(NYSE Amex: EPM) Evolution Petroleum Corporation 1

Transcription

1 June 2011 Presentation (NYSE Amex: EPM) Evolution Petroleum Corporation 1

2 Forward Looking Statements and Cautionary Note The data contained in this presentation that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements may relate to capital expenditures, drilling and exploitation activities, production efforts and sales volumes, proved, probable, and possible reserves, operating and administrative costs, future operating or financial results, cash flow and anticipated liquidity, business strategy, property acquisitions, and the availability of drilling rigs and other oil field equipment and services. These forward-looking statements are generally accompanied by words such as estimated, projected, potential, anticipated, forecasted or other words that convey the uncertainty of future events or outcomes. Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. These statements are based on our current plans and assumptions and are subject to a number of risks and uncertainties as further outlined in our most recent 10-K and 10-Q. Therefore, the actual results may differ materially from the expectations, estimates or assumptions expressed in or implied by any forward-looking statement made by or on behalf of the Company. Cautionary Note to U.S. Investors The SEC has recently modified its rules regarding oil and gas reserve information that may be included in filings with the SEC. The newly applicable rules allow oil and gas companies to disclose not only proved reserves, but also probable and possible reserves that meet the SEC s definitions of such terms. We disclose proved, probable and possible reserves in our filings with the SEC. Our reserves as of June 30, 2010 were estimated by DeGolyer & MacNaughton, W.D Von Gonten & Co. ( Von Gonten ), and Lee Keeling and Associates, Inc. ( Keeling ), independent petroleum engineering firms. In this presentation, we make reference to probable reserves. These estimates are by their nature more speculative than estimates of proved reserves and are subject to greater uncertainties, and accordingly gythe likelihood of recovering those reserves is subject to substantially greater risk. 2

3 Quick Facts about EPM Ticker Symbol EPM (NYSE AMEX) Fiscal Year-End June 30 Market Cap* ~$202 MM as of 6/10/2011 ($7.32/shr) Enterprise Value ~$199 MM (based on 3/31/11 FS) Shares 27.5 MM shares outstanding 33.1 MM shares fully diluted ($1.83 avg. exercise) ~52% owned by institutions Financial Strength ~$3.1 MM in WC & no debt as of 3/31/11 Team Record 7 year track record in creating and implementing major projects * Excluding net value of options and warrants 3

4 Our Business EPM generates and implements domestic, onshore oil & gas development projects utilizing our expertise and modern technology. Our business model is focused on building share value by: Generating development ideas Capturing project value without overpaying Initiating development to reduce risk Utilizing third parties to finance widespread development without crosscollateralization risk or dilution of share value Our projects are: Lower risk development Engineering-based Within existing fields eds 4

5 Oil & Gas Core Assets (Net Reserves at 6/30/2010) Eastern OK Unconventional Gas testing ~14,000 net acres targeting shallow Woodford Delhi Field-producing CO 2 EOR - 100% oil 9.4 MMBO Proved 5.7 MMBO Probable Giddings Field producing Horizontal wells naturally fractured Austin Chalk, Georgetown, Buda plus EagleBine potential 27% oil, 32% NGL, 41% gas 3.0 MMBOE Proved, 1.0 MMBOE Probable 5

6 EPM Metrics Substantial oil and gas reserves (as of 6/30/2010) 12.4 MMBOE Proved 7.2 MMBOE Probable Each fully diluted common share owns 60% of 1 BOE of net reserves Oily Proved reserves are 83% black oil and 8% NGL Valuation Metrics at fiscal year-end (6/30/2010)*: Proved PV10 Probable PV10 2P PV10 2P PV10 Futures $8.03 / FD Share $1.93 / FD Share $9.96 / FD Share $11.68 / FD Share *SEC NYMEX pricing of $76.21/BO, $4.10/MMBTU 6

7 Why own EPM? Proved $76 oil >> current enterprise value Growing value at Delhi: Producing since 3/2010, now exceeds 2,000 bopd gross PV10 projected to grow 40+% in 5 years while generating ~$140 MM of pretax cash (based on $76 oil) Long life oil with premium pricing and upside potential Proved reserves require no capital expenditures and incur limited operating expenses and severance tax (our prepaid PUD annuity ) 7

8 Why own EPM? Upside potential in other projects underway: 14 remaining development drilling locations (12 PUD) in Giddings, of which 1 may be included in current joint venture Exposure to new Eagle Ford / Woodbine play Proprietary artificial lift technology Low cost unconventional gas in Eastern Oklahoma No debt Employees fully aligned with shareholders by beneficially owning 20% of fully diluted shares and focused on building value per share 8

9 Successful Team Track Record Using $8.3 MM of paid-in equity, we invested We generated, as of 6/30/10 Delhi EOR $6.8 MM $50 MM cash pretax + Proved PV10 = $224 million 2P PV10 = $276 million Giddings Artificial Lift Technology $26.7 MM $0.2 MM $9.7 MM cash from field + Proved PV10* = $41 million 2P PV10* = $53 million First field tests successful, JV pending OK Shale * Before Giddings drilling JV $6.2 MM ~14 K net acres of gas potential; first reserves assigned - testing 9

10 EPM Reserves Growth (MMBOE) Reserves as at fiscal year end of June 30 Does not include other resource or technology potential 2009 downward revisions primarily due to commodity prices 10

11 EPM Assets: Delhi CO 2 EOR Project Milestones: Nov 2009: Phase I CO 2 injection begins Mar 2010: Early first oil production from Phase I Dec 2010: Phase II CO 2 injection begins Jan 2011: Phase I production continues to increase Phase III installation underway March 2011: Early Phase II oil production response, quarterly gross production reaches 2,003 bopd average 2011: Phase III CO 2 injection expected 11

12 EOR - Delhi Field CO 2 Project Reserves*: Proved 9.4 MMBO $224 MM PV10 Probable 5.7 MMBO $ 51 MM PV10 2P MMBO $276 MM PV10 Delhi (* At 6/30/10 SEC NYMEX price $76.21/BO) Gross Historical Production 192 MMBO Projected EOR Recovery 13% Proved (% of OOIP) 4% Probable Average depth 3,235 Unit Size 13,636 acres Jackson Dome Reserves Basis Upside Potential Dedicated CO 2 reserves Earlier & stronger oil response Phase I & II Installing Phase III during 2011 More original-oil-in-place Higher EOR recovery similar to other DNR projects Utilization of lower cost WAG process under consideration 12

13 EPM s Delhi Assets We purchased Delhi Field in 2003 for $2.8 MM, expended $2.5 MM in field, later purchased royalty interests for $1.5 MM, then farmed out our working interest for $50 MM cash + commitment to install EOR project at operator s sole cost with their proved CO 2 reserves + reversionary interest. We own royalty interests equal to ~7.4% of gross production EPM receives 7.4% of gross revenues from day one EPM pays no capital expenditures and no operating costs Project is exempt from state severance tax for next ~5 years, subject to oil price & rates Our 5 MMBO of 2P royalty reserves are 1/3 rd of our total reserve volumes and almost half of our PV in project We also own a separate reversionary ~24% working interest (~19% revenue interest) EPM bears no capital expenditures until deemed payout Payout occurs when project generates net field cumulative cash flow of $200 million Net field cash flow = revenue field operating expense (including CO 2 ) After Payout, EPM will bear its pro rata share of capital expenditures & expenses and will own pro rata share of all field assets and reserves including injected CO 2 Reversionary interests are in addition to above royalty interests 13

14 Delhi Present Value Increases Over Time EPM's Delhi Residual PV10 by Year + Cumulative Pretax Cash (Proved + Probable per fully diluted share, at $76 oil) $25 Residual PV10 Cumulative Pretax Cash Generated without Reinvestment PV10 / Dil lutable Share $20 $15 $10 $5 Growing Cumulative Pretax Cash from Delhi $4.44 Growing NPV10 $11.74 $- Cash Flows from DeGolyer & MacNaughton 6/30/10 SEC Reserves $76.21/BO. Residual PV10 is the PV10 of remaining cash flows from given year to project end. 14

15 Delhi Sensitivity Analysis Delhi PV/Share Impact by Levels of Recovery Delhi PV/Share Impact by Oil Price and Inflation $/ FD Share $14 $13 $12 $11 $10 $9 $8 PV10 Esc* vs Gross Oil Recovery Gross Recovery in MMBO $ / FD Share $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $- PV10* vs 2011 Oil Price 2P PV10 3% 2P PV10 Flat EPM stock & Delhi oil price at 6/10/2011 $- $20 $40 $60 $80 $ Oil Price * Varying 2P Reserves; prices & costs escalating * Varying initial oil price with 2P 3% pa from $76.21/BO NYMEX price 15 Varying initial oil price with 2P Reserves, oil pricing either flat or escalated as shown

16 Additional Delhi Analysis Projected EPM Annual Pretax Cashflows from Delhi (2P $76 oil + 3% inflation) $90,000,000 $80,000,000 Royalty Interest Reversionary WI $70,000,000 $60,000,000 $50,000,000 $40,000, $30,000,000 Reversionary 24% WI $20,000,000 $10,000, $0 Royalty CF - bears no costs Increasing 2011 oil price from $76 to $100 increases cash flows by ~40% 16

17 Giddings Field, Central Texas Attractive Drilling Economics Drilling locations Ave. Gross 2P Recovery Ave. cost/well Cost per net BOE 9 proved re-entries 146 MBOE/well $1.5 MM $ proved grassroot & 305 MBOE/well $2.7 MM $ probable grassroot Naturally fractured Austin Chalk, Georgetown & Buda no hydraulic fracs required Wells typically produce at high initial rates with steep initial decline, then stabilize. About half of estimated reserves are produced in first two years Reserves estimated to be 27% oil, 32% gas liquids and 41% natural gas Industry joint venture may be expanded by one more location. Most recent well completion put on production at initial rate of 2.8 MMCFE per day rate (14/64 choke) 100% WI (~80% NRI) in 10 producers and 14 drilling locations 20% WI-BPO & 38% WI-APO (16-30% NRI) in 2 producing and 1 nonproducing JV wells 17

18 Gas Shales in Eastern Oklahoma EPM owns ~14,000 net acres in Haskell and Wagoner Counties, OK Woodford Completions Haskell Woodford between 4,000 & 6,000 in depth EPM Acreage Tulsa Wagoner Woodford between 1,200 & 1,800 in depth EPM vertical rere entry Main W df d Woodford Trend Oklahoma 18 6,422 TVD Woodford Hz MMCFE/D 6,000 TVD Woodford Hz Well ultimate recovery ~1+ BCF from 2000 lateral

19 Our OK Unconvential Gas: Shallow Low Cost EPM is targeting a development cost of approximately $1.25 per MCFe Shallow depth = small rig and light acid fracs = low day rates Haskell targets at 4,000-6,000 depth vertical wells targeting 500+ mmcf at $550K cost; vertical wells in Wagoner targeting ~200+ mmcf at $200K at <1800 depth Numerous comparable wells in Haskell with ~1 bcf historical average recovery Dewatering process to liberate natural gas EPM testing program underway EPM first vertical test (re-entry) in Haskell frac d in early June, dewatering and already selling natural gas EPM test in Wagoner western block tested 93 mcfd, eastern block test incomplete, southern block marginal Substantial additional acreage is typically obtainable through forced pooling EPM has substantial footprint in 30 sections in Haskell County 19

20 Proprietary Artificial Lift Technology Original fluid level Fluid level l at conventional abandonment Remaining potential Conventional artificial lift Either fluid level eventually drops to a level where rod pump or gas lift are no longer effective, or Low level of fluid production in gas well builds and eventually shuts off gas production This can leave substantial volumes of oil and gas unrecovered. Our technology Mobilizes remaining fluid to the pump Cost $50K - $150K per application Successfully applied in own wells in Giddings Field Reservoir 20

21 Operating Plan for FY 2011* A $4 million base case capital expenditure program to: Drill 3 horizontal wells in Giddings joint venture (completed) Re-enter and frac Woodford Shale in two mid-depth vertical wells in Haskell (1 to date, unitizing second) and continue Wagoner production testing Commercialize artificial lift technology through joint venture demonstrations on third party wells Liquidity Plan: Use Giddings cash flow to cover overhead, and Delhi cash flow to drill Avoid high cost, high risk capital Utilize joint ventures, project financing, noncore asset monetization and/or small, opportunistic equity placement to accelerate development as warranted Maintain liquidity through FY2012 as Delhi cash flows increase * Fiscal year end June 30 21

22 Catalysts for growth in FY2011 Continued production growth at Delhi at premium oil price Drilling success in Giddings Positive tests in Woodford Shale Joint venture to demonstrate artificial lift technology Additional development joint venture(s) Giddings & OK Maintain conservative financial approach while increasing NAV/share no debt & 83% oil (91% total liquids) proved 22

23 Exhibits Definitions Annual Revenues Abbreviated Balance Sheet Management team Board of Directors 23

24 Definitions EOR Enhanced oil recovery WAG Water alternating gas type of CO 2 EOR BOE Barrel of oil equivalent CF Cubic feet of natural gas at standard conditions M Thousands MM Millions NGL Natural gas liquids PUD Proved undeveloped 2P Proved + Probable Unrisked Reserves PV10 Future unescalated pretax net cash flows discounted at 10% per annum based on SEC pricing (trailing twelve months realized prices) SEC Reserves Reserves based on unescalated trailing twelve month realized prices Futures Reserves Reserves based on five year forward futures commodity prices with subsequent years held constant at the fifth year prices PV10 Futures PV10 adjusted for Futures Reserves PV10 Flat PV10 adjusted to given commodity prices without escalation PV10 Esc PV10 adjusted d to given commodity prices with price & cost escalation FD Share Fully Diluted Shares includes outstanding shares + unvested options & warrants, without considering the weighted average exercise price of $1.83 Cautionary Note: PV-10 is a commonly used financial metric and does not necessarily equal market value. All Reserves are unrisked, and SEC Reserves unless otherwise noted. 24

25 EPM Revenues Revenues in thousands 2007 revenues decreased by farm-out to DNR June 30 fiscal year-end 25

26 EPM Liquidity Assets 3/31/2011 Current Assets $ 5,148,795 Properties & Equipment, net 33,227,523 Other Assets 54,117 Total Assets $38,430,435 Long Term Liabilities & Equity Long Term Debt $ 0 Current Liabilities 2,093,837 Other Liabilities (primarily deferred income tax) 3,799,325 Total Liabilities 5,893,162 Equity $32,537,

27 Our Management Team Robert Herlin, CEO & Chairman Co-founded EPM in 2003 and built company using $8.3 million of equity capital 28 years of leadership experience in M&A, development, operations and finance in public and private sectors $800 million in transactions completed Originated and led horizontal drilling team in early years of horizontal drilling adoption by industry Member of Board of Directors Boots & Coots B.S. and M.E. in chemical engineering (Rice University) and MBA (Harvard) Sterling McDonald, CFO CFO since 2003 Former CFO for PetroAmerican Services, PetroStar Energy and Treasurer for Reading & Bates Corporation Responsible for raising ~$4 billion in capital B.S. and MBA (University of Tulsa) 27

28 Our Management Team Daryl Mazzanti, VP-Operations Joined team in mid-2005; 25 years of experience in oil & gas industry Former Manager of US Business Development for Anadarko Former Production Manager, Austin Chalk for Anadarko/UPRC responsible for 1200 wells, staff of 65 and 25,000 BOEPD of production Responsible for numerous innovations in horizontal drilling, completions and artificial i lift B.S. in Petroleum Engineering (University of Oklahoma) Edward Schell, General Manager for Drilling and Unconventional Development Joined team in late 2006; 28 years of experience in oil and gas industry Various management positions in drilling, operations and business development at Anadarko Petroleum Particular expertise in horizontal drilling and tight gas reservoirs Drilled ~800 wells, 200 being horizontal and 2/3rds being in unconventional reservoirs B.S. in Petroleum Engineering (University of Texas) 28

29 Our Board of Directors Robert Herlin, CEO, Chairman & Co-founder Laird Cagan, Director & Co-founder Managing Director Cagan McAfee Capital Partners Formerly with Goldman Sachs and Drexel Burnham Lambert E.J. DiPaolo, Director Energy Partner with Growth Capital Partners, L.P. Former Halliburton Group Senior Vice President of Global Business Development Gene Stoever, Director Retired Partner with KPMG Peat Marwick Former SEC Reviewing Partner for KPMG CPA in the State of Texas and member of the AICPA Bill Dozier, Director Former SVP-Business Development for Vintage Petroleum Former SVP-Operations for Vintage Petroleum Formerly in operations for Santa Fe Minerals and Amoco Kelly W. Loyd, Director Director with JVL Advisors, LLC, a private energy investment company Formerly Associate with RBC Capital markets Formerly Founder of L.A.B. sports and Entertainment and Managing Partner of Tigre Leasing, LLP 29

30 (NYSE AMEX: EPM) Company Contact: Sterling McDonald, VP & CFO (713) IR Contact: Lisa Elliott / lelliott@drg-e.com lli Jack Lascar / jlascar@drg-e.com DRG&E /