Total Net Revenue Interest Heads to 26.5%
It’s a good week for Evolution Petroleum (ticker: EPM).
Denbury Resources, Inc. (ticker: DNR) operator of Delhi Field in northeast Louisiana, in which Evolution Petroleum Corporation has economic interests, has informed Evolution of its preliminary determination that payout occurred during the month of October 2014. Consequently, Evolution earned its reversionary working interest of 23.9% and associated revenue interest of 19.2% effective November 1, 2014. When combined with its existing 7.4% royalty and overriding royalty interests, Evolution’s total net revenue interests will increase to 26.5%. The company will also be responsible for paying 23.9% of the operating costs and capital expenditures going forward.
Results for the quarter ended September 30, 2014, showed earnings of $1.0 million, or $0.03 per diluted common share. During the quarter ended September 30, 2014, Delhi Field produced at the rate of 425 BOPD. Gross production from the Delhi is about 5,739 BOEPD, with management expecting it to reach 12,000 BOEPD in the next five to seven years, once a planned gas plant comes online and field development progresses, Randy Keys said at EnerCom’s The Oil & Gas Conference® 19 in August 2014. Evolution reported that it paid dividends of $3.3 million to common shareholders for the quarter ended September 30, 2014.
With the reversion of its working interest, Evolution and the operator have plans to resume expansion of the carbon dioxide flood to the eastern half of the field and begin construction of a recycle gas processing plant to recover methane and natural gas liquids. Combined, these improvements are expect to make the flood more efficient.
Robert Herlin, Chairman and CEO, said, “With the divestiture of our non-core oil and gas properties and restricting of our overhead, we are now wholly focused on the further development of the Delhi Field.” And that “our strong balance sheet has no debt and, combined with the dramatically increased revenue and cash flow associated with the Delhi reversionary interests, position the Company to comfortably weather a lower oil price environment.”
OAG Comment: In our view, Evolution management is very shareholder friendly, most likely because they are significant shareholders themselves. The company has avoided following the herd and making ill-advised diversification moves into oil shale plays that although are prolific, are capital-intensive and require a very strong balance sheet and technical resources to evaluate the best opportunities. Evolution seems to have stuck to what it does best, and has a track record of finding ways to put cash back into the hands of shareholders. Evolution offers investors yield from its cash dividends and provides them with the ability to capture the upside from a potential upturn in oil prices, an increase in the dividend or wider industry adoption of its patented GARP® artificial lift solution.
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