Energy Capital Investment Symposium
June 3, 2009 (NYSE Amex: EPM)
© Evolution Petroleum Corporation
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Evolution Petroleum Corporation
This presentation contains “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. Forwardlooking statements give our current expectations or forecasts of future events. They include statements g g p g p g p regarding our future operating and financial performance. 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. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. You should understand that the following important factors, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or p g g ( ) , g p p ;( ) implied in the forward-looking statements relating to: (1) amount, nature and timing of capital expenditures; (2) drilling of wells and other planned exploitation activities; (3) timing and amount of future production of oil and natural gas; (4) increases in production growth and proved reserves; (5) operating costs such as lease operating expenses, administrative costs and other expenses; (6) our future operating or financial results; (7) cash flow and anticipated liquidity; (8) our business strategy, and the availability of acquisition opportunities; (9) hedging strategy; (10) exploration and exploitation activities and property acquisitions; (11) marketing of oil and natural gas; (12) governmental and environmental regulation of the oil and gas industry; (13) environmental liabilities relating to potential pollution arising from our operations; (14) our level of indebtedness; (15) timing and amount of future dividends; (16) industry competition, conditions, performance and consolidation; (17) natural events such as severe weather, hurricanes, floods, fire and earthquakes; and (18) availability of drilling rigs and other oil field equipment and services services. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation or as of the date of the report or document in which they are contained, and we undertake no obligation to update such information. The filings with the SEC are hereby incorporated herein by reference and qualifies the presentation in its entirety entirety.
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Evolution Petroleum Corporation
Cautionary Note to U.S. Investors Regarding Oil and Gas Reserve Estimates: The U S Securities and Exchange Commission permits oil and gas companies in U.S. companies, their current filings with the SEC, to disclose only “Proved” reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. conditions The Company is currently prohibited from disclosing other categories of reserves in its SEC filings. We use certain terms in this press release such as "Probable” or “Possible” oil and gas reserves that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our SEC filings available from us at 2500 City West Blvd Suite filings, Blvd, 1300, Houston, Tx 77042; Telephone: 713-935-0122. You can also obtain these filings from the SEC by calling 1-800-SEC-0330. The reserve quantities reflected above were certified by W. D. Von Gonten & Company using the 1997 definitions and standards of the Society of Petroleum Engineers and World Petroleum Congresses. These definitions and standards may result in estimates of proved reserves which are materially different from those disclosed in the Company’s filings with the SEC.
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EPM Strategy gy
We identify and acquire known oil and gas resources in the onshore U.S. and use our expertise and technology to develop, or redevelop, proved reserves bypassed due to low commodity prices or lack of technology to maximize share value.
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Company Overview
Ticker Symbol Fiscal Year End Year-End Market Cap Enterprise Value
• •
EPM June 30 ~$73 million as of 5/28/09 ~$66 MM (fully diluted)
26.2 26 2 MM shares outstanding 32.7 MM shares fully diluted Employees p y Institutions SEC Proved = Probable = 20% ~38% 4.0 MMBOE (increased 133% during FY08) 3.1 MMBOE (Giddings Field) + 12.6 MMBOE (Delhi CO2-EOR) + 17,600 net acres in OK shallow Woodford Shale
Ownership Profile (fully diluted including unvested awards):
• •
Oil & Gas Reserves at July 1, 2008:
• •
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EPM Investment Highlights
Consistent annual growth in reserves & revenues Strong balance sheet with no debt and no near-term funding needs near term 2009 catalysts: 2 Giddings PUD’s averaged gross 450 BOEPD each during first 8 days Completion of Denbury’s Delta CO2 pipeline to Delhi project Denbury s Initiation of CO2 injection at Delhi Commencement of drilling in OK gas shale project Commencement of drilling in Neptune S Tx project Production P d i response f from CO2 i j i at D lhi injection Delhi
0.15 Proved BOE (1P) 0.60 Probable BOE (2P) 0.75 BOE (1P+2P), plus
1 Share
(outstanding)
owns
Gas Shale resource + S Tx oil potential + Working capital
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EPM Liquidity
3/31/09 (unaudited)
Selected Assets Working Capital Properties & Equipment, net Other Assets (primarily long term CD) Total Assets Long Term Liabilities & Equity Long Term Debt Other Liabilities (primarily deferred income tax) Total Long Term Liabilities Equity $0 4,471,156 4,471,156 $32,043,888 $7,503,457 28,655,188 356,399 $37,980,788
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EPM Reserves Growth by Fiscal Year
14 12 10 8 6 4 2 0 2004 2005 2006 2007 2008
• Does not include shale gas resource in Oklahoma Woodford project • FYE 06 proved reserves decreased by farm-out to Denbury
Proved Giddings Pb Delhi Pb
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EPM Revenues Growth by Fiscal Year
• Revenues in thousands farm out • 2007 revenues decreased by farm-out to Denbury occurring at FYE 2006
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Initiatives to Re-develop Resources p
I.
Enhanced oil recovery (EOR) via gas floods
Delhi Field CO2 project
II. Conventional redevelopment through application of p g pp horizontal drilling and other modern technology
Giddings Field Neptune – small, moderately heavy oil development project in Texas that may be expandable to other fields
III. Unconventional gas development
Woodford gas shale – targeting substantial low cost reserve potential
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2009 Capital Budget
Focused on increasing our value per share and maintaining liquidity
Converting resources into proved reserves – OK shale gas & S TX oil (Neptune) Limited leasing of additional expected PUDs in Giddings Giddings re-entry drilling of 2 wells to maintain revenues and operating cash flows
Giddings development to be limited until drilling costs drop further and/or commodity prices improve to optimize our asset value Neptune project in S Texas targets moderately heavy oil reservoir
Leased ~1500 net acres that we expect will add proved undeveloped reserves, subject to oil price
Limited vertical drilling in shallow Woodford leases to convert a portion of proved & probable “resources” into reserves resources Strategic & opportunistic repurchase of common shares (completed) Program funded from current working capital + operations
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Initiative I: EOR - Delhi Field CO2 Project
Delhi
Tinsley
Jackson Dome
Production to date Original oil in place est. (“OOIP”) Average depth Size Formations Reserves Basis
190 MMBO 350-400 MMBO
~3,300’ 13,636 acres Tuscaloosa & Paluxy Tinsley analog, ample subsurface control, pilot projects in same field, committed proved CO2 reserves, pipeline completed & tested, & available funding for balance of project
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Initiative I: EOR - Delhi Field History
$160 $ WIT Oil Pric midyear ce $140 $120 $100 $80 $60 $40 $20 $ $1940 1950 1960 1970 1980 1990 2000 2010 2020
Farmout to DNR
Discovery Most drilling completed
CO2 pilots EPM Unitization & acquires pressure maintenance via water injection Unit sold
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Delhi Field Development by EPM & DNR
~2014 – Est. deemed payout achieved based on $60 oil - 25% WI reverts to EPM 2009 – DNR spending $77MM; CO2 injection projected ~mid 09 & production response expected by early 2010; ORRI CF grows 2008 – DNR spending $80+MM in 2008 – EPM earning revenues from ORRI 2007 – DNR investment exceeds $70 million including right-ofway, CO2 pipe acquisition and construction and field work 2006 – Sold farm-out to Denbury for $50MM + 25% BI-APO + commitment to fund and install CO2 flood. Acquired 7.4% of royalty interests for $1.5 million 2004 – Increased production to level of ~145 boepd through expenditures of ~ $2.5 million 2003 – Purchased the working interest in the Delhi Field for $2 8 million $2.8
(calendar year)
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EOR Expands EPM’s Reserve Base
Denbury’s EOR project could recover about 11% - 17% of original oil in place (OOIP) at Delhi Field (1)
Recovery of ~11% - 17% equates to net reserves to EPM of 9 – 14.5 MMBOE
25% reversionary working interest and separate 7.4% royalty interest Reversion based on fixed amount of revenues less operating expense, not actual amount of capital expenditures
Recovery expected to be on high end of estimate range – Denbury reports higher recoveries in other projects in region
Recovery range implies PV-10 value of approximately $4.75 $8 per fully diluted share, based on $60/bbl oil (2) Initial oil price ranging between $40-$80/bbl implies PV-10 value of $4-$10 per fully diluted share, assuming 15% recovery
(1) See slide # 27 in appendix for table of effect of different recoveries on Delhi volumes (2) See slide # 28 in appendix for stock price sensitivity to Delhi recovery & oil prices 15
Impact of Delhi Production
Potential Annual Revenues from Delhi per fully diluted share
Potential Initial Rate Gross Field Production = 7.4% 7 4% Overriding Royalty & Mineral Interest – before & after Payout 25% R Reversionary i Working Interest after Payout Pro Forma Annual Revenues Per Share 1,000 BOPD 2,000 BOPD 5,000 BOPD Potential Peak Rate 8,000 BOPD 10,000 BOPD
< Payout ~Occurs > $0.05 $0.10 $0.25 $0.40 $0.50
$0.67
$1.07
$1.34
$0.05
$0.10
$0.92
$1.47
$1.84
Based on NYMEX price of $60 per barrel of oil before any escalation. ORRI bears only pro rata excise taxes and no operating costs. Reversionary interest bears pro rata excise taxes and direct operating costs costs.
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Initiative II: Conventional Redevelopment
Acquire and develop known resources where we apply our expertise and t h l l ti d technology. Naturally fractured Austin Chalk, Georgetown g & Buda formations in the Giddings Field in Central Texas (~1.25 billion BOE field historical production). The EPM team has extensive expertise in field, and has drilled 8 wells on our leases in field to date and added 2 other producers. Austin EPM has leased 1500 net acres in S Texas in new, moderately heavy oil project (Neptune) – first drilling later in 2009. Project targets infill drilling and application of already tested completion technology. Houston
Neptune area
Giddings Field
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Initiative II: Giddings Field
Located in central Texas 100% WI, ~80% NRI in 9 producers ~18,000 net acres leased
$ /F u lly D ilu te d S h a r e F
Giddings Reserves NPV10
Proved Probable* 2P
14 re-entry locations (~134 MBOE ave.) 11 grassroot locations (~296 MBOE ave) (reserve estimates are gross 1P + 2P) Wells typically produce at high initial rates (~150 BOEPD for re-entry well, ~340 BOEPD for grassroots well) followed by steep initial declines then stabilize declines, Expect half of estimated reserves produce in first ~two years Reserves estimated ~1/4th oil 1/3rd ngl and 1/4 oil, balance as natural gas, subject to ngl price.
$5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $1 00 $0.50 $$$10 $20 $30 $40 $50 $60 $70 $/BOE *
* $/BOE reflects mix of crude oil, NGL & gas products
Two re-entries drilled in Giddings Field in FY 2009 yielded average 8 day rate of 450 BOEPD
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Giddings Field – Infill Development
Lease boundary mandatory distance between vertical wellbore and lease boundary plug
lease boundary
Naturally occuring fractures bearing oil and gas
Austin Chalk Ch lk New horizontal wellbore penetrating undrained fractures
Existing horizontal wellbore penetrating multiple fractures that contain oil and gas
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Initiative III: Unconventional Gas
Focus on developing gas shale reserves in OK at shallow depths
Utilize lower cost drilling – shallow depth yields low rig and frac day rates Expect low drilling & completion costs, < ~$0.75 - $1.33 per mcf Target 200-300 MMCF per shallow vertical well & 1-2 BCF in mid-depth horizontal well
100% WI in ~17,600 net acres in eastern OK
Split between (A) 1500’ and (B) 4000’-5000’ depths in the Woodford Shale Lease terms generally extend ~5 years from lease date At 20 acre spacing, shallow project A could generate up to 465 vertical locations At 80 acre spacing, deeper project B could generate up to 100 horizontal locations Potential for further downspacing to twice the well density
Substantial additional acreage i typically obtainable through f S b i l ddi i l is i ll b i bl h h forced pooling d li First well in shallow project in Wagoner County underway
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EPM Woodford Shale Projects in Oklahoma
Up to 100 vertical and horizontal Woodford completions offsetting EPM acreage by three other operators Potential for conventional development
Woodford Completions
EPM Acreage
Tulsa
Oklahoma
Main Woodford W df d Trend
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EPM Net Production Potential
Business Plan
Current cash resources & operations fund Giddings Field and initial OK development for near term revenues; generated net cash flows, including Delhi, fund full development of OK gas shale, South Texas and other projects
Pdn OK & STx EPM WC Delhi D lhi Giddings
Volumes are representative and not to scale
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EPM Operational Summary p y
Proven record in creating and implementing development projects Experienced management team with successful team record CO2 injection about to begin at Delhi EOR project Flexible drilling program focused on converting reserves to Proved status; Two Giddings PUDs drilled and put on production, initial drilling in OK gas shale begun, and S Texas oil project first drilling pending Asset Portfolio (includes 2009 drilling to date) • 4 MMBOE proved reserves in 9 producing wells & 25 locations
• • • •
3.1 MMBOE probable reserves in 10 locations 12.6 MMBO probable reserves in EOR-CO2 project with Denbury 565+ drilling locations in shale gas resource projects Leasing completed in S Texas shallow oil project
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EPM Financial Summary y
Strong balance sheet and excellent liquidity (at 3/31/09) Retain substantial working capital No debt and no need to raise capital for FY09 capital expenditures No material near term expiring leases p g Ability to manage capital expenditure plan as necessary 2009 catalysts: y Drilling results from 2 Giddings PUD’s Completion of Denbury’s Delta CO2 pipeline to Delhi project Initiation of CO2 injection at Delhi Commencement of drilling in OK gas shale project to prove reserves C f d illi i h l j Commencement of drilling in S Texas project to prove reserves Production response from CO2 injection at Delhi
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(NYSE Alt: EPM)
Company Contact: Sterling McDonald, VP & CFO St li M D ld (713) 935-0122 smcdonald@evolutionpetroleum.com
IR Contact: Lisa Elliott lelliott@drg-e.com Li Elli tt / l lli tt@d Jack Lascar / jlascar@drg-e.com DRG&E / 713-529-6600
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Exhibits
Effect of different recoveries on Delhi volumes Delhi sensitivity to recovery & oil price Management team Board of Directors
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Effect of Different Recoveries on Delhi Volumes
EPM Estimated Net Probable Reserves in Delhi CO2-EOR Project
Recovery of Swept OOIP: y p (at $60 oil, escalated 3% pa) Gross bbls produced EPM royalty (7.4% RI) Mineral & other royalties Total Royalties (20% of RI) 100% WI reserves (80% of RI) WI bbls to reach PO WI bbls - remaining after PO EPM 25% WI after PO EPM 7.4% Royalty (from above) Total Net EPM bbls at Delhi 11.2% 40,000,000 2,960,000 5,040,000 5 040 000 8,000,000 32,000,000 8,000,000 24,000,000 6,000,000 2,960,000 , , 8,960,000 15.0% 53,400,000 3,951,600 6,728,400 6 728 400 10,680,000 42,720,000 8,000,000 34,720,000 8,680,000 3,951,600 12,631,600 , , 17.0% 60,350,000 4,465,900 7,604,100 7 604 100 12,070,000 48,280,000 8,000,000 40,280,000 10,070,000 4,465,900 14,535,900 , ,
RI = revenue interest = share of gross production WI = working interest = cost-bearing interest, earns gross production less royalties PO = deemed payout = $200 MM of 100% WI revenues less field operating expense Royalty = revenue interest bearing no capital or operating costs Swept OOIP = original oil in place in portion of reservoir swept by CO2
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Delhi Sensitivity to Recovery & Oil Price y y
PV-10 as at 1/09 of EPM’s Delhi CO2 - EOR (2P reserves)*
Project Gross Recovery, % OOIP at $60 oil (3% pa escalation)
Swept OOIP 20% 15% 10% 5% 0%
$$50 $/bbl $100
Initial NYMEX Oil Price Per Bbl At 15% Recovery (3% pa escalation)
$-
$2
$4
$6
$8
$10
$12
$-
$4
$8
$12
NPV10 per diluted share
NPV-10 per fully diluted share
* Internal estimate - does not include any other assets or projects of EPM 28
Our Management Team
Robert Herlin, CEO & Chairman
Co-founded EPM in 2003 and built company using $ $8.3 million of equity capital 26 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 B.S. and M.E. in chemical engineering (Rice University) and MBA (Harvard)
Sterling McDonald, C O S 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)
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Our Management Team
Daryl Mazzanti, VP-Operations
Joined team in mid-2005; 21 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 lift tifi i l B.S. in Petroleum Engineering (University of Oklahoma)
Edward Schell, General Manager for Drilling and Unconventional Development
Joined team in late 2006; 25 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. B S in Petroleum Engineering (University of Texas)
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Our Board of Directors
Robert Herlin, CEO, Chairman & Co-founder Laird Cagan, Director & Co-founder
Managing Di t – C M i Director Cagan M Af C it l P t 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 G Group Senior Vice President of Global Business Development S fG
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 y p Formerly Associate with RBC Capital markets Formerly Founder of L.A.B. sports and Entertainment and Managing Partner of Tigre Leasing, LLP
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