Sanders Morris Harris New York November 9, 2007 (AMEX: EPM) © Evolution Petroleum Corporation.
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Transcript of Sanders Morris Harris New York November 9, 2007 (AMEX: EPM) © Evolution Petroleum Corporation.
Sanders Morris HarrisNew York
November 9, 2007
(AMEX: EPM)© Evolution Petroleum Corporation
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. Forward-looking statements give our current expectations or forecasts of future events. They include statements 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 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. 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.
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 their 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. The Company is 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 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.
Company Overview
Listed : AMEX in July 2006 Ticker Symbol : EPM Market Cap : ~$80 million Shares Outstanding : 26.8 million
Ownership Profile (fully diluted): Management - 19% Institutions - 19% Non-management Directors - 42% (including affiliates)
Oil & Gas Reserves at November 1, 2007 (using 7/1/07 prices):
Proved = 2.5 MMBOE (increased 49% since 6/30/07) Probable = 11.5 – 16 MMBO
EPM Operating Strategy
We acquire known oil and gas resources in the onshore U.S. and develop or redevelop new reserves and production using current technology
We focus on mature oil and gas fields that matured prior to modern technology and the relatively recent step level increase in oil and gas prices.
EPM Investment Highlights
Multiple ongoing development projects – 22 proved development drilling locations in inventory
Balance sheet supports growth with $24+ million in available cash, ~$4 MM in leases and no funded debt
Experienced management team with specific expertise in programs and a successful team record
Company intrinsic value in: $0.90 available cash per O/S share + $1.75 estimated future net revenues discounted at 10%, per outstanding share (prices as at 7/1/07) + 0.4 – 0.6 bbls of Delhi CO2 (probable) reserves per outstanding share + Ongoing development projects
The EPM Opportunity
Our Capital
Project Financing
Our Expertise Horizontal drilling Field development Acquisitions Ideas
Our Developing Technology Artificial lift Innovative completions
EPM Initiatives
Enhanced Oil Recovery (EOR) via gas floods
Bypassed Resources – horizontal drilling
Unconventional Gas Development – gas
shales
Initiative I - Enhanced Oil Recovery
Expand and extend presence in enhanced oil recovery, through:
Miscible Gas Flooding Typically CO2, which combines with crude oil to change
fluid properties – incremental recovery can be 8%-20+% of original oil in place.
Example - Delhi Field
Immiscible Gas Flooding Where CO2 not economically available, we utilize a
compatible gas, and may combine with innovative completion technology when water contact present.
Delhi Field Development
Delhi F
ield
Dev
elopm
ent
2003 – Purchased the working interest in the Delhi Field for $2.8 million
2004 – Increased production to a peak level of ~145 boepd through expenditures of ~ $2.5 million
2006 – Acquired 7.4% of royalty interests for $1.5 million from multiple sellers. In June, we sold a farm-out of our working interests in Delhi to Denbury
2007 – ROW and CO2 Pipe Acquisition, followed by pipeline construction
2008 – CO2 Injection projected by operator to occur in Second Quarter. Production response expected to follow shortly after
2009 – Material production increase
2011/12 – Payout projected
EPM Proceeds from Delhi Farm-Out
$50 million in gross cash proceeds
25% back-in working interest in the Unit
Retained our separate 7.4% overriding royalty interest
DNR commits proved CO2 reserves and financially committed to install $100+ MM CO2 EOR project
Delhi Holt Bryant Unit Oil Recovery
Cumulative Production To Date: 190 MMBO(<50% of OOIP) _________Remaining OIP : 210 MMBO (>50% of OOIP)
Estimated OOIP: 400 MMBO
“Current technology makes this recovery economical even at low oil prices.”
EPM - Delhi Unit Oil Recovery
Cumulative Production To Date ~190 MMBO
EOR Recovery 48-64 MMBO est’d
Remaining Resource for recovery in future through technology & higher oil price ~146-162 MMBO
EPM ORRI 3.5 – 4.8 MMBO
Other Royalties ~6-7.9 MMBO
BPO WI ~6 MMBO
APO WI ~32-45 MMBO
400 MMBO OOIP (est.) 48-64 MMBO EOR (est.)
EPM - Delhi Unit Oil Recovery
Cumulative Production To Date
EOR Recovery
Remaining OIP Resource for recovery in future
DNR APO WI
EPM APO WI 8 – 11.3 MMBO
(est.)
400 MMBO OOIP (est.)
48-64 MMBO EOR (est.)
EPM ORRI 3.5 – 4.8 MMBO
(est.)
APO WI ~32-45 MMBO
Delhi CO2-EOR Project Status
Operator is recognized as a leader in tertiary recovery operations
invested over $50MM
ROW and steel being acquired, PL construction
underway
Operator’s total incremental cost likely to be ~$5 per
net BO
Delhi is one of higher valued projects in operator’s
portfolio
and firmly positioned in their stated projects-in-
progress
Delhi gives operator strategic positioning to expand
CO2
access westward
EPM Cash Flows
EPM Asset Base Cash Resources + existing proved reserves in Tullos Field + quality probable reserves in EOR-CO2 project under way in Delhi Field requiring no capital expenditures and limited operating expense by EPM
Delhi CO2 ProjectPR
OD
UC
TIO
N
TIME
CASH**
Tullos Proved
Initiative II – Bypassed Resources
Acquire and develop known bypassed resources :
We focus on dual porosity, fractured, tight, low energy or heavy oil reservoirs bypassed due to technology or commodity prices, and we…
Apply horizontal drilling
Apply hydraulic fracturing
Apply innovative completions & technology
We are actively leasing in four development projects in Giddings Field area of central Texas
Drilling locations – 100% WI in 22 proved locations Leases – ~8,000 net acres to date Pending – up to 40 locations being leased, and a fifth project
area in development
These projects involve: Horizontal drilling from new wells and re-entries in naturally
fractured Austin Chalk and Georgetown formations Potentially applying our proprietary artificial lift technology in
targeted opportunities
We expect to commence an $8.5 MM, ten well drilling program shortly
First PUD drilled in Tullos Field (La) to test innovative completion technology – results expected by end of calendar year, but early indications are promising
Initiative II – Projects Underway
EPM Cash Flows
Delhi CO2 Project
CurrentBypassedResources
PR
OD
UC
TIO
N
TIME
EPM
Cash*
CASH**
Business Plan * Cash resources fund Bypassed Resource projects for near term revenues, income and net cash flows.
Initiative III – Unconventional Resources
Gas Shale
Two mid-continent resource projects in leasing stage – third project pending
Over 7,500 acres leased to date
Initial drilling (core holes) and further evaluation expected in 2008
EPM Cash Flows
Delhi CO2 Project
CurrentBypassedResources
PR
OD
UC
TIO
N
TIME
EPM
Cash* Unconventional Gas
CASH**
Business Plan * Current cash resources fund Bypassed Resource projects** Generated net cash flows fund gas shale projects now leasing
EPM Cash Flows
Delhi CO2 Project
CurrentBypassedResources
New EOR &Bypassed ResourceProjects
PR
OD
UC
TIO
N
TIME
EPM
Cash* Unconventional Gas
CASH**
Business Plan
2 new EOR and Bypassed Resource projects are already in the evaluation stage
Executing On Our Initiatives
Evaluation using existing data
Model & check
acreageLeasing
Idea InternalProject
Drilling of test well(s)
Develop & expand
ExternalProject
EPM Expertise & Capital
6 Projects1 Project(Tullos)
1 Project(Delhi)
OutsideCapital
2 Projects
Successful Record of Value Growth
Note: Proved Reserves estimated future net revenues discounted at 10% by independent engineer using 7/1/07 prices. Probable Reserves by Company (risked by 50%) include only Delhi CO2-EOR project estimated future net revenues discounted at 10% using $55 oil price escalated at 3%.
Net (Intrinsic) Assets(Proved Reserves + 50% Delhi CO2-EOR)
$(50,000,000)
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
1 2 3 4 5 6
WC + Leases less Debt Pvd Pb-CO2
6/30/066/30/056/30/049/23/03 6/30/07 11/1/07
Aggregate ~30% Annualized ROI to Shareholders (Market Price to
Investment)
Equity Tranches by Issue Price, Amount, Date & Current Price Range
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
Jun-03 Jan-04 Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07
Net (Intrinsic) Assets cash + Proved + 50% Delhi EOR-CO2
ApproximateMarket Price
Our Management Team
Robert Herlin, CEO & Director Co-founded EPM in 2003 and built company using $8.3 million of equity
capital 25 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, 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)
Our Management Team (cont’d)
Daryl Mazzanti, VP-Operations Joined team in mid-2005 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 B.S. in Petroleum Engineering (University of Oklahoma)
Edward Schell, General Manager for Drilling and Unconventional Development
24 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)
Robert Herlin, CEO, Director & Co-founder
Laird Cagan, Chairman & Co-founderManaging Director – Cagan McAfee Capital PartnersFormerly 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, DirectorRetired Partner with KPMG Peat MarwickFormer SEC Reviewing Partner for KPMGCPA in the State of Texas and member of the AICPA
Bill Dozier, DirectorFormer SVP-Business Development for Vintage Petroleum Former SVP-Operations for Vintage PetroleumFormerly in operations for Santa Fe Minerals and Amoco
Our Board of Directors
EPM Summary
Multiple new development projects offer great upside
Growing inventory of proved undeveloped locations
Development drilling program spudding by EOY
$24+ MM in available cash to support growth – no debt
Experienced management team with specific expertise in programs and a successful team record Stock value supported by $2.65 per o/s share of available cash + proved reserves, plus 0.4 - 0.6 bbls of CO2-EOR reserves, plus ongoing development projects