation of the June 2013 fluids release in Delhi was complete
  • Delhi daily production was essentially flat to the prior quarter, reflecting continued impact of the June 2013 fluids release
  • The Delhi operator announced plans to install recycle gas processing to recover methane and natural gas liquids while improving the efficiency of the CO2 flood
  • Our first five installations of GARP® announced in February 2014 are under way in the field

Results for the current quarter were also impacted by $0.6 million of one-time costs associated with retirement of our former CFO.

Robert Herlin, President and CEO, said: "As I stated last quarter, 2014 is a transition year for the company with the impending working interest reversion at Delhi and our restructuring to focus operations on commercialization of our GARP® technology for improving recovery of oil and gas. The current quarter continued this transition, and important highlights included completion of the first major commercial agreement to install GARP® and Denbury's announcement of their intent to install recycle gas processing at Delhi earlier than we expected, which should accelerate production. While we benefited during the quarter from the reduction in recurring overhead due to the restructuring last quarter, our results were still impacted by the one-time charge and continuing impact of the June 2013 fluids release at Delhi.

"Looking forward, we expect to see improvement in Delhi production due to incremental CO2 injection, response to previous development expenditures and future development work. We remain focused on our strategic objective to grow long-term value per share, driven by a portion of the long-lived cash flow from Delhi and complemented by the growth potential of our GARP® business demonstrated by the currently ongoing five installations. With $25 million of cash, no debt and our working interest reversion at Delhi imminent, we are well positioned to continue our growth while providing a material yield to our shareholders."

Financial Results

Net income to common shareholders was $0.8 million, or $0.02 per basic and diluted share, an improvement over the previous quarter's net loss of $0.6 million, or $0.02 per diluted share, and a decrease from the net income of $2.2 million in the year-ago quarter, or $0.07 per diluted share. The increase over the prior quarter was due primarily to $2.1 million of pre-tax restructuring and other one-time charges in the prior quarter and higher oil prices realized in the current quarter, offset by the $0.6 million one-time charge in the current quarter due to retirement of the CFO. The decrease from the year ago quarter was due primarily to lower sales volumes due to the Delhi environmental event and sale of noncore producing assets, lower oil price and the one-time charge of $0.6 million, partially offset by lower operating expense and income tax. Revenues in the current quarter were $4.3 million, sequentially flat and a 28% decrease from the year-ago quarter. 

Compared to the previous quarter, daily oil volumes were down 4% to 468 net barrels of oil ("BO") per day on a 5% higher oil price of $101.65 per barrel.  Total daily volumes for the quarter decreased 5% to 487 net BO equivalent ("BOE") per day compared to 510 net BOE per day in the previous quarter on a 6% higher average price per BOE of $99.03. Compared to the year-ago quarter, oil sales volumes decreased 22% on a 8% lower average oil price, and total BOE volumes declined 22% on a 7% lower average price per BOE. Our Delhi oil sales realized a 4% price premium compared to our oil sales in Texas compared to a 2% premium in the previous quarter and 13% premium in the year ago quarter.

NGL and natural gas volumes declined 14% from the prior quarter and 36% from the year ago quarter to 19 net BOE per day. NGL and natural gas contributed 1% of current revenues, similar to the previous and year-ago quarters. The Delhi remediation and the fiscal 2013 sales of all of our non-GARP® producing assets in the Giddings Field and the fiscal 2014 sale of the Lopez Field were the primary factors in the decrease in total volumes from the year-ago quarter.

Lease operating expense, including production taxes, increased 50% over the prior quarter to $0.4 million primarily due to workovers on two GARP® equipped wells and the operating tests of the Sneath and Hendrickson wells in Oklahoma. Lease operating expense decreased 34% from the year ago quarter due to the sale of noncore producing properties, offset in part by the addition of GARP® installations and the current quarter's workovers and Oklahoma well tests. Lease operating expense per BOE increased 60% to $8.08 compared to the previous quarter, but decreased 16% from the year ago quarter.

General and administrative expense declined $0.3 million from the prior quarter to $2.3 million due to the prior quarter's one time charges and reduction in recurring overhead, partly offset by the current quarter's $0.6 million of one-time charges. General and administrative expense increased $0.5 million over the year ago quarter largely due to the one-time charges and litigation expenses, offset in part by the reduction in recurring overhead. Noncash stock compensation expense comprised $0.4 million in the current, $0.3 million in the previous and $0.4 million in the year ago quarter.

The board of directors elected to initiate a $0.10 quarterly dividend to common shareholders in December 2013 to begin cash distributions over the long-term out of free cash flow in excess of capital expenditures needed to grow our core assets. The board approved a similar dividend to common shareholders that was paid in March.

Employees paid us $1.0 million during the current quarter to exercise qualified incentive stock options. As of March 31, 2014, approximately 0.2 million options remained outstanding.

Due to the mass exercise of stock options and warrants by employees during the previous quarter, we generated $31.2 million in deductions from current and future income taxes. Consequently, the common stock dividends and preferred stock dividends paid during fiscal 2014 are being treated for tax purposes as return of capital to shareholders.

Delhi Field

Delhi volumes averaged 457 net BO per day (6,173 gross), essentially flat to the previous quarter's 464 net BO per day and a 19% decrease from the prior year. Production continued to be impacted by the previously disclosed remediation of the June 2013 fluids release and reduced CO2 injections. Material incremental CO2 injection is believed to have started late in the quarter, and we expect production to improve going forward as a result of the increased injections, capital expenditures in the prior year and future capital expenditures to complete the full project.

As previously reported, the reduction in oil production and substantial remediation costs, partially offset by lower CO2 purchases, potential insurance recoveries and any application of the operator's indemnification of EPM to the payout balance (which is being disputed by the operator), delayed reversion of our 24% working interest into calendar 2014. Due to these uncertainties and the dispute, we cannot accurately forecast when in 2014 the reversion will occur. We filed a lawsuit against the operator seeking declaration of the validity of the environmental indemnity, as well as remedies for other breaches of our operative agreements, and the operator has filed counterclaims.

The operator disclosed that it intends to begin work on a recycle gas processing facility with operations expected in 2015. This schedule is earlier than projected in our June 30, 2013 reserves report and includes a broader and earlier recovery of products than projected in the report, offset by any ultimate impact of the June 2013 fluids release.

GARP®

We entered into an agreement with a large operator to install our GARP® artificial lift technology on up to ten wells in the Giddings Field. We are currently assisting the operator in the installation of GARP® in the first five wells, which should be completed in June. The agreement can be amended to include additional wells in the future, and we have identified numerous additional candidates in their portfolio. The agreement calls for Evolution to fund a portion of the costs and provide use of our technology in return for a fee based on 25% of the total net profits from each well.

Evolution received the 2014 E&P Special Meritorious Award for Engineering Innovation for GARP®. The presentation was made recently at the Offshore Technology Conference in Houston, and the award recognized the technology's innovation, suitability as a practical solution and potential for improving efficiency and profitability.

Mississippian Lime Project

We completed a production test of a portion of the lateral in our Sneath well that is higher in structure after plugging off the remainder of the lateral that is lower in structure. We appear to be unable to shut off water production from that lower portion of the lateral and thus did not adequately test the concept. The two Mississippian Lime wells that we drilled are now shut-in and we are exploring our options, including sale. No further capital expenditures are projected in this project.

Liquidity and Capital Resources

At March 31, 2014, the Company had working capital of $24 million and total liquidity of $29 million, which included $25 million of cash and equivalents and $5 million of availability on a revolving unsecured credit line. At March 31, 2014, the Company had no borrowings under its revolver. Consequently, we believe that current liquidity combined with expected operating cash flows are sufficient to fund our anticipated capital budgets and future dividend payments for the foreseeable future.

Conference Call

As previously announced, an investor conference call to review the results will be held on Thursday, May 8, 2014 at 11:00 a.m. Eastern (10:00 a.m. Central). The call will be hosted by Robert Herlin, Chairman and CEO and Randy Keys, Senior Vice President and CFO.

Date: 

Thursday, May 8, 2014



Time:  

11:00 a.m. Eastern (10:00 a.m. Central)



Call:    

1-877-418-5260 (United States)


1-412-717-9589 (International)


1-866-605-3852 (Canada)



Internet:

To listen live and hear a rebroadcast over the Internet, go to http://www.evolutionpetroleum.com

A replay will be available one hour after the end of the conference call through May 23, 2014 at 9:00 a.m. Eastern and accessible by calling 1-877-344-7529 (US); 1-412-317-0088 (Canada/International) and using the Passcode 10045006. An archive of the webcast will be available after the call on the Company's website.

About Evolution Petroleum

Evolution Petroleum Corporation develops incremental petroleum reserves and shareholder value for its shareholders and customers through application of conventional and proprietary technology to known oil and gas resources.   Petroleum reserves as of June 30, 2013 include 13.8 MMBOE of proved, 11.2 MMBOE of probable reserves and 3.7 MMBOE of possible reserves.  Assets include a CO2-EOR project in Louisiana's Delhi Field and a patented technology designed to extend well life and recover incremental oil and gas reserves.  The Company has no debt. 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, income, 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:
Randy Keys, CFO
(713) 935-0122
rkeys@evolutionpetroleum.com

 

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Statements of Operations

(Unaudited)









Three Months Ended


Nine Months Ended




March 31,


March 31,




2014


2013


2014


2013


Revenues










Crude oil


$

4,280,355


$

5,947,015


$

13,216,497


$

15,331,836


Natural gas liquids



29,701



27,067



79,803



233,234


Natural gas



26,950



36,485



66,694



385,101


Total revenues



4,337,006



6,010,567



13,362,994



15,950,171
















Operating Costs














Lease operating expenses



345,338



525,425



978,683



1,260,922


Production taxes



8,291



13,895



29,726



56,131


Depreciation, depletion and amortization



311,815



281,306



948,656



928,342


Accretion of discount on asset retirement obligations



9,631



17,232



34,977



56,090


General and administrative expenses *



2,304,397



1,778,178



6,875,430



5,298,878


Restructuring charges **



---



---



1,332,186



---


Total operating costs



2,979,472



2,616,036



10,199,658



7,600,363
















Income from operations



1,357,534



3,394,531



3,163,336



8,349,808
















Other














Interest income



7,383



5,495



22,787



16,725


Interest (expense)



(17,605)



(16,308)



(50,700)



(49,300)





(10,222)



(10,813)



(27,913)



(32,575)
















Net income before income taxes



1,347,312



3,383,718



3,135,423



8,317,233
















Income tax provision



423,612



986,676



1,148,155



2,801,393
















Net Income


$

923,700


$

2,397,042


$

1,987,268


$

5,515,840
















Dividends on Preferred Stock



168,575



168,575



505,726



505,726






























Net income available to common shareholders


$

755,125


$

2,228,467


$

1,481,542


$

5,010,114
















Basic


$

0.02


$

0.08


$

0.05


$

0.18
















Diluted


$

0.02


$

0.07


$

0.05


$

0.16
















Weighted average number of common shares




























Basic



32,358,163



28,201,106



30,328,344



28,069,285
















Diluted



32,732,049



32,090,152



32,503,460



31,911,808




* General and administrative expenses for the three months ended March 31, 2014 and 2013 included non-cash stock-based compensation expense of $444,981 and $392,433, respectively.  For the corresponding nine month period's non-cash stock-based compensation expense was $1,134,841 and $1,139,802, respectively.


** Restructuring charges for the nine months ended March 31, 2014 included non-cash stock-based compensation expense of $376,365.

 

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

(Unaudited)










March 31,


June 30,




2014


2013


Assets







Current assets








Cash and cash equivalents


$

24,875,567


$

24,928,585


Certificate of deposit





250,000


Receivables








Oil and natural gas sales



1,544,707



1,632,853


Income taxes



214,423



281,970


Joint interest partner



383



49,063


Other



72,144



918


Deferred tax asset



15,249



26,133


Prepaid expenses and other current assets



643,055



266,554


Total current assets



27,365,528



27,436,076










Property and equipment, net of depreciation, depletion, and amortization

Oil and natural gas properties — full-cost method of accounting of which $4,112,704 was excluded from amortization at June 30, 2013



38,047,277



38,789,032


Other property and equipment



44,733



52,217


Total property and equipment



38,092,010



38,841,249










Advances to joint interest operating partner



---



26,059


Other assets



437,058



252,912










Total assets


$

65,894,596


$

66,556,296










Liabilities and Stockholders' Equity








Current liabilities








Accounts payable


$

485,951


$

642,018


Due to joint interest partner



110,393



127,081


Accrued compensation



1,075,120



1,385,494


Accrued restructuring charges



739,068




Royalties payable



130,022



91,427


Income taxes payable





233,548


Other current liabilities



674,395



153,182


Total current liabilities



3,214,949



2,632,750










Long term liabilities








Deferred income taxes



9,406,452



8,418,969


Asset retirement obligations



180,191



615,551


Deferred rent



40,006



52,865










Total liabilities



12,841,598



11,720,135










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 March 31, 2014, and June 30, 2013 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 32,571,335 shares at March 31, 2014, and 29,410,858 at June 30, 2013; outstanding 32,571,335 shares and 28,608,969 shares as of March 31, 2014 and June 30, 2013, respectively



32,571



29,410


Additional paid-in capital



33,987,802



31,813,239


Retained earnings



19,032,308



24,013,035





53,052,998



55,856,001


Treasury stock, at cost, no shares and 801,889 shares as of March 31, 2014 and June 30, 2013, respectively





(1,019,840)










Total stockholders' equity



53,052,998



54,836,161










Total liabilities and stockholders' equity


$

65,894,596


$

66,556,296


 

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited)






Nine Months Ended
March 31,





2014



2013


Cash flows from operating activities








Net Income


$

1,987,268


$

5,515,840


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








Depreciation, depletion and amortization



980,589



958,566


Stock-based compensation



1,134,841



1,139,802


Stock-based compensation related to restructuring



376,365




Accretion of discount on asset retirement obligations



34,977



56,090


Settlements of asset retirement obligations



(73,646)



(52,905)


Deferred income taxes



998,367



2,026,948


Deferred rent



(12,859)



(12,860)


Changes in operating assets and liabilities:








Receivables from oil and natural gas sales



88,146



(782,159)


Receivables from income taxes and other



(3,679)



(21,077)


Due to/from joint interest partner



70,083



20,105


Prepaid expenses and other current assets



(376,501)



89,284


Accounts payable and accrued expenses



651,765



(47,339)


Royalties payable



38,595



(116,071)


Income taxes payable



(233,548)



334,726


Net cash provided by operating activities



5,660,763



9,108,950










Cash flows from investing activities








Proceeds from asset sales



542,349



3,054,976


Maturity of certificate of deposit



250,000




Capital expenditures for oil and natural gas properties



(989,616)



(4,395,350)


Capital expenditures for other property and equipment



(12,793)




Other assets



(181,751)



(29,083)


Net cash used in investing activities



(391,811)



(1,369,457)










Cash flows from financing activities








Proceeds on exercise of stock options



3,162,801



70,500


Cash dividends to preferred stockholders



(505,726)



(505,726)


Cash dividends to common stockholders



(6,462,269)




Purchases of treasury stock



(1,591,765)



(21,870)


Windfall tax benefit



108,473




Recovery of short swing profits



6,850




Deferred loan costs



(40,334)



(16,211)


Net cash used in financing activities



(5,321,970)



(473,307)










Net increase (decrease) in cash and cash equivalents



(53,018)



7,266,186










Cash and cash equivalents, beginning of period



24,928,585



14,428,548










Cash and cash equivalents, end of period


$

24,875,567


$

21,694,734


 

Our supplemental disclosures of cash flow information for the nine months ended March 31, 2014 and 2013 are as follows:

 




Nine Months Ended




March 31,




2014


2013


Income taxes paid


$

755,941


$

304,874










Non-cash transactions:








Change in accounts payable used to acquire oil and natural gas leasehold interests and develop oil and natural gas properties



(229,062)



(58,675)


Change in due to joint interest partner used to acquire oil and natural gas leasehold interests and develop oil and natural gas properties



(12,032)



(467,978)


Oil and natural gas properties incurred through recognition of asset retirement obligations



45,172



8,558


Previously acquired Company shares swapped by holders to pay stock option exercise price



618,606




 

Results of Operations – Quarter





Three Months Ended
March 31,






%





2014



2013



Variance



Change
















Sales Volumes, net to the Company:




























Crude oil (Bbl.)



42,108



53,699



(11,591)



(21.6)%
















NGLs (Bbl.)



764



857



(93)



(10.9)%
















Natural gas (Mcf)



5,532



10,743



(5,211)



(48.5)%


 

Crude oil, NGLs and natural gas (BOE)



43,794



56,347



(12,553)



(22.3)%
















Revenue data:




























Crude oil


$

4,280,355


$

5,947,015


$

(1,666,660)



(28.0)%


 

NGLs



29,701



27,067



2,634



9.7%
















Natural gas



26,950



36,485



(9,535)



(26.1)%


 

Total revenues


$

4,337,006


$

6,010,567


$

(1,673,561)



(27.8)%
















Average price:














 

Crude oil (per Bbl.)


$

101.65


$

110.75


$

(9.10)



(8.2)%


 

NGLs (per Bbl.)



38.88



31.58



7.30



23.1%


 

Natural gas (per Mcf)



4.87



3.40



1.47



43.2%


 

Crude oil, NGLs and natural gas (per BOE)


$

99.03


$

106.67


$

(7.64)



(7.2)%
















Expenses (per BOE)














 

Lease operating expenses


$

7.89


$

9.32


$

(1.43)



(15.3)%


 

Production taxes


$

0.19


$

0.25


$

(0.06)



(24.0)%


 

Depletion expense on oil and natural gas
properties (a)


$

6.90


$

4.81


$

2.09



43.5%






(a) 

Excludes depreciation of office equipment, furniture and fixtures, and other assets of $9,732 and $10,305, for the three months ended March 31, 2014 and 2013, respectively.

 

Results of Operations – YTD




Nine Months Ended
March 31,




%




2014


2013


Variance


Change












Sales Volumes, net to the Company:














Crude oil (Bbl.)



128,853



145,051



(16,198)



(11.2)%


NGLs (Bbl.)



2,408



6,616



(4,208)



(63.6)%
















Natural gas (Mcf)



18,442



132,822



(114,380)



(86.1)%


Crude oil, NGLs and natural gas (BOE)



134,335



173,804



(39,469)



(22.7)%
















Revenue data:




























Crude oil


$

13,216,497


$

15,331,836


$

(2,115,339)



(13.8)%
















NGLs



79,803



233,234



(153,431)



(65.8)%
















Natural gas



66,694



385,101



(318,407)



(82.7)%


 

Total revenues


$

13,362,994


$

15,950,171


$

(2,587,177)



(16.2)%
















Average price:














 

Crude oil (per Bbl.)


$

102.57


$

105.70


$

(3.13)



(3.0)%


 

NGLs (per Bbl.)



33.14



35.25



(2.11)



(6.0)%


 

Natural gas (per Mcf)



3.62



2.90



0.72



24.8%


 

Crude oil, NGLs and natural gas (per BOE)


$

99.48


$

91.77


$

7.71



8.4%
















Expenses (per BOE)














 

Lease operating expenses


$

7.29


$

7.25


$

0.04



0.6%


 

Production taxes


$

0.22


$

0.32


$

(0.10)



(31.3)%


 

Depletion expense on oil and natural gas properties (a)


$

6.87


$

5.13


$

1.74



33.9%






(a)

Excludes depreciation of office equipment, furniture and fixtures, and other assets of $25,875 and $37,017 for the nine months ended March 31, 2014 and 2013, respectively.

 

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