HOUSTON, Nov. 4, 2015 /PRNewswire/ -- Evolution Petroleum Corporation (NYSE MKT: EPM) today reported financial and operating highlights for its first quarter of fiscal 2016 ended September 30, 2015 (the "current quarter"), with comparisons to the fourth quarter ended June 30, 2015 (the "prior quarter") and the quarter ended September 30, 2014 (the "year-ago quarter"). The results for the year-ago quarter did not include the Company's reversionary working interest in the Delhi Field, which became effective November 1, 2014, so most comparisons will focus on sequential results from the prior quarter.
Highlights for the Quarter Ended September 30, 2015
Net income increased to $2.9 million, or $0.09 per share, for the quarter.
Net production increased to 1,698 net barrels of oil per day ("BOPD") from the Delhi field, a 2% increase from the prior quarter. Gross production increased to 6,423 BOPD from 6,328 BOPD in the prior quarter.
Average realized oil prices were $47 per barrel, down from $59 in the prior quarter, resulting in Delhi revenues of $7.3 million, down from $9.0 million in the prior quarter. Realized hedge gains added $0.9 million, or $5.55 per barrel, which are reported as other income and not as revenues.
Net working capital increased to $16.3 million from $14.4 million in the prior quarter on the strength of solid operating results, a $1.5 million refund from the carryback of stock option deductions to prior year's Louisiana state taxes paid and insurance proceeds.
We distributed $1.8 million of cash dividends to our common and preferred shareholders in the current quarter and returned $1.0 million of cash to shareholders with the open market repurchases of common stock.
Capital spending in the Delhi field was $2.6 million, primarily directed towards the NGL plant. Approximately $18.0 million remains to be expended prior to the plant's startup, which is scheduled for next summer.
Randy Keys, President and CFO, said: "Despite lower oil prices, we were able to generate very strong earnings of $0.09 per common share in the quarter. We were aided by unrealized hedge gains of $1.1 million (an estimated $0.7 million after tax, or $0.02 per common share) and other income of $1.1 million from insurance proceeds related to the pre-reversion fluid release event (an estimated $0.7 million after tax, or $0.02 per common share.) Without the benefit of these items, net income would have been $0.05 per common share. Our hedging program has been very beneficial in this price environment as we realized derivative gains of $0.9 million in the quarter. Work on the Delhi NGL plant is continuing and it is scheduled to be online in the summer of 2016. The NGL plant is expected to significantly increase liquid production volumes from the field, provide substantial volumes of methane to power field operations and enhance the efficiency and output of the CO2 flood. Importantly, we have seen operating costs in the Delhi Field decline to $16.37 per barrel, as the operator's cost control efforts continue to show positive results. Our strong balance sheet and working capital position of $16.3 million continue to serve us well."
Robert Herlin, Chairman and CEO, added: "Unlike the majority of our peers, we remain in excellent financial condition and posted net income and earnings per share for the quarter, above expectations, and ended the quarter free of debt. We believe our financial strength gives us the flexibility to take advantage of opportunities that may come our way in this environment, while maintaining our cash dividend to common shareholders. Looking to the future, we are positive about the prospects for the Company, including our ability to continue our growth plan, create long-term value and return increasing amounts of cash to shareholders."
Delhi Field Operations
Financial results for the Delhi Field were positively impacted by increased production levels, which offset the lower oil prices in the current quarter. Net production increased to 1,698 BOPD from 1,673 BOPD in the prior quarter, while average prices dropped from $59 per barrel to $47. Our realized hedge gains added the equivalent of $5.55 per barrel to this lower oil price. We had previously hedged 1,100 BOPD, an estimated two-thirds of our production, at a West Texas Intermediate ("WTI") average floor price of $55 per barrel for the six month period ending December 31, 2015. In early October, the Company entered into a fixed price swap contracts for 1,100 BOPD at a WTI price of $51.45 per barrel, for the three month period ending March 31, 2016. In addition to the WTI price on our hedged volumes, we continue to receive a market price premium for our Delhi production, which is sold as Louisiana Light Sweet ("LLS").
Field operating expenses were $16.37 per barrel of oil equivalent ("BOE"), below previous levels, resulting primarily from lower purchased CO2 costs and other operating cost savings. In the current quarter, our net share of lease operating expenses was approximately $2.6 million, of which $1.4 million was related to CO2 purchases and transportation expenses. Total CO2 costs (net) were down 22% from the prior quarter as a result of both lower oil prices and lower purchased CO2 volumes. Our purchased CO2 costs are directly indexed to realized oil prices received at Delhi.
As of September 30, 2015, we have incurred approximately $6.6 million of cumulative capital costs for the NGL plant, out of a total estimated commitment of $24.6 million. We expect the remaining obligation of $18.0 million will be incurred over the next nine to twelve months prior to completion, which is scheduled for the summer of 2016. The expenditures during calendar 2015, which were estimated to be approximately $14.0 to $15.0 million, are primarily related to engineering, procurement and off-site fabrication of major components of the plant. Installation in the field is expected to commence in the first quarter of calendar 2016.
Gas Assisted Rod Pump (GARP®) Services
During the current quarter, we completed a GARP® installation in the Eagle Ford play for a new third-party customer. Subsequent to the end of the quarter, we completed an installation for another new customer in the Barnett Shale. Initial results for both installations look promising. The earlier installation for a customer in the Permian Basin was recently removed due to unrelated production difficulties. Despite the challenging market environment and overall industry conditions, we are diligently working to advance the adoption of the technology and are pleased to have completed these new installations for large operators in new basins. We are also reviewing the best options for accelerating commercial development.
Liquidity and Capital Resources
At September 30, 2015, the Company had total liquidity of $21.3 million, which includes $16.3 million of working capital and $5.0 million of availability under our unsecured revolving credit facility. As of September 30, 2015, the Company remained debt-free. We believe that current liquidity combined with expected operating cash flows will be sufficient to fund the Company's expected capital requirements for the fiscal year ended June 30, 2016 and allow us to continue our common stock dividend program. At the present time, we do not have any committed capital spending obligations beyond the current fiscal year.
Other Matters
In late September 2015, we received a $1.5 million refund of cash taxes paid to the State of Louisiana during the three years ended June 30, 2014. The refund of taxes resulted from the carryback of income tax losses which arose from the exercise of stock options and incentive warrants in November 2013. For financial reporting purposes, this benefit does not affect our provision for income taxes, but is instead recorded as an increase in additional-paid-in-capital.
In mid-October, in the case of John C. McCarthy, et al versus Evolution Petroleum Corp, et al, related to our purchase of royalty interests in the Delhi Field in 2006, the Supreme Court of Louisiana overturned the appellate court and reinstated the district court's decision to dismiss the case with prejudice.
Expected Tax Treatment of Dividends
For the fiscal year ended June 30, 2015, 100% of cash dividends on preferred shares were treated as qualified dividend income. Approximately 86% of cash dividends on common shares were treated as a return of capital to our stockholders and the remainder of 14% was treated as qualified dividend income. Based on our current projections for the fiscal year ending June 30, 2016, we expect 100% of preferred and common dividends to be treated as qualified dividend income.
