Evolution Petroleum (EPM)

Q2 2013 Earnings Call

February 06, 2013 11:00 am ET

Executives

Sterling H. McDonald - Chief Financial Officer, Principal Accounting Officer, Vice President and Treasurer

Robert Stevens Herlin - Co-Founder, Chairman, Chief Executive Officer and President

Daryl V. Mazzanti - Vice President of Operations

Analysts

Joel P. Musante - C. K. Cooper & Company, Inc., Research Division

John D. Fox - Fenimore Asset Management, Inc.

Gabriel Daoud - Sidoti & Company, LLC

Stephane Aka

Presentation

Operator

Good morning, and welcome to the Evolution Petroleum Announces Second Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sterling McDonald, CFO. Please go ahead.

Sterling H. McDonald

Thank you, and good morning. Thank you for listening to Evolution Petroleum Corporation's conference call to discuss our results for the second quarter of fiscal '13, which ended December 31, 2012. My name is Sterling McDonald and I'm the CFO of Evolution Petroleum. With me today are Bob Herlin, our CEO; and Daryl Mazzanti, our VP of Operations.

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'll be available shortly by going to the company's website at www.evolutionpetroleum.com or via recorded telephone replay until February 15, 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 a 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 we'll briefly review our results of the second quarter and I'll turn it over to Bob.

Robert Stevens Herlin

Thanks, Sterling, and thanks to everyone for listening in this morning. As we've said in past earnings calls, since the numbers are available in the press release we put out this morning, we really won't go into tremendous detail in our prepared remarks. I'm going to focus on key results and operations and projects, and then Sterling will come back on and talk about more of the numbers and then I'll follow up very, very briefly with some general observations and then we'll get to the real part of this which is the questions and answers.

To begin with, this was a record quarter for Evolution in earnings, revenues and production. Our earnings of common shareholder increased to some $0.06 per diluted share or $1.8 million. That is an 81% increase over the previous quarter and 22% over the year-ago quarter. Revenues grew 32% over the prior quarter to $5.6 million and our production sales volume, net to us, increased 20%. It's about 696 barrels of oil equivalent today -- per day.

We continue to execute our strategy to focus on core projects with the highest potential that create high value in the near-term. Correspondingly, we began the process of monetizing our non-core assets. We did that with 2 sales of assets in the Giddings Field for cash and contingent payments tied to future drilling.

Now, let's get on to our core projects and obviously, we'll start with the Delhi Field. It's our crown jewel, it's a carbon dioxide-based enhanced oil recovery project in the Delhi Field in northeast Louisiana. That field has resumed its strong response to CO2 injections. Following the temporary restriction of production this summer because of hot weather, production not only returned to pre-summer rates, it also began responding to prior-year CapEx.

Gross production increased throughout the quarter and averaged 6,872 barrels of oil per day, and that's a gross number. And that's an increase of 36% over the prior quarter rate of some 5,000 barrels a day. And it's 20% more than our best monthly rate before we had to restrict production during the summer. In fact, production is now well above our latest engineered reserve production projections, which include both proved and probable production.

As a reminder, our June 30, 2012, reserves report, which is the latest one we have, projects production to continually increase throughout calendar 2017 to a peak level of about 11,800 barrels a day, followed by essentially flat production for a period of years and then a slow decline over a 30-plus year life. Please also remember that our probable reserves are associated with an increase in field recovery from a fairly low 13% recovery of original oil in place to the more typical 17%, as well as extension of the project into 4 additional reservoirs, which is currently expected to occur at the end of this decade and therefore, outside the 5-year window that the SEC normally requires for determination of proved reserves.

We continue to realize the substantial oil price premium compared to your standard WTI oil price. In fact, we averaged more than $104 a barrel for the second quarter. And we really expect to continue receiving a significant premium through the near-term.

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