Evolution Petroleum Corporation, Inc. (EPM)

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Evolution Petroleum (EPM)

Q3 2013 Earnings Call

May 08, 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

Gabriel Daoud - Sidoti & Company, LLC

Hoshang V. Daroga - MLV & Co LLC, Research Division

Michael Kelly - Global Hunter Securities, LLC, Research Division

Jeffrey Connolly - Brean Capital LLC, Research Division

Presentation

Operator

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

Sterling H. McDonald

Good morning. Thank you for listening to Evolution Petroleum's conference call to discuss results for the third quarter of fiscal 2013, which ended March 31. My name is Sterling McDonald, and I'm 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 evolutionpetroleum.com or via recorded telephone replay until May 23, 2013.

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're 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 let's briefly review the results of our third fiscal quarter, and I'll turn the mic over to Bob.

Robert Stevens Herlin

Thanks, Sterling, and thanks to everyone for being with us this morning.

Since the detailed numbers are readily available to everyone in the news release last night, I will focus my remarks on key results, operations and projects.

Sterling will similarly have his view on some financial results, and then I'll close with a few general observation, then we'll take your questions.

To begin, this was a second record quarter in a row for us as to operating earnings and revenues. Earnings to common increased to $0.07 per diluted share or some $2.2 million.

This is an increase of 24% over the previous quarter and 71% over the year-ago quarter.

Revenues grew by 6% to $6 million, and our net sales volumes declined 10% to some 626 barrels of oil equivalent per day. That decline is due to the sale of most of our Giddings production at the end of last quarter.

Since the bulk of the Giddings production sold was gas, the higher oil price we received at Delhi more than offset the lost revenues on the Giddings sale.

So let's take a look at some of the key assets. Starting with Delhi Field. It's our crown jewel, the CO2 enhanced oil recovery project, and it continued its very strong performance.

Gross daily volumes increased 11% to an average of 7,645 barrels of oil per day or 566 barrels of oil per day net to Evolution.

As a reminder, our June 30, 2012, reserve report projects production to increase through calendar 2017 to peak level of about 11,800 barrels a day. That's at gross level, followed by essentially flat production for a period of years and then a slow decline over a 30-plus year life.

Our probable reserves are associated with an increase in field recovery from 13% of original oil in place to 17%, as well as the extension of project into 4 additional reservoirs sometime around the end of this decade and, therefore, outside the SEC 5-year window to be declared proved reserves.

We continue to realize a substantial oil price premium compared to standard WTI. We averaged more than $111 per barrel at Delhi for the quarter, compared to the $98 we averaged in all of our other production.

Due to the continued strong performance, we now expect that our 24% working interest will

revert back to us somewhat sooner than was projected in our last summer's reserve report, up to 1 to 2 months earlier altogether. And we now expect that to be sometime on or about the start of the fourth calendar quarter 2013, which will be our second fiscal quarter.

Obviously, this is subject to production rates, operating costs and oil prices.

Capital expenditures during the calendar 2013 at Delhi are being directed towards further development of the previously developed western half of the field. This is in order to better capture the full potential of the multiple test [indiscernible] reservoirs.

Completion of the project throughout the eastern half of the field is now projected to occur in calendar 2014 and '15. All of our current revenues are -- and our past revenues have been generated by a 7.4% royalty interest.

Moving on, let's talk about the Mississippi Lime project. We drilled the first 2 of our 114 gross probable drilling locations last quarter, and we've been dewatering ever since. We're now producing small amounts of oil and gas, but with high levels of water.

Read the rest of this transcript for free on seekingalpha.com