Evolution Petroleum Corp. (EPM)

F1Q2013 Results Earnings Call

November 8, 2012 11:00 AM ET

Executives

Sterling McDonald - Chief Financial Officer

Bob Herlin - Chief Executive Officer

Daryl Mazzanti - VP, Operations

Analysts

Jeffrey Connolly - Sidoti & Company

Hasing Draga - MLV Company

Presentation

Operator

Good morning. And welcome to the Evolution Petroleum Conference Call. All participants will be in a listen-only mode. (Operator Instructions)

After today’s presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Sterling McDonald, CFO. Please go ahead, sir.

Sterling McDonald

Thank you, Operator, and good morning. And thank you for listening to Evolution Petroleum conference call to discuss results of our First Quarter of Fiscal 2013, which ended September 30, 2012.

My name is Sterling McDonald. I'm CFO of Evolution and with me today are Bob Herlin, our CEO; Daryl Mazzanti, our VP of Ops.

Before we begin, let us cover the basics. If you'd like to be on the company's e-mail distribution list to receive future news releases, please see the contact information on our news release.

If you wish to listen to a replay of today's call, it will be available shortly by going to the company's website at evolutionpetroleum.com or via recorded telephone replay until November 16, 2012. The necessary information can be found in the earnings release. Please note that any statements and information provided today are time sensitive and may not be accurate at later date.

Our discussion today may contain forward-looking statements that are based on management's beliefs and assumptions that are based on currently available information. We can give no assurance that such forward-looking statements will prove to be correct as they are subject to risks and uncertainties that are listed and described in our filings with the SEC.

Actual results may differ materially from those expected. Our discussion also may include discussions of probable, possible or potential reserves or recovery. Such unproven estimates are more speculative than proven reserves.

Now, Bob will give you some results of our fiscal quarter to start off. Bob?

Bob Herlin

Thanks, Sterling, and good morning, everyone. Thank you for joining us. Since we did release detailed numbers in our news release last night, I’m going to focus my remarks on key results, operations and projects, as Sterling will similarly review key financial results. I’ll fellow up with the few general observations and then we’ll take your question and what that goes along to your questions.

Earnings to common increased some 7% over the previous quarter to $1 million that works out about $0.03 per fully diluted share but that was on 6% lower revenues. Our results were, as now expect impacted by lower oil and natural gas prices, natural gas liquid prices I should say, but even probably more importantly the temporary restriction on Delhi production that began in the later part of the previous quarter and extended through the first two months of the current quarter.

As I discussed in our last earnings call, the hot envious summer time temperatures is stronger than expected response in the field exceeded the capacity of equipment that was cooling the recycle gas coming off the compressors in the field prior to reinjection.

Consequently, the operator had to temporarily restrict product in CO2 injection wells during the summer. Now as cooler weather return in the field in September the operators able to restore normal production CO2 rate and field production quickly returned to pre-summer rate.

In fact, we are very pleased that the field is now exceeding the previous higher rates and the operator is reporting improved response in the field. Additional cooling capacity is implant -- this plant to be added before next summer, so we’ll don’t have a repeat.

The other significant move during the quarter is pending monetization of non-core asset in the given field. This will allow us to become much more focused on our Mississippian Lime project and our GARP technology, both of which have extensive reign room and upside potential as compared to our limited upside in the given field.

Now, let’s talk about some of the specific projects and we’ll obviously start with the Delhi Field.

Gross production for the current quarter at Delhi decreased slightly over the prior quarter to 5,057 barrels a day gross, that’s 374 barrels a day net. The temporary restriction in production occurred in the first two months of the quarter for reasons I have already mentioned.

Production going forward is already reflecting increasing contributions from the work completed in 2011. Our June 30, 2012 reserve report rejected productions in the field to gradually increase over the next five years, before flattening out in late calendar 2017 at a peak rate of 11,800 gross barrels per day.

Our Delhi crude oil sold for an average realized price of $104 during the quarter and $11 premium over our oil sold in Texas in the same time period, less than $110 realized in the prior quarter.

The operator continues to rollout expansion of our project into the eastern half of the field with more than $60 million expanded in calendar 2012 to date. We continue to be very pleased with the results of this EOR project, particularly the recent response increase in the rapidly approaching reversion date of our 23.9% working interest. We continue to have high confidence in the upside potential at Delhi.

Let’s talk about Mississippian Lime for a second, our primary focus for redeploying cash flow this year is the Mississippian Lime play in North Central Oklahoma. This is in Kay County which is on the east side of the field or the play actually we call it east of the Nemaha Ridge, which is more oily part of the play. There we completed drilling of our first two Mississippian Lime oil wells, this is Kay County.

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