april 27, 2012 new orleans - evolution petroleum corporation burkenroad reports - apr 2… ·...
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April 27, 2012
New Orleans
1
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, 2011 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 the likelihood of recovering those reserves is subject to substantially greater risk. Please see Appendix.
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Four Factors for Repeating Success and Building Value per Share Every Day
Innovative Engineering
Redeploying Internal
Cashflows
Known Oil Fields
Building Value per
Share
Staff Fully Aligned with Shareholders
4
Name/Title Background Achievements
Robert Herlin CEO & Chairman
Co-founded EPM in 2003 using $8.3 MM in capital (multiple raises). B.S. and M.E. Chemical Engineering, Rice University. MBA, Harvard
30 years leadership experience in M&A, development, operations and finance in public and private sectors.
Sterling McDonald Chief Financial Officer
Joined EPM 2003. B.S. and MBA (University of Tulsa)
Former CFO for PetroAmerican Services, PetroStar Energy and Treasurer for Reading & Bates Corporation.
Daryl Mazzanti VP-Operations
Joined EPM mid-2005 B.S. Petroleum Engineering, Univ. of Oklahoma
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. Innovator in horizontal drilling
Edward Schell General Manager for Drilling and Unconventional Development
Joined EPM in 2006 B.S. in Petroleum Engineering, University of Texas
30 years experience in oil & gas industry. Management positions in drilling, operations and business development with Anadarko Petroleum. Drilled 800 wells, 200 of them horizontal and 2/3rd in unconventional reservoirs.
-$100
$0
$100
$200
$300
$400
$500
Initial Investment Cash Proved Reserves Probable Reserves Total Value
Tota
l Val
ue
, $M
M
5
$461 MM
Transformed $8.3 MM Investment into $461 MM PV10 + WC
Notes: (1) Delhi PV10 values based on report from independent reserve engineers, DeGolyer & MacNaughton, and includes proved and probable reserves as of 6/30/2011 at SEC pricing of $94.81/bbl. (2) Giddings properties are being evaluated for monetization.
LLS at $123.11 on 4/11/2012
$72 MM
$375 MM
$13.6 MM
6
0
5
10
15
20
25
MMBoe
Reserves (84% Oil)
Proved PUD Probable
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000$M
Revenue (Years ended June 30)
7
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$M
Quarterly Net Income to Common
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000$M
Quarterly Revenue
Delhi Field - Producing CO2 EOR - 100% oil
10.9 MMBO Proved
5.8 MMBO Probable
41% of 2P is developed producing
Giddings Field – Producing Horizontal wells in naturally fractured
Austin Chalk, Georgetown, Buda
plus Woodbine potential.
2.7 MMBOE Proved, 15% developed
and 47% oil & NGL
S Lopez Field – Producing Vertical redevelopment of
previous waterflood, 100% oil
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Ms Lime – Drilling Begins May 2012 24,000 gross (11,700 net) acres in JV
45% non-op share of JV held by EPM
25-33 net potential oily drilling locations
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$35.8
$266.0
$375.3
$0
$50
$100
$150
$200
$250
$300
$350
$400
2009 2010 2011
$MM SEC Pretax PV10
84%
5% 11%
13.8 MMBOE Proved Reserves
Oil NGL Natural Gas
Application of Strengths to Grow Oil Production, Reserves and Value
11
Phase 1: “Form the Base” Acquired and farmed-out Delhi, commenced EOR. Negative cash flow and no earnings.
Phase 2: “Positioning for Growth” Delhi net proceeds reinvested into shale gas and oil projects. Breakeven cash flow and no earnings.
Phase 3: “Invest for Growth” Delhi and Giddings cash flow reinvested into oil projects and GARP™ technology. Growing operating cash flow and earnings.
Phase 4: “Consistent Growth” Ongoing development drilling to grow production, reserves and cash flow. Grow the franchise.
$
$
$
$
2012
2013
2014
2015
Cash to be Redeployed
GARP™
New Mississippian Lime
Oil Project
S. Texas Oil Expansion
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13
Onshore US Engineering Driven HZ Drilling Potential Repeatable Results Oil Weighted Known Oil & Gas Fields
Grow Value Per-Share
Our Foundation Asset CO2 Enhanced Oil Recovery
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Gross cum production 192 MMBO
Current production >5,400 BOPD
6/30/2011 Reserves 10.9 MMBO Proved 5.8 MMBO Probable (41% of 2P producing) 30% of 2P from royalty interest & free of exp.
Projected EOR recovery (% of OOIP)
13% Proved (PV10: $334 MM) 4% Probable (PV10: $ 73 MM)
Unit size 13,366 acres
Tax preferences Severance tax holiday
Acquired by EPM in 2006 Acquired for $2.8 MM Invested $2.5 MM
Acquired royalty in 2006 Paid $1.5 MM
Farm-out to DNR in 2006 Received $50 MM + EOR Development + Reversionary interest
Upside Potential More OOIP Higher EOR % recovery similar to other DNR projects Utilization of lower cost (CO2 + water) injection process
Low-Risk Cash Flow for Reinvestment into Growth Assets
Delhi
Jackson Dome
16
• EPM receives 7.4% of gross revenues
• No Cap Ex or Op Ex…forever
• Exempt from state severance tax until project payout of all actual costs plus capital cost
• Royalty interest = 30% of total Delhi reserves volumes
• Delhi crude priced at LA Light Sweet (premium to WTI)
7.4% Royalty Interest
• Calendar YE 2013 payout = projected net field cumulative cash flow of $200 million
• Net field cash flow = revenue minus field Op Ex (including CO2)
• After payout, EPM bears pro-rata CapEx and Op Ex and will own proportional field assets, reserves and purchased CO2
• EPM projected to bear ~$12.7 MM total CapEx for proved reserves APO
23.9% Reversionary
Working Interest
Free Cash Flow
17
Denbury plans to invest $64 MM in 2012 to expand flood.
Develop three patterns, build additional facilities.
2011 Activity expansion
2011 Activity
2010 Activity
2009 Activity
2012E Activity
Source: Denbury Resources Inc. Fall Analyst Meeting, November 14, 2011.
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$0
$10
$20
$30
$40
$50
$60
$70
$80
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
$MM
Royalty Reversionary WI
Note: Based on report from independent reserve engineers, DeGolyer & MacNaughton, and includes proved and probable reserves as of 6/30/2011 at SEC pricing of $94.81/bbl.
LLS at $123.11 on 4/11/2012
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$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
$M
Remaining PV10 Cum PretaxNotes: Residual PV10 is the PV10 of remaining cash flows from given year to project end. Includes proved and probable reserves from independent report of 6/30/2011 at SEC pricing of $94.81/bbl.
LLS at $123.11 on 4/11/2012
20
$-
$4
$8
$12
$16
$20
$- $20 $40 $60 $80 $100
$ / diluted share
2012 Oil Price
PV10* vs 2012 Oil Price
2P PV10 Esc @ 3% inflation
2P PV10 SEC Flat
$8
$9
$10
$11
$12
$13
$14
40 45 50 55 60 65 70 75 80
$/ diluted share
Gross Recovery in MMBO
PV10* vs Gross Oil Recovery (flat pricing)
1P
2P
* From independent report of 6/30/2011 including proved and probable reserves at SEC pricing of $94.81/bbl. Escalated pricing analysis begins with 6/30/11 SEC price. Diluted shares include 5.5 MM options and warrants without effect of exercise proceeds.
Impact of Additional EOR Recovery on EPM Share Price
Oil Price Impact on EPM Share Price
EPM @$8.96 (4/11/2012)
EPM @$8.96 LLS @ $123.11
Growing Per-Share Value
Fits selection criteria: Oil-prone, horizontal drilling, onshore U.S., IRR>30%, known oil field, accessible, running room, repeatable
Kay County, Oklahoma
24,000 gross (11,700 net to JV) acres
Cash and drilling carry for 45% share of JV
$3 MM up front cost
25-33 net potential drilling locations
Horizontal drilling in area previously
developed with vertical wells
Drilling and completion cost per well ~$3MM, including water disposal
Running room with multi-year development
Investment sink for Delhi cash flow – develop >>1 barrel of oil reserves from 1 barrel of Delhi production and fully utilize intangible drilling tax deduction
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Joint venture acreage in oil-prone area, east of the Nemaha ridge.
Multi-year visible growth potential for reinvesting early Delhi free cash flow.
EPM Calyx, Pablo, PQ, Range, Ram, SDR, Spyglass, Century
Territory, Vitruvian
Calyx, Pablo, Range, Redfork, Spyglass,
Territory
CHK, SDR, Vitruvian, PQ
CHK, Chaparral, Eagle, SDR
Spyglass, Vitruvian, Century
SD, PQ
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Mississippian Lime is well
defined by old vertical
wells Numerous vertical logs show
thick, continuous pay
Interpretation of well data
and logs shows geologic
continuity with offset wells
Vertical average EURS: Kay County: 97 MBOE
Osage County: 80 MBOE
Cowley County: 60 MBOE
Horizontal Results:
Vitruvian Bowling 2-32H
IP: 500+ Boepd, ~3,000'
lateral
Spyglass Shaw 1A-8H
IP: 500+ Boepd, 2,228' lateral
EPM
Vitruvian Bowling 2-32H IP 500+ Bopd
Spyglass Shaw 1A-8HZ
2,228' Miss Lime Hz 500+ Bopd
Spyglass Bird Creek 1A-15H
IP 210 Bopd
Range Resources Type Curve EUR
485 MBoe
Territory Beast 1-27H
IP 500-600 Bopd
Pablo Gilbert 1H-32 IP 657 Bopd
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Assumptions:
EUR: 268 MBOE (75% oil)
$2.8 MM drilling and
completion cost
Includes SWD facilities
Rich gas is minor element
Commodity prices:
WTI $85/Bbl ($5 differential)
Natural gas low, rises to
$4.00/MMBtu by 2014
(then flat)
IRR > 30% at base case
EUR
0%
20%
40%
60%
80%
100%
100 150 200 250 300
Orion Ms Lime Sensitivity IRR vs Gross Oil Reserves in MBO (@ Received Oil Price w/o esc)
$60
$80
$90
Base Case
Mirando sandstone within previous waterflood
Moving from test phase into development phase, despite ongoing challenges in re-injecting produced water
Developing 10-20 BOPD per well of long life, low decline production at a cost of ~$550K per well, or $35K to $68K per net BOPD
3 test producers drilled to date to confirm oil cut and capability of high fluid rate production and injection
Goal and upside is in expanding from current 40 drilling locations to similar nearby fields with hundreds of potential drilling locations
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8,560 net acres
Net production ~205 BOEPD from ten wells
Proved undeveloped reserves in 11 drilling locations
Reserves in Georgetown, Austin Chalk and Buda formations
Exposure to new Woodbine oil play
Transitional asset, evaluating divestment options due to lack of running room to redeploy Delhi cash flow and > 50% gas content
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Innovation for Increasing Recovery
Reestablishes economic production of the “Tail”
Supplements & enhances existing rod pump
Mobilizes remaining fluid to rod pump inlet
Successful applications in Giddings Field
Two field tests underway
Fee/participation for service model
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BEFORE: Conventional Rod Pump
Either fluid level eventually drops to a level where rod pump or gas lift are no longer effective, or
Fluid production in gas well builds and eventually shuts off gas production
This can leave substantial volumes of oil and gas unrecovered (the “Tail”)
AFTER: GARP™
Adds substantial new reserves at low cost
Benefit = up to 25% incremental recovery
Benefit = extends life of lease(s)
Cost $75K - $150K per application
Patented
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Conservative, Strong and Aligned
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0%
11%
24% 26%
29%
33%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
EPM
AR
EX
REN
MH
R
WR
ES
DN
R
PQ
Debt to Market Cap
$14
$4
$5
$7
$5
$-
$5
$10
$15
$20
$25
Resources CapEx (2012E)
$MM Liquidity – Sources & Uses
CFFO
Current
Ms Lime 12/31/11 W/C
Availability
34
-$100
$0
$100
$200
$300
$400
$500
Investment Cash ProvedPV10
Delhi (1)
ProbablePV10
Delhi (1)
ProvedPV10
Giddings (2)
ProvedPV10Lopez
TotalValue
Market Cap(4/11/12) (3)
Tota
l Val
ue
, $M
M
$212 MM Gap to NAV
$249 MM
$461 MM
LLS at $123.11 on 4/11/2012
Notes: (1) Delhi PV10 values based on report from independent reserve engineers, DeGolyer & MacNaughton, and includes proved and probable reserves as of 6/30/2011 at SEC pricing of $94.81/bbl. (2) Giddings properties are being evaluated for monetization. (3) Market capitalization based on 27.82 MM shares outstanding.
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-$2
$0
$2
$4
$6
$8
$10
$12
$14
$16
Investment Cash ProvedPV10Delhi
ProbablePV10Delhi
ProvedPV10
Giddings
ProvedPV10Lopez
TotalValue
Share Price(4/11/12)
Tota
l Val
ue
Pe
r Sh
are
$4.93 Gap to NAV
$8.96
$13.89
Note: Per-share values are based on 33.2 MM diluted shares.. PV10 from 6/30/11 reserves report, Delhi at $94.81/bbl.
LLS at $123.11 on 4/11/2012
36
Team with track record of growing value per-share
Growing value and cash flow at Delhi foundation asset (100% LLS oil)
$212 MM value gap between intrinsic value and market value (or $4.93 per diluted share)
New exposure to oily Mississippian Lime play (visible growth potential) – new project does not alter strategic focus
GARP™ upside from synergistic incremental recovery
Low financial risk with no debt – balance sheet aligned with business strategy
Reinvesting cash flow into oil growth assets
Management owns 19% of diluted shares – leadership aligned with shareholders
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