Evolution Petroleum Increases Common Stock Dividend to $0.07 per Share; Announces Operating Results for Quarter Ended December 31, 2016

HOUSTON, TX / ACCESSWIRE / February 7, 2017 / Evolution Petroleum Corporation (NYSE MKT: EPM) today announced that its Board of Directors increased the quarterly cash dividend to common shareholders to $0.07 per share, an increase of 8% over the previous rate of $0.065 per share. The quarterly dividend, which amounts to $0.28 per share on an annual basis, will be paid on March 31, 2017 to shareholders of record on March 15, 2017.

Evolution also reported financial and operating highlights for its fiscal second quarter ended December 31, 2016, with comparisons to the fiscal first quarter ended September 30, 2016 (the “prior quarter”) and the quarter ended December 31, 2015 (the “year-ago quarter”).

Highlights for the Quarter:

We reported net income of $2.3 million in the current quarter, or $0.07 per common share.
We paid our thirteenth consecutive quarterly cash dividend on common shares of $0.065 per share, which reflected a 30% increase over the prior quarter. We set the March 2017 dividend at $0.07 per share, a further increase of 8%.
Gross production in the Delhi field increased 2.8% over the prior quarter, to 7,580 barrels of oil per day (“BOPD”) from 7,371 BOPD, primarily from continuing conformance and production enhancement operations. This production consisted entirely of crude oil as first sales of NGL’s occurred after the end of the quarter.

Our net production increased to 1,987 BOPD, from 1,935 BOPD in the prior quarter. Our average realized price per barrel was $46.66, up almost 10% from the $42.66 average price in the prior quarter.

The Delhi natural gas liquid (“NGL”) plant was completed during the quarter and commenced production at the end of December.
We completed the redemption of our 8.5% Series A Cumulative Preferred Stock at a total cost of $7.9 million, funded by working capital. This will increase cash available to common stockholders by $674,302 per year, or $0.02 per common share.
We ended the quarter with $18.6 million of working capital, substantially all of which was cash.
We remain debt free.

Randy Keys, President and CEO, said: “The Delhi field turned in another solid performance this quarter. Gross production increased by over 200 BOPD from the prior quarter. We continue to see the benefits from diverse conformance workovers and performance enhancement projects designed to improve efficiency in use of the recycle CO2 stream. The combined results have been stellar, as gross production has increased from below 6,000 BOPD to over 7,500 BOPD in the span of less than two years. Further, these results have been achieved while reducing purchased CO2 volumes. We began selling NGL’s from the NGL recovery plant after the end of the quarter, so this quarter’s production consists entirely of light Louisiana Sweet (“LLS”) crude oil from the field. This continuing positive performance of the Delhi field bodes well for our long-term recovery of reserves from the field.

“With the redemption of our preferred stock, which frees up additional cash of $0.02 per common share annually, and the end of our capital spending obligations on the NGL plant, we decided to make a further increase in the common stock dividend to $0.07 per share. The Board of Directors intends to revisit the dividend rate during 2017 based on results from the Delhi field, the timing of further expansion of Delhi development and the outlook for crude oil prices.”

Results for the Quarter Ended December 31, 2016

In the current quarter, we reported operating revenues of $8.5 million, based on an average realized oil price of $46.66 per barrel, and generated $3.7 million in income from operations. In the prior quarter, we reported $2.7 million in income from operations on revenues of $7.6 million, which was based on an average oil price of $42.66 per barrel. Net production volumes were 1,987 BOPD, an increase from 1,935 BOPD in the prior quarter and were substantially above the year-ago quarter rate of 1,803 BOPD. Net income for the quarter was $2.3 million, or $0.07 per diluted share.

Production costs in the Delhi field were $2.3 million in the current quarter, which was unchanged from the prior quarter despite a slightly higher cost per MCF of CO2, and up slightly from $2.2 million a year ago. Purchased CO2 volumes were 67.0 million cubic feet (MMcf) per day, down 9% from 73.7 MMcf in the prior quarter. However, lower purchased CO2 volumes were offset by the increase in the cost per Mcf, which is tied directly to higher realized oil prices in the field.

Our general and administrative (“G&A”) expenses were $1.2 million for the quarter, of which $0.3 million were noncash, stock-based compensation expense and approximately $0.9 million were cash costs. These amounts were consistent with the prior quarter and represent a 40% reduction from the year-ago quarter, which included significant litigation costs and was prior to the separation of our artificial lift technology operations in the December 2015. We continue to focus on controlling our costs and are seeing the benefits of these efforts in lower G&A costs.

Delhi Operations and Capital Spending

Construction of the Delhi NGL plant was completed in late October, and startup testing and commissioning followed in November and December. The NGL plant commenced production at the end of December and first sales of products occurred in mid-January. Production has been ramping up during an optimization period this month and full daily throughput is expected to be reached during the coming quarter. Our costs incurred on the NGL plant through December 31, 2016 totaled $26.0 million, which we believe represents substantially all of the capital costs to be incurred. The cost of the plant was within 7% of budget and differed primarily as a result of price increases on specialized components after the original estimate, and additional commissioning costs.

During the quarter, we completed several capital workover projects for continuing conformance operations in the Delhi field, totaling approximately $1.6 million net to Evolution. These new projects result from the demonstrated benefits from previous conformance efforts and the significant returns that have been realized from relatively modest capital investments in the field. We have seen significant production increases from conformance projects over the past two years.

Our current expectations for capital spending during the remainder of our fiscal year ended June 30, 2017 include a few additional conformance and workover operations totaling less than $1 million net to Evolution. Based on recent meetings with the field operator, we have identified new opportunities to invest in the Delhi field during the second half of this calendar year, which is part of our fiscal 2018. The majority of this capital is planned for an infill drilling program to enhance production in the current developed area of the flood. This program will consist of up to five new CO2 injection wells and seven new production wells and will target productive oil zones which are not being swept effectively by the current CO2 flood. This infill program is expected to both add production and increase ultimate recoveries above the current proved oil reserves. There are other capital projects proposed to add infrastructure for the Phase Five expansion of the Delhi field so that it can be developed in a safe and responsible manner. We currently expect this expansion to occur during calendar 2018.

Liquidity and Capital Resources

Our liquidity position remains excellent, with $18.6 million of net working capital (after payment of $7.9 million for the redemption of preferred stock), $10 million of undrawn liquidity under our reserve-based credit facility and the expectation of significant free cash flow over the next twelve months. Our future cash flow is dependent on the prices we receive for our production. Based on our solid financial position, we expect to continue our quarterly common stock cash dividend program for the foreseeable future.

Conference Call

For this quarter, Evolution has pre-recorded its quarterly conference call as a webcast audio commentary with associated slides. This pre-recorded commentary will be available on the Company’s website, www.EvolutionPetroleum.com, as soon as practicable after the distribution of this quarterly earnings press release. This commentary, which is approximately 12 minutes in length, will be re-broadcast on Wednesday, February 8, 2017 at 11:00 a.m. Eastern Time (10:00 a.m. Central). The re-broadcast will be followed by a live question and answer session at 11:15 a.m. Eastern Time (10:30 a.m. Central). The quarterly review commentary and the question and answer session will include forward looking information. To access the conference call by phone, please dial 1-855-327-6837 (US and Canada) or 1-631-891-4304 (International). To listen live via webcast or to hear a rebroadcast, please go to www.EvolutionPetroleum.com. A replay will be available two hours after the end of the conference call through February 15, 2017 by calling 1-844-512-2921 (US and Canada) or 1-412-317-6671 (International) and providing the replay pin number of 10002342.

About Evolution Petroleum

Evolution Petroleum Corporation develops and produces petroleum reserves within known oil and gas reservoirs in the U.S., with a focus on maximizing value per share. Our principal asset is our interest in a CO2 enhanced oil recovery project in Louisiana’s Delhi Field. Additional information, including the Company’s most recent 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 forward-looking statements contained in this press release regarding potential results and future plans and objectives of the Company involve a wide range risks and uncertainties. Statements herein using words such as “believe,” “expect,” “plans” and words of similar meaning are forward-looking statements. Although our expectations are based on engineering, geological, financial and operating assumptions that we believe to be reasonable, many factors could cause actual results to differ materially from our expectations and we can give no assurance that our goals will be achieved. These factors and others are detailed under the heading “Risk Factors” and elsewhere in our periodic documents filed with the SEC. The Company undertakes no obligation to update any forward-looking statement.

Company Contact:

Randy Keys, President & CEO
(713) 935-0122
rkeys@evolutionpetroleum.com

Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)

Three Months Ended

Six Months Ended December 31,

December 31,

September 30,

2016

2015

2016

2015

Revenues

Crude oil

$
8,529,817

$
6,565,804

$
7,593,855

$
16,123,672

$
13,891,617

Natural gas liquids

–

685

1,735

Natural gas

–

317

(4
)

1,021

Artificial lift technology services

–

56,121

–

107,960

Total revenues

8,529,817

6,622,927

7,593,940

16,123,757

14,002,333

Operating costs

Production costs

2,292,421

2,229,741

2,344,641

4,637,062

4,838,320

Cost of artificial lift technology services

–

50,131

–

59,999

Depreciation, depletion and amortization

1,307,510

1,471,571

1,273,439

2,580,949

2,689,844

Accretion of discount on asset retirement obligations

13,106

11,517

13,224

26,330

22,860

General and administrative expenses *

1,241,399

2,057,521

1,235,043

2,476,442

3,742,366

Restructuring charges **

–

1,257,433

–

1,257,433

Total operating costs

4,854,436

7,077,914

4,866,347

9,720,783

12,610,822

Income (loss) from operations

3,675,381

(454,987
)

2,727,593

6,402,974

1,391,511

Other

Gain on realized derivative instruments, net

–

1,298,201

2,164,628

Gain (loss) on unrealized derivative instruments, net

–

361,761

(14,132
)

1,433,723

Delhi field insurance recovery related to pre-reversion event

–

1,074,957

Interest and other income

14,061

5,853

12,745

26,806

11,665

Interest expense

(20,711
)

(18,666
)

(20,345
)

(41,056
)

(37,126
)

Income before income taxes

3,668,731

1,192,162

2,705,951

6,374,682

6,039,358

Income tax provision

1,361,097

368,889

889,176

2,250,273

2,123,858

Net income attributable to the Company

2,307,634

823,273

1,816,775

4,124,409

3,915,500

Dividends on preferred stock

–

168,576

250,990

337,151

Deemed dividend on preferred shares called for redemption

–

1,002,440

–

Net income available to common stockholders

$
2,307,634

$
654,697

$
563,345

$
2,870,979

$
3,578,349

Earnings per common share

Basic

$
0.07

$
0.02

$
0.09

$
0.11

Diluted

$
0.07

$
0.02

$
0.09

$
0.11

Weighted average number of common shares

Basic

33,047,166

32,741,166

32,957,010

33,002,088

32,729,705

Diluted

33,083,027

32,802,440

33,007,599

33,037,269

32,789,461

* General and administrative expenses for the three months ended December 31, 2016, 2015 and September 30, 2016 included non-cash stock-based compensation expense of $275,184, $212,724 and $311,688, respectively. For the six months ended December 31, 2016 and 2015, non-cash stock compensation expense was $586,872 and $430,839, respectively.

** Restructuring charges include $59,339 of non-cash stock compensation expense for the three and six months ended December 31, 2015.

Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)

December 31,

2016

June 30,

2016

Assets

Current assets

Cash and cash equivalents

$
19,156,377

$
34,077,060

Receivables

3,101,169

2,638,188

Deferred tax asset

–

105,321

Derivative assets, net

–

14,132

Prepaid expenses and other current assets

618,788

251,749

Total current assets

22,876,334

37,086,450

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

63,832,372

59,970,463

Other property and equipment, net

48,096

28,649

Total property and equipment

63,880,468

59,999,112

Other assets

330,300

365,489

Total assets

$
87,087,102

$
97,451,051

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable

$
3,259,711

$
5,809,107

Accrued liabilities and other

701,031

2,097,951

State and federal income taxes payable

310,544

621,850

Total current liabilities

4,271,286

8,528,908

Long term liabilities

Deferred income taxes

13,444,891

11,840,693

Asset retirement obligations

784,247

760,300

Total liabilities

18,500,424

21,129,901

Commitments and contingencies (Note 15)

Stockholders’ equity

Preferred stock, par value $0.001; 5,000,000 shares authorized:8.5% Series A Cumulative Preferred Stock, 1,000,000 shares designated, 317,319 shares issued; no shares outstanding at December 31, 2016 as all shares were redeemed November 14, 2016 (Note 8); and 317,319 shares outstanding at June 30, 2016 with a liquidation preference of $7,932,975 ($25.00 per share)

–

317

Common stock; par value $0.001; 100,000,000 shares authorized: issued and outstanding 33,062,297 shares and 32,907,863 as of December 31, 2016 and June 30, 2016, respectively

33,062

32,907

Additional paid-in capital

40,368,236

47,171,563

Retained earnings

28,185,380

29,116,363

Total stockholders’ equity

68,586,678

76,321,150

Total liabilities and stockholders’ equity

$
87,087,102

$
97,451,051

Evolution Petroleum Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)

Six Months Ended

December 31,

2016

2015

Cash flows from operating activities

Net income attributable to the Company

$
4,124,409

$
3,915,500

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

Depreciation, depletion and amortization

2,609,356

2,714,162

Impairments included in restructuring charge

–

569,228

Stock-based compensation

586,872

490,178

Accretion of discount on asset retirement obligations

26,330

22,860

Settlements of asset retirement obligations

(121,391
)

–

Deferred income taxes

1,709,519

(547,579
)

(Gain) loss on derivative instruments, net

14,042

(3,598,351
)

Write-off of deferred loan costs

–

50,414

Changes in operating assets and liabilities:

Receivables

(462,981
)

1,167,391

Prepaid expenses and other current assets

(367,039
)

(119,515
)

Accounts payable and accrued expenses

(1,955,546
)

(310,054
)

Income taxes payable

(311,306
)

152,898

Net cash provided by operating activities

5,852,265

4,507,132

Cash flows from investing activities

Derivative settlement payments (paid) received

(318,618
)

1,561,979

Capital expenditures for oil and natural gas properties

(7,978,130
)

(8,650,217
)

Capital expenditures for other property and equipment

(30,447
)

–

Other assets

–

(161,345
)

Net cash used in investing activities

(8,327,195
)

(7,249,583
)

Cash flows from financing activities

Cash dividends to preferred stockholders

(250,990
)

(337,151
)

Cash dividends to common stockholders

(3,801,962
)

(3,268,319
)

Common share repurchases, including shares surrendered for tax withholding

(459,858
)

(1,354,743
)

Tax benefits related to stock-based compensation

–

3,910,163

Redemption of preferred shares

(7,932,975
)

–

Other

(1,243
)

Net cash (used in) provided by financing activities

(12,445,753
)

(1,051,293
)

Net decrease in cash and cash equivalents

(14,920,683
)

(3,793,744
)

Cash and cash equivalents, beginning of period

34,077,060

20,118,757

Cash and cash equivalents, end of period

$
19,156,377

$
16,325,013

Supplemental disclosures of cash flow information:

Six Months Ended

December 31,

2016

2015

Income taxes paid

$
1,278,773

$
440,000

Louisiana carryback income tax refund and related interest received

–

1,556,999

Non-cash transactions:

Change in accounts payable used to acquire property and equipment

(1,516,932
)

(2,442,183
)

Deferred loan costs charged to oil and gas property costs

–

108,472

Settlement of accrued treasury stock purchases

–

(170,283
)

Royalty rights acquired through non-monetary exchange of patent and trademark assets

108,512

Supplemental Information on Oil and Natural Gas Operations (Unaudited)

Three Months Ended

Dec. 31, 2016

Sept. 30, 2016

Variance

Variance %

Oil and gas production:

Crude oil revenues

$
8,529,817

$
7,593,855

$
935,962

12.3
%

NGL revenues

–

(89
)

n.m.

Natural gas revenues

–

(4
)

n.m.

Total revenues

$
8,529,817

$
7,593,940

$
935,877

12.3
%

Crude oil volumes (Bbl)

182,815

178,002

4,813

2.7
%

NGL volumes (Bbl)

–

(4
)

n.m.

Natural gas volumes (Mcf)

–

(16
)

n.m.

Equivalent volumes (BOE)

182,815

178,009

4,806

2.7
%

Equivalent volumes per day (BOE/D)

1,987

1,935

2.7
%

Crude oil price per Bbl

$
46.66

$
42.66

$
4.00

9.4
%

NGL price per Bbl

–

22.25

(22.25
)

n.m.

Natural gas price per Mcf

–

(0.25
)

0.25

n.m.

Equivalent price per BOE

$
46.66

$
42.66

$
4.00

9.4
%

CO2 costs

$
1,041,741

$
1,078,133

$
(36,392
)

(3.4
)%

All other lease operating expense

1,250,680

1,266,508

(15,828
)

(1.2
)%

Production costs

$
2,292,421

$
2,344,641

$
(52,220
)

(2.2
)%

Production costs per BOE

$
12.54

$
13.17

$
(0.63
)

(4.8
)%

CO2 volumes (Mcf per day, gross)

66,961

73,747

(6,786
)

(9.2
)%

Oil and gas DD&A (a)

$
1,299,813

$
1,265,637

$
34,176

2.7
%

Oil and gas DD&A per BOE

$
7.11

$
–

–
%

n.m. Not meaningful.

(a) Excludes non-operating depreciation and amortization of $7,697 and $7,802 for the three months ended December 31 and September 30, 2016, respectively.

Supplemental Information on Oil and Natural Gas Operations (Unaudited)

Three Months Ended

December 31,

2016

2015

Variance

Variance %

Oil and gas production:

Crude oil revenues

$
8,529,817

$
6,565,804

$
1,964,013

29.9
%

NGL revenues

–

685

(685
)

n.m.

Natural gas revenues

–

317

(317
)

n.m.

Total revenues

$
8,529,817

$
6,566,806

$
1,963,011

29.9
%

Crude oil volumes (Bbl)

182,815

165,847

16,968

10.2
%

NGL volumes (Bbl)

–

(42
)

n.m.

Natural gas volumes (Mcf)

–

182

(182
)

n.m.

Equivalent volumes (BOE)

182,815

165,919

16,896

10.2
%

Equivalent volumes per day (BOE/D)

1,987

1,803

184

10.2
%

Crude oil price per Bbl

$
46.66

$
39.59

$
7.07

17.9
%

NGL price per Bbl

–

16.31

(16.31
)

n.m.

Natural gas price per Mcf

–

1.74

(1.74
)

n.m.

Equivalent price per BOE

$
46.66

$
39.58

$
7.08

17.9
%

CO2 costs

$
1,041,741

$
1,017,664

$
24,077

2.4
%

All other lease operating expense

1,250,680

1,212,077

38,603

3.2
%

Production costs

$
2,292,421

$
2,229,741

$
62,680

2.8
%

Production costs per BOE

$
12.54

$
13.44

$
(0.90
)

(6.7
)%

CO2 volumes (Mcf per day, gross)

66,961

73,312

(6,351
)

(8.7
)%

Oil and gas DD&A (a)

$
1,299,813

$
1,254,350

$
45,463

3.6
%

Oil and gas DD&A per BOE

$
7.11

$
7.56

$
(0.45
)

(6.0
)%

Artificial lift technology services:

Services revenues

$
–

$
56,121

$
(56,121
)

n.m.

Cost of service

–

50,131

(50,131
)

n.m.

Depreciation and amortization expense

$
–

$
213,091

$
(213,091
)

n.m.

n.m. Not meaningful.

(a) Excludes depreciation and amortization expense for artificial lift technology services and $7,697 and $4,130 of other depreciation and amortization expense for the three months ended December 31, 2016 and 2015, respectively.

Supplemental Information on Oil and Natural Gas Operations (Unaudited)

Six Months Ended

December 31,

2016

2015

Variance

Variance %

Oil and gas production:

Crude oil revenues

$
16,123,672

$
13,891,617

$
2,232,055

16.1
%

NGL revenues

1,735

(1,646
)

n.m.

Natural gas revenues

(4
)

1,021

(1,025
)

n.m.

Total revenues

$
16,123,757

$
13,894,373

$
2,229,384

16.0
%

Crude oil volumes (Bbl)

360,817

322,763

38,054

11.8
%

NGL volumes (Bbl)

124

(120
)

n.m.

Natural gas volumes (Mcf)

489

(473
)

n.m.

Equivalent volumes (BOE)

360,824

322,968

37,856

11.7
%

Equivalent volumes per day (BOE/D)

1,961

1,755

206

11.7
%

Crude oil price per Bbl

$
44.69

$
43.04

$
1.65

3.8
%

NGL price per Bbl

22.25

13.99

8.26

59.0
%

Natural gas price per Mcf

(0.25
)

2.09

(2.34
)

n.m.

Equivalent price per BOE

$
44.69

$
43.02

$
1.67

3.9
%

CO2 costs

$
2,119,874

$
2,406,591

$
(286,717
)

(11.9
)%

All other lease operating expense

2,517,188

2,431,729

85,459

3.5
%

Production costs

$
4,637,062

$
4,838,320

$
(201,258
)

(4.2
)%

Production costs per BOE

$
12.85

$
14.98

$
(2.13
)

(14.2
)%

CO2 volumes (Mcf per day, gross)

66,961

73,312

(6,351
)

(8.7
)%

Oil and gas DD&A (a)

$
2,565,450

$
2,443,222

$
122,228

5.0
%

Oil and gas DD&A per BOE

$
7.11

$
7.56

$
(0.45
)

(6.0
)%

Artificial lift technology services:

Services revenues

$
–

$
107,960

$
(107,960
)

n.m.

Cost of service

–

59,999

(59,999
)

n.m.

Depreciation and amortization expense

$
–

$
238,475

$
(238,475
)

n.m.

n.m. Not meaningful.

(a) Excludes depreciation and amortization expense for artificial lift technology services and $15,499 and $8,147 of other depreciation and amortization expense for the six months ended December 31, 2016 and 2015, respectively.

SOURCE: Evolution Petroleum Corporation

ReleaseID: 454420

Go Top