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Tuesday, 05/19/2015 8:57:30 PM

Tuesday, May 19, 2015 8:57:30 PM

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Delhi Field - Enhanced Oil Recovery Project

Gross production at Delhi in the third quarter of fiscal 2015 averaged 6,203 BOPD, a increase of 1% from the year-ago quarter, and a 5% increase from the prior quarter. Net production averaged 1,640 BOPD, a 259% increase from the year-ago quarter, and a 38% increase from the prior quarter. Gross production continues to be positively impacted by a replacement well that was redrilled and placed into production in January 2015.

In the quarter ending March 31, 2015, our net share of the joint interest billed lease operating expenses was approximately $2.9 million, of which $1.6 million is related to CO2 purchases and transportation expenses. Under our contract with the operator, purchased CO2 is priced at 1% of the oil price in the field per thousand cubic feet (“Mcf”) plus transportation costs of $0.20 per Mcf. Total average CO2 costs per month are down 36% from the prior quarter monthly as result of both lower oil prices and lower purchased CO2 volumes in the quarter. Purchased CO2 volumes in the prior quarter were significantly higher than the expected rates going forward of 90,000 to 95,000 Mcf per day. On a total BOE basis, average CO2 costs were down 29% from $15.33 BOE in the prior quarter to $10.82 BOE, primarily due to increased working interest volumes and lower realized oil prices in the current quarter. Our purchased CO2 costs are directly correlated with realized oil prices.

In late February 2015, we signed an authorization for expenditure for construction of a natural gas liquids ("NGL") recovery plant in the Delhi field, which will extract both NGL and methane from the field. In addition to the value of these hydrocarbon products, according to the operator, the increased purity of the CO2 stream re-injected into the field should result in significant operational benefits to the CO2 flood and potentially increase oil production from existing wells and/or accelerated recovery of oil reserves. The NGL plant has an estimated gross cost of $103 million ($24.6 million net to the Company) projected to be expended through the summer of 2016. Recovered methane will be utilized to generate much, if not all, of the electricity for the operation of the gas plant and other CO2 field operations. This will substantially reduce operating costs for both the existing field operation and the new plant operating costs. The plant is projected by the operator to produce up to approximately 2,000 barrels of NGL's per day when in full operation and NGL volumes potentially may be higher based on performance and yield.

On January 26, 2015, Denbury notified us it had withheld and suspended 2.891545% of our overriding royalty revenue interest in the field for the months of November and December 2014, as previously disclosed. This unilateral suspension of a portion of our overriding royalties by the operator was made without consultation with the Company and, we believe, was without legal basis. On February 26, 2015, we entered into an agreement under which Denbury agreed to reverse the previously disclosed suspension of our overriding royalty interest revenues and release to Evolution amounts previously suspended totaling approximately $712,000. Denbury further agreed not to suspend any future revenues attributable to any of our revenue interests, except under very limited circumstances. This agreement does not settle any of the outstanding litigation
matters with Denbury, including their counterclaim related to the net revenue interest conveyed in the 2006 Purchase and Sale Agreement.
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