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Evolution Petroleum Reports Record Results for Second Quarter Fiscal 2009
Posted by: gurufocus (IP Logged)
Date: February 17, 2009 06:01AM

Press Release: Evolution Petroleum Reports Record Results for Second Quarter Fiscal 2009

- Revenues Increased 58% Over Prior Year

- Production Grew 250% Over Prior Year

HOUSTON, Feb. 17 /PRNewswire-FirstCall/ -- Evolution Petroleum Corporation (NYSE Euronext: EPM) today reported financial and operating results for the three month period ended December 31, 2008, the Company's second quarter of fiscal 2009 ("Q2-09").

Oil and gas revenues for Q2-09 increased 58% to $1.0 million from $652,600 for the three months ended December 31, 2007 ("Q2-08"). The increase in quarterly revenues was due to a 228% increase in sales volumes, partially offset by a 52% decline in blended oil and gas prices. The substantial increase in sales volumes for Q2-09 was the result of drilling operations in the Giddings Field in central Texas, which generated 100% of Q2-09 revenues, compared to a contribution of 15% of the revenues in Q2-08. The properties that comprised the remaining 85% of Q2-08 revenues were sold in March 2008. Sequentially, revenues for Q2-09 were 65% less than Q1-09 due to a 53% decrease in realized commodity prices and normal production declines.

For the six months of fiscal 2009, net cash provided by operating activities was $6.4 million, partly due to the collection of $3.6 million in recoverable income taxes from a prior year loss carry-back, compared to $1.3 million used in the first six months of fiscal 2008. Cash flow provided before changes in operating assets and liabilities ("Adjusted Cash provided or used", a non-GAAP measure reconciled below), was $1.2 million for the first six months of fiscal 2009, a substantial improvement over the $0.3 million of Adjusted Cash used during the first six months of fiscal 2008.

At December 31, 2008, working capital was $7.6 million, compared to $13.6 million at June 30, 2008. The decrease was mostly due to $6.8 million of capital expenditures used for oil and natural gas properties, or more than half of fiscal 2009 planned expenditures. Approximately $0.9 million was used to repurchase the Company's common stock. Throughout both periods, the Company remained debt free.

Net loss in Q2-09 was $1.0 million, or $(0.04) per diluted share, compared to a net loss of $770,900, or $(0.03) per share during Q2-08. Results for Q2-09 included $1.1 million of non-cash charges related to stock based compensation, depreciation, depletion, amortization and accretion on asset retirement obligations, compared to $0.6 million of comparable non-cash charges in Q2-08.

Robert Herlin, President and Chief Executive Officer, commented, "Our increased production and revenue were driven by the success we achieved in our fiscal 2008 Giddings Field drilling program and does not reflect any fiscal 2009 drilling activity. Total gross production from the six wells we drilled and two wells added to production through workovers earlier in calendar 2008 has stabilized at about 240 gross barrels of oil equivalent ("BOE") per day and is generating solid cash flow for the company. We just completed two horizontal re-entries in the Giddings Field that in January yielded initial production rates in excess of our expectations and a combined eight day average gross rate of about 900 BOE per day. We own 100% of the working interest in these wells, with about an 80% net revenue interest.

"For the balance of 2009, we will emphasize the addition of proved reserves and increasing underlying value per share, instead of converting proved undeveloped reserves ("PUD") to producing wells at a time when commodity prices are depressed," continued Herlin. "Our current objective is to begin converting our non-proved reserves in Oklahoma to proved reserves through the initial drilling of our unproved shallow Woodford Shale acreage with up to five vertical wells. Subject to oil price, we expect to also initiate development in our Neptune oil project in South Texas with up to three wells, also potentially adding to our proved reserves. We are budgeting about $1.5 million for these eight wells. As a result, our capital expenditures will be far less during the second half of our fiscal year. At Delhi, field development and CO2 injection plans by the operator, Denbury Resources, remain on track with first production response expected by late calendar 2009 or shortly thereafter. We expect to generate net cash flows immediately with first production through our 7.4% royalty interest, and those revenues will grow as the project expands through its phases.

"Due to our working capital, debt-free balance sheet and current cash flows, we have no need to raise capital through dilution of our shareholders or incur expensive debt in the foreseeable future. Additionally, we have operating control over our major projects in Texas and Oklahoma, no material near-term expiring leases, and the ability to pursue lower-cost projects that have the potential to add significant value. As a result, we have the financial flexibility to continue adding proved reserves while our Delhi project ramps-up cash flows," added Herlin.

Production Volumes and Prices:

Net production volumes for Q2-09 were 15,028 barrels of oil ("BO") and natural gas liquids ("NGL") and 66.9 MMCF for a total of 26,183 BOE. This is an increase of 250% over production volumes of 6,869 BO and NGL and 3.6 MMCF of gas, or 7.5 BOE in Q2-08. The average price of oil fell 35% to $57.37 per barrel in Q2-09 from $87.75 per barrel in Q2-08, while the average price of NGLs fell 44% in Q2-09 to $30.63 per barrel from $54.88 per barrel in Q2-08. The average price of natural gas fell 10% to $5.82 per Mcf in Q2-09 versus $6.49 per Mcf in Q2-08. On a BOE basis, the blended effective price declined 52% to $39.78 in Q2-09 from $82.43 in Q2-08.

Costs and Expenses

Lease operating expenses per BOE for Q2-09 declined 72% over Q2-08 to $12.54, due to a much lower unit lifting costs in the Giddings Field as compared to the divested Tullos Field.

Depreciation, Depletion & Amortization Expense ("DD&A") increased to $504,291 or $19.07 per BOE for Q2-09, from $123,116 or $13.29 per BOE in Q2-08. The increase was primarily due to a higher depletion rate per BOE on higher sales volumes in the current period. The increased depletion rate is a result of the higher development cost of PUDs in the Giddings Field that we added in replacement of our lower cost proved developed producing reserves ("PDPs") from our properties in the Tullos Field Area, which we sold in March 2008.

General and administrative ("G&A") expenses increased 13% to $1.7 million for Q2-09, as compared to $1.5 million for Q2-08. The majority of the increase was attributable to higher overall compensation expense for estimated bonuses and staff additions, including non-cash stock based compensation. Staff additions associated with a build-up of infrastructure were needed to execute our drilling program in the Giddings Field. Non-cash stock based compensation expense was $584,525 (35% of total G&A) and $441,564 (30% of total G&A) for Q2-09 and Q2-08, respectively.

Other Income and Expense

Q2-09 interest income decreased to $17,782, as compared to interest income of $266,740 for Q2-08. The decrease was due to lower available cash balances averaging $8.9 million during Q2-09 compared to $23.2 million in Q2-08, combined with a lower interest rate environment in Q2-09. The lower cash balance is mostly the result of cash used for drilling and leasehold capital expenditures.

Conference Call

Evolution Petroleum will host a conference call to discuss its fiscal second quarter 2009 results on Tuesday, February 17, 2009, at 11:00 a.m. Eastern Time (10:00 a.m. Central). To access the call, please dial 303-262-2143 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 February 24, 2009 and may be accessed by calling (303) 590-3000 and using the pass code 11126478#. For more information, please contact Donna Washburn at DRG&E at (713) 529-6000 or email at dmw@drg-e.com" target="_new">dmw@drg-e.com.

About Evolution Petroleum

Evolution Petroleum Corporation (http://www.evolutionpetroleum.com) acquires known, onshore oil and gas resources and applies conventional and specialized technology to accelerate production and develop incremental reserves and value. With no debt and a strong balance sheet, the Company is well positioned to carry out its initiatives in Enhanced Oil Recovery, Bypassed Resources and Unconventional Gas Development.

Principal assets as of July 1, 2008 include 4 MMBOE of proved and 3.1 MMBOE of probable reserves in the Giddings Field of central Texas, approximately 13 MMBO of probable reserves associated with the 13,636 acre Delhi Field Holt Bryant Unit currently being redeveloped with CO2-EOR technology in northeast Louisiana, and leases covering approximately 18,000 net acres in two Woodford gas shale projects in Oklahoma. The Company is also actively engaged in developing new projects within its initiatives.

Additional information, including the Company's annual report on Form 10-KSB and its quarterly reports on Form 10-Q can be accessed 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, 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.

Reconciliation of cash provided by (used in) operating activities to Adjusted Cash, a non-GAAP measure, for the six months ended December 31, 2008 and 2007 is as follows:

2008            2007

    Cash provided by (used in) operations         $6,404,724     $(1,322,477)
    Exclude changes in operating assets and
     liabilities:
      Receivables from oil and natural gas
       sales                                      (1,658,525)        176,593
      Receivables from income taxes and other     (4,031,914)        811,595
      Prepaid expenses and other current assets     (113,942)        (85,261)
      Accounts payable and accrued expenses          314,436         102,658
      Royalties payable                              282,051          (9,767)
    Adjusted Cash provided by (used in)
     operations                                   $1,196,830       $(326,659)
Company Contact:
    Sterling McDonald, VP & CFO
    (713) 935-0122
    smcdonald@evolutionpetroleum.com

    Lisa Elliott / lelliott@drg-e.com
    Jack Lascar / jlascar@drg-e.com
    DRG&E / 713-529-6600

                                        -
                                        -
                              - Tables to Follow -
Evolution Petroleum Corporation and Subsidiaries
                     Consolidated Statements of Operations
                                   (unaudited)

                                 Three Months Ended       Six Months Ended
                                     December 31,            December 31,
                                  2008        2007        2008         2007

    Revenues
      Crude oil                 $407,194    $607,877  $1,986,264   $1,110,150
      Natural gas liquids        235,293      21,294     990,738       21,294
      Natural gas                389,295      23,478     969,766       23,478
        Total revenues         1,031,782     652,649   3,946,768    1,154,922

    Operating Costs
      Lease operating expense    313,406     361,192     649,310      671,502
      Production taxes            21,776      15,808     107,772       33,364
      Depreciation, depletion    504,291     123,116   1,149,173      233,559
       and amortization
      Accretion of asset           6,124       4,851      11,861        9,546
       retirement obligations
      General and
       administrative *        1,662,627   1,467,678   3,127,467    2,795,996
        Total operating costs  2,508,224   1,972,645   5,045,583    3,743,967

    Loss from operations      (1,476,442) (1,319,996) (1,098,815)  (2,589,045)

    Other income
      Interest income             17,782     266,740      91,428      607,821

    Net loss before income
     tax benefit              (1,458,660) (1,053,256) (1,007,387)  (1,981,224)

    Income tax benefit          (454,889)   (282,399)   (152,053)    (568,986)

    Net loss                 $(1,003,771)  $(770,857)  $(855,334) $(1,412,238)


    Loss per common share
      Basic and Diluted           $(0.04)     $(0.03)     $(0.03)      $(0.05)

    Weighted average number
     of common shares
      Basic and Diluted       26,351,277  26,777,366  26,598,473   26,776,800


    *General and administrative expenses for the three month period ended
    December 31, 2008 and 2007 included non cash stock-based compensation
    expense of $584,525 and $441,564, respectively. General and
    administrative expenses for the six month period ended December 31, 2008
    and 2007 included non cash stock-based compensation expense of
    $1,108,250 and $817,571, respectively.
Evolution Petroleum Corporation and Subsidiaries
                            Consolidated Balance Sheets
                                   (Unaudited)

                                                     December 31,    June 30,
                                                        2008          2008
                                     Assets
    Current assets
      Cash and cash equivalents                      $8,514,708   $11,272,280
      Certificates of deposit                         1,500,000             -
      Receivables
         Oil and natural gas sales                      407,775     2,066,300
         Income tax                                           -       478,599
         Other                                          159,638        86,966
      Income taxes recoverable                                -     3,625,987
      Prepaid expenses and other current assets         156,996       270,938
           Total current assets                      10,739,117    17,801,070

    Property and equipment, net of depreciation,
     depletion, and amortization
      Oil and natural gas properties - full cost
       method of accounting, of which  $9,598,744 at
       December 31, 2008 and $7,573,507 at
       June 30, 2008 were excluded from
       amortization)                                 27,496,976    22,047,233
      Other property and equipment                      168,011       161,027
           Total property and equipment              27,664,987    22,208,260

    Other assets, net                                   353,400       356,518

           Total assets                             $38,757,504   $40,365,848


                      Liabilities and Stockholders' Equity
    Current liabilities
      Accounts payable                               $2,374,360    $2,892,459
      Accrued expenses                                  555,130       805,262
      Royalties payable                                 191,276       473,327
           Total current liabilities                  3,120,766     4,171,048

    Long term liabilities
      Deferred income taxes                           2,682,921     2,901,929
      Asset retirement obligations                      334,668       215,056
      Deferred rent                                      75,969        74,081

           Total liabilities                          6,214,324     7,362,114

    Commitments and contingencies

    Stockholders' equity
      Common Stock; par value $0.001; 100,000,000
       shares authorized; issued 27,007,234 shares;
       outstanding 26,219,034 and 26,870,439
       as of December 31, 2008 and June 30, 2008,
       respectively.                                     27,007        26,870
      Additional paid-in capital                     15,465,506    14,188,841
      Retained earnings                              17,932,689    18,788,023
                                                     33,425,202    33,003,734
      Less cost of common stock in treasury,
       788,200 shares as of December 31, 2008.         (882,022)            -
           Total stockholders' equity                32,543,180    33,003,734

           Total liabilities and stockholders'
            equity                                  $38,757,504   $40,365,848
Evolution Petroleum Corporation and Subsidiaries
                      Consolidated Statements of Cash Flow
                                   (Unaudited)

                                                         Six Months Ended
                                                            December 31,
                                                         2008          2007

    Cash flows from operating activities
      Net loss                                        $(855,334)  $(1,412,238)
      Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities:
        Depreciation, depletion and amortization      1,149,173       233,559
        Stock-based compensation                      1,108,250       817,571
        Accretion of asset retirement obligations        11,861         9,546
        Deferred income taxes                          (219,008)            -
        Deferred rent                                     1,888        24,903
        Changes in operating assets and
         liabilities:
          Receivables from oil and natural gas sales  1,658,525      (176,593)
          Receivables from income taxes and other     4,031,914      (811,595)
          Prepaid expenses and other current assets     113,942        85,261
          Accounts payable and accrued expenses        (314,436)     (102,658)
          Royalties payable                            (282,051)        9,767
            Net cash provided by (used in) operating
             activities                               6,404,724    (1,322,477)

    Cash flows from investing activities
        Development of oil and natural gas
         properties                                  (4,723,006)     (529,262)
        Acquisitions of oil and natural gas
         properties                                  (2,033,874)   (4,395,050)
        Proceeds from asset sale                              -        31,582
        Capital expenditures for other equipment        (26,602)      (53,625)
        Purchases of certificates of deposit         (1,500,000)            -
        Other assets                                      3,118        (2,020)
            Net cash used in investing
             activities                              (8,280,364)   (4,948,375)

    Cash flows from financing activities
        Proceeds from issuance of restricted stock           90            26
        Purchase of treasury stock                     (882,022)            -
            Net cash provided by (used in) financing
             activities                                (881,932)           26

      Net decrease in cash and cash equivalents      (2,757,572)   (6,270,826)

      Cash and cash equivalents, beginning
       of period                                     11,272,280    27,746,942

      Cash and cash equivalents, end of period       $8,514,708   $21,476,116

    Supplemental disclosure of cash flow
     information:
      Income taxes paid                                 $15,000            $-
      Income tax refunds and net operating loss
       carry-back received                           $4,052,631            $-
      Non-cash transactions:
        Increase (decrease) in accounts payable
         used to acquire oil and natural gas
         leasehold interests and develop oil
         and natural gas properties.                  $(285,333)     $985,571
        Oil and natural gas properties incurred
         through recognition of asset
         retirement obligations.                       $107,751            $-
        Common stock issued in lieu of a portion of
         2008 cash bonus accrued at June 30, 2008.     $168,462            $-
Evolution Petroleum Corporation and Subsidiaries
                          Condensed Operating Data
                                   (Unaudited)

                                    Three Months Ended    Six Months Ended
                                        December 31          December 31
                                       2008     2007      2008        2007

    Production Volumes, net to
     the Company:

    Crude oil (Bbl)                   7,346    6,481     20,055     13,841

    Natural gas liquids ("NGLs")
     (Bbl)                            7,682      388     18,745        388

    Natural gas (Mcf)                66,929    3,617    128,075      3,617
      Crude oil, NGLs and natural
       gas (BOE)                     26,183    7,472     60,146     14,832

    Sales Volumes, net to the
     Company:

    Crude oil (Bbl)                   7,098    6,927     19,933     13,961

    NGLs (Bbl)                        7,682      388     18,745        388

    Natural gas (Mcf)                66,929    3,617    128,075      3,617
      Crude oil, NGLs and natural
       gas (BOE)                     25,935    7,918     60,024     14,952

    Revenue data:

    Crude oil                      $407,194 $607,877 $1,986,264 $1,110,150

    NGLs                            235,293   21,294    990,738     21,294

    Natural gas                     389,295   23,478    969,766     23,478
      Total revenues             $1,031,782 $652,649 $3,946,768 $1,154,922

    Average price:
    Crude oil (per Bbl)              $57.37   $87.75     $99.65     $79.52
    NGLs (per Bbl)                    30.63    54.88      52.85      54.88
    Natural gas (per Mcf)              5.82     6.49       7.57       6.49
      Crude oil, NGLs and natural
       gas (per BOE)                 $39.78   $82.43     $65.75     $77.24

    Expenses (per BOE)
    Lease operating expenses and
     production taxes (a)            $12.54   $44.63     $12.35     $44.59
    Depletion expense on oil and
     natural gas properties (b)      $19.07   $13.29     $18.82     $13.20

    --------------------------------
    (a)  Excludes non-recurring expenses related to the oil spill in the
         Tullos Field Area of $10,000 and $23,591 for the three months ended
         December 31, 2008 and 2007, respectively. Excludes non-recurring
         expenses related to the oil spill in the Tullos Field Area of
         $15,500 and $38,123, for the six months ended December 31, 2008 and
         2007, respectively.

    (b)  Excludes depreciation of furniture and fixtures of $9,794 and
         $17,870, for the three months ended December 31, 2008 and 2007,
         respectively.  Excludes depreciation of furniture and fixtures of
         $19,618 and $36,121, for the six months ended December 31, 2008 and
         2007, respectively

Source: PRNewsWire



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