UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2017~~September 30, 2019

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-32942

EVOLUTION PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)



Nevada		41-1781991
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1155 Dairy Ashford Road, Suite 425, Houston, Texas 77079

(Address of principal executive offices and zip code)

(713) 935-0122

(Registrant’s telephone number, including area code)

~~Not Applicable~~

(Former name, former address and former fiscal year if changed since last report)



Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, $0.001 par value	EPM	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ý No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: ý No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filero	o		Accelerated filer	x
	Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~
	Smaller reporting company o	x
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes: o No: ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

~~The~~Indicate the number of shares outstanding of each of the ~~registrant’s~~issuer’s classes of common stock, as of the latest practicable date.

32,935,424 shares outstanding of common stock, par value $0.001, as of ~~February 5, 2018, was 33,171,514.~~November 4, 2019.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS



Forward-Looking Statements			~~Page~~
		ii
~~PART~~Part I. ~~FINANCIAL INFORMATION~~Financial Information		21
Item 1.
~~ITEM 1.~~Financial Statements (Unaudited)	~~UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~1	2

	Unaudited Consolidated Condensed Balance Sheets as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017~~2019	21
	Unaudited Consolidated Condensed Statements of Operations for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018	32
	Unaudited Consolidated Condensed Statements of Cash Flows for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018	43
	Unaudited Consolidated Condensed ~~Statement~~Statements of Changes in Stockholders’ Equity for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and 2018	54
	Notes to Unaudited Consolidated Condensed Financial Statements	65
Item 2.
~~ITEM 2.~~Management's Discussion and Analysis of Financial Condition and Results of Operations	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1624

~~ITEM 3.~~ Item 4.	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Controls and Procedures	25

~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	25

~~PART~~Part II. ~~OTHER INFORMATION~~Other Information		26

~~ITEM~~Item 1.	~~LEGAL PROCEEDINGS~~Legal Proceedings	26

~~ITEM~~Item 1A.	~~RISK FACTORS~~Risk Factors	26

~~ITEM~~Item 2.	~~UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS~~Unregistered Sales of Equity Securities and Use of Proceeds	26

~~ITEM~~Item 3.	~~DEFAULTS UPON SENIOR SECURITIES~~Defaults Upon Senior Securities	26
Item 4.
~~ITEM 4.~~Mine Safety Disclosures	~~MINE SAFETY DISCLOSURES~~26
Item 5.	Other Information	26
Item 6.	Exhibits	27

~~ITEM 5.~~	~~OTHER INFORMATION~~	27

~~ITEM 6.~~	~~EXHIBITS~~	27

~~SIGNATURES~~Signatures		2728

We use the terms, "EPM," "Company," "we," "us" and "our" to refer to Evolution Petroleum Corporation, and unless the context otherwise requires, its wholly-owned subsidiaries.

Table of Contents

FORWARD-LOOKING STATEMENTS

This Form 10-Q and the information referenced herein contains forward-looking statements within the meaning of the Private Securities Litigations Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “plan,” “expect,” “project,” “estimate,” “assume,” “believe,” “anticipate,” “intend,” “budget,” “forecast,” “predict” and other similar expressions are intended to identify forward-looking statements. These statements appear in a number of places and include statements regarding our plans, beliefs or current expectations, including the plans, beliefs and expectations of our officers and directors. When considering any forward-looking statement, you should keep in mind the risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and natural gas, operating risks and other risk factors as described in Part II, Item 1A, "Risk Factors" and elsewhere in this report and as also may be described from time to time in our future reports we file with the Securities and Exchange Commission. You should read such information in conjunction with our consolidated condensed financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not currently perceive them to be material. Such factors could cause results to differ materially from our expectations.

Forward-looking statements speak only as of the date they are made, and we do not undertake to update these statements other than as required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the Securities and Exchange Commission.

Table of Contents

PART I — FINANCIAL INFORMATION

~~ITEM~~Item 1. ~~CONSOLIDATEDCONDENSEDFINANCIAL STATEMENTS~~Financial Statements (Unaudited)

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

(Unaudited)


	December 31, 2017		June 30, 2017		September 30, 2019		June 30, 2019
Assets
Current assets
Cash and cash equivalents	$	25,743,497	$	23,028,153	$	31,404,803	$	31,552,533
Receivables	4,078,153		2,726,702		2,969,052		3,168,116
Prepaid expenses and other current assets	824,048		387,672
Prepaid expenses					363,059		458,278
Total current assets	30,645,698		26,142,527		34,736,914		35,178,927
Oil and natural gas property and equipment, net (full-cost method of accounting)	60,093,807		61,790,068
Oil and natural gas properties, net (full-cost method of accounting)					59,554,106		60,346,466
Other property and equipment, net	32,265		40,689		24,096		26,418
Total property and equipment	60,126,072		61,830,757		59,578,202		60,372,884
Other assets	260,468		295,384		351,380		210,033
Total assets	$	91,032,238	$	88,268,668	$	94,666,496	$	95,761,844
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,400,202	$	1,994,255	$	2,014,031	$	2,084,140
Accrued liabilities and other	660,467		724,639		471,012		537,755
State and federal income taxes payable					592,865		130,799
Total current liabilities	3,060,669		2,718,894		3,077,908		2,752,694
Long term liabilities
Deferred income taxes	10,580,381		15,826,291		11,293,608		11,322,691
Asset retirement obligations	1,297,028		1,253,628		1,586,888		1,560,601
Operating lease liability					126,233		—
Total liabilities	14,938,078		19,798,813		16,084,637		15,635,986
Commitments and contingencies (Note 14)
Commitments and contingencies
Stockholders’ equity
Common stock; par value $0.001; 100,000,000 shares authorized; 33,171,514 and 33,087,308 shares issued and outstanding as of December 31, 2017 and June 30, 2017, respectively	33,171		33,087
Common stock; par value $0.001; 100,000,000 shares authorized; 33,003,134 and 33,183,730 shares issued and outstanding, respectively					33,003		33,183
Additional paid-in capital	41,538,133		40,961,957		41,458,682		42,488,913
Retained earnings	34,522,856		27,474,811		37,090,174		37,603,762
Total stockholders’ equity	76,094,160		68,469,855		78,581,859		80,125,858
Total liabilities and stockholders’ equity	$	91,032,238	$	88,268,668	$	94,666,496	$	95,761,844

See accompanying notes to consolidated condensed financial statements.

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Statements of Operations

(Unaudited)


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended September 30,
	2017			2016			2017			2016			2019			2018
Revenues
Crude oil	$	10,185,635		$	8,529,817		$	18,014,890		$	16,123,672		$	8,845,504		$	11,397,452
Natural gas liquids	881,276			—			1,589,892			89			305,944			909,627
Natural gas	—			—			—			(4		)	767			—
Total revenues	11,066,911			8,529,817			19,604,782			16,123,757			9,152,215			12,307,079
Operating costs
Production costs	2,914,512			2,292,421			5,806,098			4,637,062			3,090,089			3,458,430
Depreciation, depletion and amortization	1,633,868			1,307,510			3,152,411			2,580,949			1,449,754			1,548,460
Accretion of discount on asset retirement obligations	23,023			13,106			44,602			26,330
General and administrative expenses *	1,666,256			1,241,399			3,235,960			2,476,442			1,338,353			1,305,262
Total operating costs	6,237,659			4,854,436			12,239,071			9,720,783			5,878,196			6,312,152
Income from operations	4,829,252			3,675,381			7,365,711			6,402,974			3,274,019			5,994,927
Other
Gain on realized derivative instruments, net	—			—			—			90
Loss on unrealized derivative instruments, net	—			—			—			(14,132		)
Enduro transaction breakup fee													—			1,100,000
Interest and other income	15,841			14,061			30,691			26,806			66,129			46,571
Interest expense	(20,456		)	(20,711		)	(40,911		)	(41,056		)	(29,345		)	(29,345		)
Income before income taxes	4,824,637			3,668,731			7,355,491			6,374,682			3,310,803			7,112,153
Income tax provision (benefit)	(5,052,211		)	1,361,097			(4,661,889		)	2,250,273
Net income attributable to the Company	9,876,848			2,307,634			12,017,380			4,124,409
Dividends on preferred stock	—			—			—			250,990
Deemed dividend on redeemed preferred shares	—			—			—			1,002,440
Income tax provision													517,983			1,316,352
Net income available to common stockholders	$	9,876,848		$	2,307,634		$	12,017,380		$	2,870,979		$	2,792,820		$	5,795,801
Earnings per common share
Basic	$	0.30		$	0.07		$	0.36		$	0.09		$	0.08		$	0.18
Diluted	$	0.30		$	0.07		$	0.36		$	0.09		$	0.08		$	0.17
Weighted average number of common shares
Basic	33,109,448			33,047,166			33,099,546			33,002,088			33,126,645			33,102,292
Diluted	33,140,278			33,083,027			33,140,257			33,037,269			33,134,372			33,119,057

* ~~General and administrative expenses for~~For the three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016 included~~2018, non-cash stock-based compensation ~~expense of $484,326~~expenses were $332,013 and ~~$275,184,~~$215,373, respectively. ~~For the corresponding six month periods, non-cash stock-based compensation expense was $971,810 and $586,872, respectively.~~

See accompanying notes to consolidated condensed financial statements.

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited)


	Six Months Ended December 31,						Three Months Ended September 30,
	2017			2016			2019			2018
Cash flows from operating activities
Net income attributable to the Company	$	12,017,380		$	4,124,409
Net income							$	2,792,820		$	5,795,801
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	3,180,545			2,609,356			1,449,754			1,548,460
Stock-based compensation	971,810			586,872			332,013			215,373
Accretion of discount on asset retirement obligations	44,602			26,330
Settlements of asset retirement obligations	—			(121,391		)
Deferred income taxes (benefit)	(5,245,910		)	1,709,519
Loss on derivative instruments, net	—			14,042
Deferred income tax expense (benefit)							(29,083		)	275,380
Other							18,526			4,824
Changes in operating assets and liabilities:
Receivables	(1,351,451		)	(462,981		)	199,064			(392,981		)
Prepaid expenses and other current assets	(436,376		)	(367,039		)
Accounts payable and accrued expenses	(83,013		)	(1,955,546		)
Prepaid expenses							95,219			(415,729		)
Accrued liabilities and other							(276,864		)	(428,148		)
Income taxes payable	—			(311,306		)	462,066			1,053,032
Net cash provided by operating activities	9,097,587			5,852,265			5,043,515			7,656,012
Cash flows from investing activities
Derivative settlement payments paid	—			(318,618		)
Capital expenditures for oil and natural gas properties	(1,017,358		)	(7,978,130		)	(522,413		)	(3,089,006		)
Capital expenditures for other property and equipment	—			(30,447		)
Net cash used in investing activities	(1,017,358		)	(8,327,195		)	(522,413		)	(3,089,006		)
Cash flows from financing activities
Cash dividends to preferred stockholders	—			(250,990		)
Cash dividends to common stockholders	(4,969,335		)	(3,801,962		)	(3,306,408		)	(3,315,785		)
Common share repurchases, including shares surrendered for tax withholding	(395,550		)	(459,858		)	(1,362,424		)	(89,992		)
Redemption of preferred shares	—			(7,932,975		)
Other	—			32
Net cash used in financing activities	(5,364,885		)	(12,445,753		)	(4,668,832		)	(3,405,777		)
Net increase (decrease) in cash and cash equivalents	2,715,344			(14,920,683		)
Cash and cash equivalents, beginning of period	23,028,153			34,077,060
Net change in cash, cash equivalents and restricted cash							(147,730		)	1,161,229
Cash, cash equivalents and restricted cash, beginning of period							31,552,533			27,681,133
Cash and cash equivalents, end of period	$	25,743,497		$	19,156,377		$	31,404,803		$	28,842,362


Supplemental disclosures of cash flow information:	Six Months Ended December 31,						Three Months Ended September 30,
	2017			2016			2019		2018
Income taxes paid	$	1,136,754		$	1,278,773		$	85,000	$	462,395
Non-cash transactions:
Change in accounts payable used to acquire property and equipment	424,365			(1,516,932		)
Change in accounts payable used to acquire oil and natural gas properties							102,981		(405,645		)
Oil and natural gas property costs incurred through recognition of asset retirement obligations	(779		)	—			—		31,268

See accompanying notes to consolidated condensed financial statements.

Evolution Petroleum Corporation and Subsidiaries

Consolidated Condensed ~~Statement~~Statements of Changes in Stockholders' Equity

~~For the Six Months Ended December 31, 2017~~

(Unaudited)


	Common Stock																	Common Stock					Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total Stockholders' Equity
	Common Stock					Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total Stockholders' Equity			Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total Stockholders' Equity
	Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total Stockholders' Equity
Balance at June 30, 2017	33,087,308		$	33,087		$	40,961,957		$	27,474,811		$	—		$	68,469,855
For the Three Months Ended September 30, 2019:
Balance at June 30, 2019																		33,183,730		$	33,183		$	42,488,913		$	37,603,762		$	—		$	80,125,858
Issuance of restricted common stock	158,785		158			(158		)	—			—			—			59,028		59			(59		)	—			—			—
Forfeitures of restricted stock	(19,561	)	(20		)	20			—			—			—			(8,248	)	(8		)	8			—			—			—
Common share repurchases, including shares surrendered for tax withholding	(55,018	)	—			—			—			(395,550		)	(395,550		)	—		—			—			—			(1,362,424		)	(1,362,424		)
Retirements of treasury stock	—		(54		)	(395,496		)	—			395,550			—			(231,376	)	(231		)	(1,362,193		)	—			1,362,424			—
Stock-based compensation	—		—			971,810			—			—			971,810			—		—			332,013			—			—			332,013
Net income attributable to the Company	—		—			—			12,017,380			—			12,017,380
Common stock cash dividends	—		—			—			(4,969,335		)	—			(4,969,335		)
Balance at December 31, 2017	33,171,514		$	33,171		$	41,538,133		$	34,522,856		$	—		$	76,094,160
Net income																		—		—			—			2,792,820			—			2,792,820
Common stock cash dividends, $0.10 per share																		—		—			—			(3,306,408		)	—			(3,306,408		)
Balance at September 30, 2019																		33,003,134		$	33,003		$	41,458,682		$	37,090,174		$	—		$	78,581,859


For the Three Months Ended September 30, 2018:
Balance at June 30, 2018																		33,080,543		$	33,080		$	41,757,645		$	35,498,754		$	—		$	77,289,479
Issuance of restricted common stock																		86,396		86			(86		)	—			—			—
Common share repurchases, including shares surrendered for tax withholding																		—		—			—			—			(89,992		)	(89,992		)
Retirements of treasury stock																		(9,087	)	(9		)	(89,983		)	—			89,992			—
Stock-based compensation																		—		—			215,373			—			—			215,373
Net income																		—		—			—			5,795,801			—			5,795,801
Common stock cash dividends, $0.10 per share																		—		—			—			(3,315,785		)	—			(3,315,785		)
Balance at September 30, 2018																		33,157,852		$	33,157		$	41,882,949		$	37,978,770		$	—		$	79,894,876

See accompanying notes to consolidated condensed financial statements.

Table of Contents

Evolution Petroleum Corporation ~~And~~and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1 — Organization and Basis of Preparation

Nature of Operations. Evolution Petroleum Corporation ~~("EPM"), together with its subsidiaries (the "Company", "we", "our" or "us"),~~ is an ~~independent petroleum~~oil and gas company ~~headquartered in Houston, Texas~~focused on delivering a sustainable dividend yield to its stockholders through the ownership, management and ~~incorporated under the laws of the State of Nevada. We are engaged primarily in the~~ development ~~and production~~ of oil and gas ~~reserves.~~properties. The Company's long-term goal is to build a diversified portfolio of oil and gas assets primarily through acquisitions, while seeking opportunities to maintain and increase production through selective development, production enhancement and other exploitation efforts on its properties.

Interim Financial Statements. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the appropriate rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~accounting principles generally accepted in the United States~~GAAP have been condensed or omitted pursuant to such rules and regulations. All adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been included. The interim financial information and notes hereto should be read in conjunction with the Company’s ~~2017~~2019 Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017,~~2019, as filed with the SEC. The results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

Principles of Consolidation and Reporting. Our consolidated financial statements include the accounts of EPM and its wholly-owned ~~subsidiaries.~~subsidiaries (the "Company"). All significant intercompany transactions have been eliminated in consolidation. The consolidated financial statements for the previous year may include certain reclassifications to conform to the current presentation. Any such reclassifications have no impact on previously reported net income or stockholders' equity.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include (a) reserve quantities and estimated future cash flows associated with proved reserves, which may significantly impact ~~depreciation,~~ depletion ~~and amortization~~ expense and potential impairments of oil and natural gas properties, (b) asset retirement obligations, (c) stock-based compensation, (d) ~~fair values of derivative assets and liabilities, (e)~~ income taxes and the valuation of deferred tax assets and ~~(f)~~(e) commitments and contingencies. We analyze our estimates based on historical experience and various other assumptions that we believe to be reasonable. While we believe that our estimates and assumptions used in preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

~~New Accounting Pronouncements.~~

~~In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2015-14, which defers the effective date of ASU 2014-09~~ ~~Revenue from Contracts with Customers (Topic 606) ("~~ ASU 2014-09") by one year and allows entities the option to early adopt the new revenue standard as of the original effective date. Issued in May 2014, ASU 2014-09 provided guidance on revenue recognition on contracts with customers to transfer goods or services or on contracts for the transfer of nonfinancial assets. ASU 2014-09 requires that revenue recognition on contracts with customers depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public companies, ASU 2014-09 is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The standard provides for either the full retrospective or modified retrospective transition methods. We expect to adopt this standard using the modified retrospective method. The Company expects that additional disclosures will be required as a result of adopting ASU 2014-09 and is currently assessing the impact of the guidance on its consolidated financial statements.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~ ("ASU 2016-01"). The pronouncement requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for fiscal years beginning after December 15, 2017. The expected adoption method of ASU 2016-01 is being evaluated by the Company and the adoption is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

Table of Contents

Evolution Petroleum Corporation ~~And~~and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 2 — Summary of Significant Accounting Policies

The significant accounting policies followed by the Company are set forth in Note 2 - Summary of Significant Accounting Policies in the 2019 Form 10-K and are supplemented by the notes to the unaudited condensed consolidated financial statements included in this report. These unaudited condensed consolidated financial statements should be read in conjunction with the 2019 Form 10-K.

Recently Adopted Accounting Pronouncement - Leases

In February 2016, the FASB issued ASU 2016-02, ,Leases ~~(“ASU 2016-02”~~("ASC 842"), which relates to the accounting for leasing transactions. This standard requires an entity to recognize a ~~lessee~~right-of-use (“ROU”) asset and lease liability for leases. Classification of leases as either a finance or operating lease determines the recognition, measurement and presentation of expenses. This accounting standards update also requires certain quantitative and qualitative disclosures about leasing arrangements. Leases acquired to ~~record~~explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained, are not within the scope of the standards update.

Effective July 1, 2019, the Company adopted the new standard using a modified retrospective approach and elected to use the optional transition methodology whereby reporting periods prior to adoption continue to be presented in accordance with legacy accounting guidance, Accounting Standard Codification 840 - Leases. Upon transition, we recognized a ROU asset (or operating lease right-of-use asset) and an operating lease liability with no retained earnings impact. We applied the following practical expedients as provided in the standards update which provide elections to not reassess:

Whether an expired or existing pre-adoption date contracts contained leases.

Lease classification of any expired or existing leases.

Initial direct costs for any expired or existing leases.

We determine if an arrangement is a lease at inception of the arrangement. To the extent that we determine an arrangement represents a lease, we classify that lease as an operating lease or a finance lease. We capitalize our operating leases on ~~the~~our consolidated balance sheet through a ROU asset and a corresponding lease liability. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Short-term leases that have an initial term greater than one month but less than one year are not capitalized in the above manner but related costs each period must be disclosed.

As a non-operator in recent years and having adequate liquidity, the Company has generally not entered into lease transactions. Presently, our only lease is an operating lease for our corporate office space in Houston, Texas, effective May 1, 2019, which expires November 30, 2022. We have no finance leases and no short-term leases.

Adoption of the new standard did not impact our unaudited condensed consolidated statements of operations, cash flows or stockholders’ equity. At adoption we recorded our operating lease as follows:



Asset (Liability)	Balance June 30, 2019			Adjustment at Adoption July 1, 2019
Operating lease right-of-use asset	$	—		$	161,125
Accrued liabilities and other:
Deferred rent	$	(4,338	)	$	4,338
Operating lease liability	$	—		$	(26,194	)
Operating lease liabilities - long-term	$	—		$	(139,269	)

In addition to the transitional elections, we have also elected a practical expedient to not separate lease components from non-lease components, such as services provided by the lessor under the contract. Accordingly, we account for the lease and non-lease components in an arrangement as a single lease component. We elected this expedient for our existing asset classes.

Although we presently have no short-term leases, we have made an accounting policy election not to apply the lease recognition requirements to any future short-term leases, which the guidance defines as having a lease term of 12 months or less and not having an option to purchase the underlying asset that we would be reasonably certain to exercise. Such lease

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

payments would be recognized in our statement of operations on a straight-line basis over the lease term as would have been done under the previous guidance.

Variable lease payments, which are neither fixed by the contract nor dependent on an index or rate, are not included in the lease liability or ROU assets. We recognize such payments in our statement of operations in the period in which the obligation for those payments is incurred.

Recently Issued Accounting Pronouncement

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and ~~liabilities~~certain other instruments, including trade and other receivables, and requires the use of a new forward-looking expected loss model that will result in the earlier recognition of allowances for ~~the rights and obligations created by leases with lease terms of more than twelve months. In addition,~~losses. The amendments in this ~~standard requires both lessees and lessors to disclose certain key information about lease transactions. This standard will be~~ASU are effective for fiscal years beginning after December 15, ~~2018, including interim periods within those fiscal years. We are evaluating the impact the adoption of ASU 2016-02 will have on our consolidated financial statements.~~

~~In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts~~2019, and Cash Payments (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance addresses eight specific cash flow issues for which current GAAP is either unclear or does not include specific guidance. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, ~~with~~and early adoption ~~permitted, provided that it~~ is ~~adopted~~permitted. Entities must adopt the amendment using a modified retrospective approach to the first reporting period in ~~its entirety in~~which the ~~same period. Currently, the Company does~~guidance is effective. The adoption of ASU 2016-13 is currently not ~~expect the impact of adopting ASU 2016-15~~expected to have a material effect on ~~its~~our consolidated ~~statements of cash flows.~~

~~Note 2 — Receivables~~

~~As of December 31, 2017 and June 30, 2017, our receivables consisted of the following:~~

December 31,
2017 June 30,
2017
Receivables from oil and gas sales $ 4,078,153
$ 2,722,880
Other —
3,822
Total receivables $ 4,078,153
$ 2,726,702

~~Note 3 — Prepaid Expenses and Other Current Assets~~

~~As of December 31, 2017 and June 30, 2017, our prepaid expenses and other current assets consisted of the following:~~

December 31,
2017 June 30,
2017
Prepaid insurance $ 86,904
$ 169,416
Retainers and deposits 7,589
7,553
Prepaid federal and state income taxes 674,028
121,232
Other prepaid expenses 55,527
89,471
Prepaid expenses and other current assets $ 824,048
$ 387,672
financial statements.

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Evolution Petroleum Corporation ~~And~~and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 3 — Revenue from Contracts with Customers

All of our revenue is generated from our interests in the Delhi field in Northeast Louisiana except $16 thousand of revenue from an overriding royalty interest retained in a past divestiture included below in fiscal 2020:



	Three Months Ended September 30,
	2019		2018
Revenues
Crude oil	$	8,845,504	$	11,397,452
Natural gas liquids	305,944		909,627
Natural gas	767		—
Total revenues	$	9,152,215	$	12,307,079

The Company recognizes oil, gas, and NGL production revenue at the point in time when custody and title (“control”) of the product transfers to the customer, which differs depending on the contractual terms of each of the Company’s arrangements. Transfer of control drives the presentation of post-production expenses such as transportation, gathering and processing deductions within the accompanying statements of operations. Fees and other deductions incurred prior to control transfer are recorded within the production costs line item on the accompanying unaudited condensed statements of operations, while fees and other deductions incurred subsequent to control transfer are embedded in the price and effectively recorded as a reduction of oil, gas, and NGL production revenue.

Judgments made in applying the guidance in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers relate primarily to determining the point in time when control of product transfers to the customer. The Company does not believe that significant judgments are required with respect to the determination of the transaction price, including amounts that represent variable consideration, as volume and price carry a low level of estimation uncertainty given the precision of volumetric measurements and the use of index pricing with predictable differentials. Accordingly, the Company does not consider estimates of variable consideration to be constrained.

The Company’s contractual performance obligations arise upon the production of hydrocarbons from wells in which the Company has an ownership interest. The performance obligations are considered satisfied at a point in time upon control transferring to a customer at a specified delivery point. Consideration is allocated to satisfied performance obligations at the end of an accounting period.

Revenue is recorded in the month when contractual performance obligations are satisfied. However, settlement statements from the purchasers of hydrocarbons and the related cash consideration are received one to two months after production has occurred, which is typical in the industry. As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the product. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying unaudited condensed consolidated balance sheets (“accompanying balance sheets”) until payment is received. The accounts receivable balances from contracts with customers within the accompanying balance sheets as of September 30, 2019 and June 30, 2019 were $3.0 million and $3.2 million, respectively. To estimate accounts receivable from operator contracts with customers, the Company uses knowledge of its properties, historical performance, contractual arrangements, index pricing, quality and transportation differentials, and other factors as the basis for these estimates. Differences between estimates and actual amounts received for product sales are recorded in the month that payment is received from the purchaser. Revenue recognized during the three months ended September 30, 2019, that related to performance obligations satisfied in prior reporting periods, was immaterial.

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 4 — Enduro Purchase and Sale Agreement and "Stalking Horse" Bid

During the first quarter of fiscal 2019, the Company recorded a $1.1 million break-up fee upon the closing of a higher bidder's purchase transaction. During May 2018, the Company had entered into a Purchase and Sale Agreement ("PSA"), to acquire, as the "stalking horse" bidder, certain oil and gas assets from an affiliate of Enduro Resource Partners LLC ("Enduro") for a purchase price of $27.5 million, subject to the outcome of Enduro's Chapter 11 process. Contemporaneous with executing the PSA, the Company made a $2.75 million deposit to an acquisition escrow account which, together with interest earned, comprised the restricted cash balance on the Company's June 30, 2018 consolidated statement of financial position. Earlier in the first quarter of 2019, the Company was repaid its deposit together with related earned interest when a higher bidder first emerged in the bidding process.

The Company's initial and subsequent bids represented offers under Section 363 of the U.S. Bankruptcy Code in Enduro's Chapter 11 proceeding. Such offers are commonly referred to as “stalking horse” bids and are subject to higher bids, in accordance with the bidding procedures approved by the Bankruptcy Court. In connection with the PSA, the Company had incurred third party due diligence expenses, which have been reflected in the Company's consolidated statement of operations for the year ended June 30, 2018.

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 5 — Receivables

As of September 30, 2019 and June 30, 2019, our receivables consisted of the following:



	September 30, 2019		June 30, 2019
Receivables from oil and NGL sales	$	2,967,064	$	3,168,116
Other	1,988		—
Total receivables	$	2,969,052	$	3,168,116

Note 6 — Prepaid Expenses

As of September 30, 2019 and June 30, 2019, our prepaid expenses consisted of the following:



	September 30, 2019		June 30, 2019
Prepaid insurance	$	148,351	$	206,198
Prepaid subscription and licenses	67,211		55,435
Prepaid federal and state income taxes	121,679		121,679
Prepaid investor relations and other	25,818		74,966
Total prepaid expenses	$	363,059	$	458,278

Note 47 — Property and Equipment

As of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, our oil and natural gas properties and other property and equipment consisted of the following:


	December 31, 2017			June 30, 2017			September 30, 2019			June 30, 2019
Oil and natural gas properties
Property costs subject to amortization	$	86,403,877		$	84,962,933		$	96,247,547		$	95,622,153
Less: Accumulated depreciation, depletion, and amortization	(26,310,070		)	(23,172,865		)	(36,693,441		)	(35,275,687		)
Unproved properties not subject to amortization	—			—			—			—
Oil and natural gas properties, net	$	60,093,807		$	61,790,068		$	59,554,106		$	60,346,466
Other property and equipment
Furniture, fixtures, office equipment and other, at cost	$	135,377		$	135,377		$	154,731		$	154,731
Less: Accumulated depreciation	(103,112		)	(94,688		)	(130,635		)	(128,313		)
Other property and equipment, net	$	32,265		$	40,689		$	24,096		$	26,418

During the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, the Company incurred capital expenditures of ~~$1.4~~$0.6 million and ~~$6.5~~$2.7 million, respectively, in the Delhi field.

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 8 — Leases

Operating leases are reflected as an operating lease ROU asset included in other assets, in accrued and other liabilities-current and as an operating lease liability on our unaudited condensed consolidated balance sheet. Operating lease ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to the present value of lease payments, the operating lease ROU asset would also include any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred, if any. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

As an non-operator in recent years and having adequate liquidity, the Company has generally not entered into lease transactions. Presently, our only operating lease is for corporate office space in Houston, Texas, effective May 1, 2019 and which expires November 30, 2022. Presently we have one operating lease for office space, no finance leases and no short-term leases.

Certain assumptions and judgments made by the Company when evaluating a contract that meets the definition of a lease under Topic 842 include:

Discount Rate - Our lease does not provide an implicit rate. Accordingly, we are required to use our incremental borrowing rate in determining the present value of lease payments based on the information available at commencement date. Our incremental borrowing rate reflects the estimated rate of interest that we would pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. At adoption, July 1, 2019,we used our prime-rate-based borrowing rate under our senior secured credit facility as our incremental borrowing as the term facility was based on a similar term and is appropriately risk-adjusted.

Lease Term - At inception the Company evaluates the contract containing a lease arrangement to determine the length of the lease term when recognizing a ROU asset and corresponding lease liability. When determining the lease term, an option available to extend or to early terminate the arrangement is evaluated and included when it is reasonably certain an option will be exercised. Because of the Company’s intent to maintain operational flexibility, there is no available option to extend that the Company is reasonably certain it will exercise. We have no expectation to use the early termination option that we are reasonably certain to exercise.

For the three months ended September 30, 2019, the components of our total lease expense, included in general and administrative expense, are as follows:



	Three Months Ended September 30, 2019
Operating lease cost	$	13,015
Variable lease expense (1)	990
Total lease expense	$	14,005

(1) Variable lease payments that are not dependent on an index or rate are not included in the lease liability or ROU asset.

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Supplemental cash flow, balance sheet and other disclosures information related to our operating leases are as follows:



	As of and For the Three Months Ended September 30, 2019
Cash Flow:
Cash paid for amounts included in the measurement of lease liabilities	$	—
ROU asset added in exchange for lease obligation at adoption	161,125

Balance Sheet:
Operating lease ROU asset (included in other assets)	150,249
Accrued liabilities - current	41,369
Operating lease liability - long-term	126,233

Other:
Weighted average remaining lease term in years	3.16
Weighted average discount rate	5.15		%

Maturities of our operating lease liability are as follows:



Fiscal Year	Operating Lease Liability
Remainder of 2020	$	34,322
2021	59,945
2022	61,843
2023	26,098
Total lease payments	182,208
Less imputed interest	(14,606		)
Total lease liability	$	167,602

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 59 — Other Assets

As of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, other assets consisted of the following:


	December 31, 2017			June 30, 2017			September 30, 2019			June 30, 2019
Royalty rights	$	108,512		$	108,512		$	108,512		$	108,512
Less: Accumulated amortization of royalty rights	(27,128		)	(20,346		)	(50,865		)	(47,474		)
Investment in Well Lift Inc., at cost	108,750			108,750			108,750			108,750
Deferred loan costs	168,972			168,972			168,972			168,972
Less: Accumulated amortization of deferred loan costs	(98,638		)	(70,504		)	(145,716		)	(141,927		)
Right of use asset under operating lease							161,125			—
Less: Accumulated amortization of right of use asset							(10,876		)	—
Software license							20,662			20,662
Less: Accumulated amortization of software license							(9,184		)	(7,462		)
Other assets, net	$	260,468		$	295,384		$	351,380		$	210,033

Our royalty rights and investment in Well Lift, Inc. ("WLI") resulted from the separation of our artificial lift technology operations in December 2015. We conveyed our patents and other intellectual property to WLI and retained a 5% royalty on future gross revenues associated with the technology. We own 17.5% of the common stock of WLI and account for our investment ~~under~~in this private company at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the ~~cost method. Any dividends paid are recorded as income and any return~~identical or a similar investment of ~~capital reduces our cost basis in~~ the ~~investment. Our~~same issuer, if such were to occur. The Company evaluates the investment ~~in WLI is evaluated~~ for impairment ~~at least quarterly or~~ when ~~management~~it identifies any events or changes in circumstances that might have a significant adverse effect on the fair value of the investment. ~~There is no published market value for this private investment, so it is not practicable to value it at fair market value on a periodic basis.~~

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~~Evolution Petroleum Corporation And Subsidiaries~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

Note 610 — Accrued Liabilities and Other

As of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, our other current liabilities consisted of the following:


	December 31, 2017		June 30, 2017		September 30, 2019		June 30, 2019
Accrued incentive and other compensation	$	292,382	$	413,113	$	182,855	$	369,719
Accrued severance payments	46,719		—
Asset retirement obligations due within one year	35,539		35,115		50,244		50,244
Accrued royalties, including suspended accounts	11,524		17,708
Operating lease liability, current					41,369		—
Accrued franchise taxes	82,800		150,062		34,238		5,738
Accrued ad valorem taxes	191,503		108,641		150,750		100,500
Other accrued liabilities					11,556		11,554
Accrued liabilities and other	$	660,467	$	724,639	$	471,012	$	537,755

Note 711 — Asset Retirement Obligations

Our asset retirement obligations represent the estimated present value of the amount we expect to incur to plug, abandon and remediate our producing properties at the end of their productive lives in accordance with applicable laws. The following is a reconciliation of the beginning and ending asset retirement obligations for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and for the year ended June 30, ~~2017:~~2019:



	September 30, 2019			June 30, 2019
Asset retirement obligations — beginning of period	$	1,610,845		$	1,422,955
Liabilities incurred	—			31,268
Accretion of discount	26,287			101,506
Revision of previous estimates	—			55,116
Asset retirement obligations — end of period	$	1,637,132		$	1,610,845
Less current portion in accrued liabilities	(50,244		)	(50,244		)
Long-term portion of asset retirement obligations	$	1,586,888		$	1,560,601

December 31,
2017 June 30,
2017
Asset retirement obligations — beginning of period $ 1,288,743
$ 962,196
Liabilities incurred —
52,792
Liabilities settled —
(157,164 )
Liabilities sold —
(47,817 )
Accretion of discount 44,602
59,664
Revision of previous estimates (778 ) 419,072
Asset retirement obligations — end of period $ 1,332,567
$ 1,288,743
Less current portion in accrued liabilities (35,539 ) (35,115 )
Long-term portion of asset retirement obligations $ 1,297,028
$ 1,253,628

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 812 — Stockholders’ Equity

Common Stock

As of ~~December 31, 2017,~~September 30, 2019, we had ~~33,171,514~~33,003,134 shares of common stock outstanding.

The Company began paying quarterly cash dividends on common stock in December 2013. We paid dividends of ~~$4,969,335~~$3,306,408 and ~~$3,801,962~~$3,315,785 to our common ~~shareholders~~stockholders during the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, respectively. ~~These dividend payments consisted of two quarterly~~The following table reflects the dividends ~~of $0.075 per share each during~~paid within the ~~six months ended December 31, 2017 and quarterly dividend payments of $0.05 and $0.065 per share during the six months ended December 31, 2016.~~respective three month periods:



Common Stock Cash Dividends per Share	2019		2018
First quarter ended September 30,	$	0.10	$	0.10

In May 2015, the Board of Directors approved a share repurchase program covering up to $5 million of the Company's common stock. ~~Between June 2015 and December 2015,~~Since inception of the program through September 30, 2019, the Company spent ~~$1,609,008~~$2.9 million to repurchase ~~265,762~~488,629 common shares at an average price of ~~$6.05~~$5.98 per ~~share. There have been no~~share, including 222,437 shares ~~repurchased in~~at an average cost of $5.89 during the ~~open market since December 2015.~~three months ended September 30, 2019. Under the program's terms, shares are repurchased only on the open market and in accordance with the requirements of the Securities and Exchange Commission. Such shares are initially recorded as treasury stock, then subsequently canceled. The timing and amount of repurchases depends upon several factors, including financial resources and market and business conditions. There is no fixed termination date for this repurchase program, and it may be suspended or discontinued at any time.

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~~Evolution Petroleum Corporation And Subsidiaries~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

During the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, the Company also acquired treasury stock from holders of newly vested stock-based awards to fund the recipients' payroll tax withholding obligations. The treasury shares were subsequently canceled. Such shares were valued at fair market value on the date of ~~vesting, as reflected~~vesting. The following table shows all treasury stock purchases in the ~~following table:~~respective periods:


	Six Months Ended December 31,				Three Months Ended September 30,
	2017		2016		2019		2018
Number of treasury shares acquired(1)	55,018		73,455		231,376		9,087
Average cost per share	$	7.19	$	6.26	$	5.89	$	9.90
Total cost of treasury shares acquired	$	395,550	$	459,858	$	1,362,424	$	89,992

(1) The fiscal 2019 number of shares is net of 8,939 shares forfeited in the period.

~~Series A Cumulative Preferred Stock Called for Redemption~~

In September 2016, the Company announced the decision to redeem all 317,319 outstanding shares of its 8.5% Series A Cumulative Preferred Stock. The redemption occurred in November 2016 at the stated value of $25.00 per share plus all accumulated and unpaid distributions, for an aggregate redemption cost of $7,932,975.

On September 30, 2016, in connection with the planned redemption, the Company recorded a deemed dividend of $1,002,440, representing the difference between the redemption consideration paid and the historical net issuance proceeds of the preferred shares. Accordingly, net income was adjusted for this deemed dividend to determine net income attributable to common shareholders and earnings per common share.

Dividends on the Series A Cumulative Preferred Stock were paid at a fixed rate of 8.5% per annum on the $25.00 per share liquidation preference, payable monthly. During the six months ended December 31, 2016, we paid cash dividends of $250,990 to holders of our Series A Preferred Stock prior to the November 2016 redemption date.

Expected Tax Treatment of Dividends

For the fiscal year ended June 30, ~~2017,~~2019, all ~~preferred and~~ common stock dividends were treated for tax purposes as qualified dividend income to recipients. Based on our current projections for the fiscal year ending June 30, ~~2018,~~2020, we expect all common dividends for such period to be treated as qualified dividend income. Such projections are based on our reasonable expectations as of ~~December 31, 2017~~September 30, 2019 and are subject to change based on our final tax calculations at the end of the fiscal year.

Note 913 — Stock-Based Incentive Plan

At the December 8, 2016 annual meeting, the stockholders approved the adoption of the Evolution Petroleum Corporation 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the Evolution Petroleum Corporation Amended and Restated 2004 Stock Plan (the "2004 Plan"). for which there were no shares available for future grants. The 2016 Plan authorizes the issuance of 1,100,000 shares of common stock prior to its expiration on December 8, 2026. Incentives under the 2016 Plan may be granted to employees, directors and consultants of the Company in any one or a combination of the following forms: incentive stock options and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance share awards, performance cash awards, and other forms of incentives valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value. As of ~~December 31, 2017, 987,845~~September 30, 2019, 603,239 shares remained available for grant under the 2016 Plan.

~~At December 8, 2016, there were no shares available for future grants under the 2004 Plan.~~

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Evolution Petroleum Corporation and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

All outstanding awards granted under the 2004 Plan continue to be subject to the terms and conditions as set forth in the agreements evidencing such awards and the terms of the 2004 Plan. Under these agreements, we have outstanding grants of restricted common stock awards ("Restricted Stock") and contingent restricted common stock awards ("Contingent Restricted Stock") to employees and directors of the Company.

Restricted Stock and Contingent Restricted Stock

The Company ~~awards~~has awarded grants of both Restricted Stock and Contingent Restricted Stock as part of its long-term incentive plan. Such grants, which expire after a maximum of four years if unvested, contain service-based, performance-based and market-based vesting provisions. The common shares underlying the Restricted Stock grants are issued on the date of grant. Contingent Restricted Stock grants vest only upon the attainment of higher performance-based or market-based vesting

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~~Evolution Petroleum Corporation And Subsidiaries~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

thresholds and are issued only upon vesting. Shares underlying Contingent Restricted Stock awards are reserved from the Plan they were granted under.

During the three months ended September 30, 2019, the only awards granted by the Company were to its new chief executive officer upon his employment. He received 48,872 shares of serviced-based restricted common stock which vest in three equal amounts on June 30, 2020, 2021 and 2022, and was also awarded a total of 200,000 market-based restricted stock units consisting of four equal tranches, each of which may vest only if its respective stock price requirement is met before the award term expires. Each tranche has a separate stated price requirement and respective vesting will occur only if, before July 1, 2023, the ninety-day trailing average Company stock share price equals or exceeds its tranche price requirement.

Service-based awards vest with continuous employment by the Company, generally in annual installments over ~~a four-year period. Certain awards contain other vesting periods, including quarterly installments and~~their terms of three to four years. Awards to the Company's directors have one-year cliff vesting. Restricted Stock grants which vest based on service are valued at the fair market value on the date of grant and amortized over the service period. During the six months ended December 31, 2017, we granted 112,155 service-based Restricted Stock awards, including 45,211 awards to employees and 66,944 awards to directors, substantially all of which have a one-year vesting period. We did not grant any performance-based or market based awards, nor any Contingent Restricted Stock awards, during this period.

Performance-based grants vest upon the attainment of earnings, revenue and other operational goals and require that the recipient remain an employee or director of the Company through the vesting date. The Company recognizes compensation expense for performance-based awards ratably over the expected vesting period based on the grant date fair value when it is deemed probable, for accounting purposes, that the performance criteria will be achieved. The expected vesting period may be deemed to be shorter than the ~~four-year term.~~term of the award. As of ~~December 31, 2017, certain contingent~~September 30, 2019, there were no performance-based awards were not considered probable of vesting for accounting purposes and no compensation expense has been recognized with regard to these awards. If these awards are later determined to be probable of vesting, cumulative compensation expense would be recorded at that time and amortization would continue over the remaining expected vesting period.outstanding.

~~Market-based~~Many of our past market-based awards could vest if ~~the~~their respective two- or three-year trailing total ~~return~~returns on the Company’s common stock ~~exceeds~~exceed the corresponding total returns of various quartiles of indices consisting of ~~either~~ peer ~~companies~~companies. More recent market-based awards vest when the average of the Company's closing stock price over a defined measurement period meets or exceeds a ~~broad market index of companies in our industry.~~required stock price. The fair values and expected vesting periods of these awards are determined using a Monte Carlo simulation based on the historical volatility of the Company's total return compared to the historical volatilities of the other companies in the index. Compensation expense for market-based awards is recognized over the expected vesting period using the straight-line method, so long as the holder remains an employee or director of the Company. Total compensation expense is based on the fair value of the awards at the date of grant and is independent of vesting or expiration of the awards, except for termination of service.

~~Unvested Restricted Stock~~For market-based awards ~~at December 31, 2017 consisted of~~granted during the ~~following:~~

three months ended September 30, 2019 and 2018, the assumptions used in the Monte Carlo simulation valuations, expected lives and fair values were as follows:

Number of
Restricted
Shares Weighted
Average
Grant-Date
Fair Value
Service-based awards 220,068
$ 6.68
Performance-based awards 50,360
5.67
Market-based awards 50,359
5.44
Unvested Restricted Stock at December 31, 2017 320,787
$ 6.33

~~The following table sets forth the Restricted Stock transactions for the six months ended December 31, 2017:~~

Number of
Restricted
Shares Weighted
Average
Grant-Date
Fair Value Unamortized Compensation Expense at December 31, 2017 Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2017 391,624
$ 6.22

Service-based shares granted 112,155
6.96

Vested (163,431 ) 6.52

Forfeited (19,561 ) 6.16

Unvested Restricted Stock at December 31, 2017 320,787
$ 6.33
$ 1,510,203
1.39



	Three Months Ended September 30,
	2019			2018
Weighted average fair value of market-based awards granted	$	3.50		$	8.24
Risk-free interest rate	1.87		%	2.69		%
Expected vesting term in years	1.35			2.82
Expected volatility	43.7		%	41.8		%
Dividend yield	6.0		%	4.0		%

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Evolution Petroleum Corporation ~~And~~and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Unvested ~~Contingent~~ Restricted Stock awards at ~~December 31, 2017~~September 30, 2019 consisted of the following:

Number of
Contingent
Restricted
Shares Weighted
Average
Grant-Date
Fair Value
Performance-based awards 36,688
$ 7.04
Market-based awards 25,180
3.42
Unvested contingent shares at December 31, 2017 61,868
$ 5.57



	Number of Restricted Shares	Weighted Average Grant-Date Fair Value
Service-based awards	142,132	$	7.83
Market-based awards	41,888	8.24
Unvested Restricted Stock at September 30, 2019	184,020	$	7.92

The following table sets forth ~~Contingent~~the Restricted Stock transactions for the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2019:


	Number of Contingent Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at December 31, 2017 (1)		Weighted Average Remaining Amortization Period (Years)	Number of Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at September 30, 2019		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2017	113,270		$	4.64
Unvested at July 1, 2019								176,683		$	8.09
Service-based shares granted								48,872		6.65
Vested	(46,630	)	3.34					(33,287	)	6.53
Forfeited	(4,772	)	5.30					(8,248	)	9.48
Unvested contingent shares at December 31, 2017	61,868		$	5.57	$	84,005	1.03
Unvested Restricted Stock at September 30, 2019								184,020		$	7.92	$	889,543	2.06

~~(1) Excludes $115,665~~Unvested Contingent Restricted Stock awards table below consists solely of ~~potential future compensation expense for contingent performance-based awards for which vesting is not considered probable at this time for accounting purposes.~~market-based awards:



	Number of Contingent Restricted Shares		Weighted Average Grant-Date Fair Value		Unamortized Compensation Expense at September 30, 2019		Weighted Average Remaining Amortization Period (Years)
Unvested at July 1, 2019	10,156		$	3.42
Market-based awards granted	200,000		3.50
Vested	(10,156	)	3.42
Unvested contingent shares at September 30, 2019	200,000		$	3.50	$	574,045	1.1

Stock-based compensation expense related to Restricted Stock and Contingent Restricted Stock grants for the three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018 was ~~$484,326~~$332,013 and ~~$275,184, respectively. For the corresponding six month periods, non-cash stock compensation expense was $971,810 and $586,872,~~$215,373, respectively.

Note 10—~~Derivatives~~

From time to time, the Company may use derivative instruments to reduce its exposure to crude oil price volatility of its near-term forecasted production. The Company's objectives are to achieve a more predictable level of cash flows to support the Company’s capital expenditure programs and to provide better financial visibility for the payment of dividends on common stock. The Company may use both fixed price swap agreements and costless collars to manage its exposure to crude oil and other commodity price risk. While these derivative instruments are intended to limit the downside risk of adverse price movements, they may also limit future revenues from favorable price movements. The Company does not intend to enter into derivative instruments for speculative or trading purposes.

~~The Company accounts for derivatives under the provisions of ASC 815~~ ~~Derivatives and Hedgin~~g ("ASC 815") under which the Company records the fair value of the instruments on the balance sheet at each reporting date, with changes in fair value recognized in other non-operating income and expense. Given the cost and complexity, the Company has elected not to use cash flow hedge accounting provided under ASC 815. Under cash flow hedge accounting, a portion of the change in fair value of the derivative instruments, if effective in hedging the underlying commodity risk, would be deferred in other comprehensive income and recognized in earnings only when the underlying hedged item impacts earnings.

These derivative instruments can result in both fair value asset and liability positions held with each counterparty. These positions are offset to a single net fair value asset or liability at the end of each reporting period. The Company nets its fair value amounts of derivative instruments executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. As of June 30, 2017 and December 31, 2017, the Company had no derivative asset or liability positions.

The Company monitors the credit rating of its counterparties and believes it does not have significant credit risk. Accordingly, we do not currently require our counterparties to post collateral to support the net asset positions of our derivative instruments. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties to its derivative instruments.

~~Table of Contents~~

~~Evolution Petroleum Corporation And Subsidiaries~~

~~Notes to Unaudited Consolidated Condensed Financial Statements~~

For the six months ended December 31, 2017, the Company had no gains or losses from derivatives. For the six months ended December 31, 2016, the Company recorded a loss on derivative instruments of $14,042 consisting of a realized gain of $90 on settled positions and an unrealized net loss of $14,132.

~~Note 11~~14 — Income Taxes

We file a consolidated federal income tax return in the United States and various combined and separate filings in several state and local jurisdictions.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the title of the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act includes a permanent reduction in our federal corporate income tax rate from 34% to 21%. It also provides more favorable tax deductions associated with capital investments and other significant changes to tax law. The Tax Act became effective upon passage, so our statutory rate for the current fiscal year ending June 30, 2018 is a blended rate of 27.55%. The permanent reduction in the federal corporate income tax rate resulted in a one-time non-cash income tax benefit of approximately $6.0 million related to the adjustment of our liability for deferred income taxes to the lower rate in the Tax Act. The accounting for the effects of the rate change on the Company’s deferred tax balances is complete and no provisional amounts were recorded.

Income taxes are recorded in our financial statements based on our estimated annual effective income tax rate. The effective rates used in the calculation of our income tax expense were approximately 20% and 35% for the six months ended December 31, 2017 and 2016, respectively. After adjustment for the $6.0 million discrete benefit resulting from the revaluation of our deferred income tax liabilities, the effective rate for the six months ended December 31, 2017 was a tax benefit of (63)% of income before income taxes.

Our effective tax rate will typically differ from the statutory federal rate as a result of state income taxes, primarily in the State of Louisiana, and differences related to percentage depletion in excess of basis, stock-based compensation and other permanent differences. The effective tax rate for the six months ended December 31, 2017 was significantly lower than the statutory federal rate as a result of percentage depletion in excess of basis and the tax effects of stock-based compensation, partially offset by state income taxes net of the federal benefit. Our quarterly income tax provisions are based on our reasonable estimates of income taxes payable at the end of the year. These estimates and our estimated interim effective tax rates may change significantly as additional financial results and amounts of capital spending become available during the year. In particular, our estimates of the utilization of excess percentage depletion, which is limited to 65% of actual taxable income, are subject to greater fluctuations between interim periods than other components of our tax provision.

There were neither unrecognized tax benefits nor any accrued interest or penalties associated with unrecognized tax benefits during any periods presented in the financial statements. We believe we have appropriate support for the income tax positions taken and to be taken on our tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of various factors including past experience and interpretations of tax law applied to the facts of each matter. The Company’s federal and state income tax returns are open to audit under the statute of limitations for the years ended June 30, ~~2014~~2015 through June 30, ~~2017~~2018 for federal tax purposes and for the years ended June 30, ~~2013~~2016 through June 30, ~~2017~~2018 for state tax purposes. To the extent we utilize net operating losses generated in earlier years, such earlier years may also be subject to audit.

For the three months ended September 30, 2019 and 2018, respectively, we recognized income tax expenses of $0.5 million and $1.3 million. For the three months ended September 30, 2019 and 2018, the corresponding effective tax rates were 15.6% and 18.5%. Our effective tax rate will typically differ from the statutory federal rate as a result of state income taxes, primarily in the State of Louisiana, and differences related to percentage depletion in excess of basis, stock-based compensation and other permanent differences. For both periods, our respective statutory federal tax rate was 21%.

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Evolution Petroleum Corporation ~~And~~and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1215 — Net Income Per Share

The following table sets forth the computation of basic and diluted income per share:


	Three Months Ended December 31,				Six Months Ended December 31,				Three Months Ended September 30,
	2017		2016		2017		2016		2019		2018
Numerator
Net income available to common shareholders	$	9,876,848	$	2,307,634	$	12,017,380	$	2,870,979	$	2,792,820	$	5,795,801
Denominator
Weighted average number of common shares — Basic	33,109,448		33,047,166		33,099,546		33,002,088		33,126,645		33,102,292
Effect of dilutive securities:
Contingent restricted stock grants	30,830		9,836		40,711		10,909		7,727		16,765
Stock options	—		26,025		—		24,272
Weighted average number of common shares and dilutive potential common shares used in diluted EPS	33,140,278		33,083,027		33,140,257		33,037,269
Weighted average number of common shares and potentially dilutive common shares used in diluted earnings per share									33,134,372		33,119,057

Net income per common share — Basic	$	0.30	$	0.07	$	0.36	$	0.09	$	0.08	$	0.18
Net income per common share — Diluted	$	0.30	$	0.07	$	0.36	$	0.09	$	0.08	$	0.17

~~Outstanding potentially dilutive securities as of December 31, 2017 were as follows:~~

~~Outstanding potentially dilutive securities as of December 31, 2016 were as follows:~~

Outstanding Potentially Dilutive Securities Weighted
Average
Exercise Price At December 31, 2016
Contingent Restricted Stock grants $ —
113,270
Stock Options 2.19
35,231
Total outstanding potentially dilutive securities $ 0.52
148,501

Note 1316 — Senior Secured Credit Agreement

On April 11, 2016, the Company entered into a three-year, senior secured reserve-based credit facility ("Facility") in an amount up to $50 million. ~~The Facility replaces~~On May 25, 2018, we entered into the third amendment to our credit agreement governing the revolving credit facility to, among other things, extend the maturity date to April 11, 2021. On December 31, 2018, we entered into the fourth amendment to our credit agreement governing the revolving credit facility to broaden the definition for the Use of Proceeds.

As of September 30, 2019, the Company's ~~previous unsecured credit facility which expired in April 2016. The~~elected commitment and borrowing base ~~under the Facility has been set at $10 million and was subsequently increased to~~were $40 million, ~~effective February 1, 2018. As of December 31, 2017, the Company was~~we were in compliance with all financial covenants ~~contained in the Facility,~~ and there were no amounts ~~were~~ outstanding under the Facility, which is secured by substantially all of the Company’s assets.

Under the Facility the borrowing base shall be determined semiannually as of every May 15 and November 15 during the term of the Facility. During the current quarter, the bank performed its periodic fall redetermination of the borrowing base and confirmed our elected amount of $40 million.

Borrowings from the Facility may be used for the acquisition and development of oil and gas properties, investments in cash flow generating assets complimentary to the production of oil and gas, and for letters of credit and other general corporate purposes. ~~Availability of borrowings under the Facility is subject to semi-annual borrowing base redeterminations.~~

The Facility included a placement fee of 0.50% on the initial borrowing base, amounting to $50,000, and carries a commitment fee of 0.25% per annum on the undrawn portion of the borrowing base. Any borrowings under the Facility will bear interest, at the Company’s option, at either LIBOR plus 2.75% or the Prime Rate, as defined under the Facility, plus 1.00%. The Facility contains financial covenants including a requirement that the Company maintain, as of the last day of each fiscal quarter, (a) a maximum total leverage ratio of not more than 3.00 to 1.00, (b) a debt service coverage ratio of not less than 1.10 to 1.00, and (c) a consolidated tangible net worth of not less than ~~$40~~$50 million, all as defined under the Facility.

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Evolution Petroleum Corporation ~~And~~and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

In connection with this agreement, the Company incurred $168,972 of debt issuance costs. Such costs were capitalized in Other Assets and are being amortized to expense. The unamortized balance in debt issuance costs related to the Facility was ~~$70,334~~$23,256 as of ~~December 31, 2017.~~September 30, 2019.

Note 1417 — Commitments and Contingencies

We are subject to various claims and contingencies in the normal course of business. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate. At a minimum, we disclose such matters if we believe it is reasonably possible that a future event or events will confirm a loss through impairment of an asset or the incurrence of a liability. We accrue a loss if we believe it is probable that a future event or events will confirm a loss and we can reasonably estimate such loss and we do not accrue future legal costs related to that loss. Furthermore, we will disclose any matter that is unasserted if we consider it probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable. We expense legal defense costs as they are incurred.

Note 18 — Subsequent Event

On ~~December 3, 2013,~~November 1, 2019, and effective as of October 1, 2019, our ~~wholly owned~~wholly-owned subsidiary, ~~NGS Sub Corp.~~Evolution Petroleum West, Inc., ~~was served with~~ a ~~lawsuit filed~~Delaware corporation, purchased a 23.51% non-operating working interest and a 19.70% revenue interest in the ~~8th Judicial District Court~~Hamilton Dome field located in Hot Springs County, Wyoming, from entities owned or controlled by Merit Energy Company ("Merit") of ~~Winn Parish, Louisiana by Cecil M. Brooks~~Dallas, Texas. The consideration to Merit consisted of $9.5 million in cash and ~~Brandon Hawkins, residents~~our assumption of ~~Louisiana, alleging that in 2006 a former subsidiary of NGS Sub Corp. improperly disposed of~~asset retirement obligations. The assets included 265 producing and water ~~from an off-lease well into a well located on the plaintiffs’ lands in Winn Parish. The plaintiffs requested monetary damages~~injection wells and other relief. The plaintiffs subsequently filed an amended petition joining the Company as defendants in its capacity as parent company of NGS Sub Corp. NGS Sub Corp. divested its ownership of the property in question along with its ownership of the subsidiary in 2008 to a third party. NGS Sub Corp. and the Company have denied the plaintiffs’ claims. The district court dismissed the claim of Mr. Brooks against NGS Sub Corp. and the Company because Mr. Brooks purchased the land where the well is located subsequent to the divestiture of the property by NGS Sub Corp. The claim of Mr. Hawkins is still being defended. A bench trial is currently scheduled for March 2018. We will continue to vigorously defend the claims and based on the input of our legal counsel, we consider the likelihood of a loss in this matter that is material to the financial position of the Company to be remote.associated facilities.

~~Lease Commitments.~~ ~~We have a non-cancelable operating lease for office space that expires on May 31, 2019. Future minimum lease commitments as of December 31, 2017 under this operating lease are as follows:~~

Twelve months ended December 31,
2018 $ 73,073
2019 (through May) $ 30,447

Rent expense for the three months ended December 31, 2017 and 2016 was $19,198 and $18,569, respectively. Rent expense for the six months ended December 31, 2017 and 2016 was $39,049 and $53,425, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained herein and in our Annual Report on Form 10-K for the year ended June 30, 2017 (the “Form 10-K”), along with Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~contained in the Form 10‑K. Any terms used but not defined herein have the same meaning given to them in the Form 10-K. Certain dollar amounts~~

Liquidity and ~~percentages in this Management’s Discussion~~Capital Resources

Critical Accounting Policies and ~~Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q have been rounded for presentation, and certain amounts may not sum due to rounding.~~

~~We use the terms, “EPM,” “Company,” “we,” “us” and “our” to refer to Evolution Petroleum Corporation and its wholly owned subsidiaries.~~

Estimates

Executive Overview

General

~~General~~

~~We are engaged primarily in~~Evolution Petroleum Corporation is an oil and gas company focused on delivering a sustainable dividend yield to its stockholders through the ~~development~~ownership, management and ~~production~~development of oil and gas ~~reserves within known~~properties. The Company's long-term goal is to build a diversified portfolio of oil and gas ~~resources utilizing conventional technology with a focus on creating value on a per share basis. In doing so, we depend on a capital structure with low or no leverage, allowing us~~assets primarily through acquisitions, while seeking opportunities to maintain ~~control~~and increase production through selective development, production enhancement and other exploitation efforts on its properties.

Our producing assets consist of our ~~assets for~~interests in the ~~benefit of our stockholders.~~ Delhi Holt-Bryant Unit in the Delhi field in Northeast Louisiana, a CO₂ enhanced oil recovery project, and a de minimis overriding royalty interest retained in two onshore Texas wells.

By policy, every employee and director maintains a beneficial ownership position in our common stock. We believe this ownership helps ensure that the interests of our employees and directors are aligned with our ~~shareholders.~~

~~Our strategy is to maximize the value realized by our stockholders from our assets, particularly our core Delhi asset.~~

stockholders.

Highlights for our ~~Second~~First Quarter of Fiscal ~~2018~~2020 and Operations Update

"Current quarter" refers to the three months ended ~~December 31, 2017,~~September 30, 2019, the Company's ~~second~~first quarter of fiscal ~~2018.~~2020.

"Prior quarter" refers to the three months ended ~~September~~June 30, ~~2017,~~2019, the Company's ~~first~~fourth quarter of fiscal ~~2018.~~2019.

"Year-ago quarter" refers to the three months ended ~~December 31, 2016,~~September 30, 2018, the Company's ~~second~~first quarter of fiscal ~~2017.~~

2019.

Highlights for the ~~Quarter:~~

~~We reported revenues of $11.1 million for the current quarter, an increase of 30% over both the prior and year-ago quarters.~~

~~Current quarter net income was $9.9 million, or $0.30 per common share, compared to net income of $0.07 per common share in both the prior and year-ago quarters.~~Quarter

~~Net income for the current quarter included a one-time $6.0 million non-cash tax benefit related to passage of the Tax Cuts and Jobs Act of 2017.~~

~~Our realized oil price for the current quarter was $57.30 per barrel, the highest quarterly average since the quarter ended June 30, 2015.~~

We paid our ~~seventeenth~~twenty-fourth consecutive quarterly cash dividend on common shares, ~~in the amount of $0.075 per share,~~ and ~~announced an increase in the~~declared our twenty-fifth quarterly dividend ~~rate to~~of $0.10 per share ~~for~~payable on December 31, 2019.

We appointed Jason E. Brown as President and Chief Executive Officer, succeeding Robert S. Herlin who remains non-executive Chairman of the ~~quarter ending March 31, 2018.~~Board.

We ended the current quarter with ~~$27.6~~$31.7 million of working capital and remain debt free.

Recorded revenues of $9.2 million for the current quarter, an ~~increase of $3.2 million~~11.8% decrease from the prior quarter, ~~after paying $2.5~~and 25.6% lower than the year-ago quarter, primarily due to lower commodity pricing.

Production expenses were $3.1 million, a 13.3% decrease compared to prior quarter, and a 10.7% decrease from the year-ago quarter.

Reported net income of $2.8 million, compared to $3.3 million in ~~common stock dividends.~~

~~Projects~~

~~Additional property~~the prior quarter and ~~project information is included under Item 1. Business, Item 2. Properties, Notes to~~$5.8 million in the ~~Financial Statements and Exhibit 99.4 of our Form 10-K for the year ended June 30, 2017.~~

year-ago quarter.

Delhi Field - Enhanced Oil Recovery Project

Our interests in the Delhi field consist of a 23.9% working interest (with associated 19.0% net revenue interest) and separate overriding royalty and mineral interests of 7.2%. This yields a total net revenue interest of 26.2%. The field is operated by Denbury Onshore LLC, a subsidiary of Denbury Resources, Inc. (the "operator").

Net production of oil and NGL averaged 1,910 BOEPD during the quarter which is a decrease of 7% compared to the 2,058 BOEPD during the prior quarter. Gross oil production at Delhi averaged approximately 6,200 BOPD during the quarter, a 3% decrease from the prior quarter. Gross NGL production for quarter was approximately 1,100 BOEPD, down 26% from the prior quarter. Oil production was impacted by seasonal high ambient temperatures during the quarter causing limited CO₂

recycle capacity. This resulted in limited capacity to produce high gas/oil ratio wells. Facility modifications resulting in NGL volume uplift in the ~~second~~spring were not sustained due to complications caused by the separation of rich gas to a dedicated facility. The operator is reviewing solutions to return to the higher rates seen in the past quarters.

During the current quarter, we incurred $0.6 million on capital projects consisting of ~~fiscal 2018 averaged 7,370 barrels~~$0.1 million for capital maintenance and $0.5 million primarily for remaining completion costs of a water injection well and a water source well in preparation for Phase V expansion.

In the current quarter, operating revenues were $9.2 million, based on an average realized oil price of $59.32 per ~~day ("BOPD"), or 1,932 BOPD net to our interests, a 6.6% increase~~barrel and an average realized NGL price of $11.54 per BOE, resulting in $3.3 million in income from operations. Our realized oil price decreased 8.4% from the prior quarter and a 2.8% decrease from the year-ago quarter. Oil production in the quarter increased as we put additional existing compression capacity in service and experimented with larger choke sizes to boost the injection of CO₂oil volumes declined 1.8%. ~~We also had very few days of scheduled and unscheduled facility downtime compared to~~Our NGL realized price was 24.5% lower than the prior ~~quarter. Lastly, we benefited from~~quarter's and volumes decreased 24.9%.

Our NGL price received for our royalty production is burdened by a fixed capital recovery charge, which is mostly offset by our working interest share of such capital recovery that is reflected as a reduction in lease operating expense. The impact of this charge on our NGL royalty revenue is more significant at lower ~~air temperatures, after the high heat of the summer adversely effected production~~price levels.

~~Gross natural gas liquid ("NGL") sales for this quarter of production were 1,079 barrels of oil equivalent per day ("BOEPD"), or 283 BOEPD net to our interests, up slightly from 1,047~~ BOEPD in the prior quarter. NGL production rates in the prior quarter were impacted by both planned and unplanned downtime in the field and at the central production facilities. In early August, the plant was shut-in for four days to perform capital upgrades to the inlet of the recycle facility. ~~Results from the NGL plant subsequent to completion of this project have been positive, with the plant operating at or near maximum capacity and efficiency.~~ ~~The NGL plant is accomplishing its primary objective of removing the lighter hydrocarbons (i.e. methane and ethane) to increase the purity of the CO~~₂ recycle stream and improve the efficiency of the flood. Over time, this is expected to increase the recovery of crude oil in the field. The plant is also producing significant quantities of higher value NGL's for sale as well as providing methane and ethane feedstock to power the electric turbine.

Production from the NGL plant is transported by truck to a processing plant in East Texas. Under our current marketing contract, we receive market index pricing for each NGL component, based on the processed yield, less transportation and processing fees. There may also be an adjustment for NGL's that do not meet the purchaser's required specifications. The current mix of products contains a large percentage (over 65%) of higher value NGL's, such as pentanes and butane, and almost no lower value ethane. Market pricing for our NGL's during the past two quarters has been favorable, with net realized NGL prices averaging approximately 60% of WTI prices. NGL demand often has a seasonal pattern and prices tend to be higher during the cooler months of October through March.

During the extreme cold of January 2018, we experienced two weather-related disruptions to production in the field, including an extended outage at the NGL plant. These issues have been remedied and the field and NGL plant are producing at normal capacity.

~~Field operating expenses were $14.30 per barrel of oil equivalent ("BOE") in the current quarter compared to $15.06 in the prior quarter. Our total lease operating expenses~~costs in the Delhi field were ~~$2.9~~$3.1 million in the current quarter, ~~essentially unchanged~~down 13.3% from the prior quarter, ~~and $0.6 million over the year-ago quarter. Our~~primarily due to a 24.3% decrease in purchased CO₂ ~~costs increased~~volumes which averaged 69.7 million cubic feet (MMcf) per day compared to ~~$1.3 million ($6.21 per BOE) from $1.1 million ($5.67 per BOE) in~~ the prior ~~quarter. Purchased~~quarter's rate of 92.1 MMcf per day. Current quarter CO₂ ~~volumes were approximately~~purchase cost of $0.84 per mcf was 8% lower than the ~~same in~~previous quarter, reflecting the ~~two periods, but our costs per Mcf increased as a result of higher~~lower current quarter realized oil ~~prices in the field,~~price to which ~~are directly tied to the price per Mcf for purchased~~ CO₂. cost is linked.

Net income for the quarter was $2.8 million, or $0.08 per diluted share, compared to $3.3 million, or $0.10 per diluted share, in the previous quarter.

Additional property and project information is included under Item 1. Business, Item 2. Properties, Notes to the Financial Statements and Exhibit 99.1 of our Form 10-K for the year ended June 30, 2019.

Results of Operations

Three Months Ended September 30, 2019 and 2018

Revenues

Compared to the corresponding year-ago period, current period revenues decreased 26% due to 22% lower realized commodity prices together with a 4.2% decrease in production volumes. The following table summarizes total production volumes, daily production volumes, average realized prices and revenues for the three months ended September 30, 2019 and 2018:



	Three Months Ended September 30,
	2019		2018		Variance			Variance %
Oil and gas production
Crude oil revenues	$	8,845,504	$	11,397,452	$	(2,551,948	)	(22.4	)%
NGL revenues	305,944		909,627		(603,683		)	(66.4	)%
Natural gas revenues	767		—		767			n.m.
Total revenues	$	9,152,215	$	12,307,079	$	(3,154,864	)	(25.6	)%

Crude oil volumes (Bbl)	149,107		158,906		(9,799		)	(6.2	)%
NGL volumes (Bbl)	26,516		24,401		2,115			8.7	%
Natural gas volumes (Mcf)	356		—		356			n.m.
Equivalent volumes (BOE)	175,682		183,307		(7,625		)	(4.2	)%

Crude oil (BOPD, net)	1,621		1,727		(106		)	(6.1	)%
NGLs (BOEPD, net)	288		265		23			8.7	%
Natural gas (BOEPD, net)	1		—		1			n.m.
Equivalent volumes (BOEPD, net)	1,910		1,992		(82		)	(4.1	)%

Crude oil price per Bbl	$	59.32	$	71.72	$	(12.40	)	(17.3	)%
NGL price per Bbl	11.54		37.28		(25.74		)	(69.0	)%
Natural gas price per Mcf	2.15		—		2.15			n.m.
Equivalent price per BOE	$	52.10	$	67.14	$	(15.04	)	(22.4	)%

n. m. Not meaningful.

Production Costs

The $0.4 million decrease in production costs was due to a 9% decrease in other production costs together with a 13% decrease in CO₂ costs. The $0.2 million decrease in other production costs was primarily due to lower chemical and fuel gas expenses.



	Three Months Ended September 30,
	2019		2018		Variance			Variance %
CO₂ costs (a)	$	1,284,767	$	1,483,852	$	(199,085	)	(13.4	)%
Other production costs	1,805,322		1,974,578		(169,256		)	(8.6	)%
Total production costs	$	3,090,089	$	3,458,430	$	(368,341	)	(10.7	)%

CO₂ costs per BOE	$	7.31	$	8.09	$	(0.78	)	(9.6	)%
All other production costs per BOE	10.28		10.78		(0.50		)	(4.6	)%
Production costs per BOE	$	17.59	$	18.87	$	(1.28	)	(6.8	)%

(a) Under our contract with the operator, purchased CO₂ is priced at 1% of the realized oil price in the field per ~~thousand cubic feet (“Mcf”)~~Mcf, plus sales taxes of 8%approximately 8.5% and transportation costs of $0.20 per Mcf. ~~Our other lease operating~~Transportation costs ~~were $1.6 million, down from $1.8 million in the prior quarter.~~will decline effective January 1, 2020 as per contract terms.

The $0.2 million decrease in total CO₂costs was virtually all due to a lower purchase price per mcf which decreased 13% from the year-ago quarter reflecting the lower realized oil price, while purchased CO2 volumes were flat.

~~2017 Tax Cuts~~



	Three Months Ended September 30,
	2019		2018		Variance			Variance %
CO₂ costs per mcf	$	0.84	$	0.97	$	(0.13	)	(13.4	)%
CO₂ volumes (MMcf per day, gross)	69.7		69.6		0.1			0.1	%

Depletion, Depreciation and ~~Jobs Act~~Amortization ("DD&A")

~~On December 22, 2017,~~DD&A expense was (6.4)% lower compared to the ~~U.S. government enacted comprehensive tax legislation under the title of the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act includes~~same year-ago period due to a ~~permanent reduction~~(2.4)% decline in ~~our federal corporate income tax~~DD&A rate ~~from 34% to 21%. It also provides more favorable tax deductions associated~~along with ~~capital investments and other significant changes to tax law. The Tax Act became effective upon passage, so our statutory rate for the current fiscal year ended June 30, 2018 is~~ a ~~blended rate of 27.55%. The permanent reduction~~4.2% decrease in production volumes in the federal corporate income tax rate resulted in a one-time non-cash income tax benefit of approximately $6.0 million related to the adjustment of our liability for deferred income taxes to the lower rate in the Tax Act. The accounting for the effects of the rate change on the Company’s deferred tax balances is complete and no provisional amounts were recorded.

period.

Three Months Ended
December 31, Six Months Ended
December 31,
2017 2016 2017 2016
Income before income taxes 4,824,637
3,668,731
7,355,491
6,374,682
Income tax (benefit) provision (a) (5,052,211 ) 1,361,097
(4,661,889 ) 2,250,273
Effective tax rate (a) (105 )% 37 % (63 )% 35 %



	Three Months Ended September 30,
	2019		2018		Variance			Variance %
DD&A of proved oil and gas properties	$	1,417,754	$	1,516,742	$	(98,988	)	(6.5	)%
Depreciation of other property and equipment	2,322		4,143		(1,821		)	(44.0	)%
Amortization of intangibles	3,391		3,391		—			—	%
Accretion of asset retirement obligations	26,287		24,184		2,103			8.7	%
Total DD&A	$	1,449,754	$	1,548,460	$	(98,706	)	(6.4	)%

Oil and gas DD&A rate per BOE	$	8.07	$	8.27	$	(0.20	)	(2.4	)%

General and Administrative Expenses

(a) The income tax provision for the three months and six months ended December 31, 2017 includes a one-time non-cash benefit of approximately $6.0 million for the adjustment of our liability for deferred income taxes to the lower rate in the Tax Act. This adjustment results in a negative effective tax rate (benefit) for these periods.

Income taxes are recorded in our financial statements based on our estimated annual effective income tax rate. The effective rates used in the calculation of our income tax expense were approximately 21% and 37%Expenses for the three months ended ~~December 31, 2017 and 2016, respectively. Including the adjustment for the $6.0~~September 30, 2019 increased slightly by 2.5%, to $1.3 million ~~discrete benefit resulting~~ from the ~~revaluation of our deferred~~same year-ago quarter, primarily due to higher non-cash stock based compensation expenses in the current period, offset by normal variations in professional services expenses.

Other Income and Expenses

Other income ~~tax liabilities,~~and expense (net) decreased due primarily to the ~~effective rate for the quarter ended December 31, 2017 was a tax benefit of (105)% of income before income taxes.~~Enduro breakup fee received during August 2018.



	Three Months Ended September 30,
	2019			2018			Variance			Variance %
Enduro transaction breakup fee	—			1,100,000			(1,100,000		)	(100.0	)%
Interest and other income	66,129			46,571			19,558			42.0	%
Interest expense	(29,345		)	(29,345		)	—			—	%
Total other income, net	$	36,784		$	1,117,226		$	(1,080,442	)	(96.7	)%

~~For the six months ended December 31, 2017 and 2016 the effective rates used in the calculation of our~~Net Income

Net income tax expense were approximately 20% and 35% , respectively. Including the adjustment for the $6.0 million discrete benefit resulting from the revaluation of our deferred income tax liabilities, the effective rate for the six months ended December 31, 2017 was a tax benefit of (63)% of income before income taxes.

~~Excluding the impact of the $6.0 million deferred tax adjustment, the effective tax rates~~available to common stockholders for the three months ended September 30, 2019 decreased $3.0 million, or 52%, to $2.8 million compared to the same year-ago quarter primarily due to the aforementioned operating variances and ~~six months ended December 31, 2017 were lower than~~ the ~~corresponding prior periods as a result of~~one-time breakup fee collected in the ~~lower statutory tax rate and higher utilization of percentage depletion in excess of basis during the current year.~~year-ago quarter.



	Three Months Ended September 30,
	2019			2018			Variance			Variance %
Income before income taxes	3,310,803			7,112,153			(3,801,350		)	(53.4	)%
Income tax provision	517,983			1,316,352			(798,369		)	(60.7	)%
Net income available to common stockholders	$	2,792,820		$	5,795,801		$	(3,002,981	)	(51.8	)%
Income tax provision as a percentage of income before income taxes	16		%	19		%

Liquidity and Capital Resources

We had ~~$25.7 million and $23.0~~$31.4 million in cash and cash equivalents at ~~December 31, 2017~~September 30, 2019 and $31.5 million of cash and cash equivalents at June 30, ~~2017, respectively.~~2019.

In addition, we have a senior secured reserve-based credit facility (the "Facility") with a maximum capacity of ~~$50.0~~$50 million. The Facility had ~~$10.0~~$40 million of undrawn borrowing base availability on ~~December 31, 2017 and June~~September 30, ~~2017, respectively. Effective February 1, 2018,~~2019. Under the Facility the borrowing base shall be determined semiannually as of May 15 and ~~availability under the Facility was expanded to $40.0 million.~~November 15. There have been no borrowings under the Facility, which matures on April 11, ~~2019~~2021, and it is secured by substantially all of the Company’s assets.

During the current quarter, the bank performed its periodic redetermination of borrowing base and confirmed our elected amount of $40 million. Our next scheduled determination will occur next spring.

Any future borrowings bear interest, at the Company's option, at either LIBOR plus 2.75% or the Prime Rate, as defined under the Facility, plus 1.0%. The Facility contains covenants that require the maintenance of (i) a total leverage ratio of not more than 3.0 to 1.0, (ii) a debt service coverage ratio of not less than 1.1 to 1.0 and (iii) a consolidated tangible net worth of not less than ~~$40~~$50.0 million, each as defined in the Facility. The Facility also contains other customary affirmative and negative covenants and events of default. As of ~~December 31, 2017,~~September 30, 2019, the Company was in compliance with all covenants contained in the Facility.

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, we funded our operations, capital expenditures and cash dividends with cash generated from operations ~~and our~~resulting in a decrease of $0.1 million in cash, ~~balance increased $2.7~~impacted by $1.3 million ~~during that period.~~spent on repurchasing shares under the buyback program. As of ~~December 31, 2017,~~September 30, 2019, our working capital was ~~$27.6~~$31.7 million, ~~an increase~~a decrease of ~~$4.2~~$0.8 million over working capital of ~~$23.4~~$32.4 million at June 30, ~~2017.~~

2019.

We have historically funded our operations through cash from operations and working capital. Our primary source of cash is the sale of oil and natural gas liquids production. A portion of these cash flows are used to fund our capital expenditures. While we expect to continue to expend capital to further develop the Delhi field, we and the operator have flexibility as to when this capital is spent. The Company expects to manage future development activities in the Delhi field within the boundaries of its operating cash flow and existing working capital.

We ~~may choose to evaluate and pursue~~are pursuing new growth opportunities through acquisitions or other transactions. WeIn addition to our cash on hand, we have access to at least $40 million of undrawn elected borrowing base availability under our senior secured credit ~~facility if required.~~facility. In addition we have an effective shelf registration statement with Securities and Exchange Commission under which we may issue up to $500 million of new debt or equity securities. IfAs we ~~choose to~~ pursue new growth opportunities, we would expect to use our internal resources of cash, working capital and borrowing capacity under our credit facility. It may also be advantageous for us to consider issuing additional equity as part of any potential transaction, but we have no specific plans to ~~do so~~issue additional equity at this time.

~~Our other significant use~~On November 1, 2019, and effective as of October 1, 2019, our wholly-owned subsidiary, Evolution Petroleum West, Inc., a Delaware corporation, purchased a 23.51% non-operating working interest and a 19.70% revenue interest in the Hamilton Dome field located in Hot Springs County, Wyoming, from entities owned or controlled by Merit Energy Company ("Merit") of Dallas, Texas. The consideration to Merit consisted of $9.5 million in cash and our assumption of asset retirement obligations. Merit will continue to operate the field and Merit retains the majority ownership of the balance of the working interest.

The field was discovered in 1918 and has been on production for 100 years producing over 160 million barrels of oil. We acquired approximately 450 barrels of expected net oil production per day, which should add approximately 23% to our daily production, and represent a 30% increase to our proved reserves. We expect operating expense per barrel to be somewhat higher than Delhi and the realized oil price lower; however we believe that improving pipeline capacity to the region within the next several years will result in a stronger market. As reserves are virtually all proved developed producing, capital expenditures are expected to be nominal. This asset is expected to contribute to our overall profitability and further support our dividend moving forward.

In addition to our on-going cash dividend ~~program.~~program, during September 30, 2019, the Company repurchased $1.3 million of common shares under the stock buyback program approved in May 2015. The Board of Directors instituted a cash dividend on our common stock in December 2013 and we have since paid ~~seventeen~~twenty-four consecutive quarterly dividends. Distribution of a substantial portion of free cash flow in excess of our operating and capital requirements through cash dividends and potential repurchases of our common stock remains a priority of our financial strategy, and it is our long term goal to increase our dividends over time as appropriate. ~~In February 2018,~~On November 4 , 2019, the Board declared ~~an increase in~~ the next quarterly common stock dividend ~~from $0.075 per share to~~of $0.10 per share, ~~effective with the dividend payment in March 2018.~~which will be paid on December 31, 2019 to stockholders of record on December 16, 2019. The Board reviews

the quarterly dividend rate in light of our financial position and operations, forecasted results, including the outlook for oil and NGL prices, the timing of further expansion of Delhi development and other potential growth opportunities.

Capital Budget - Delhi Field

During the ~~six months ended December 31, 2017,~~current quarter, we incurred ~~$1.4~~$0.6 million on capital projects consisting of $0.1 million for capital ~~expenditures at Delhi. This~~maintenance and $0.5 million for remaining completion costs of a water injection well and a water source well in preparation for Phase V expansion.

The current expectation for net capital spending ~~included~~for the remainder of fiscal 2020 is approximately $3.0 million, which includes $0.4 million for the NGL plant filter/separator project, $0.7 million for conformance and capital ~~upgrades to the recycle plant, $0.5~~maintenance, and $1.9 million for Phase V ~~infrastructure, $0.4~~development expected later in the fiscal year. We believe that the operator will continue this development and have also budgeted $3.0 million for Phase V completion in fiscal 2021. We anticipate funding for our share of capital expenditure at Delhi to be met from cash flows from operations.

Our proved undeveloped reserves at June 30, 2019 included 1,583 MBOE of reserves and $8.6 million of future development costs associated with Phase V development in the eastern portion of the field. The timing of Phase V development is dependent in part on the results and CO₂ ~~conformance projects and $0.1 million for other capital expenditures.~~

~~A twelve-well~~requirements of the infill drilling ~~program~~program. The timing of such development is also dependent, in part, on the ~~Delhi~~ field ~~has been approved~~operator's available funds and ~~is planned to commence during the quarter ended March 31, 2018. The infill program has a revised estimated net cost~~capital spending plans and priorities within its portfolio of ~~$4.7 million, the majority of which is expected to be incurred in the remainder of the current fiscal year. The program consists of five new CO~~₂ ~~injection wells and seven new production wells and targets productive oil zones which we believe are not being swept effectively by the current CO~~₂ flood. It is expected to both add production and increase ultimate recoveries above the current developed producing oil reserves. The operator estimates it will take up to five months to drill and complete all the wells.

We have also approved additional net capital expenditures for fiscal 2018 totaling $2.8 million for water injection, flowlines and other infrastructure projects in preparation for the Phase V pattern development. Approximately $0.5 million of these costs have been incurred as of December 31, 2017. In addition,properties. At present, we expect to ~~continue to perform conformance workover projects and will likely incur additional maintenance capital expenditures. Such amounts cannot be estimated accurately at~~begin this ~~time, but are not expected to be material to~~development in our ~~financial position.~~fiscal year 2020.

Funding for our anticipated capital expenditures at Delhi ~~over the next~~for our fiscal ~~year~~2020 is expected to be met from cash flows from operations and current working capital.

Overview of Cash Flow Activities

~~Net~~The table below compares a summary of our condensed consolidated statements of cash flows for three months ended September 30, 2019 and 2018 presented in the consolidated condensed financial statements in Item 1, Part I of this report on Form 10-Q.



	Three Months Ended September 30,
Increases (Decreases) in Cash:	2019			2018			Difference
	(In Millions)
Net cash provided by operating activities	$	5.0		$	7.7		$	(2.6	)
Net cash used in investing activities	(0.5		)	(3.1		)	2.6
Net cash used in financing activities	(4.7		)	(3.4		)	(1.3		)
	$	(0.1	)	$	1.2		$	(1.3	)

Cash provided by operating activities ~~from operations was $9.1~~in the current year period decreased $2.6 million ~~and $5.9~~compared to the same year-ago period due to a $3.0 million ~~for the six months ended December 31, 2017 and 2016, respectively. The $3.2~~decrease in cash provided by net income together with $0.3 million decrease in cash provided by non-cash expenses, partially offset by $0.7 million increase in cash provided ~~by operations between these two periods resulted~~ from ~~$7.9 million of higher net income and a $1.2 million increase in cash provided by~~current operating assets and liabilities partially offset by a $5.9 million decrease in non-cash expenses and other adjustments to reconcile net income to net cash provided by operations. This decrease includes a $6.0 million one-time adjustment of our deferred income tax liability to the lower corporate tax rate under the 2017 Tax Cuts and Jobs Act.by.

~~Net cash~~Cash used in investing activities ~~was $1.0~~decreased $2.6 million ~~and $8.3 million for the six months ended December 31, 2017 and 2016, respectively. The decrease in cash outflows was primarily~~ due to ~~$7.0 million of~~ lower capital ~~expenditures together with a $0.3 million decline~~expenditure disbursements in ~~derivative settlement payments.~~the fiscal 2020 period while completion of the infill project was underway.

~~Net cash~~Cash used by financing activities ~~for the six months ended December 31, 2017 and 2016 was $5.4~~increased $1.3 million ~~and $12.4 million, respectively. The $7.1 million decrease in cash used was principally~~ due to ~~$7.9 million disbursed~~common stock repurchases in the prior fiscal to redeem our preferred stock, $0.3 million of pre-redemption preferred dividend payments, and a $0.1 million decline in treasury stock purchases, partially offset by an increase of $1.2 million in common share dividends paid as a result of increases in dividend rates per share.

~~Full Cost Pool Ceiling Test and Proved Undeveloped Reserves~~

As of December 31, 2017, our capitalized costs of oil and gas properties were substantially below the full cost valuation ceiling. We do not currently expect that a write-down of capitalized oil and gas property costs will be required in the remaining quarters of fiscal 2018. However, persistent and substantially lower oil prices would have an effect on the excess, or cushion, of our valuation ceiling over our capitalized costs in the current quarter and could adversely impact our ceiling tests in future quarters. Under the full cost method of accounting, capitalized costs of oil and gas properties, net of accumulated DD&A and related deferred taxes, are limited to (the full cost valuation “ceiling”): the estimated future net cash flows from proved oil and gas reserves, discounted at 10%; plus the cost of any properties not being amortized; plus the lower of cost or fair value of unproved properties included in costs being amortized; less the income tax effect related to the differences between the book and tax basis of the properties. If capitalized costs exceed the full cost ceiling, the excess would be charged to expense as a write-down of oil and gas properties in the quarter in which the excess occurred. The quarterly ceiling test calculation requires that we use the average price received for our petroleum products during the twelve month period ending with the balance sheet date. If commodity prices drop below the average from the past twelve months, future ceiling test calculations would be adversely affected. We cannot give assurance that a write-down of capitalized oil and gas properties will not be required in the future.

Our proved undeveloped reserves at June 30, 2017 included 544 MBOE of reserves and $3.2 million of future development costs associated with a planned infill drilling program and 1,564 MBOE of reserves and $10.9 million of future development costs associated with the Phase V development in the eastern portion of the field. The objective of the infill drilling program is to increase production and recover reserves which are not believed to be effectively producible with the existing well configuration. The project includes both acceleration of production and an increase in ultimate reserve recovery and has been recorded as a proved undeveloped project. The infill project, which was increased from eight wells to twelve wells subsequent to the date of the reserve report, is expected to begin in the thirdfirst quarter of fiscal ~~2018. The timing~~2020 through an authorized stock buyback program.

Critical Accounting Policies and Estimates

See our Critical Accounting Policies and Estimates as disclosed within Item 7. Management's Discussion and Analysis of ~~our Phase V development is dependent~~Financial Condition and Results of Operations in ~~part on~~ the ~~results~~2019 Form 10-K. For recently adopted and CO₂ ~~requirement of the infill program. At present, we expect to begin this development in calendar 2019.~~

~~Three Months Ended December 31, 2017 and 2016~~

~~The following table sets forth certain financial information with respect to our oil and natural gas operations:~~

Three Months Ended December 31,
2017 2016 Variance Variance %
Oil and gas production:
  Crude oil revenues $ 10,185,635
$ 8,529,817
$ 1,655,818
19.4 %
  NGL revenues 881,276
—
881,276
n.m.
  Total revenues $ 11,066,911
$ 8,529,817
$ 2,537,094
29.7 %

  Crude oil volumes (Bbl) 177,767
182,815
(5,048 ) (2.8 )%
  NGL volumes (Bbl) 26,033
—
26,033
n.m.
Equivalent volumes (BOE) 203,800
182,815
20,985
11.5 %

  Crude oil (BOPD, net) 1,932
1,987
(55 ) (2.8 )%
  NGLs (BOEPD, net) 283
—
283
n.m.
Equivalent volumes (BOEPD, net) 2,215
1,987
228
11.5 %

  Crude oil price per Bbl $ 57.30
$ 46.66
$ 10.64
22.8 %
  NGL price per Bbl 33.85
—
33.85
n.m.
    Equivalent price per BOE $ 54.30
$ 46.66
$ 7.64
16.4 %

CO₂ costs
$ 1,265,582
$ 1,041,741
$ 223,841
21.5 %
All other lease operating expenses 1,648,930
1,250,680
398,250
31.8 %
  Production costs $ 2,914,512
$ 2,292,421
$ 622,091
27.1 %
  Production costs per BOE $ 14.30
$ 12.54
$ 1.76
14.0 %
CO₂ volumes (MMcf per day, gross)
69.7
67.0
2.7
4.0 %

Oil and gas DD&A (a) $ 1,626,324
$ 1,299,813
$ 326,511
25.1 %
Oil and gas DD&A per BOE $ 7.98
$ 7.11
$ 0.87
12.2 %

~~n.m. Not meaningful.~~

~~(a) Excludes $7,544and $7,697 of other depreciation and amortization expense for the three months ended December 31, 2017 and 2016, respectively.~~

~~Net Income Available to Common Stockholders.~~ During the three months ended December 31, 2017, we generated net income of $9.9 million, or $0.30 per diluted share, on total revenues of $11.1 million. This compares to net income of $2.3 million, or $0.07 per diluted share, on revenues of $8.5 million for the year-ago quarter. The $7.6 million earnings increase reflects a $2.5 million revenue increase, a $6.4 million decline in income taxes primarily attributable to the impact of the 2017 Tax Cuts and Jobs Act, partially offset by $1.4 million of higher operating expenses.

~~Oil and Gas Revenues.~~ ~~Revenues increased 30% to $11.1 million as a result of a~~ ~~11.5%~~ ~~increase in production volumes~~recently issued accounting pronouncements from the ~~year-ago quarter, together with a 16% increase in realized oil and NGL prices from $46.66 per equivalent barrel to $54.30 per equivalent barrel in the current quarter. All~~Financial Accounting Standards Board, please see Note 2 – Summary of our revenues for the current and year-ago quarters came from the Delhi field. Net Delhi oil production volumes of 1,932 BOPD decreased 55 BOPD from the year-ago quarter, as a number of highly successful conformance and production enhancement operations in the prior year stabilized at lower rates in the current quarter. Net NGL production averaged 283 BOEPD in the current quarter, at an average sales price of $33.85 per barrel. There were no NGL sales in the year-ago quarter as NGL plant production began in January 2017.

~~Production Costs. Production costs for the current quarter were $2.9 million, a $0.6 million, or 27%, increase from the year-ago quarter, primarily due to to higher CO~~₂ ~~costs and the incremental operating costs of the NGL plant that commenced operations in January 2017. CO~~₂ costs increased $0.2 million, or 21%, due to a higher purchase cost per Mcf, which is derived from the realized field oil price, together with 4% increase in purchase volumes. Average gross purchased CO₂ volumes increased from 67.0 MMcf per day in the year-ago quarter to 69.7 MMcf per day for the current quarter. Other production costs, which include incremental costs of the NGL plant, power, chemicals, repairs and maintenance, labor and overhead, increased $0.4 million, or 32%, from the year-ago quarter. Virtually all of this increase was attributable to the NGL plant. Production costs per equivalent barrel in the current quarter were $14.30 per BOE on total production volumes, compared to $15.06 per BOE in the year-ago quarter.

~~Calculated solely on our Delhi working interest volumes, production costs were $18.75 per BOE, of which $8.55 per BOE was CO~~₂cost. These costs per equivalent barrel exclude production volumes from our royalty interests in the Delhi field, which bear almost no production costs, and are therefore higher than the rates per barrel on our total production volumes.

~~General and Administrative Expenses (“G&A”).~~ G&A expenses increased $0.4 million, or 34%, to $1.7 million for the three months ended December 31, 2017 as a result of $0.2 million of higher non-cash stock compensation expense, $0.1 million for litigation costs and $0.1 million for due diligence costs associated with property evaluations.

~~Depreciation, Depletion & Amortization Expense (“DD&A”).~~ DD&A increased $0.3 million, or 25%, to $1.6 million for the current quarter compared to the year-ago period primarily as a result of higher full cost amortization, reflecting an 11% increase in production to 203,800 BOE, together with a 12% higher amortization rate of $7.98 per BOE. The higher rate is principally due to increased development costs.

~~Six Months Ended December 31, 2017 and 2016~~

~~The following table sets forth certain financial information with respect to our oil and natural gas operations:~~

Six Months Ended December 31,
2017 2016 Variance Variance %
Oil and gas production:
  Crude oil revenues $ 18,014,890
$ 16,123,672
$ 1,891,218
11.7 %
  NGL revenues 1,589,892
89
1,589,803
n.m.
  Natural gas revenues —
(4 ) 4
n.m.
  Total revenues $ 19,604,782
$ 16,123,757
$ 3,481,025
21.6 %

  Crude oil volumes (Bbl) 344,504
360,817
(16,313 ) (4.5 )%
  NGL volumes (Bbl) 51,279
4
51,275
n.m.
  Natural gas volumes (Mcf) —
16
(16 ) n.m.
Equivalent volumes (BOE) 395,783
360,824
34,959
9.7 %

  Crude oil (BOPD, net) 1,872
1,961
(89 ) (4.5 )%
  NGLs (BOEPD, net) 279
—
279
n.m.
  Natural gas (BOEPD, net) —
—
—
n.m.
Equivalent volumes (BOEPD, net) 2,151
1,961
190
9.7 %

  Crude oil price per Bbl $ 52.29
$ 44.69
$ 7.60
17.0 %
  NGL price per Bbl 31.00
22.25
8.75
39.3 %
  Natural gas price per Mcf —
(0.25 ) 0.25
n.m.
    Equivalent price per BOE $ 49.53
$ 44.69
$ 4.84
10.8 %

CO₂ costs
$ 2,353,843
$ 2,119,874
$ 233,969
11.0 %
All other lease operating expenses 3,452,255
2,517,188
935,067
37.1 %
  Production costs $ 5,806,098
$ 4,637,062
$ 1,169,036
25.2 %
  Production costs per BOE $ 14.67
$ 12.85
$ 1.82
14.2 %

CO₂ volumes (MMcf per day, gross)
69.5
70.4
(0.9 ) (1.3 )%

Oil and gas DD&A (a) $ 3,137,205
$ 2,565,450
$ 571,755
22.3 %
Oil and gas DD&A per BOE $ 7.93
$ 7.11
$ 0.82
11.5 %

~~n.m. Not meaningful.~~

~~(a) Excludes $15,206and $15,499 of other depreciation and amortization expense for the six months ended December 31, 2017 and 2016, respectively.~~

~~Net Income Available to Common Stockholders.~~ During the six months ended December 31, 2017, we generated net income of $12.0 million, or $0.36 per diluted share, on total revenues of $19.6 million. This compares to net income of $2.9 million, or $0.09 per diluted share, on revenues of $16.1 million for the six months ended December 31, 2016. The $9.1 million earnings increase reflects higher revenues of $3.5 million, an income tax decrease of $6.9 million primarily attributable to the impact of Tax Cuts and Jobs Act, and a $1.2 million decrease in allocated net income to holders of preferred shares retired in November 2016, partially offset by $2.5 million of higher operating expenses.

~~Oil and Gas Revenues.~~ ~~Revenues increased 22% to $19.6 million as a result of a~~ ~~10%~~ increase in production volumes over the prior year period, together with a 11% increase in realized prices from $44.69 per equivalent barrel to $49.53 per equivalent barrel. All of our revenues in the current fiscal year came from the Delhi field, as well as virtually all of our revenues from the prior year. Net Delhi oil production volumes of 1,872 BOPD decreased 89 BOPD from the prior year period. Net NGL production averaged 279 BOEPD, at an average price of $31.00 per barrel. There were no NGL sales in the year-ago period as NGL plant production began in January 2017.

~~Production Costs. Production costs for the current year period were $5.8 million, a $1.2 million, or 25%, increase from the same period a year ago, primarily due to higher CO~~₂ ~~costs and the incremental operating costs of the NGL plant that commenced operations in January 2017. CO~~₂ costs increased $0.2 million, or 11%, due to higher purchase cost per Mcf, which is derived from the realized field oil price, partially offset by a slight 1% decline in purchase volumes. Average gross purchased CO₂ volumes decreased from 70.4 MMcf per day in the year-ago period to 69.5 MMcf per day for the current year. Other production costs, which include incremental costs of the NGL plant, power, chemicals, repairs and maintenance, labor and overhead, increased $0.9 million, or 37%, from the year-ago period. Virtually all of this increase was attributable to the NGL plant. Production costs per equivalent barrel in the current period were $14.67 per BOE on total production volumes, compared to $12.85 in the prior year period.

~~Calculated solely on our Delhi working interest volumes, production costs were $19.24 per BOE, of which $8.19 per BOE was CO~~₂cost. These costs per equivalent barrel exclude production volumes from our royalty interests in the Delhi field, which bear almost no production costs, and are therefore higher than the rates per barrel on our total production volumes.

~~General and Administrative Expenses (“G&A”).~~ G&A expenses increased $0.8 million, or 31%, to $3.2 million for the six months ended December 31, 2017. The increase in expense included $0.4 million of non-cash stock-based compensation expense, $0.1 million of severance costs, $0.1 million of litigation expense, $0.1 million of due diligence costs associated with property evaluations, and $0.1 million of higher board of director expenses.

~~Depreciation, Depletion & Amortization Expense (“DD&A”).~~ ~~DD&A increased $0.6 million, or 22%, to $3.2 million for the current period compared to the year-ago period primarily due to higher full cost amortization, reflecting a~~ ~~10%~~ ~~increase in production to 395,783 BOE, together with a 12% higher amortization rate of $7.93 per BOE. The higher rate is principally due to increased development costs.~~

~~Other Economic Factors~~

~~Inflation~~. Although the general inflation rate in the United States, as measured by the Consumer Price Index and the Producer Price Index, has been relatively low in recent years, the oil and gas industry has experienced unusually volatile price movements in commodity prices, vendor goods and oilfield services. Prices for drilling and oilfield services, oilfield equipment, tubulars, labor, expertise and other services impact our lease operating expenses and our capital expenditures. During fiscal 2018 to date, we have seen a firming of prices for operating and capital costs as a result of improving demand and a closer balance with the supply of goods and services in the industry. Product prices, operating costs and development costs may not always move in tandem.

~~Known Trends and Uncertainties~~. General worldwide economic conditions, as well as economic conditions for the oil and gas industry specifically, continue to be uncertain and volatile. Concerns over uncertain future economic growth are affecting numerous industries and companies, as well as consumers, which impact demand for crude oil and natural gas. If the supply of crude oil and natural gas exceeds demand in the future, it may put downward pressure on crude oil and natural gas prices, thereby lowering our revenues, profits, cash flow and working capital going forward. While we realized higher average oil prices in the quarter than any period since the quarter ended June 30, 2015, there can be no assurance that such prices will continue to prevail or trend upward.

~~Seasonality~~. Our business is generally not directly seasonal, except for instances when weather conditions may adversely affect access to our properties or delivery of our petroleum products. Although we do not generally modify our production for changes in market demand, we do occasionally experience seasonality in the product prices we receive, driven by summer cooling and driving, winter heating, and extremes in seasonal weather, including hurricanes. We have also experienced adverse impacts on our production from very high summer temperatures and extremely cold winter weather.

~~Off Balance Sheet Arrangements~~

~~The Company had no off-balance sheet arrangements to report for the quarter ended December 31, 2017.~~Significant Accounting Policies herein.

~~ITEM~~Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS~~Quantitative and Qualitative Disclosures About Market Risks

Information about market risks for the three months ended ~~December 31, 2017,~~September 30, 2019, did not change materially from the disclosures in Item 7A of our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019.

Commodity Price Risk

Our most significant market risk is the pricing for crude oil and NGL's. We expect energy prices to remain volatile and unpredictable. If energy prices decline significantly, our revenues and cash flow would significantly decline. In addition, a non-cash write-down of our oil and gas properties could be required under full cost accounting rules if future oil and gas commodity prices sustained a significant decline. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow and raise additional capital, as, if and when needed. We may use derivative instruments to manage our exposure to commodity price risk from time to time based on our assessment of such risk.

Interest Rate Risk

We currently have only a small exposure to changes in interest rates. Changes in interest rates affect the interest earned on our cash and cash equivalents. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes.

~~ITEM~~Item 4. ~~CONTROLS AND PROCEDURES~~Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to this Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) as of the end of the quarter covered by this report. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that as of ~~December 31, 2017~~September 30, 2019 our disclosure controls and procedures are effective in ensuring that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, during the quarter ended ~~December 31, 2017,~~September 30, 2019, we have determined there has been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

~~ITEM 1. LEGAL PROCEEDINGS~~

~~We are involved in certain legal proceedings that are described in our Annual Report on Form 10-K for the year ended June 30, 2017 in Part I. Item 3. “Legal Proceedings” and Note 18 —~~ ~~Commitments and Contingencies~~ ~~under Part II. Item 8. “Financial Statements.” Material developments in the status of those proceedings during the quarter ended December 31, 2017 are described in Part I.~~ Item 1. ~~"Financial Information" under Note 14 —~~ ~~Commitments and Contingencies~~ in this Quarterly Report and incorporated herein by reference. We believe that the ultimate liability, if any, with respect to these claims and legal actions will not have a material effect on our financial position.Legal Proceedings

None.

~~ITEM~~Item 1A. ~~RISK FACTORS~~Risk Factors

Our Annual Report on Form 10-K for the year ended June 30, ~~2017~~2019 includes a detailed description of our risk factors. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2019.

~~ITEM~~Item 2. ~~UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS~~Unregistered Sales of Equity Securities and Use of Proceeds

~~During the quarter ended December 31, 2017, the Company did not sell any equity securities that were not registered under the Securities Act.~~

Issuer Purchases of Equity Securities

During the quarter ended ~~December 31, 2017,~~September 30, 2019, the Company purchased shares of common stock in the open market under its share repurchase program announced in May 2015 and also received shares of common stock from employees of the Company to pay their share of payroll taxes arising from vestings of restricted stock and contingent restricted stock. ~~During this quarter, the Company did not purchase any common stock in the open market under the previously announced share repurchase program.~~ The table below summarizes information about the Company's purchases of its equity securities during the quarter ended ~~December 31, 2017.~~September 30, 2019.

Period
(a) Total Number of
Shares
Purchased (1)

(b) Average Price
Paid per Share(1)

(c) Total Number of Shares Purchased as Part
of Publicly Announced Plans or Programs (2)

(d) Maximum
Dollar Value
of Shares that
May Yet Be Purchased
Under the Plans or
Programs (2)
October 2017 2,471 $7.03 Not applicable $3.4 million
November 2017 29,001 $7.20 Not applicable $3.4 million
December 2017 8,262 $7.10 Not applicable $3.4 million
Total 39,734 $7.17 Not applicable $3.4 million



Period	(a) Total Number of Shares Purchased (1)	(b) Average Price Paid per Share(1)	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 2019	—	$—	Not applicable	$3.4 million
August 2019	167,805	$5.94	Not applicable	$2.4 million
September 2019	63,571	$5.76	Not applicable	$2.1 million
Total	231,376	$5.89	Not applicable	$2.1 million

(1)During the current quarter the Company received 8,939 shares of common stock from certain of its employees which were surrendered in exchange for their payroll tax liabilities arising from vestings of restricted stock and contingent restricted stock. The acquisition cost per share reflects the weighted-average market price of the Company's shares on the dates vested.

(2)On May 12, 2015, the Board of Directors approved a share repurchase program covering up to $5 million of the Company's common stock. Under the program's terms, shares may be repurchased only on the open market and in accordance with the requirements of the Securities and Exchange Commission. The timing and amount of repurchases will depend upon several factors, including financial resources and market and business conditions. There is no fixed termination date for this repurchase program, and the repurchase program may be suspended or discontinued at any time. Such shares are initially recorded as treasury stock, then subsequently canceled.

~~ITEM~~Item 3. ~~DEFAULTS UPON SENIOR SECURITIES~~Defaults Upon Senior Securities

Not applicable.

~~ITEM~~Item 4. ~~MINE SAFETY DISCLOSURES~~Mine Safety Disclosures

Not applicable.

~~ITEM~~Item 5. ~~OTHER INFORMATION~~Other Information

None.

~~ITEM~~Item 6. ~~EXHIBITS~~Exhibits

A. Exhibits



~~4.1~~			~~Form of Restricted Stock Agreement under 2016 Equity Incentive Plan (filed herein)~~
~~4.2~~			~~Form of Contingent Restricted Stock Agreement under 2016 Equity Incentive Plan (filed herein)~~
~~10.1~~			Second Amendment to Credit Agreement and Assumption Agreement to Credit Agreement dated April 11, 2016, between Evolution Petroleum Corporation and Midfirst Bank effective February 1, 2018 (filed herein)
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1			Certification of Chief Executive Officer pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EVOLUTION PETROLEUM CORPORATION

(Registrant)



	By:	/s/ ~~RANDALL D. KEYS~~DAVID JOE
		~~Randall D. Keys~~David Joe
		Senior Vice President, ~~and~~ Chief ~~Executive~~Financial Officer and
		Treasurer
Date: ~~February~~November 8, ~~2018~~2019

2728



	December 31, 2017		June 30, 2017
Receivables from oil and gas sales	$	4,078,153	$	2,722,880
Other	—		3,822
Total receivables	$	4,078,153	$	2,726,702



	Number of Contingent Restricted Shares	Weighted Average Grant-Date Fair Value
Performance-based awards	36,688	$	7.04
Market-based awards	25,180	3.42
Unvested contingent shares at December 31, 2017	61,868	$	5.57



Outstanding Potentially Dilutive Securities	Weighted Average Exercise Price		At December 31, 2016
Contingent Restricted Stock grants	$	—	113,270
Stock Options	2.19		35,231
Total outstanding potentially dilutive securities	$	0.52	148,501



Twelve months ended December 31,
2018	$	73,073
2019 (through May)	$	30,447

Outstanding Potentially Dilutive Securities

Weighted
Average
Exercise Price

At ~~December 31, 2017~~September 30, 2019

Contingent Restricted Stock grants

~~61,868~~200,000