Energy Prospectus

Evolution Petroleum Corp. (EPM): An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.

Fiscal 4th quarter results came in below my forecast due to several non-recurring expenses and higher income tax expense for the quarter. For my valuation, this miss was more than offset by higher proven reserves.

My Fair Value Estimate, which assumes the Delhi Field (operated by DNR) will reach Payout 1-1-2014, is now $14.50/share.

A couple things to note:
> EPM holds a bunch of cash and is virtually debt free.
> They will be generating a lot of free cash flow when Delhi pays out.
> My valuation does not include anything for their GARP technology.

We will publish an updated profile next week.

I was impressed with the call. Good positioning here

Here is a simple way to look at EPM. Remember, this company is really just one asset > their interest in the Delhi Field

EPM Valuation the old fashion way:
$27.4 million = Current Assets with $24.9 million in cash
(11.7) million = Total Debt (conservative since some won’t ever get paid)
( 7.9) million = Liquidation value of pfd stock
459.0 million = PV10 value of Proved reserves (P1)
67.5 million = 50% PV10 value of Probable reserves (P2)
8.1 million = 25% PV10 value of Possible reserves (P3)
$542.4 million = My SWAG at EPM's current break-up valuation
/ 32.2 million = fully diluted common shares
$16.84/share = Break-Up Value

As you look at the valuation above keep this stuff in mind.

1. Oil prices used in the 6/30 year-end PV10 calculations are lower than today's prices.

2. Valuation gives them nothing for GARP, which is probably not worth much but should be considered.

3. Proven reserves in any CO2 flood tend to go up year-after-year until production begins to decline, which DNR estimates is in the 2017-2018 period for Delhi Field.

My take on EPM is unchanged by their weak quarter. This stock should move rapidly toward my Fair Value Estimate when Delhi hits payout.