Evolution Petroleum Corporation (NYSE MKT: EPM) reported operating highlights for the quarter ended December 31, 2012, its second quarter of fiscal 2013 ("Q2-13").
- Earned $1.8 million, or $0.06 per diluted share, an 81% sequential increase
- Increased sales volumes 20% sequentially to 696 net barrels of oil equivalent ("BOE") per day
- Delhi volumes increased 36% over prior quarter to 6,872 gross barrels of oil ("BO") per day (509 net)
- Continued de-watering and de-pressuring our first two Mississippian Lime wells, a necessary prerequisite to achieve expected oil and gas production rates
- Advanced the application of our GARP® technology
Robert Herlin, CEO, said: "We are pleased to report that Delhi production has not only sharply rebounded from the constraints of summer heat, it is also responding to prior year capital expenditures while continuing to outperform our original expectations. Both of our initial Mississippian Lime producers are taking longer to de-water and de-pressure than we originally expected, but both wells have begun to produce small, but increasing amounts of oil and liquids-rich gas. Since other operators in the area have reported similar dewatering results, we remain cautiously optimistic as to our projected reserves and expectations of increased drilling activity in the play later this fiscal year."
Mr. Herlin added: "Our strategy to increase underlying net asset value in a focused manner, without diluting shareholders, is clearly being reflected in our record earnings growth, excluding asset sales. Further growth will be propelled by a major step change, when our 24% working interest at Delhi reverts back to us later this year and begins contributing substantial incremental net cash flow and earnings."
Quarterly Financial Results
Quarterly earnings to common shareholders increased 81% to $1.8 million, or $0.06 per diluted share, compared to $1.0 million, or $0.03 per diluted share in the prior quarter. Net income to common shareholders increased 42% over the year-ago quarter.
Revenues increased 32% to $5.6 million compared to $4.3 million in the prior quarter, and increased 22% compared to the year-ago quarter. The increase over the prior quarter was primarily due to a higher rate of oil production. The increase over the year-ago quarter was due to higher oil production, offset by lower oil and NGL prices, and lower natural gas and NGL volumes.
Lease operating expense increased 33% to $0.4 million compared to the prior quarter due primarily to the addition of wells in our Mississippian Lime project and work-overs in the Giddings Field. Compared to the year ago quarter, lease operating expense was flat. On a BOE basis, lease operating expense during Q2-13 was $6.55 per BOE compared to $5.92 and $7.89 in the sequential and year-ago quarters. General and administrative expense increased 6% over the prior quarter to $1.8 million, and 22% over the year-ago quarter. The increases were primarily due to higher bonus and board fee accruals, noncash stock expense, litigation and other legal expense and transaction costs related to divestments. Results for all periods included significant non-cash stock compensation expense, amounting to 22% of total general and administrative expense in the current quarter and 24% in the year-ago quarter.
Delhi Field, Louisiana
Gross sales volumes at Delhi increased dramatically during the current quarter and averaged 6,872 BO per day (509 net BO per day). Q2-13 volumes were 36% higher than the prior quarter and 39% higher than the year-ago quarter. The increase was due to resumption of normal production with the onset of cooler weather and to response from the capital expenditures in the project during the prior year. The operator is expected to add additional cooling capacity to the plant before summer temperatures return in 2013. Our net sales volumes from Delhi during Q2-13 were solely from our 7.4% royalty interest that bears no operating expense or capital expenditure. We continued to realize a significant premium in oil price that averaged more than $104 per barrel during the quarter, compared to the $90 per barrel we received in our other fields.
Current field production is outperforming the production rate projected in our June 30, 2012 independent reserves report, and we continue to expect that our 24% reversionary working interest will revert to Evolution during the second half of calendar 2013. At reversion, our net revenue interest will more than triple from 7.4% to 26.5%, while our cost bearing working interest will increase from zero to 23.9%. Based on performance, the operator has refocused calendar 2013 capital expenditures to expand the CO2 flood within the previously developed western half of the field in order to better capture the full potential from the reservoirs in that area, before completing the expansion of the CO2 flood in the balance of the eastern half of the field in 2014 and 2015.
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