Evolution Petroleum Corporation (EPM)

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• Evolution Petroleum Corporation (EPM) is a small-cap oil
and gas company that develops known bypassed onshore
resources in the United States. It applies conventional and
specialized technology to accelerate production and develop
incremental reserves and value per share. Its strategic
initiatives include: I-Enhanced Oil Recovery (EOR), IIConventional
Redevelopment of mature oil and gas fields, and
III-Unconventional Natural Gas Development.
• Company Maker - Delhi CO2-EOR Project. In 2006, EPM
farmed out its working interest in the Delhi Field to Denbury
Resources (DNR), retaining a 7.4% royalty and a 25% after
payout carried working interest. DNR committed to develop
the field using DNR’s capital, CO2 flooding expertise and
proved natural CO2 reserves. Following $73MM of capital
expenditures through 2007, DNR expects to spend $80MM in
2008 to complete the CO2 pipeline, with tertiary oil production
expected to commence in 2009. Probable reserves, net to
EPM’s interest, are estimated at 14.7 MMBO by the Company
based on conservative assumptions of a 14.5% recovery on
400 MMBO of original oil in place.
• Another Company Maker in the Offing - Near-term
Earnings and Proved Reserve Contributions Visible at
Giddings. During 2007, EPM acquired 22 proved
undeveloped reserve locations in the Austin Chalk and
Georgetown formations via leasing activities in the Giddings
Field of central Texas. In late 2007, EPM initiated an $8.5
MM conventional redevelopment program in this mature field.
As of early April 2008, EPM had drilled three wells and
placed them on production, with a fourth well actively drilling.
EPM expects to complete the initial program by this summer.
This horizontal drilling program comprises mostly re-entries in
existing well bores to true vertical depths of 9,000’ to 13,000’,
with new lateral penetrations. The locations have been
designated as proved reserves by EPM’s independent
engineers, and EPM’s staff has outstanding expertise in the
Giddings field gained at UPRC, Anadarko and Columbia Gas.
• High-Grading Oil & Gas Reserve Base. On March 3, 2008,
EPM completed the sale of its 100% working interest in the
Tullos Field in Louisiana for $4.6 million in net cash proceeds,
almost double its initial investment of $2.6 million. Including
operating income from the property, the sale reflects a 2.5x
return on investment and allows Evolution to redeploy its
capital and operating staff into higher potential projects,
especially at Giddings.
• Intrinsic Value of Over $12/Share. As of November 1,
2007, EPM reported a total reserve base of 2.5 mmboe,
which included 2.14 mmboe of proved undeveloped
reserves. Assuming an oil price of $70/bbl, EPM’s proved
reserves SEC PV10 was approximately $1.75 per share.
Working capital and undeveloped leases add another $1.00
of value, and the discounted value of the probable reserves
of the Delhi CO2 flood could add another $10 per share.
Price (April 3, 2008) $4.16
Stock Data
Fiscal Year-End June
Symbol / Exchange: EPM / AMEX
52-Week Range: N/A
Diluted Shares Outstanding: 26.8mm
Market Capitalization: $111.4mm
Enterprise Value (EV): $89.9mm
Avg. Daily Volume (L3M): N/A
Ownership Profile
Management: 18%
Institutions 27%
Non-management Directors 41% (incl. affiliates)
Financial Data (FY –June 30)
Select Income Statement: 12 months
FY2007
6 months
FY2008
Revenues $1.9mm $1.2mm
Net Income (Loss): ($1.8)mm ($1.4)mm
EPS: ($0.07) ($0.05)
Non-cash stock comp. expense: $1.6 $.8
Select Balance Sheet:
Working Capital: $27.3mm $21.1mm
Total Debt: $0 $0
Total Stockholders’ Equity: $32.8mm $32.2mm
Oil & Gas Reserves at Nov 1, 2007 (7/1/07 prices)
Proved: 2.5 MMBOE (increased 49% since 6/30/07 and
440% since 6/30/2006)
Probable: 14.7 MMBO (solely associated w/Delhi CO2
project, un-risked)
Stock Price