Evolution Petroleum Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2011 (FY2012 Q1); financial statements are unaudited. Comparisons are primarily with the three months ended September 30, 2010, with selected sequential comparisons to the prior fiscal quarter.
Business context and results
Evolution Petroleum acquires, develops and exploits U.S. oil and natural gas properties, focusing on enhanced oil recovery, bypassed resources and unconventional development. The quarter’s improved results were driven mainly by increased Delhi Field oil production and higher realized prices.
| Metric | Three months ended Sep. 30, 2011 | Prior-year period |
|---|---|---|
| Total oil and gas revenue | $3.885 million | $1.169 million |
| Net income attributable to company | $1.144 million | Loss of $0.485 million |
| Earnings attributable to common shareholders | $1.016 million; $0.04 basic and $0.03 diluted per share | Loss of $0.485 million; $0.02 loss per share |
| Net cash from operating activities | $1.934 million | $0.165 million |
| Net cash used in investing activities | $0.493 million | Net cash provided of $0.176 million |
| Net cash from financing activities | $5.927 million | $0.016 million |
| Oil, NGL and gas sales | 46,800 BOE | 25,621 BOE |
| Average realized price | $83.01 per BOE | $45.63 per BOE |
| Lease operating expense and production taxes | $4.64 per BOE | $14.41 per BOE |
Financial position and liquidity
- Cash and cash equivalents were $11.615 million at September 30, 2011, up from $4.247 million at June 30; total current assets were $14.171 million and current liabilities $2.015 million.
- Working capital was $12.2 million, compared with $4.1 million at June 30. The company reported no debt.
- Total assets were $47.899 million and stockholders’ equity was $40.952 million. The quarter-end balance sheet included $3.990 million of deferred income taxes and $0.859 million of asset retirement obligations.
- Cash increased by $7.367 million, principally reflecting $6.054 million net proceeds from preferred stock issuance and operating cash flow. Oil and gas property development and acquisition spending totaled approximately $0.480 million.
Material changes and operating developments
- Revenue increased 232% year over year; net sales volumes rose 83%. Crude oil sales increased 280%, while NGL volumes fell 31% and natural gas volumes fell 15%, reflecting declines at Giddings.
- Crude oil and NGLs accounted for 78% of BOE sales volumes, versus 54% a year earlier. Crude oil averaged $104.00 per barrel, up 40%; NGLs averaged $53.51, up 29%; natural gas averaged $4.08 per Mcf, down 7%.
- Management reported field margins of $73.12 per BOE, compared with $26.08 a year earlier and $64.67 in the prior fiscal quarter. Lower operating costs per BOE, higher oil and NGL prices, and a greater oil mix supported the improvement.
- Delhi tertiary oil production reached a gross field rate of 4,396 barrels per day, up 48% sequentially. Sales to the company’s royalty interest averaged 326 barrels per day. Phase III began first injection and achieved first tertiary oil production during the quarter; further phases are expected in successive years.
- The company began issuing 8.5% cumulative, perpetual, nonconvertible Series A preferred stock, raising $6.054 million net from 282,255 shares during the quarter. It paid $127,835 in preferred dividends. Subsequent to quarter end, it sold another 35,064 shares for approximately $876,000 net; 317,319 preferred shares were outstanding as of the report date.
Outlook, risks and contingencies
- The approved FY2012 base capital plan provides for $4 million to $12 million of capital expenditures. Management said the plan could be funded from existing working capital; spending above the plan may use operating cash flow, joint ventures, project financing, asset sales or additional preferred offerings.
- Management said low natural gas prices would lead to a more deliberate pace for Woodford Shale development. It planned two GARP technology demonstration installations in Giddings before calendar year-end and reported that a patent had been granted during the quarter.
- In South Texas, a larger pump increased both water and oil production rates by 50% at the initial test well; the company began drilling two production and two water-injection wells under its fiscal 2012 plan.
- Key exposures include volatile oil and gas prices, production and operating risks, oilfield service and materials costs, and uncertain economic conditions that could weaken energy demand. The company held no commodity derivatives for hedging or speculation at quarter end.
- Commitments include an office lease with $768,553 of future minimum payments and approximately $588,000 of contingent executive severance obligations. The filing describes ordinary-course claims and previously disclosed legal proceedings, with no material developments during the quarter; management said no material changes had occurred in previously disclosed risk factors.
- Management reported disclosure controls were effective as of September 30, 2011 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Delhi production and royalty-interest sales continue to grow as additional project phases are installed, and how the working-interest reversion affects capital costs and depletion.
- Whether reported revenue and field-margin gains persist, given Giddings production declines and exposure to oil and gas prices.
- The preferred stock’s 8.5% cumulative dividend burden, future issuance plans, and terms for redemption or change of control.
- Actual FY2012 capital spending versus the $4 million–$12 million plan, and the operating and commercial results of the GARP demonstrations and South Texas drilling.