http://fasb.org/us-gaap/2022#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrent http://fasb.org/us-gaap/2022#OperatingLeaseLiabilityNoncurrenthttp://fasb.org/us-gaap/2022#DerivativeAssetsCurrenthttp://fasb.org/us-gaap/2022#DerivativeLiabilitiesCurrent00010066552023FY3347071033247523P3YP7YP1MP1M0http://fasb.org/us-gaap/2022#DerivativeAssetsCurrenthttp://fasb.org/us-gaap/2022#DerivativeLiabilitiesCurrentP4YP3YP4YP4YP4Yhttp://fasb.org/us-gaap/2022#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrent http://fasb.org/us-gaap/2022#OperatingLeaseLiabilityNoncurrentfalse0001006655us-gaap:TreasuryStockCommonMember2022-07-012023-06-300001006655us-gaap:TreasuryStockCommonMember2021-07-012022-06-300001006655epm:ShareRepurchaseProgram2022Member2022-07-012023-06-300001006655epm:ShareRepurchaseProgram2022Member2022-09-082022-09-080001006655epm:ShareRepurchaseProgram2023Member2022-07-012023-06-300001006655epm:ShareRepurchaseProgram2023Member2023-06-300001006655epm:ShareRepurchaseProgram2022Member2022-09-080001006655us-gaap:CommonStockMember2022-07-012023-06-300001006655us-gaap:CommonStockMember2021-07-012022-06-300001006655us-gaap:RetainedEarningsMember2023-06-300001006655us-gaap:AdditionalPaidInCapitalMember2023-06-300001006655us-gaap:RetainedEarningsMember2022-06-300001006655us-gaap:AdditionalPaidInCapitalMember2022-06-300001006655us-gaap:RetainedEarningsMember2021-06-300001006655us-gaap:AdditionalPaidInCapitalMember2021-06-300001006655us-gaap:CommonStockMember2023-06-300001006655us-gaap:CommonStockMember2022-06-300001006655us-gaap:CommonStockMember2021-06-300001006655epm:A2016EquityIncentivePlanMember2022-06-300001006655epm:A2016EquityIncentivePlanMember2023-06-300001006655srt:MinimumMemberepm:RestrictedStockAndContingentRestrictedStockMarketBasedMember2022-07-012023-06-300001006655srt:MaximumMemberepm:RestrictedStockAndContingentRestrictedStockMarketBasedMember2022-07-012023-06-300001006655srt:MinimumMemberepm:RestrictedStockAndContingentRestrictedStockMarketBasedMember2021-07-012022-06-300001006655srt:MaximumMemberepm:RestrictedStockAndContingentRestrictedStockMarketBasedMember2021-07-012022-06-300001006655srt:MaximumMemberepm:RestrictedStockPerformanceBasedMember2022-07-012023-06-300001006655epm:RestrictedstocktimevestedMember2023-06-300001006655epm:RestrictedStockPerformanceBasedMember2023-06-300001006655us-gaap:RestrictedStockMember2021-06-300001006655epm:ContingentRestrictedStockGrantsMember2021-06-300001006655epm:RestrictedStockAndContingentRestrictedStockMarketBasedMember2022-07-012023-06-300001006655epm:RestrictedStockAndContingentRestrictedStockMarketBasedMember2021-07-012022-06-300001006655epm:RestrictedStockServiceBasedMember2022-07-012023-06-300001006655epm:RestrictedStockPerformanceBasedMember2022-07-012023-06-300001006655epm:PerformanceBasedContingentSharesMember2022-07-012023-06-300001006655epm:RestrictedStockServiceBasedMember2021-07-012022-06-300001006655epm:RestrictedStockPerformanceBasedMember2021-07-012022-06-300001006655epm:PerformanceBasedContingentSharesMember2021-07-012022-06-300001006655srt:MinimumMemberepm:RestrictedstocktimevestedMember2022-07-012023-06-300001006655srt:MaximumMemberepm:RestrictedstocktimevestedMember2022-07-012023-06-300001006655srt:DirectorMember2022-07-012023-06-300001006655epm:RestrictedStockMarketBasedMember2022-07-012023-06-300001006655srt:NaturalGasReservesMember2022-07-012023-06-300001006655srt:NaturalGasLiquidsReservesMember2022-07-012023-06-300001006655srt:CrudeOilMember2022-07-012023-06-300001006655srt:NaturalGasReservesMember2021-07-012022-06-300001006655srt:NaturalGasLiquidsReservesMember2021-07-012022-06-300001006655srt:CrudeOilMember2021-07-012022-06-300001006655epm:JonahFieldInWyomingFromExaroEnergyIiiLlcMemberepm:SeniorSecuredReserveBasedCreditFacilityMember2022-04-012022-04-010001006655epm:WillistonBasinAcquisitionMemberepm:SeniorSecuredReserveBasedCreditFacilityMember2022-01-142022-01-1400010066552014-01-012023-06-300001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2022-07-012023-06-300001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2023-06-300001006655us-gaap:RestrictedStockMember2023-06-300001006655epm:ContingentRestrictedStockGrantsMember2023-06-300001006655us-gaap:RestrictedStockMember2022-06-300001006655epm:ContingentRestrictedStockGrantsMember2022-06-300001006655us-gaap:RestrictedStockMember2022-07-012023-06-300001006655epm:ContingentRestrictedStockGrantsMember2022-07-012023-06-300001006655us-gaap:RestrictedStockMember2021-07-012022-06-300001006655epm:ContingentRestrictedStockGrantsMember2021-07-012022-06-300001006655us-gaap:RetainedEarningsMember2022-07-012023-06-300001006655us-gaap:RetainedEarningsMember2021-07-012022-06-300001006655epm:LongTermLiabilitiesMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2023-06-300001006655epm:CurrentLiabilitiesMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2023-06-300001006655epm:LongTermLiabilitiesMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2022-06-300001006655epm:CurrentLiabilitiesMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2022-06-300001006655us-gaap:OtherAssetsMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2023-06-300001006655epm:CurrentAssetsMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2023-06-300001006655us-gaap:NondesignatedMember2023-06-300001006655us-gaap:OtherAssetsMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2022-06-300001006655epm:CurrentAssetsMemberus-gaap:CommodityContractMemberus-gaap:NondesignatedMember2022-06-300001006655us-gaap:NondesignatedMember2022-06-300001006655us-gaap:FairValueInputsLevel2Member2022-06-300001006655srt:MaximumMember2021-07-012022-06-300001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2016-04-112016-04-110001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMemberus-gaap:PrimeRateMember2016-04-112016-04-110001006655us-gaap:SubsequentEventMember2023-09-112023-09-1100010066552023-04-012023-06-3000010066552023-01-012023-03-3100010066552022-10-012022-12-3100010066552022-07-012022-09-3000010066552022-04-012022-06-3000010066552022-01-012022-03-3100010066552021-10-012021-12-3100010066552021-07-012021-09-3000010066552021-06-300001006655us-gaap:RestrictedStockUnitsRSUMember2022-07-012023-06-300001006655us-gaap:RestrictedStockUnitsRSUMember2021-07-012022-06-300001006655us-gaap:MeasurementInputDiscountRateMemberus-gaap:OilAndGasPropertiesMember2023-06-300001006655us-gaap:GeneralAndAdministrativeExpenseMember2022-07-012023-06-300001006655us-gaap:GeneralAndAdministrativeExpenseMember2021-07-012022-06-300001006655us-gaap:AdditionalPaidInCapitalMember2022-07-012023-06-300001006655us-gaap:AdditionalPaidInCapitalMember2021-07-012022-06-300001006655srt:NaturalGasPerThousandCubicFeetMember2022-07-012023-06-300001006655srt:NaturalGasPerThousandCubicFeetMember2021-07-012022-06-300001006655epm:BarnettShaleMember2022-07-012023-06-300001006655srt:MinimumMember2022-07-012023-06-300001006655srt:MaximumMember2022-07-012023-06-3000010066552022-02-070001006655srt:CrudeOilMember2023-06-300001006655srt:CrudeOilMember2022-06-300001006655srt:NaturalGasPerThousandCubicFeetMember2023-06-300001006655srt:NaturalGasPerThousandCubicFeetMember2022-06-300001006655epm:CrudeOilNaturalGasAndNaturalGasLiquidsMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2022-06-300001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2021-08-050001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2021-06-300001006655srt:MinimumMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2016-04-110001006655srt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2021-11-090001006655srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2021-11-090001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2021-11-0900010066552016-04-110001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2016-04-110001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-05-052023-05-050001006655us-gaap:RevolvingCreditFacilityMemberepm:SeniorSecuredReserveBasedCreditFacilityMemberus-gaap:LineOfCreditMember2023-05-050001006655epm:DenburyMemberepm:CrudeOilNaturalGasAndNaturalGasLiquidsMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2022-07-012023-06-300001006655epm:ConocoPhillipsMembersrt:NaturalGasLiquidsReservesMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2022-07-012023-06-300001006655epm:BarnettMemberepm:CrudeOilNaturalGasAndNaturalGasLiquidsMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2022-07-012023-06-300001006655epm:CrudeOilNaturalGasAndNaturalGasLiquidsMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2022-07-012023-06-300001006655epm:CrudeOilNaturalGasAndNaturalGasLiquidsMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2021-07-012022-06-300001006655epm:JonahFieldInWyomingFromExaroEnergyIiiLlcMember2022-04-012022-04-010001006655epm:WillistonBasinAcquisitionMember2022-01-142022-01-140001006655epm:JonahFieldInWyomingFromExaroEnergyIiiLlcMemberus-gaap:OtherAssetsMember2022-04-010001006655epm:JonahFieldInWyomingFromExaroEnergyIiiLlcMember2022-04-010001006655epm:WillistonBasinAcquisitionMember2022-06-300001006655epm:JonahFieldAcquisitionMember2022-06-300001006655epm:JonahFieldAcquisitionMember2023-06-3000010066552021-07-012022-06-3000010066552022-06-3000010066552023-06-3000010066552022-12-3100010066552023-09-0800010066552022-07-012023-06-30xbrli:sharesiso4217:USDxbrli:pureepm:agreementepm:itemiso4217:USDutr:MMBTUiso4217:USDutr:bbliso4217:USDxbrli:shares

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended June 30, 2023

TRANSITION 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)

Graphic

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)

(713935-0122

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

   

Trading Symbol(s)

   

Name of Each Exchange On Which Registered

Common Stock, $0.001 par value

EPM

NYSE American

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes:     No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes:     No

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    No: 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes    No: 

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

Large accelerated filer 

Accelerated filer

Non-accelerated filer

Smaller reporting company  

Emerging growth company

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.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates on December 31, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of $7.55 on the NYSE American was $233.4 million.

The number of shares outstanding of the registrant’s common stock, par value $0.001, as of September 8, 2023, was 33,235,723.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement related to the registrant’s 2023 Annual Meeting of Stockholders to be filed within 120 days of the end of the fiscal year covered by this report are incorporated by reference into Part III of this report.

Table of Contents

EVOLUTION PETROLEUM CORPORATION

2023 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Forward-Looking Statements

ii

Glossary of Selected Petroleum Industry Terms

iv

PART I

Item 1.

Business

1

Item 1A.

Risk Factors

15

Item 1B.

Unresolved Staff Comments

26

Item 2.

Properties

26

Item 3.

Legal Proceedings

26

Item 4.

Mine Safety Disclosures

26

PART II

27

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

27

Item 6.

Reserved

28

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 7A.

Quantitative and Qualitative Disclosures About Market Risks

39

Item 8.

Consolidated Financial Statements and Supplementary Data

40

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

75

Item 9A.

Controls and Procedures

75

Item 9B.

Other Information

76

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

76

PART III

77

Item 10.

Directors, Executive Officers, and Corporate Governance

77

Item 11.

Executive Compensation

77

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

77

Item 13.

Certain Relationships and Related Transactions, and Director Independence

77

Item 14.

Principal Accounting Fees and Services

77

PART IV

78

Item 15.

Exhibits and Financial Statement Schedules

78

Item 16.

From 10-K Summary

78

Exhibit Index

79

Signatures

82

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.

i

Table of Contents

FORWARD-LOOKING STATEMENTS

This Form 10-K 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. All statements, except for statements of historical fact, are forward-looking statements. The words “plan,” “expect,” “project,” “estimate,” “may,” “assume,” “believe,” “anticipate,” “intend,” “budget,” “forecast,” “predict” and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words or phrases. 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, which may include, but are not limited to, the following:

our expectations of plans, strategies and objectives, including anticipated development activity and capital spending;
our capital allocation strategy, capital structure, anticipated sources of funding, growth in long-term shareholder value and ability to preserve balance sheet strength;
the benefits of our multi-basin portfolio, including operational and commodity flexibility;
our ability to maximize cash flow and the application of excess cash flows to pay dividends and repurchase shares pursuant to our share repurchase program;
estimates of our oil, natural gas and NGLs production and commodity mix;
anticipated oil, natural gas and NGL prices;
anticipated drilling and completions activity;
estimates of our oil, natural gas and NGL reserves and recoverable quantities;
our ability to access credit facilities and other sources of liquidity to meet financial obligations throughout commodity price cycles;
limitations on our ability to obtain funding based on environmental, social, and corporate governance (“ESG”) performance;
future interest expense;
our ability to manage debt and financial ratios, finance growth and comply with financial covenants;
the implementation and outcomes of risk management programs, including exposure to commodity price and interest rate fluctuations, the volume of oil and natural gas production hedged, and the markets or physical sales locations hedged;
the impact of changes in federal, state, provincial and local, rules and regulations;
anticipated compliance with current or proposed environmental requirements, including the costs thereof;
the possible impact of greenhouse gas (“GHG”) emissions limitations and renewable energy incentives;
adequacy of provisions for abandonment and site reclamation costs;
our operational and financial flexibility, discipline and ability to respond to evolving market conditions;
the declaration and payment of future dividends and any anticipated repurchase of our outstanding common shares;
the adequacy of our provision for taxes and legal claims;
our ability to manage cost inflation and expected cost structures, including expected operating, transportation, processing and labor expenses;
our competitiveness relative to our peers, including with respect to capital, materials, people, assets and production;
oil, natural gas and NGL inventories and global demand for oil, natural gas and NGLs;
the outlook of the oil and natural gas industry generally, including impacts from changes to the geopolitical environment;
adverse weather events;
anticipated staffing levels;
anticipated payments related to our commitments, obligations and contingencies, and the ability to satisfy the same; and
the possible impact of accounting and tax pronouncements, rule changes and standards.

ii

Table of Contents

Readers are cautioned against unduly relying on forward-looking statements which, by their nature, involve numerous assumptions and are subject to both known and unknown risks and uncertainties (many of which are beyond our control) that may cause actual events or results to differ materially and/or adversely from those expressed or implied, which include, but are not limited to the following assumptions:

future commodity prices and basis differentials;
our ability to access credit facilities and shelf prospectuses;
assumptions contained in our corporate guidance;
the availability of attractive commodity or financial hedges and the enforceability of risk management programs;
expectations that counterparties will fulfill their obligations pursuant to gathering, processing, transportation and marketing agreements;
access to adequate gathering, transportation, processing and storage facilities;
assumed tax, royalty and regulatory regimes;
expectations and projections made in light of, and generally consistent with, our historical experience and our perception of historical industry trends; and
the other assumptions contained herein.

Readers are cautioned that the assumptions, risks and uncertainties referenced above, and in the other documents incorporated herein by reference (if any), are not exhaustive. Although we believe the expectations represented by our forward-looking statements are reasonable based on the information available to us as of the date such statements are made, forward-looking statements are only predictions and statements of our current beliefs and there can be no assurance that such expectations will prove to be correct.

When considering any forward-looking statement, the reader 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, natural gas and NGLs, operating risks and other risk factors as described in Part I, Item 1A. Risk Factors and elsewhere in this report and as also may be described from time to time in future reports we file with the Securities and Exchange Commission. Readers should also consider such information in conjunction with our consolidated financial statements and related notes and Item 7. 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. Readers are advised, however, to review any further disclosures we make on related subjects in our filings with the Securities and Exchange Commission.

iii

Table of Contents

GLOSSARY OF SELECTED PETROLEUM INDUSTRY TERMS

Term

    

Definition

 

Bbl

One stock tank barrel, of 42 U.S. gallons of liquid volume, used herein in reference to oil or NGL.

BCF

Billion cubic feet.

BFPD

Barrels of fluid per day.

BOE

Barrels of oil equivalent. BOE is calculated by converting six MCF of natural gas and 42 gallons of NGL to one Bbl of oil which reflects energy equivalence and not price equivalence. Natural gas prices per MCF and NGL prices per barrel often differ significantly from the equivalent amount of oil.

BOEPD

Barrels of oil equivalent per day.

BOPD

Barrels of oil per day.

BTU

British Thermal Unit: the standard unit of measure of energy equal to the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit. One Bbl of oil is typically 5.8 MMBTU, and one standard MCF is typically one MMBTU.

CO2

Carbon Dioxide; CO2 is a gas that can be found in naturally occurring reservoirs, is typically associated with ancient volcanoes, is a major byproduct from manufacturing and power production, and is also utilized in enhanced oil recovery through injection into an oil reservoir.

Developed Reserves

Reserves of any category that can be expected to be recovered (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by a means not involving a well.

EOR

Enhanced Oil Recovery; projects that involve injection of heat, miscible or immiscible gas, or chemicals into oil reservoirs, typically following full primary and secondary waterflood recovery efforts, in order to gain incremental recovery of oil from the reservoir.

Field

An area consisting of a single reservoir or multiple reservoirs all grouped within or related to the same geologic structural features and/or stratigraphic features.*

Farmout

Sale or transfer of all or part of the operating rights from the working interest owner (the assignor or farmout party), to an assignee (the farm-in party) who assumes all or some of the burden of development, in return for an interest in the property. The assignor may retain an overriding royalty or any other type of interest. For Federal tax purposes, a farmout may be structured as a sale or lease, depending on the specific rights and carved out interests retained by the assignor.

Gross Acres or Gross Wells

The total acres or number of wells participated in, regardless of the amount of working interest owned.

Horizontal Drilling

Involves drilling horizontally out from a vertical well-bore, thereby potentially increasing the area and reach of the well-bore that is in contact with the reservoir.

Hydraulic Fracturing

Involves pumping a fluid with or without particulates into a formation at high pressure, thereby creating fractures in the rock and leaving the particulates in the fractures to ensure that the fractures remain open which potentially increases the ability of the reservoir to produce oil or natural gas.

LOE

Lease Operating Expense(s); a current period expense incurred to operate a well.

MBBL

One thousand barrels.

MMBBL

One million barrels.

MBOE

One thousand barrels of oil equivalent.

MBOEPD

One thousand barrels of oil equivalent per day.

MMBOE

One million barrels of oil equivalent.

MCF

One thousand cubic feet of natural gas at standard conditions, being approximately sea level pressure and 60 degrees Fahrenheit temperature.

MMCF

One million cubic feet of natural gas at standard conditions, being approximately sea level pressure and 60 degrees Fahrenheit temperature.

MMBTU

One million British Thermal Units.

Mineral Royalty Interest

A royalty interest that is retained by the owner of the minerals underlying a lease. See Royalty Interest.

iv

Table of Contents

Net Acres or Net Wells

The sum of the fractional working interests owned in gross acres or gross wells.

NGL

Natural Gas Liquids; the combination of ethane, propane, butane and natural gasoline that can be removed from natural gas through processing, typically through refrigeration plants that utilize low temperatures, or through plants that utilize compression, temperature reduction and expansion to a lower pressure.

Non-operated Interest

An interest in an oil and/or natural gas property but does not participate in or have any responsibility for actual operation of the property.

Non-operated Working Interest

An interest in an oil and/or natural gas property but does not participate in or have any responsibility for actual operation of the property, but is burdened with the cost of development and operation of the property.

NYMEX

New York Mercantile Exchange.

OOIP

Original Oil in Place; an estimate of the barrels originally contained in a reservoir before any production therefrom.

Operator

An oil and natural gas joint venture participant that manages the joint venture, pays venture costs and bills the venture’s non-operators for their share of venture costs. The operator is also responsible to market all oil and natural gas production, except for those non-operators who take their production in-kind.

Overriding Royalty Interest or ORRI

A royalty interest that is created out of the operating or working interest. Unlike a royalty interest, an overriding royalty interest terminates with the operating interest from which it was created or carved out of. See Royalty Interest.

Permeability

The measure of ease with which a fluid can move through a reservoir. The unit of measure is a darcy (d), or any metric derivation thereof, such as a millidarcy (md), where one darcy equals 1,000 millidarcy. Extremely low permeability of 10 millidarcy, or less, are often associated with source rocks, such as shale. Extraction of hydrocarbons from a source rock is more difficult than a sandstone reservoir where permeability typically ranges one to two darcy or more.

Porosity

The relative volume of the pore space (or open area) compared to the total bulk volume of the reservoir, stated in percent. Higher porosity rocks provide more storage space for hydrocarbon accumulations than lower porosity rocks in a given cubic volume of reservoir.

Primary Recovery Method

The extraction of oil and natural gas from reservoirs using natural or initial reservoir pressure combined with artificial lift techniques such as pumps.

Producing Reserves

Any category of reserves that have been developed and production has been initiated.*

Producing Well

Any well that has been developed and production has been initiated.*

Proved Developed Reserves

Proved Reserves that can be expected to be recovered (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by a means not involving a well.

Proved Developed Nonproducing Reserves

Proved Reserves that have been developed and no material amount of capital expenditures are required to bring on production, but production has not yet been initiated due to timing, markets, or lack of third party completed connection to a natural gas sales pipeline.*

Proved Developed Producing Reserves (PDP)

Proved Reserves that have been developed and production has been initiated.*

Proved Reserves

Estimated quantities of oil, natural gas, and NGLs which geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.*

v

Table of Contents

Proved Undeveloped Reserves (“PUD”)

Proved Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.* (i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. (ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. (iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology establishing reasonable certainty.

Present Value

When used with respect to oil and natural gas reserves, present value means the estimated future net revenues computed by applying current prices of oil and natural gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and natural gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs to be incurred in developing and producing the proved reserves) computed using a discount factor and assuming continuation of existing economic conditions.

Productive Well

A well that is producing oil or natural gas or that is capable of production.

PV-10

Means the present value, discounted at 10% per annum, of future net revenues (estimated future gross revenues less estimated future costs of production, development, and asset retirement costs) associated with reserves and is not necessarily the same as market value. PV-10 does not include estimated future income taxes. Unless otherwise noted, PV-10 is calculated using the pricing scheme as required by the Securities and Exchange Commission (“SEC”). PV-10 of proved reserves is calculated the same as the standardized measure of discounted future net cash flows, except that the standardized measure of discounted future net cash flows includes future estimated income taxes discounted at 10% per annum. See the definition of standardized measure of discounted future net cash flows.

Reservoir

A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Royalty or Royalty Interest

The mineral owner’s share of oil or natural gas production (typically between 1/8 and ¼), free of costs, but subject to severance taxes unless the lessor is a government. In certain circumstances, the royalty owner bears a proportionate share of the costs of making the natural gas saleable, such as processing, compression, and gathering.

Secondary Recovery Method

The extraction of oil and natural gas from reservoirs utilizing water injection (waterflooding) in order to maintain or increase reservoir pressure and direct the displacement of oil into producing wells.

Shut-in Well

A well that is not on production, but has not been plugged and abandoned. Wells may be shut-in in anticipation of future utility as a producing well, plugging and abandonment or other use.

Standardized Measure

The standardized measure of discounted future net cash flows. The Standardized Measure is an estimate of future net cash flows associated with proved reserves, discounted at 10% per annum. Future net cash flows are calculated by reducing future net revenues by estimated future income tax expenses and discounting at 10% per annum. The Standardized Measure and the PV-10 of proved reserves are calculated in the same exact fashion, except that the Standardized Measure includes future estimated income taxes discounted at 10% per annum. The Standardized Measure is in accordance with accounting standards generally accepted in the United States of America (“GAAP”).

Tertiary Recovery Method

The extraction of oil and natural gas from reservoirs which employs injection of gas, heat, or chemicals into the reservoir in order to change the physical properties of the oil and aid in its extraction, also known as Enhanced Oil Recovery (EOR).

Undeveloped Reserves

Reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.*

vi

Table of Contents

Water Injection Well

A well which is used to inject water under high pressure into a producing formation to maintain sufficient pressure to produce the recoverable reserves.

Working Interest

The interest in the oil and natural gas in place which is burdened with the cost of development and operation of the property. Also called the operating interest.

Workover

A remedial operation on a completed well to restore, maintain, or improve the well’s production.

*

This definition may be an abbreviated version of the complete definition as defined by the SEC in Rule 4-10(a) of Regulation S-X.

vii

Table of Contents

PART I

Item 1.   Business

Note: See Glossary of Selected Petroleum Industry Terms starting on page iv.

General

Evolution Petroleum Corporation (“Evolution,” and together with its consolidated subsidiaries, the “Company”, “our”, “we, “us” or similar terms) is an independent energy company focused on maximizing total returns to its shareholders through the ownership of and investment in onshore oil and natural gas properties in the United States. Our long-term goal is to maximize total shareholder return from a diversified portfolio of long-life oil and natural gas properties built through acquisition and through selective development opportunities, production enhancement, and other exploitation efforts on our oil and natural gas properties.

Recent Developments

Dividend Declaration

On September 11, 2023, Evolution’s Board of Directors approved and declared a quarterly dividend of $0.12 per common share payable September 29, 2023.

Senior Secured Credit Facility

On May 5, 2023, we entered into the Tenth Amendment to our Senior Secured Credit Facility which has a current borrowing base of $50.0 million. This amendment, among other things, extends the maturity of our Senior Secured Credit Facility to April 9, 2026 and converts our benchmark interest rate from London Interbank Offered Rate (“LIBOR”) to a Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment of 0.05%. For further discussion of this amendment and our Senior Secured Credit Facility, see “Liquidity and Capital Resources” within Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

Appointment of Chief Operating Officer

On February 23, 2023, we announced that the Board of Directors appointed J. Mark Bunch as Chief Operating Officer (“COO”). Mr. Bunch had been providing consulting services to the Company since 2016. We entered into an offer letter with Mr. Bunch setting forth his compensation as COO on February 21, 2023.

Appointment of Chief Executive Officer

On October 27, 2022, we announced that the Board of Directors selected Kelly W. Loyd as President and Chief Executive Officer (“CEO”). Mr. Loyd had been serving as Interim CEO since June 2022 and has served as a member of the Board of Directors since 2008. We entered into an offer letter with Mr. Loyd setting forth his compensation as CEO on October 25, 2022. Upon commencing employment, Mr. Loyd no longer receives compensation for his services as a member of the Board of Directors.

Share Repurchase Program

On September 8, 2022, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $25.0 million of our common stock in the open market through December 31, 2024. We intend to fund repurchases from available working capital and cash provided by operating activities. As we continue to focus on our goal of maximizing total shareholder return, the Board of Directors and management team believe that a share repurchase program is complimentary to the existing dividend policy and is a tax efficient means to further improve shareholder return. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors, including management’s

1

Table of Contents

assessment of the intrinsic value of our shares, our capital needs and resources, the market price of our common stock, general market and economic conditions, and applicable legal requirements. The value of shares authorized for repurchase by our Board of Directors does not require us to repurchase such shares or guarantee that such shares will be repurchased, and the program may be suspended, modified, or discontinued at any time without prior notice.

Once we completed repayment of borrowings on our Senior Secured Credit Facility and emerged from our blackout period in December 2022, we entered into a Rule 10b5-1 plan that authorized a broker to repurchase shares in the open market subject to pre-defined limitations on trading volume and price. The plan included a 30-day cooling off period that did not allow repurchases to commence until January 2023. The plan was effective until June 30, 2023 and had a maximum authorized amount of $5.0 million over that period. During the year ended June 30, 2023, 0.6 million shares of our common stock were repurchased under the plan at a total cost of approximately $3.9 million, including incremental direct transaction costs. These treasury shares were subsequently cancelled. We may enter into additional Rule 10b5-1 plans in the future, the terms of which will be approved by the Board of Directors.

Business Strategy

Our business strategy is to maximize total shareholder return based on our assessment of the operating environment and marketplace, subject to our obligations to other stakeholders. The key elements of our strategy to accomplish our goal of maximizing shareholder return are:

Maintaining a strong balance sheet and conservative financial management;
Growing the asset base through investment in our existing properties, direct acquisitions of new low decline, long-life oil and natural gas properties, selective development opportunities, or accretive acquisitions of similar companies; and
Returning cash to shareholders by sustaining and growing our dividend payout over time or repurchases of our shares in the open market.

Properties

Our oil and natural gas properties consist of non-operated interests in the following areas: the Jonah Field in Sublette County, Wyoming; the Williston Basin in North Dakota; the Barnett Shale located in North Texas; the Hamilton Dome Field located in Hot Springs County, Wyoming; the Delhi Holt-Bryant Unit in the Delhi Field in Northeast Louisiana; as well as small overriding royalty interests in four onshore central Texas wells.

Graphic

2

Table of Contents

Jonah Field – Sublette County, Wyoming

Our non-operated interests in the Jonah Field, a natural gas and NGL property in Sublette County, Wyoming, consist of approximately 20% average net working interest and approximately 15% average net revenue interest located on approximately 950 net acres all held by production. The properties are operated by Jonah Energy (“Jonah”), an established operator in the geographic region.

For the year ended June 30, 2023, our average net daily production from the Jonah Field properties was 1.9 MBOEPD consisting of 90% natural gas, 5% NGLs, and 5% oil. Hydrocarbons produced from our Jonah Field properties are sold to West Coast markets.

Williston Basin – Williston, North Dakota

Our non-operated interests in the Williston Basin, oil and natural gas producing properties, consist of approximately 39% average net working interest and approximately 33% average net revenue interest located on approximately 43,300 net acres (approximately 92% held by production) across Billings, Golden Valley, and McKenzie Counties in North Dakota. The properties are operated by Foundation Energy Management (“Foundation”), an established operator in the geographic region.

For the year ended June 30, 2023, our average net daily production from the Willison Basin properties was 0.5 MBOEPD consisting of 78% oil, 13% NGLs, and 9% natural gas. The primary producing reservoirs are the Three Forks, Pronghorn, and Bakken formations. Hydrocarbons produced from the Williston Basin properties are sold to local refineries and purchasers.

Barnett Shale - North Texas

Our non-operated interests in the Barnett Shale, a natural gas and NGL producing shale reservoir, consist of approximately 17% average net working interest and approximately 14% average net revenue interest (inclusive of small overriding royalty interests) located on approximately 21,000 net acres held by production across nine North Texas counties (Bosque, Denton, Erath, Hill, Hood, Johnson, Parker, Somervell, and Tarrant), in the Barnett Shale. The oil and natural gas properties are primarily operated by Diversified Energy Company with approximately 10% of wells operated by six other operators.

For the year ended June 30, 2023, our average net daily production from the Barnett Shale properties was 3.2 MBOEPD consisting of 76% natural gas, 23% NGLs, and 1% oil. The producing reservoir is the Barnett Shale, which is also the source rock. Hydrocarbons produced from our Barnett Shale properties are sold to Gulf Coast markets.

Hamilton Dome – Hot Springs County, Wyoming

Our non-operated interests in the Hamilton Dome Field, a secondary recovery field utilizing water injection wells to pressurize the reservoir, consist of approximately 24% average net working interest, with an associated 20% average net revenue interest (inclusive of a small overriding royalty interest). The approximately 5,900 gross acre unitized field, of which we hold approximately 1,400 net acres, is operated by Merit Energy Company (“Merit”), a private oil and natural gas company, who owns the vast majority of the remaining working interest in the Hamilton Dome Field. The Hamilton Dome Field is located in the southwest region of the Big Horn Basin in northwest Wyoming.

For the year ended June 30, 2023, our average net daily production from the Hamilton Dome Field properties was 0.4 MBOEPD consisting of 100% oil. The primary producing reservoirs in the field are the Tensleep and Phosphoria. Produced oil from the field is subject to Western Canadian Select pricing.

Delhi Field – Enhanced Oil Recovery CO2 Flood – Onshore Louisiana

Our non-operated interests in the Delhi Field, a CO2-EOR project, consist of approximately 24% average net working interest, with an associated 19% revenue interest and separate overriding royalty and mineral interests of approximately

3

Table of Contents

7% yielding a total average net revenue interest of approximately 26%. The field is operated by Denbury Onshore LLC (“Denbury”), a subsidiary of Denbury Inc. The Delhi Field is located in northeast Louisiana in Franklin, Madison, and Richland Parishes and encompasses approximately 14,000 gross unitized acres, or approximately 3,200 net acres.

For the year ended June 30, 2023, our average net daily production from the Delhi Field properties was 1.1 MBOEPD consisting of 80% oil and 20% NGLs. The primary producing reservoirs in the field are the Tuscaloosa and Paluxy formations. Produced oil from the field is priced off of Louisiana Light Sweet (“LLS”) crude, which often trades at a premium to West Texas Intermediate (“WTI").

Refer to “Production volumes, average sales price and average production costs” table below for further information regarding our properties and their fiscal year results.

Estimated Oil and Natural Gas Reserves and Estimated Future Net Revenues

The Securities and Exchange Commission (“SEC”) sets rules related to reserve estimation and disclosure requirements for oil and natural gas companies. These rules require disclosure of oil and natural gas proved reserves by significant geographic area, using the trailing 12-month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, rather than year-end prices, and allows the use of new technologies in the determination of proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes. Subject to limited exceptions, the rules also require that proved undeveloped reserves may only be classified as such if a development plan has been adopted indicating that they are scheduled to be drilled within five years.

There are numerous uncertainties inherent in estimating quantities of proved reserves and estimates of reserves quantities and values must be viewed as being subject to significant change as more data about the properties becomes available.

Summary of Oil & Gas Reserves for Fiscal Year Ended 2023

Our proved reserves as of June 30, 2023, denominated in thousands of barrels of oil equivalent (“MBOE”), were estimated by our independent reservoir engineers, Netherland, Sewell & Associates, Inc. (“NSAI”) and DeGolyer and MacNaughton (“D&M”), both worldwide petroleum consultants.

NSAI evaluated the reserves for our Jonah Field and Williston Basin properties. NSAI began evaluating these properties when we acquired each of them during the fiscal year ended June 30, 2022. The scope and results of their procedures are summarized in a letter from the firm, which is included as Exhibit 99.1 to this Annual Report on Form 10-K.

D&M evaluated the reserves for our Barnett Shale, Hamilton Dome, and Delhi Field properties. The scope and results of their procedures are summarized in a letter from the firm, which is included as Exhibit 99.2 to this Annual Report on Form 10-K.

The following table sets forth our estimated proved reserves as of June 30, 2023. For additional reserve information, see our Supplemental Disclosure about Oil and Natural Gas Properties (unaudited) to our consolidated financial statements in Item 8. Financial Statements and Supplementary Data. The New York Mercantile Exchange (“NYMEX”) previous 12-month unweighted arithmetic average first-day-of-the-month price used to calculate estimated revenues was $83.23 per barrel of oil and $4.78 per MMBtu of natural gas. The net price per barrel of NGLs was $33.71, which does not have any single comparable reference index price. The NGL price was based on historical prices received. For periods for which no historical price information was available, we used comparable pricing in the geographic area. Pricing differentials were applied based on quality, processing, transportation, location and other pricing aspects for each individual property and product.

4

Table of Contents

Proved Reserves as of June 30, 2023

Oil

Natural Gas

NGLs

Total Reserves

Percent of

Reserve Category

    

(MBbls)

    

(MMcf)

    

(MBbls)

    

(MBOE)(1)

    

Total Proved

Proved:

Developed Producing

7,062

90,103

5,263

27,343

87.7

%

Developed Non-Producing

122

29

9

136

0.4

%

Undeveloped

2,687

2,431

605

3,697

11.9

%

Total Proved

9,871

92,563

5,877

31,176

100.0

%

Product Mix

32%

49%

19%

100%

Total Proved by Property:

Jonah Field

346

34,743

417

6,554

21.0

%

Williston Basin

4,219

3,655

886

5,714

18.3

%

Barnett Shale

90

54,165

3,380

12,498

40.1

%

Hamilton Dome Field

2,331

2,331

7.5

%

Delhi Field

2,885

1,194

4,079

13.1

%

Total Proved

9,871

92,563

5,877

31,176

100.0

%

(1)Equivalent oil reserves are defined as six Mcf of natural gas and 42 gallons of NGLs to one barrel of oil conversion ratio which reflects energy equivalence and not price equivalence. Natural gas prices per Mcf and NGL prices per barrel often differ significantly from the equivalent amount of oil.

Internal Controls Over Reserves Estimation Process and Qualifications of Technical Persons with Oversight for the Company’s Overall Reserve Estimation Process

Our policies regarding internal controls over reserves estimates require such estimates to be prepared by an independent petroleum engineering firm under the supervision of our internal reserve engineering team, which includes our COO. Our internal reserve engineering team has a combined experience of over 80 years in Petroleum Engineering. Our COO, the person responsible for overseeing the preparation of our reserves estimates, has a Bachelor of Science Degree in Petroleum Engineering from Texas A&M University, is a registered Professional Engineer in the State of Texas (No. 86704), has over 40 years of oil and natural gas experience including large independents and financial firm services for projects and acquisitions. Our Board of Directors also has oversight of our reserve estimation process and contains a Reserves Committee with an independent director who is a Registered Professional Engineer in the State of Texas (No. 47279) with experience in energy company reserve evaluations. Such reserve estimates comply with generally accepted petroleum engineering and evaluation principles, definitions, and guidelines as established by the SEC.

The reserves information in this filing is based on estimates prepared by NSAI and D&M. The person responsible for the preparation of the reserve report at NSAI is Matthew D. Pankey, P.E., Petroleum Engineer. Mr. Pankey, a licensed Professional Engineer in the State of Texas (No. 142931), has been practicing consulting petroleum engineering at NSAI since 2019 and has over six years of prior industry experience. The person responsible for the preparation of the reserve report at D&M is Dr. Dilhan Ilk, P.E., Executive Vice President. Dr. Ilk received a Bachelor of Science degree in Petroleum Engineering in 2003 from Istanbul Technical University and a Master’s degree and Doctorate in Petroleum Engineering in 2005 and 2010, respectively, from Texas A&M University, and he has in excess of 13 years of experience in oil and natural gas reservoir studies and evaluations and is a licensed Professional Engineer in the state of Texas (No. 139334).

We provide NSAI and D&M with our property interests, production, current operating costs, current production prices, estimated abandonment costs and other information in order for them to prepare the reserve estimates. This information is reviewed by our senior management team and designated operations personnel to ensure accuracy and completeness of the data prior to submission to the reserve engineers. The scope and results of NSAI’s and D&M’s procedures, as well as their professional qualifications, are summarized in the letters included as Exhibit 99.1 and Exhibit 99.2, respectively, to this Annual Report on Form 10-K.

5

Table of Contents

Proved Undeveloped Reserves

During the year ended June 30, 2023 our proved undeveloped (“PUD”) reserves changed as follows:

Oil

Natural Gas

NGLs

Total Reserves

Proved undeveloped reserves:

    

(MBbls)

    

(MMcf)

    

(MBbls)

    

(MBOE)(1)

June 30, 2022

2,608

2,197

623

3,597

Revisions of previous estimates

(19)

234

(38)

(18)

Improved recovery, extensions and discoveries

98

20

118

June 30, 2023

2,687

2,431

605

3,697

(1)Equivalent oil reserves are defined as six Mcf of natural gas and 42 gallons of NGLs to one barrel of oil conversion ratio which reflects energy equivalence and not price equivalence. Natural gas prices per Mcf and NGL prices per barrel often differ significantly from the equivalent amount of oil.

Our PUD reserves were 3.7 MMBOE as of June 30, 2023, with related future development costs of approximately $71.7 million, which are primarily associated with the Williston Basin properties. The downward revisions were due to adjustments of development timing and economic assumptions at the Williston Basin properties. Extensions of 0.1 MMBOE are associated with two new wells that Denbury, the operator of the Delhi Field, is currently drilling. See “Drilling and Present Activities” below for a further discussion of our expected development of the PUDs for the Williston Basin properties.

Drilling and Present Activities

Currently, none of our oil and natural gas properties are operated by us. We therefore rely on information from our operators regarding near-term drilling programs. As certain of our properties are considered fully developed, there are no plans to drill new wells in fiscal year 2024 in the Jonah Field, the Barnett Shale, and the Hamilton Dome Field. At this time, operators of our properties at Williston Basin, Hamilton Dome Field and Delhi Field are periodically running workover rigs focusing on projects to return wells to production that have experienced mechanical issues.

At Delhi Field, the third-party operator, Denbury, is currently drilling two new down dip wells in the field. Completion and first production of these wells are expected in the first quarter of fiscal year 2024. Denbury is also evaluating the technical and economic feasibility of development of Test Site V. Should they choose to propose proceeding with this project, we anticipate being an active participant based on our current analysis of the project. As of June 30, 2023, Test Site V is not included in our proved reserves due to timing. For fiscal year 2024, at the Williston Basin, we are evaluating drilling two sidetrack locations targeting the Birdbear formation with our operator, Foundation. Efforts to continue evaluating other sidetrack locations and undeveloped drilling locations at the Williston Basin is ongoing.

For further discussion, see “Capital Expenditures” within Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

6

Table of Contents

Production volumes, average sales price and average production costs

The following table summarizes our crude oil, natural gas, and natural gas liquids production volumes, average sales price per unit, average daily production on an equivalent basis, production costs, and production costs per unit for the periods indicated:

Years Ended June 30, 

2023

2022

2021

    

Volume

    

Price

    

Volume

    

Price

    

Volume

    

Price

Production:

Crude oil (MBBL)

Jonah Field

36

$

84.58

10

$

112.50

$

Williston Basin

144

79.38

71

101.25

Barnett Shale

9

76.12

9

82.56

2

52.50

Hamilton Dome Field

149

65.18

150

76.03

143

42.23

Delhi Field

319

81.57

358

86.57

410

49.43

Other

2

88.03

21

58.57

Total

659

$

77.46

619

$

85.11

555

$

47.59

Natural gas (MMCF)

Jonah Field

3,675

$

10.63

1,000

$

7.80

$

Williston Basin

96

4.48

40

6.30

Barnett Shale

5,337

4.55

6,087

5.11

963

2.73

Other

1

4.66

14

1.21

Total

9,109

$

7.00

7,141

$

5.49

963

$

2.73

Natural gas liquids (MBBL)

Jonah Field

36

$

34.76

12

$

52.92

$

Williston Basin

24

27.23

10

38.50

Barnett Shale

274

32.54

256

46.91

78

24.37

Delhi Field

81

34.95

83

48.02

93

18.95

Other

1

26.15

3

18.33

Total

416

$

32.86

364

$

46.89

171

$

21.42

Equivalent (MBOE) (1)

Jonah Field(2)

685

$

63.37

189

$

50.57

$

Williston Basin(2)

184

68.12

88

88.93

Barnett Shale

1,173

28.89

1,280

34.27

241

19.23

Hamilton Dome Field

149

65.18

150

76.03

143

42.23

Delhi Field

400

72.13

441

79.32

503

43.80

Other

2

73.71

25

52.08

Total

2,593

$

49.56

2,173

$

50.13

887

$

36.87

Average daily production (BOEPD) (1)

Jonah Field(2)

1,877

518

Williston Basin(2)

504

241

Barnett Shale

3,214

3,507

660

Hamilton Dome Field

408

411

392

Delhi Field

1,096

1,208

1,378

Other

5

68

Total

7,104

5,953

2,430

Production costs (in thousands, except per BOE)

Lease operating costs

Amount

per BOE

  

Amount

per BOE

  

Amount

per BOE

Jonah Field

$

12,350

$

18.03

$

2,990

$

15.82

$

$

Williston Basin

5,581

30.42

2,419

27.49

Barnett Shale

20,756

17.70

22,825

17.83

3,028

12.56

Hamilton Dome Field

5,574

37.45

5,480

36.53

4,080

28.53

Delhi Field

15,275

38.22

14,933

33.86

9,463

18.81

Other

9

3.35

10

0.40

16

Total

$

59,545

$

22.96

$

48,657

$

22.39

$

16,587

$

18.69

(1)Equivalent oil reserves are defined as six Mcf of natural gas and 42 gallons of NGLs to one barrel of oil conversion ratio which reflects energy equivalence and not price equivalence. Natural gas prices per Mcf and NGL prices per barrel often differ significantly from the equivalent amount of oil.
(2)Average daily production presented in the table above represents our fiscal year production divided by 365 days in the year. At Williston and Jonah, our average daily production since their respective acquisition dates of January 14, 2022 and April 1, 2022 through June 30, 2022, was 0.5 MBOEPD and 2.1 MBOEPD, respectively.

7

Table of Contents

Productive Wells

The following table sets forth the number of productive oil and natural gas wells in which we own a working interest as of June 30, 2023.

Company Operated

Non-Operated

Total

    

Gross

    

Net

    

Gross

    

Net

    

Gross

    

Net

Oil

344

84.3

344

84.3

Natural gas

1,491

216.8

1,491

216.8

Total

1,835

301.1

1,835

301.1

Acreage

The following table sets forth certain information regarding our developed and undeveloped lease acreage as of June 30, 2023. Developed acreage refers to acreage on which wells have been drilled or completed to a point that would allow production of oil and natural gas in commercial quantities. Undeveloped acreage refers to acreage on which wells have not been drilled or completed to a point that would permit production of oil and natural gas in commercial quantities whether or not the acreage contains proved reserves.

Developed Acreage

Undeveloped Acreage

Total

Field(1)

    

Gross

    

Net

    

Gross

    

Net

    

Gross

    

Net

Jonah Field, Wyoming

5,280

956

5,280

956

Williston Basin, North Dakota

124,800

37,306

20,943

6,020

145,743

43,326

Barnett Shale, Texas

123,777

20,918

123,777

20,918

Hamilton Dome Field, Wyoming

5,908

1,389

5,908

1,389

Delhi Field, Louisiana

9,126

2,180

4,510

1,077

13,636

3,257

Total(2)

268,891

62,749

25,453

7,097

294,344

69,846

(1)Except for our undeveloped acreage in Williston Basin, North Dakota (see expiration table below), all acreage, including any undeveloped, nonproductive or undrilled acreage, is held by existing production as long as continuous production is maintained in the unit.
(2)This table excludes acreage attributable to small overriding royalty interests retained in various formations in the Texas Giddings Field area. Except for de minimis production that began on two leases during late fiscal year 2019, none of such acreage is currently producing and our interests are subject to expiration if leases are not maintained by others or commercial production is not established. It does not currently appear likely that we will obtain any significant value from these interests and no reserves have been assigned to any of the Giddings’ interests.

The table below reflects our net undeveloped acreage in Williston Basin, North Dakota as of June 30, 2023 that will expire each year if we do not establish production in paying quantities on the units in which such acreage is included to maintain the lease:

Net Acreage

Fiscal Year

Expiration(1)

2024

440

2025

1,664

2026

860

2027

2028 & beyond

309

3,273

(1)Excluded 2,747 net acres held by existing production as long as continuous production is maintained in the unit.

Markets and Customers

Our production is marketed to third parties in a manner consistent with industry practices. In the United States market where our properties are operated, crude oil, natural gas, and NGLs are readily transportable and marketable. In the

8

Table of Contents

Jonah Field, we take our natural gas and NGL working interest production in-kind and market separately to purchasers on six-month contracts for natural gas and to Enterprise Products Partners L.P. for NGLs. We do not currently market our share of oil, natural gas, or NGLs production from the Williston Basin, the Barnett Shale, the Hamilton Dome Field, or the Delhi Field separately from the operators’ shares of production. Although we have the right to take our working interest production in-kind, we are currently selling our production through the field operators pursuant to the delivery and pricing terms of their sales contracts. Under such arrangements, we typically do not know the identity of the buyers.

As a non-operator, we are highly dependent on the success of our third-party operators and the decisions made in connection with their operations. With the exception of the Jonah Field, our third-party operators sell our oil, natural gas, and NGLs to purchasers, collect the cash, and distribute the cash to us. In the year ended June 30, 2023, approximately 83% of our total revenues were realized from the Jonah Field, Barnett Shale and Delhi Field combined. Diversified, our largest operator at Barnett remitted approximately 26% of our total revenue proceeds to us and at Delhi Field, Denbury, the operator of the Field, remitted approximately 22% of our total revenue proceeds to us. At Jonah Field, where we take our natural gas and NGL production in-kind, during the current year, we sold approximately 17% of our total revenues to Conoco Phillips. In the year ended June 30, 2022, three operators each distributed over 10% of our oil, natural gas and NGL revenues making up approximately 83% of total revenues for the year.

The loss of a purchaser at any of our five major producing properties or disruption to pipeline transportation from these fields could adversely affect our net realized pricing and potentially our near-term production levels.

Market Conditions

Prices we receive for crude oil, natural gas, and NGLs are influenced by many factors that are beyond our control, the exact effect of which is difficult to predict. These factors include changes in supply and demand, the relative strength of the U.S. dollar, government regulation, weather, and actions of major foreign producers.

Oil and natural gas prices over the past few years have been volatile and we expect that volatility to continue. Worldwide factors such as global health pandemics, geopolitical, international trade disruptions and tariffs, macroeconomics, supply and demand, refining capacity, petrochemical production, and derivatives trading, among others, influence prices for oil, natural gas, and NGLs. Local and domestic factors also influence prices for oil, natural gas, and NGLs and include increasing or decreasing production trends, quality differences, regulation, legislation and transportation issues unique to certain producing regions and reservoirs.

Competition

The oil and natural gas industry is highly competitive for prospects, acreage, and capital. Our competitors include major integrated oil and natural gas companies, numerous independent oil and natural gas companies, individuals, and drilling and income programs. Many of our competitors are large, well-established companies with substantially larger operating staff and greater capital resources. Competitors are national, regional, or local in scope and compete on the basis of financial resources, technical prowess or local knowledge. The principal competitive factors in our industry are expertise in given geographical areas and geologic systems and the ability to efficiently conduct operations, achieve technological advantages, identify and acquire economically producible reserves, and obtain capital at rates that allow economic investments.

Risk Management

We are exposed to certain risks relating to our ongoing business operations, including commodity price risk. In accordance with our company policies and the covenants under the Senior Secured Credit Facility, derivative instruments are occasionally utilized to hedge our exposure to price fluctuations and reduce the variability in our cash flows associated with anticipated sales of future oil and natural gas production. We do not enter into derivative contracts for speculative trading purposes.

While there are many different types of derivative instruments available, historically we have used costless collars and fixed-price swaps to attempt to manage price risk. Costless collar agreements are put and call options used to establish

9

Table of Contents

floor and ceiling commodity prices for a fixed volume of production during a certain time period. All costless collar agreements provide for payments to counterparties if the settlement price under the agreement exceeds the ceiling and payments from the counterparties if the settlement price under the agreement is below the floor. The fixed-price swap agreements call for payments to, or receipts from, counterparties depending on whether the index price of oil or natural gas for the period is greater or less than the fixed price established for the period contracted under the fixed-price swap agreement.

It is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. We will continue to evaluate the benefit of employing derivatives in the future. Our hedge strategies and objectives may change as our operational profile changes. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk and Note 7, “Derivatives” to our consolidated financial statements in Item 8. Financial Statements and Supplementary Data for additional information.

Government Regulation

As an oil and natural gas exploration and production company, our interests are subject to numerous legal requirements.

Regulation of Oil and Natural Gas Production

Federal, state and local authorities have promulgated extensive rules covering oil and natural gas exploration, production and related operations. Those regulations require our third-party operator to obtain permits, post bonds and submit reports. They also may address conservation, including unitization or pooling of oil and natural gas properties, well locations, the method of drilling and casing wells, surface use and restoration of properties where wells are drilled, sourcing and disposal of water used in the process of drilling, completion and abandonment, the establishment of maximum rates of production from wells, and plugging and abandonment of wells. The effect of these regulations is to limit the amount of oil and natural gas that we can produce and to limit the number of wells or the locations at which we can produce. Moreover, many states impose a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within their jurisdictions. Failure to comply with any applicable legal requirements may result in substantial penalties. Because such regulations are frequently amended or reinterpreted, we are unable to predict future compliance costs or impacts. Significant expenditures may be required to comply with governmental laws and regulations, however, and may have a material adverse effect on our financial condition and results of operations. 

Regulation of Transportation of Oil and Natural Gas

The prices for crude oil, condensate and natural gas liquids and natural gas are negotiated and not currently regulated. But Congress, which has been active in oil and natural gas regulation, could impose price controls in the future. 

Our sales of crude oil and natural gas are affected by the availability, terms and cost of transportation. The Federal Energy Regulatory Commission (“FERC”) primarily regulates interstate oil and natural gas transportation rates. In some circumstances, FERC regulations also may affect intrastate pipelines. In addition, states may impose on intrastate pipelines various obligations relating to such matters as safety, environmental protection, nondiscriminatory take and pay rates. The basis for intrastate oil and natural gas pipeline regulation, and the degree of regulatory oversight and scrutiny given to such matters, vary from state to state. To the extent effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil and natural gas transportation rates will not affect our business in any way that is of material difference from those of our competitors who are similarly situated.

Environmental Matters

Our properties are subject to extensive and changing federal, state and local laws and regulations relating to the protection of the environment, worker safety and human health. Such requirements may address:

the generation, storage, handling, emission, transportation and disposal of materials;
reclamation or remediation of sites, including former operating areas;
the acquisition of a permit or other authorization;

10

Table of Contents

air emissions;
protection of water supplies;
limits on construction, drilling and other activities in wilderness or other environmentally sensitive areas; and
assessment of environmental impacts.

Failure to comply with such requirements may result in a variety of sanctions, including fines, administrative orders and injunctions. In addition, issuing authorities may revoke, adversely condition or deny permits necessary for our operations. In the opinion of management, our properties are in substantial compliance with applicable environmental laws and regulations, and we have no material commitments for capital expenditures to comply with existing environmental requirements. Nevertheless, changes in existing environmental laws and regulations or in interpretations thereof could have a significant impact on our company, as well as the oil and natural gas industry in general. Significant environmental requirements that may affect our operations are described below.

The Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”) and comparable state statutes impose strict liability, and in some cases joint and several liability, on owners and operators of sites and on persons who arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for neighboring landowners or other third parties to also file claims for personal injury and property damage allegedly caused by any hazardous substances released into the environment. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” our operations do entail handling other chemicals that may be subject to the statute. In addition, state laws affecting our properties may impose cleanup liability relating to petroleum and petroleum related products. The Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes govern the disposal of “solid waste” and “hazardous waste.” Violations may result in substantial fines. Although RCRA currently classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous, thereby subjecting our operations to more stringent handling and disposal requirements. In some circumstances, moreover, RCRA authorizes both the federal government and private persons to seek injunctions requiring the cleanup of wastes, whether hazardous or non-hazardous.

The Endangered Species Act (“ESA”) protects fish, wildlife and plants that are listed as threatened or endangered. Under the ESA, exploration and production operations may not significantly impair or jeopardize a protected species or its habitat. The ESA provides for criminal penalties for willful violations. Our operations also may be subject to other statutes that protect animals and plants such as the Migratory Bird Treaty Act. Although we believe that our properties are in compliance with such statutes, any change in these statutes or any reclassification of a species as endangered could subject our company (directly or indirectly through our third-party operators) to significant expenses to modify operations, could force discontinuation of certain operations altogether and could limit the locations our third-party operators may utilize in the future.

The Clean Air Act (“CAA”) is the comprehensive federal law addressing sources of air emissions. Oil and natural gas production and natural gas processing operations are among the many source categories subject to the CAA. Regulated emissions from oil and natural gas operations include sulfur dioxide, volatile organic compounds (“VOCs”) and hazardous air pollutants such as benzene, among others.

In particular, the Environmental Protection Agency (“EPA”) issued proposed CAA regulations in November 2021, which it strengthened and expanded in November 2022, that would impose more comprehensive restrictions on emissions of methane (a greenhouse gas) and VOCs from new, existing and modified facilities in the oil and gas sector. Among other things, EPA’s proposed new rule would require states to implement plans that meet or exceed established emission reduction guidelines for oil and natural gas facilities. These regulations and proposals and any other new regulations requiring the installation of more sophisticated pollution control equipment could have a material adverse impact on our business, results of operations and financial condition.

The Clean Water Act (the “CWA”) is the primary federal law controlling the discharge of produced waters and other pollutants into waters of the United States. Permits must be obtained for such discharges and to conduct construction activities in waters and wetlands. Some states also require permits for discharges or operations that may impact groundwater.

11

Table of Contents

The CAA, CWA and comparable state statutes authorize civil, criminal and administrative penalties for violations. Further, the CWA and Oil Pollution Act may impose liability on owners or operators of onshore facilities that impact surface waters.

Pursuant to the Safe Drinking Water Act, EPA (or an authorized state) regulates the construction, operation, permitting, and closure of injection wells used to place oil and natural gas wastes and other fluids underground for enhanced hydrocarbon recovery, storage or disposal. The primary objective of injection well operating requirements is to ensure the mechanical integrity of the injection apparatus and to prevent migration of fluids from the injection zone into underground sources of drinking water. Underground injection associated with oil and gas operations, particularly the disposal of produced water, has been linked in some cases to localized earthquakes. This in turn has led to new legislative and regulatory initiatives, which have the potential to restrict injection in certain wells or limit operations in certain areas.

Certain of the oil and natural gas production in which we have an interest is developed from unconventional sources that require hydraulic fracturing as part of the completion process. Hydraulic fracturing involves the injection into the formation of water, sand and chemicals under pressure to stimulate production. From time to time, legislation has been proposed in the United States Congress to repeal the Safe Drinking Water Act’s exemption for hydraulic fracturing from the definition of “underground injection” and to require federal permitting of hydraulic fracturing. If ever enacted, such legislation would add to costs for hydraulic fracturing.

Scrutiny of hydraulic fracturing activities continues in other ways. Several states where our properties are located have proposed or adopted legislative or regulatory restrictions on hydraulic fracturing. A number of municipalities likewise have enacted bans on hydraulic fracturing. We cannot predict whether any other legislation restricting hydraulic fracturing will be enacted and if so, what its provisions would be. If additional levels of regulation and permits were to be required through the adoption of new laws and regulations at the federal, state or local level, it could lead to delays, increased operating costs and process prohibitions that could materially adversely affect our revenue and results of operations.

The National Environmental Policy Act (“NEPA”) requires federal agencies to assess the environmental effects of their proposed actions prior to making decisions. Among the broad range of actions covered by NEPA are decisions on permit applications and federal land management. Many of the activities of our third-party operators involve federal decisions subject to NEPA. Such federal actions may trigger robust NEPA review, which could lead to delays and increased costs that could materially adversely affect our revenues and results of operations. In 2022, moreover, the Biden Administration reversed changes to NEPA rules enacted under the Trump Administration that had been intended to streamline NEPA review. The revised regulations lay the foundation for additional scrutiny of impacts on climate change, which could affect the assessment of projects ranging from oil and gas leasing to development on public and Indian lands.

Climate Change

Climate change has become a major public concern and policy issue in the United States and around the world.  Much of the debate has focused on greenhouse gas (“GHG”) emissions from oil and natural gas, particularly carbon dioxide and methane.

In the United States, there is no comprehensive federal regulatory statute addressing climate change, although Congress does periodically consider such measures. At the federal level, the United States therefore has primarily addressed climate change through executive actions and regulatory initiatives pursuant to existing statutes. These include rejoining the Paris Agreement on climate change, the Biden Administration’s commitment to cut greenhouse gas emissions by 2030 to 50-52 percent of 2005 levels, various executive orders, limiting land available for oil and gas leasing, the United States Methane Emissions Reduction Action Plan (intended to reduce overall methane emissions by 30% below 2020 levels by 2030), and Clean Air Act rules (such as the November 2021 proposal to regulate methane from the oil and gas sector). In addition, several states have already implemented or are considering programs to reduce GHG emissions. These include cap and trade programs, promotion of alternative forms of energy, transportation standards and restrictions

12

Table of Contents

on particular GHGs. To the extent that new climate change measures are adopted, and our third-party operators must further control GHG emissions, our business may be adversely impacted.

In addition, recent court decisions have left open the question of whether tort claims alleging property damage may proceed against sources of GHG emissions under state common law. Thus, there is some litigation risk for such claims. 

Legislation or regulations that may be adopted to address climate change could also affect the markets for our products by making our products more or less desirable than competing sources of energy. To the extent that our products are competing with higher GHG emitting energy sources, for example, our products would become more desirable in the market with more stringent limitations on GHG emissions. But in 2022, the United States enacted the Inflation Reduction Act that, among other things, creates a series of financial incentives intended to discourage use of oil and natural gas (including imposing a fee on methane emissions) and to promote alternative sources of energy. To the extent that our products are competing with lower GHG emitting energy sources such as solar and wind, our products may become less desirable in the market with such government intervention. We cannot predict with any certainty at this time how these possibilities may affect our operations.

Various studies on climate change indicate that extreme weather conditions and other risks may occur in the future in the areas where we operate. Although we have not experienced any material impact from such extreme conditions to date, no assurance can be given that they will not have a material adverse effect on our business in the future.

See discussion captioned “Government regulation and liability for oil and natural gas operations and environmental matters may adversely affect our business and results of operations” in Item 1A. Risk Factors.

Insurance

We maintain insurance on our oil and natural gas properties and operations for risks and in amounts customary in the industry. Such insurance includes, but is not limited to, general liability, excess liability, control of well, operators extra expense, casualty, fraud, and directors and officer’s liability coverage. Not all losses are insured, and we retain certain risks of loss through deductibles, limits, and self-retentions. We do not carry business interruption or lost profits coverage.

Human Capital, Sustainability, and ESG

Employees

As of June 30, 2023, we had eleven full-time employees, not including contract personnel and outsourced service providers. Due to our current focus on non-operating properties, our staff is disproportionately weighted towards higher wage professionals. We believe that we have positive relations with our employees. Our team is broadly experienced in oil and natural gas operations, development, acquisitions, and financing. We follow a strategy of outsourcing most of our property accounting, human resources, administrative, and other non-core functions. For our full-time employees, our benefits package, as determined by our Board of Directors, includes medical, dental, and vision insurance, short-term disability, 401(k) contributions based on a portion of the employee’s base salary, short and long-term performance-based and service-based incentive pay (i.e., annual bonuses and stock awards), and paid time off.

Our workforce is provided with annual training and is expected to sign an acknowledgement regarding our policies and disclosures which include, but are not limited to, the Corporate Sustainability Report (“CSR”), employee handbook, human rights, code of ethics, health and safety, emergency procedures, conflicts of interest, insider trading, bribery, kickbacks, discrimination, diversity, equality, and inclusion.

Sustainability and ESG

In fiscal year 2023, we formed a Sustainability Committee which is responsible for overseeing our Environmental Social Governance (“ESG”) initiatives. In fiscal year 2021-2022, under the supervision of our Board of Directors, the Nominating and Corporate Governance committee, and senior management, the foundation of our sustainability efforts

13

Table of Contents

and CSR were led by an ESG Task Force. Evolution’s most recent CSR was published in October 2022. This report is accessible on our website at www.evolutionpetroleum.com.

The ESG Task Force formalized our existing ESG programs, proposed and implemented new ESG initiatives, monitored adherence to our internal and third-party sustainability standards, and provided public disclosures for our stakeholders. Each year, we continue to disclose, enhance, implement, and provide training for a number of new and existing policies and procedures. These include, but are not limited to: implementing a charitable donation program and employee volunteer initiative, an annual company-wide ESG training program for both the Board of Directors and our workforce, implementation of safety inspections and health and safety coordinators, and incorporating ESG considerations into our compensation structure.

We are committed to high standards of conduct and ethics in order to contribute to the sustainability of our business. Our core values are the base to support our strategy and long-term success. We believe integrity is paramount and we are committed to developing and producing energy resources in environmentally, socially, and ethically respectful and responsible ways. Our people are critical to our success and as such we promote and maintain a safe and inclusive work environment. We strategically plan for the long-term and strive to maintain capital discipline, stakeholder transparency, and continuous focus on returning capital to shareholders. We work with third-party operators that share our desire to operate and work responsibly, particularly for the natural environments in which they operate.

Denbury Inc., the operator of our Delhi Field property, is an industry leader in Carbon Capture, Utilization and Storage with a network of CO2 EOR operations and the United States’ largest operated system of CO2 transmission pipelines. As of year-end 2022, Denbury reportedly injects over three million tons of captured industrial-sourced CO2 annually, and has a goal to reach Net Zero for Scope 1, Scope 2 and Scope 3 CO2 emissions by 2030, primarily through increasing the amount of captured industrial-sourced CO2 used in their operations.

Jonah Energy, the operator of our Jonah Field property, is one of the leading sustainable natural gas producers in the U.S. In 2021, Jonah was the first and only U.S. company to achieve the Gold Standard Rating, announced by the United Nations Environment Programme International Methane Emissions Observatory.

As a non-operator of our current properties, we do not have direct control over environmental initiatives at a property-level. However, we believe it is important to partner with third-party operators that share our core values and are committed to being environmental stewards as they responsibly produce energy resources. We recognize that the expectations, requirements, and responsibilities of operators regarding safeguarding the environment and environmental stewardship continue to evolve. We are, and will continue to be, committed to supporting our third-party operators as they respond to these expectations, requirements, and responsibilities.

In fiscal year 2023, we implemented our first annual voluntary Environmental Operator Questionnaire to collect various environmental metrics on behalf of our third-party operators. In addition, we host regular operations meetings with our third-party operators in which we discuss asset level operations, expenses, any environmental issues and compliance, including ESG and health and safety related topics.

We do not report Scope 1 GHG, or direct, emissions to the EPA as we are not the operator of our properties, nor do we have financial control over our oil and natural gas properties and operations. We prefer to partner with third-party operators that work to reduce their Scope 1 GHG emissions, and we encourage them to accelerate their efforts as appropriate in this regard. The Company reports in its CSR the estimated Scope 2 GHG emissions for its corporate office located in Houston, Texas. Scope 2 GHG emissions are based on indirect emissions representing purchased electricity. We are one of many tenants leasing space in our corporate office building and do not know the actual amount of electricity used in our space. As such, we estimate our consumption by multiplying the electricity purchased for the entire building by the percentage of the floor area that we occupy. Water use is also reported in the CSR and is calculated in a similar fashion.

We maintain a hotline which operates 24/7/365 and allows anonymous and confidential reporting for employees, consultants, partners, and contractors, including the ability to report concerns or violations of our policies through the phone or internet (Phone: 877-628-7489 / Website: www.epm.alertline.com).

14

Table of Contents

Additional Information

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports with the SEC. Our reports filed with the SEC are available free of charge to the general public through our website at www.evolutionpetroleum.com. These reports are accessible on our website as soon as reasonably practicable after being filed with, or furnished to, the SEC. This Annual Report on Form 10-K and our other filings can also be obtained by contacting: Corporate Secretary, 1155 Dairy Ashford Road, Suite 425, Houston, Texas 77079, or calling (713) 935-0122. These reports are also available at the SEC Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Item 1A.   Risk Factors

Our business involves a high degree of risk. If any of the following risks, or any risk described elsewhere in this Annual Report on Form 10-K, actually occurs, our business, financial condition, or results of operations could suffer. The risks described below are not the only ones facing us. Additional risks not presently known to us or which we currently consider to be immaterial also may adversely affect us.

Risks Related to Our Business:

A substantial or extended decline in oil and natural gas prices may adversely affect our business, financial condition, results of operations and our ability to meet our capital expenditure obligations and financial commitments.

The price we receive for our oil and natural gas significantly influences our revenue, profitability, access to capital, capital spending, and future rate of growth. At June 30, 2023, approximately 32% of our proved reserves were oil reserves, 49% were natural gas and 19% were NGLs. Oil, natural gas and NGLs are commodities and their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil, natural gas, and NGLs have been volatile and these markets will likely continue to be volatile in the future. The prices we receive for our production depend on numerous factors beyond our control, including, but not limited to the following:

changes in global supply and demand for oil and natural gas;
worldwide and regional economic conditions impacting the global supply and demand for oil and natural gas;
social unrest, political instability or armed conflict in major oil and natural gas producing regions outside the United States, such as the conflict between Ukraine and Russia, and acts of terrorism or sabotage;
the ability and willingness of the members of OPEC+ to agree and maintain oil price and production controls;
the price and quantity of imports of foreign oil and natural gas;
governmental, scientific, and public concern over the threat of climate change arising from greenhouse gas emissions;
the relative strength or weakness of the U.S. dollar compared to other currencies;
the level of global oil and natural gas exploration and production;
the level of global oil and natural gas inventories;
localized supply and demand fundamentals of regional, domestic, and international transportation availability;
weather conditions, natural disasters, and seasonal trends;
domestic and foreign governmental regulations, including embargoes, sanctions, tariffs, and environmental regulations;
speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts;
price and availability of competitors’ supplies of oil and natural gas;
technological advances affecting energy consumption;
increasing attention to ESG matters; and

15

Table of Contents

the price, availability and use of alternative fuels.

Substantially all of our production is sold to purchasers under short-term (less than 12-month) contracts at market-based prices. A decline in oil, natural gas, and NGL prices will reduce our cash flows, borrowing ability, the present value of our reserves, and our ability to develop future reserves. We may be unable to obtain needed capital or financing on satisfactory terms. Low oil, natural gas, and NGL prices may also reduce the amount of oil, natural gas, and NGL that we can produce economically, which could lead to a decline in our oil, natural gas and NGL reserves. Generally, we hedge substantially less than all of our anticipated oil and natural gas production and typically only with the requirements of our Senior Secured Credit Facility. To the extent that we have not hedged production, any significant and extended decline in oil, natural gas, and NGL prices may adversely affect our financial position.

Our existing developed oil and natural gas production will decline; we may be unable to acquire or develop the additional oil and natural gas reserves that are required in order to sustain our production and business operations.

The volume of production from developed oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Environmental issues, operating problems, or lack of extended future investment in any of our properties would cause our net production of oil, natural gas, and NGLs to decline significantly over time, which could have a material adverse effect on our financial condition.

The types of resources we focus on have substantial operational risks.

Our business plan focuses on the acquisition and development of known resources in partially depleted, naturally fractured, or low permeability reservoirs. Our Hamilton Dome Field and Delhi Field properties produce from relatively shallow reservoirs, while our Jonah Field, Williston Basin and Barnett Shale properties produce from deeper reservoirs. Shallower reservoirs usually have lower pressure, which generally translates into lower reserves volumes in place. Deeper reservoirs have higher pressures and usually more reserves volumes in place, but capturing those reserves often comes at increased drilling and completion costs and risks and, generally, a higher rate of initial production decline. Low permeability reservoirs require substantial stimulation for development of commercial production. Naturally fractured reservoirs require penetration of sufficient un-depleted fractures to establish commercial production. Depleted reservoirs require successful application of newer, or more expensive, technologies to produce incremental reserves. Our approach on the development and application of technologies on these different types of reservoirs could have a material adverse effect on our results of operations.

The CO2-EOR project in the Delhi Field, operated by Denbury, requires significant amounts of CO2 reserves, development capital, and technical expertise, the sources of which to date have been committed by the operator. On July 13, 2023, Exxon Mobil Corporation (“Exxon”) announced it had entered into a definitive agreement to acquire Denbury. Exxon’s plans with respect to the Delhi Field are unknown. Additional capital remains to be invested to fully develop the EOR project and maximize the value of the properties. The operator’s failure to manage these and other technical, environmental, operational, strategic, financial, and logistical risks may ultimately cause enhanced recoveries from the planned CO2-EOR project to fall short of our expectations in volume and/or timing. Such occurrences could have a material adverse effect on our results of operations and financial condition.

We have limited control over the activities on properties we do not operate.

All of our property interests are operated by third-party working interest owners, not by us. As a result, we have limited ability to influence or control the operations or future development of such properties, including compliance with environmental, safety, and other standards, or the amount of capital expenditures that we will be required to fund with respect to such properties. Operators of these properties may act in ways that are not in our best interest. Moreover, we are dependent on the other working interest owners of such projects to fund their contractual share of the capital expenditures of such projects. These limitations and our dependence on the operator and other working interest owners for these projects could cause us to incur unexpected future costs, result in lower production, and materially and adversely affect our financial condition and results of operations.

16

Table of Contents

We will be subject to risks in connection with acquisitions.

We periodically evaluate acquisitions of reserves, properties, prospects, leaseholds, and other strategic transactions that appear to fit within our overall business strategy. The successful acquisition of producing properties requires an assessment of several factors, including, but not limited to:

recoverable reserves;
future oil and natural gas prices and their appropriate differentials;
development and operating costs;
potential for future drilling and production;
validity of the seller’s title to properties, which may be less than expected at closing; and
potential environmental issues, litigation, and other liabilities.

The accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform a review of the subject properties that we believe to be generally consistent with industry practices. Our review will not reveal all existing or potential problems nor will it permit us to become sufficiently familiar with the properties to fully assess their deficiencies and potential recoverable reserves. Inspections may not always be performed on every well, and environmental problems are not necessarily observable at the ground surface or otherwise when an inspection is performed. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of the problems. Moreover, in the event of such an acquisition, there is a risk that we could ultimately be liable for unknown obligations related to acquisitions and, importantly, that our assumptions regarding future oil and natural gas prices, differentials, reserves, or production could prove materially inaccurate and have a material adverse effect on our financial condition, results of operations, or cash flows.

We may encounter difficulties integrating the operations of newly acquired oil and natural gas properties or businesses.

 

Increasing our reserve base through acquisitions has been an important part of our business strategy. We may encounter difficulties integrating newly acquired oil and natural gas properties or businesses. In particular, we may face significant challenges in consolidating functions and integrating procedures, personnel, and business operations in an effective manner. The failure to successfully integrate such properties or businesses into our Company may adversely affect our business and results of operations. Any acquisition we make may involve numerous risks, including:

a significant increase in our indebtedness and working capital requirements;
the inability to timely and effectively integrate the operations of recently acquired businesses or assets;
the incurrence of substantial costs to address unforeseen environmental and other liabilities arising out of the acquired businesses or assets;
liabilities arising from the operation of the acquired businesses or assets before our acquisition;
our lack of drilling or operational history in the areas in which the acquired business operates;
customer or key employee loss from the acquired business;
increased administration of new personnel;
additional costs due to increased scope and complexity of our business;
potential disruption of our ongoing business; and
assumptions made on estimated development by the operator may not be accurate or may change.

Additionally, significant acquisitions can change the nature of our operations and business depending upon the character of the acquired properties, which may have substantially different operating and geological characteristics or be in different geographic locations than our existing properties. To the extent that we acquire properties substantially different from the properties we currently own or that require different technical expertise, we may not be able to realize the economic benefits of these acquisitions as effectively as with acquisitions within our current footprint and expertise. We may not be successful in addressing these risks or any other problems encountered in connection with any acquisition we may make.

17

Table of Contents

Oil and natural gas development, re-completion of wells from one reservoir to another reservoir, restoring wells to production, and drilling and completing new wells are speculative activities which involve numerous risks and substantial uncertain costs.

Our growth will be partially dependent upon the success of future development programs on our properties. Drilling for oil and natural gas and extracting NGLs and re-working existing wells involve numerous risks. The cost of drilling, completing, and operating wells is substantial and uncertain; drilling operations may be curtailed, delayed, or canceled as a result of a variety of factors beyond our control, including, but not limited to:

unexpected drilling conditions;
pressure fluctuations or irregularities in reservoir formations;
equipment failures or accidents;
well blowouts and other releases of hazardous materials;
inability to obtain or maintain leases on economic terms, where applicable;
the cost and availability of goods and services, such as drilling rigs, fracture stimulation services, and tubulars;
adverse weather conditions;
compliance with governmental requirements; and
shortages or delays in the availability of drilling rigs or crews and the delivery of equipment.

Drilling or re-working is a highly speculative activity. Even when fully and correctly utilized, modern well completion and production techniques, such as Horizontal Drilling or CO2 injection, do not guarantee that we will find and produce oil and/or natural gas in economic quantities. Our future drilling, completion and production activities may not be successful and, if unsuccessful, such failure would have an adverse effect on our future results of operations and financial condition.

We may also identify and develop prospects through a number of methods, some of which may include Horizontal Drilling or tertiary injectants, and some of which may be unproven. The drilling and results for these prospects may be particularly uncertain. We cannot ensure that these projects can be successfully developed or that wells will, if drilled, encounter reservoirs of commercially productive oil or natural gas.

Our oil and natural gas reserves are only estimates and may prove to be inaccurate.

There are numerous uncertainties inherent in estimating oil and natural gas reserves and their estimated values. Our reserves are only estimates that may prove to be inaccurate because of these inherent uncertainties. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot always be measured in an exact manner. Estimates of economically recoverable oil and natural gas reserves depend upon a number of variable factors. These factors include historical production from the area compared with production from other comparable producing areas, assumptions concerning effects of regulations by governmental agencies, future oil and natural gas product prices, future operating costs, severance and excise taxes, development costs, workover costs, and remedial costs. Some or all of these assumptions utilized in estimating reserve volumes may vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of reserves, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected from reserves may vary substantially depending on the timing and different engineers preparing reserves estimates.

Accordingly, reserve estimates may be subject to downward or upward adjustments. Actual production, revenue, and expenditures with respect to our reserves will likely vary from estimates; such variances may be material. The information regarding discounted future net cash flows included in this report should not be considered as the current market value of the estimated oil and natural gas reserves attributable to our properties. The estimated discounted future net cash flows from proved reserves are based on the 12-month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower. Actual future net cash flows also will be affected by factors such as the amount and timing of actual production, supply and demand for oil and natural gas, increases or decreases in consumption, and changes in governmental regulations or taxation. In addition, the 10% discount factor, which is required by the SEC to be used in calculating discounted future

18

Table of Contents

net cash flows for reporting purposes, is not necessarily the most appropriate discount factor. Interest rates in effect vary from time to time based on risks associated with us or the oil and natural gas industry in general. The Standardized Measure does not necessarily correspond to market value.

Regulatory and accounting requirements may require substantial reductions in reporting proven reserves.

On a periodic basis, we review the carrying value of our oil and natural gas properties under the applicable rules of various regulatory agencies, including the SEC. Under the full cost method of accounting that we use, the after-tax carrying value of our oil and natural gas properties may not exceed the present value of estimated future net after-tax cash flows from proved reserves, discounted at 10%. Application of this “ceiling” test requires pricing future revenues at the previous 12-month average beginning-of-month price and requires a write-down of the carrying value for accounting purposes if the ceiling is exceeded. We may in the future be required to write down the carrying value of our oil and natural gas properties when oil and natural gas prices are depressed or unusually volatile. Whether we will be required to take such a charge will depend in part on the prices of oil and natural gas during the previous period and the effect of reserve additions or revisions and capital expenditures during such period. If a write-down is required, it would result in a current charge to our earnings but would not impact our current cash flow from operating activities. A large write-down could adversely affect our compliance with the current financial covenants under our credit facility, could limit our access to future borrowings under that facility, or require repayment of any amounts that might be outstanding at the time.

Our derivative activities could result in financial losses or could reduce our income.

Under the terms of our Senior Secured Credit Facility, we are required to hedge a certain portion of our anticipated oil and natural gas production for future periods when we reach a defined utilization percentage. We may also elect to hedge additional production volumes from time to time based upon our view of the attractiveness of commodity futures and the risks that downward price fluctuations might pose to our business plans. When we engage in hedging transactions, we may utilize costless collars, fixed price swaps or purchased floors to cost-effectively provide us with some protection against price changes. We have not historically designated any of our derivative instruments as hedges for accounting purposes and record all derivative instruments on our balance sheet at fair value. Changes in the fair value of our derivative instruments are recognized in earnings. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our future derivative instruments. Derivative arrangements may also expose us to the risk of financial loss in some circumstances, including, but not limited to, if:

actual production is less than the volume covered by the derivative instruments;
the counterparty to the derivative instrument defaults on its contract obligations; or
there is a change in the expected differential between the underlying price in the derivative instrument and actual price received.

In addition, in a rising commodity price environment, derivative arrangements may limit the extent to which we might benefit from increases in prices of oil and natural gas and may expose us to cash margin requirements.

Our operations may require significant amounts of capital and additional financing may be necessary in order for us to continue our exploitation activities.

Cash flow from our production may not be sufficient to fund our ongoing activities at all times. From time to time, we may require additional financing in order to carry out oil and natural gas acquisitions, exploitation, and development activities. If our revenues decrease as a result of decreases in production, lower oil and natural gas prices or otherwise, it will affect our ability to expend the necessary capital to replace our reserves or to maintain our current production. If our cash flow from operations is not sufficient to satisfy our capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available to meet these requirements or be available to us on favorable terms.

19

Table of Contents

Government regulation and liability for oil and natural gas operations and environmental matters may adversely affect our business and results of operations.

Oil and natural gas operations are subject to extensive federal, state, and local government regulations, which may change from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties, and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas from wells below actual production capacity in order to conserve supplies of oil and natural gas. There are federal, state, and local laws and regulations addressing protection of human health and the environment that apply to the development, production, handling, storage, and transportation of oil, natural gas, and their by-products; the disposal of related wastes; the emission of CO2, other greenhouse gases, and volatile organic compounds; and the management of other substances and materials released, produced or used in connection with oil and natural gas operations. These laws and regulations may affect the costs, manner, and feasibility of our operations by, among other things, requiring us to make significant expenditures in order to comply and restricting the areas available for oil and gas production. Failure to comply with these laws and regulations may result in substantial liabilities to third-parties or governmental entities. In addition, we may be liable for significant environmental damages and cleanup costs, without regard to fault, for releases of hazardous materials on or from property we own or operate, even if we did not cause or contribute to the release. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted. The implementation of new, or the modification of existing, laws or regulations, could have a material adverse effect on us, such as by imposing new emission controls, penalties, fines and/or fees, taxes and tariffs on carbon that could have the effect of raising prices to the end user and thereby reducing the demand for our products.

The risks arising out of the threat of climate change, including transition risks and physical risks, may adversely affect our business and results of operations.

The threat of climate change poses both transition risks and physical risks that could have a material adverse effect on us. Transition risks may arise from political and regulatory, legal, technological or financial changes as society tries to safeguard the climate, while physical risks may result from extreme weather events or other shifts in the natural world.

We have been facing increased political and regulatory risks as federal, state and local governments have adopted new measures to restrict sources of greenhouse gas emissions and promote energy alternatives. Many such measures have been proposed, and still more can be expected. From time to time, there are proposals to ban hydraulic fracturing of oil and natural gas wells and to remove more lands, both onshore and offshore, from new hydrocarbon production. Many other actions could be pursued such as more rigorous requirements for drilling and construction permits, stricter greenhouse gas emissions standards for both new and existing sources, further limits on construction of new pipelines, reinstatement of the ban on oil exports, enhanced reporting obligations, taxing carbon emissions and creating further incentives for use of alternative energy sources. These actions may cause operational delays or restrictions, increased operating costs and additional regulatory burdens.

Litigation risks are also increasing for oil and natural gas companies. A number of suits alleging, among other things, that oil and natural gas companies created public nuisances by producing fuels that contributed to climate change have been brought in state or federal court.

Technological changes may drive market demand for products other than oil and natural gas. Wider adoption of hybrid engines and electric cars, for example, would reduce demand for our products. At the same time, our capital and operating costs may increase if we need to add new emission reduction technologies.

There are also financial risks for the petroleum industry. It may become more difficult for us to access the capital markets if the threat of climate change discourages new investment. Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices, and some of them may elect not to provide funding for fossil fuel energy companies. Limitation of investments in and financings for the energy industry could result in the restriction, delay or cancellation of drilling programs or development or production activities.

20

Table of Contents

The threat of climate change also may subject our operations and business to severe weather or other natural hazards, such as flooding, drought, wildfires, and extreme temperatures. Any such event could halt production or exploration activities, damage equipment, disrupt transportation, reduce consumer demand and significantly increase our costs.

Poor general economic, business, or industry conditions may have a material adverse effect on our results of operations, liquidity, and financial condition.

During the last few years, concerns over inflation, energy costs, volatile oil and natural gas prices, geopolitical issues, the availability and cost of credit, the United States mortgage market, uncertainties with regard to European sovereign debt, the slowdown in economic growth in large emerging and developing markets, such as China, regional or worldwide increases in tariffs or other trade restrictions, and other issues have contributed to increased economic uncertainty and diminished expectations for the global economy. Concerns about global economic conditions have had a significant adverse impact on domestic and international financial markets and commodity prices. If uncertain or poor economic, business, or industry conditions in the United States or abroad remain prolonged, demand for petroleum products could diminish or stagnate, and production costs could increase. These situations could impact the price at which we can sell our oil, natural gas, and NGLs, affect our vendors’, suppliers’, and customers’ ability to continue operations, and ultimately adversely impact our results of operations, liquidity, and financial condition.

Events outside of our control, including a pandemic or broad outbreak of an infectious disease, such as the global outbreak of a novel strain of the coronavirus (“COVID-19”), may materially adversely affect our business.

We face risks related to pandemics, outbreaks, or other public health events that are outside of our control and could significantly disrupt our operations and adversely affect our financial condition. In December 2019, COVID-19 was identified in Wuhan, China and rapidly spread around the world. This virus and its variants, and governmental actions to contain it, had material adverse economic impacts globally. These and other actions could, among other things, impact the ability of our employees and contractors to perform their duties, cause increased technology and security risk due to extended and company-wide telecommuting, and lead to disruptions in our permitting activities and critical business relationships. Additionally, governmental restrictions intended to contain COVID-19 or future pandemics have in the past, and may in the future, significantly impact economic activity and markets and dramatically reduce actual or anticipated demand for oil and natural gas, adversely impacting the prices we receive for our production. The severity and duration of any such events are uncertain and difficult to predict, as is the extent that such events may have on our business.

Our business could be negatively affected by security threats. A cyber-attack or similar incident could occur and result in information theft, data corruption, operational disruption, damage to our reputation, and/or financial loss.

The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain exploration, development, production, processing, and financial activities. We depend on digital technology to estimate quantities of oil and natural gas reserves, manage operations, process and record financial and operating data, analyze seismic and drilling information, and communicate with our employees and third-party operators. Our technologies, systems, networks, seismic data, reserves information, or other proprietary information, and those of our operators, vendors, suppliers, customers, and other business partners may become the target of cyber-attacks or information security breaches. Cyber-attacks or information security breaches could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or could otherwise lead to the disruption of our business operations or other operational disruptions in our exploration or production operations. Cyber-attacks are becoming more sophisticated and certain cyber incidents, such as surveillance, may remain undetected for an extended period and could lead to disruptions in critical systems or the unauthorized release of confidential or otherwise protected information. These events could lead to financial losses from remedial actions, loss of business, disruption of operations, damage to our reputation, or potential liability. Also, computers control nearly all of the oil and natural gas distribution systems in the United States and abroad. Computers are necessary to transport our oil and natural gas production to market. A cyber-attack directed at oil and natural gas distribution systems could damage critical distribution and storage assets or the environment, delay or prevent delivery of production to markets and make it difficult or impossible to accurately account for production and settle transactions. Cyber incidents have increased, and the United States government has issued warnings indicating that energy assets may be specific targets of cybersecurity threats. Our

21

Table of Contents

systems and insurance coverage for protecting against cybersecurity risks may not be sufficient. Further, as cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber-attacks.

Our insurance may not protect us against all of the operating risks to which our business is exposed.

The oil and natural gas business involves numerous operating hazards such as well blowouts, mechanical failures, explosions, uncontrollable flows of oil, natural gas, or well fluids, fires, formations with abnormal pressures, hurricanes and storms, flooding, pollution, releases of toxic gas, and other environmental hazards and risks, which can result in (1) damage to or destruction of wells and/or production facilities, (2) damage to or destruction of formations, (3) injury to persons, (4) loss of life, or (5) damage to property, the environment or natural resources. While we carry general liability, control of well, and operator’s extra expense coverage typical in our industry, we are not fully insured against all risks incidental to our business. Should we experience any losses, the costs of our premiums may rise, which could in turn reduce the amount of insurance we are able to carry.

The loss of key personnel could adversely affect us.

We depend to a large extent on the services of certain key management personnel, including our executive officers. The loss of one or more key personnel could have a material adverse effect on our operations. In particular, our future success is dependent upon the abilities of our executive officers to source, evaluate, and close deals, raise capital, and oversee our development activities and operations. Presently, we are not a beneficiary of any key man life insurance.

Oilfield service and materials prices may increase, and the availability of such services and materials may be inadequate to meet our needs.

Our business plan to develop or redevelop oil and natural gas resources requires third-party oilfield service vendors and various material providers, which we do not control. We also rely on third-party carriers for the transportation and distribution of our oil and natural gas production. As our production increases, so does our need for such services and materials. Generally, we do not have long-term agreements with our service and materials providers. Accordingly, there is a risk that any of our service providers could discontinue providing services for any reason or we may not be able to source the services or materials we need. Any delay in locating, establishing relationships, and training our sources could result in production shortages and maintenance problems, resulting in loss of revenue to us. In addition, if costs for such services and materials increase, it may render certain or all of our projects uneconomic, as compared to the earlier prices we may have assumed when deciding to redevelop newly purchased or existing properties. Further adverse economic outcomes may result from the long lead times often necessary to execute and complete our redevelopment plans.

We may assume risks and financial responsibility for drilling and completing wells on our Williston Basin properties if our third-party operator declines to drill wells and it or other joint interest owners elect not to participate. 

As discussed elsewhere in this report, pursuant to agreements related to our interests in the Williston Basin properties, we have the ability to propose to the operator a drilling plan for certain wells, which the operator may accept or reject. In the event the operator rejects our proposed drilling plan, we have the right to undertake all necessary activities to drill and complete the wells and related facilities in accordance with our proposed drilling plan. In the event we undertake to do so, and the operator and other joint interest owners elect not to participate, we will bear the entire liability and expense associated with drilling and completing the wells and related facilities, subject only to our right to recoup costs incurred on behalf of non-participating joint interest owners to the extent a well generates sufficient revenues to do so. We thus may be required to bear a share of such expenses to an extent that is disproportionate to our economic interest in the property. If we elect to proceed to drill and complete wells we have proposed and the operator has rejected, we also will bear many of the other risks highlighted elsewhere herein, including, without limitation, failing to find economic quantities of oil and natural gas, drilling accidents, potential environmental liabilities, unavailability of insurance at a reasonable cost to cover associated liabilities, and price increases and delivery delays for required drilling and completion equipment, products and services. Ongoing operations of any wells we elect to drill will be turned over to the operator of the property upon completion.

22

Table of Contents

We cannot market the oil and natural gas that we produce without the assistance of third-parties.

The marketability of the oil and natural gas that we produce depends upon the proximity of our reserves and production to, and the capacity of, facilities and third-party services, including oil and natural gas gathering systems, pipelines, trucking or terminal facilities, and processing facilities necessary to make the products marketable for end use. The unavailability or lack of capacity of such services and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties. A shut-in, delay, or discontinuance could adversely affect our financial condition.

We face strong competition from larger oil and natural gas companies.

Our competitors include major integrated oil and natural gas companies, numerous larger independent oil and natural gas companies, individuals, and drilling and income programs. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources. We may not be able to successfully conduct our operations, evaluate and select suitable properties, or consummate transactions in this highly competitive environment. Specifically, these larger competitors may be able to pay more for development projects and productive oil and natural gas properties and may be able to define, evaluate, bid for, and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, such companies may be able to expend greater resources on hiring contract service providers, obtaining oilfield equipment, and acquiring the existing and changing technologies that we believe are, and will be, increasingly important to attaining success in our industry.

We have been, and in the future may become, involved in legal proceedings related to our properties or operations and, as a result, may incur substantial costs in connection with those proceedings.

From time to time we may be a defendant or plaintiff in various lawsuits. The nature of our operations exposes us to further possible litigation claims in the future. There is risk that any matter in litigation could be decided unfavorably against us regardless of our belief, opinion, and position, which could have a material adverse effect on our financial condition, results of operations, and cash flow. Litigation can be very costly, and the costs associated with defending litigation could also have a material adverse effect on our financial condition. Adverse litigation decisions or rulings may damage our business reputation.

Ownership of our oil, natural gas, and mineral production depends on good title to our property.

Good and clear title to our oil, natural gas, and mineral properties is important to our business. Although title reviews will generally be conducted prior to the purchase of most oil, natural gas, and mineral producing properties or the commencement of drilling wells, such reviews do not assure that an unforeseen defect in the chain of title will not arise to defeat our claim. This could result in a reduction or elimination of the revenue received by us from such properties.

Unanticipated changes in effective tax rates or laws or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.

We are subject to tax by U.S. federal, state, and local tax authorities. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

changes in the valuation of our deferred tax assets and liabilities;
expected timing and amount of the release of any tax valuation allowances;
tax effects of stock-based compensation;
costs related to intercompany restructurings; or
changes in tax laws, regulations, or interpretations thereof.

For example, in previous years, legislation has been proposed to eliminate or defer certain key U.S. federal income tax deductions historically available to oil and natural gas exploration and production companies. Such proposed changes have included: (1) a repeal of the percentage depletion allowance for oil and natural gas properties; (2) the elimination of deductions for intangible drilling and exploration and development costs; (3) the elimination of the deduction for certain production activities; and (4) an extension of the amortization period for certain geological and geophysical

23

Table of Contents

expenditures. Under the current Administration there is an increased risk of the enactment of legislation that alters, eliminates, or defers these or other tax deductions utilized within the industry, which could adversely affect our business, financial condition, results of operations, and cash flows.

In addition, we may be subject to audits of its income, sales, and other transaction taxes by U.S. federal, state, and local taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

Risks Associated with our Common Stock

Our stock price has been and may continue to be volatile.

Our common stock has a relatively low trading volume and the market price has been, and is likely to continue to be, volatile. The variance in our stock price makes it difficult to forecast the stock price at which an investor may be able to buy or sell shares of our common stock. The market price for our common stock could be subject to fluctuations as a result of factors that are out of our control, such as:

actual or anticipated variations in our results of operations;
changes or fluctuations in the commodity prices of oil and natural gas;
general conditions and trends in the oil and natural gas industry;
redemption demands on institutional funds that hold our stock; and
general economic, political, and market conditions.

Significant ownership of our common stock is concentrated in a small number of shareholders who may be able to affect the outcome of the election of our directors and all other matters submitted to our stockholders for approval.

As of June 30, 2023, our executive officers and directors, in the aggregate, beneficially owned approximately 2,959,269 million shares, or approximately 8.9% of our outstanding common stock and, based on recent filings with the SEC, we believe one large unaffiliated fund complex owned in excess of 8% of the outstanding shares of our common stock. As a result, a significant percentage of our common stock is concentrated in the hands of relatively few shareholders. These shareholders could potentially exercise significant influence over matters submitted to our stockholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets). This concentration of ownership may have the effect of delaying, deferring, or preventing any matter that requires shareholder approval, including a change in control of our company, impede a merger, consolidation, takeover, or other business combination involving our company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could have an adverse effect on the market price of our common stock.

The market for our common stock is limited and may not provide adequate liquidity.

Our common stock trades on the NYSE American. Trading volume in our common stock is relatively low compared to larger companies. Our holders may find it more difficult to sell their shares, should they desire to do so, based on the trading volume and price of our stock at that time relative to the quantity of shares to be sold.

If securities or industry analysts do not publish research reports about our business, or if they downgrade our stock, the price of our common stock could decline.

Small, relatively unknown companies can achieve visibility in the trading market through research and reports that industry or securities analysts publish. To our knowledge, only two research analysts actively cover our company. The limited number of published reports by securities analysts could limit the interest in our common stock and negatively affect our stock price. We do not have any control over the research and reports these analysts publish or whether they will be published at all. If any analyst who does cover us downgrades our stock, our stock price could decline. If any

24

Table of Contents

analyst ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price to decline.

Payment of dividends on our common stock has been in the past, and could be in the future, reduced or eliminated.

Our Board of Directors declared cash dividends on our common stock for the first time in December 2013 and we have declared and paid quarterly cash dividends since that time. However, there is no certainty that dividends will be declared by our Board of Directors in the future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our business plan, restrictions contained in current or future debt instruments, contractual covenants or arrangements we may enter into, our anticipated capital requirements, and other factors that our Board of Directors may think are relevant. Although it is our intent to maintain paying dividends to our shareholders, there is no guarantee that we will be able to do so.

There may be future sales or issuances of our common stock, which will dilute the ownership interests of stockholders and may adversely affect the market price of our common stock.

We may in the future issue additional shares of common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or substantially similar securities, which may result in dilution to our stockholders. In addition, our stockholders may be further diluted by future issuances under our equity incentive plans. The market price of our common stock could decline as a result of sales or issuances of a large number of shares of our common stock or similar securities in the market after this offering or the perception that such sales or issuances could occur.

Non-U.S. holders may be subject to U.S. income tax and withholding tax with respect to gain on disposition of the Company’s common stock.

We believe we are a U.S. real property holding corporation. As a result, Non-U.S. holders that own (or are treated as owning under constructive ownership rules) more than a specified amount of our common stock during a specified time period may be subject to U.S. federal income tax and withholding on a sale, exchange or other disposition of such common stock, and may be required to file a U.S. federal income tax return.

Investor sentiment towards climate change, fossil fuels, sustainability, and other ESG matters could adversely affect our business and our stock price.

There have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities, and other groups, to promote the divestment of shares of fossil fuel companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with fossil fuel companies. As a result, some financial intermediaries, investors, and other capital markets participants have reduced or ceased lending to, or investing in, companies that operate in industries with higher perceived environmental exposure, such as the oil and natural gas industry. For example, in December 2020, the State of New York announced that it will be divesting the state’s Common Retirement Fund from fossil fuels. If this or similar divestment efforts are continued, the price of our common stock or debt securities, and our ability to access capital markets or to otherwise obtain new investment or financing, may be negatively impacted.

Members of the investment community are also increasing their focus on ESG practices and disclosures, including practices and disclosures related to greenhouse gases and climate change in the energy industry in particular, and diversity and inclusion initiatives and governance standards among companies more generally. The SEC, for example, proposed new rules in 2022 that would require disclosure of various specific risks related to climate. The growing emphasis on ESG may lead the investment community to screen our ESG performance before investing in our common stock or debt securities or lending to us. Over the past few years there also has been an acceleration in investor demand for ESG investing opportunities, and many large institutional investors have committed to increasing the percentage of their portfolios that are allocated towards ESG-focused investments. As a result, there has been a proliferation of ESG-focused investment funds seeking ESG-oriented investment products.

25

Table of Contents

If we are unable to meet the ESG standards or investment or lending criteria set by these investors and funds, we may lose investors, investors may allocate a portion of their capital away from us, our cost of capital may increase, the price of our common stock may be negatively impacted, and our reputation may be negatively affected.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Information regarding our properties is included in Item 1. Business above and in Note 4, “Property and Equipment” to our consolidated financial statements in Item 8. Consolidated Financial Statements and Supplementary Data, which information is incorporated herein by reference.

Item 3. Legal Proceedings

See Note 10, “Commitments and Contingencies” to our consolidated financial statements in Item 8. Consolidated Financial Statements and Supplementary Data for a description of any legal proceedings, which is incorporated herein by reference.

Item 4. Mine Safety Disclosures

Not Applicable.

26

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is currently traded on the NYSE American stock exchange under the ticker symbol “EPM”.

Shares Outstanding and Holders

As of June 30, 2023, there were 33,247,523 shares of common stock issued and outstanding. As of September 1, 2023, there were approximately 219 registered shareholders of our common stock.

Dividends

We began paying cash quarterly dividends on our common stock in December 2013. Over the last two fiscal years, we made the following cash dividends per share:

Fiscal Year

    

2023

    

2022

Fourth quarter ended June 30,

$

0.120

$

0.100

Third quarter ended March 31,

0.120

0.100

Second quarter ended December 31,

0.120

0.075

First quarter ended September 30,

0.120

0.075

As of June 30, 2023, we have paid 39 consecutive quarterly dividends on our common stock. In September 2023, the Company declared a $0.12 per share dividend payable on September 30, 2023. Any future determination with regard to the payment of dividends will be at the discretion of the Board of Directors and will be dependent upon our future earnings, financial condition, results of operations, applicable dividend restrictions, capital requirements, and other factors deemed relevant by the Board of Directors.

Securities Authorized For Issuance Under Equity Compensation Plans

Number of

Number of securities

securities to

remaining

be issued

Weighted-average

available for future

upon exercise

exercise

issuance under

of outstanding

price of

equity compensation

options,

outstanding

plans (excluding

warrants and

Options, warrants

securities reflected

Plan category

    

rights (a)

    

and rights (b)

    

in column (a))(1)

Equity compensation plans approved by security holders:

Outstanding options

$

Outstanding contingent rights to shares

96,398

(1)

Total

96,398

1,277,898

Equity compensation plans not approved by security holders

Total

96,398

$

1,277,898

(1)The Evolution Petroleum Corporation 2016 Equity Incentive Plan (as amended, the “2016 Plan”) authorizes the issuance of 3.6 million shares of common stock prior to its expiration on December 8, 2026. As of June 30, 2023, we have granted 2.3 million equity awards under the 2016 Plan and 1.3 million shares of common stock remain available for future grants.

27

Table of Contents

Issuer Purchases of Equity Securities

The table below summarizes information about the Company’s purchases of its equity securities during the three months ended June 30, 2023.

(c) Total number

(d) Maximum dollar value

(a) Total number

of shares

of shares that may yet be

of shares

purchased as part

purchased under the

purchased and

(b) Average price

of public announced

plans or programs

Period

received (1)

paid per share (1)

plans or programs(2)

(in thousands)(2)

April 2023

2,223

$

6.89

$

21,152

May 2023

21,152

June 2023

21,163

8.07

21,152

(1)During the three months ended June 30, 2023, no shares were purchased under the share repurchase program, discussed further below. All of the shares listed in the table above were surrendered by employees in exchange for the payment of tax withholding upon the vesting of restricted stock awards.
(2)On September 8, 2022, the Company’s Board of Directors approved a share repurchase program, under which the Company is authorized to repurchase up to $25.0 million of its common stock in the open market through December 31, 2024. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors, including management’s assessment of the intrinsic value of the Company’s shares, the market price of the Company's common stock, our capital needs and resources, general market and economic conditions, and applicable legal requirements. The value of shares authorized for repurchase by the Company's Board of Directors does not require the Company to repurchase such shares or guarantee that such shares will be repurchased, and the program may be suspended, modified, or discontinued at any time without prior notice. In December 2022, the Company entered into a Rule 10b5-1 plan that authorizes a broker to repurchase shares in the open market subject to pre-defined limitations on trading volume and price. The plan included a 30-day cooling off period that did not allow repurchases to commence until January 2023. The plan was effective until June 30, 2023 and had a maximum authorized amount of $5.0 million over that period. We may enter into additional Rule 10b5-1 plans in the future, the terms of which will be approved by the Board of Directors.

Item 6. Reserved

28

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Liquidity and Capital Resources

Results of Operations

Critical Accounting Policies and Estimates

Executive Overview

General

Evolution Petroleum Corporation is an independent energy company focused on maximizing total returns to its shareholders through the ownership of and investment in onshore oil and natural gas properties in the United States. In support of that objective, our long-term goal is to maximize total shareholder return from a diversified portfolio of long-life oil and natural gas properties built through acquisitions and through selective development opportunities, production enhancements, and other exploitation efforts on our oil and natural gas properties.

Our oil and natural gas properties consist of non-operated interests in the Jonah Field in Sublette County, Wyoming, a natural gas producing field; non-operated interests in the Williston Basin in North Dakota, a producing oil and natural gas property; non-operated interests in the Barnett Shale located in North Texas, a natural gas producing property; non-operated interests in the Hamilton Dome Field located in Hot Springs County, Wyoming, a secondary recovery field utilizing water injection wells to pressurize the reservoir; non-operated interests in the Delhi Holt-Bryant Unit in the Delhi Field in Northeast Louisiana, a CO2 enhanced oil recovery (“EOR”) project; and small overriding royalty interests in four onshore central Texas wells.

Our non-operated interests in the Jonah Field, a natural gas and NGL property in Sublette County, Wyoming, consist of approximately 20% average net working interest and approximately 15% average net revenue interest located on approximately 950 net acres. The properties are operated by Jonah Energy, an established operator in the geographic region.

Our non-operated interests in the Williston Basin, an oil and natural gas producing property, consist of approximately 39% average net working interest and approximately 33% average net revenue interest located on approximately 43,300 net acres (approximately 92% held by production) across Billings, Golden Valley, and McKenzie Counties in North Dakota. The properties are operated by Foundation Energy Management, an established operator in the geographic region.

Our non-operated interests in the Barnett Shale, a natural gas and NGL producing shale reservoir, consist of approximately 17% average net working interest and approximately 14% average net revenue interest (inclusive of small overriding royalty interests). The approximately 21,000 net acres are held by production across nine North Texas counties. The oil and natural gas properties are primarily operated by Diversified Energy Company with approximately 10% of wells operated by six other operators.

Our non-operated interests in the Hamilton Dome Field, a secondary recovery field utilizing water injection wells to pressurize the reservoir, consist of approximately 24% average net working interest, with an associated 20% average net revenue interest (inclusive of a small overriding royalty interest). The approximately 5,900 gross acre unitized field, of which we hold approximately 1,400 net acres, is operated by Merit Energy Company, who owns the vast majority of the remaining working interest in the Hamilton Dome Field. The Hamilton Dome Field is located in the southwest region of the Big Horn Basin in northwest Wyoming.

Our non-operated interests in the Delhi Field, a CO2-EOR project, consist of approximately 24% average net working interest, with an associated 19% revenue interest and separate overriding royalty and mineral interests of approximately

29

Table of Contents

7% yielding a total average net revenue interest of approximately 26%. The field is operated by Denbury Onshore LLC. The Delhi Field is located in northeast Louisiana in Franklin, Madison, and Richland Parishes and encompasses approximately 14,000 gross unitized acres, or approximately 3,200 net acres.

Recent Developments

Dividend Declaration

On September 11, 2023, Evolution’s Board of Directors approved and declared a quarterly dividend of $0.12 per common share payable September 29, 2023.

Senior Secured Credit Facility

On May 5, 2023, we entered into the Tenth Amendment to our Senior Secured Credit Facility, which has a current borrowing base of $50.0 million. This amendment, among other things, extends the maturity of our Senior Secured Credit Facility to April 9, 2026 and converts our benchmark interest rate from LIBOR to SOFR plus a credit spread adjustment of 0.05%. For further discussion of the amendment and our Senior Secured Credit Facility, see “Liquidity and Capital Resources” below.

Appointment of Chief Operating Officer

On February 23, 2023, we announced that the Board of Directors appointed J. Mark Bunch as COO. Mr. Bunch had been providing consulting services to the Company since 2016. We entered into an offer letter with Mr. Bunch setting forth his compensation as COO on February 21, 2023.

Appointment of Chief Executive Officer

On October 27, 2022, we announced that the Board of Directors selected Kelly W. Loyd as President and CEO. Mr. Loyd had been serving as Interim CEO since June 2022 and has served as a member of the Board of Directors since 2008. We entered into an offer letter with Mr. Loyd setting forth his compensation as CEO on October 25, 2022. Upon commencing employment, Mr. Loyd no longer receives compensation for his services as a member of the Board of Directors.

Share Repurchase Program

On September 8, 2022, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $25.0 million of our common stock in the open market through December 31, 2024. We intend to fund repurchases from available working capital and cash provided by operating activities. As we continue to focus on our goal of maximizing total shareholder return, the Board of Directors and management team believe that a share repurchase program is complimentary to the existing dividend policy and is a tax efficient means to further improve shareholder return. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors, including management’s assessment of the intrinsic value of our shares, our capital needs and resources, the market price of our common stock, general market and economic conditions, and applicable legal requirements. The value of shares authorized for repurchase by our Board of Directors does not require us to repurchase such shares or guarantee that such shares will be repurchased, and the program may be suspended, modified, or discontinued at any time without prior notice.

Once we completed repayment of borrowings on our Senior Secured Credit Facility and emerged from our blackout period in December 2022, we entered into a Rule 10b5-1 plan that authorized a broker to repurchase shares in the open market subject to pre-defined limitations on trading volume and price. The plan included a 30-day cooling off period that did not allow repurchases to commence until January 2023. The plan was effective until June 30, 2023 and had a

30

Table of Contents

maximum authorized amount of $5.0 million over that period. During the year ended June 30, 2023, 0.6 million shares of our common stock were repurchased under the plan at a total cost of approximately $3.9 million, including incremental direct transaction costs. These treasury shares were subsequently cancelled. We may enter into additional Rule 10b5-1 plans in the future, the terms of which will be approved by the Board of Directors.

Proved Reserves

The following table is a summary of our proved reserves as of June 30, 2023 and 2022:

Proved Reserves

    

2023

    

2022

    

Change

Proved Reserves MMBOE

31.2

36.2

(13.8)

%

% Developed

88.1

%

90.1

%

(2.0)

%

Liquids %

50.5

%

50.8

%

(0.3)

%

Standardized Measure ($MM)

$

238.2

$

314.8

(24.3)

%

Proved oil equivalent reserves as of June 30, 2023 were 31.2 MMBOE, a 5.0 MMBOE, or 13.8%, decrease from the previous year of 36.2 MMBOE. The net decrease in total proved reserves was primarily due production of 2.6 MMBOE and net negative revisions of 2.6 MMBOE partially offset by additions and extensions of 0.1 MMBOE. Net negative revisions of 2.6 MMBOE are primarily due to declines in SEC trailing 12-month pricing that impacted late-in-life economic limits of production, adjustment to projections and increased production costs partially offset by restored production at Hamiton Dome Field and improved economics from our differentials at Jonah Field.

The Standardized Measure for proved reserves decreased 24.3% to $238.2 million, primarily due to sales of oil, natural gas and NGLs produced during the period, decreases in reserves estimates, decreases in the SEC mandated trailing 12-month average first day of the month prices for oil and natural gas and the price received for our NGLs. Prices decreased from $85.82 per barrel of oil, $5.19 per MMBtu of natural gas and $44.24 per barrel of NGLs at June 30, 2022 to $83.23 per barrel of oil, $4.78 per MMBtu of natural gas and $33.71 per barrel of NGLs at June 30, 2023. Our proved reserves consist of 32% oil, 49% natural gas, and 19% NGLs; 88.1% are classified as proved developed producing and 11.9% are proved undeveloped.

Additional property and project information is included under Item 1. Business and in Note 4, “Property and Equipment” and our Supplemental Disclosure about Oil and Natural Gas Properties (unaudited) to our consolidated financial statements in Item 8. Financial Statements and Supplementary Data, and in Exhibit 99.1 and 99.2 of this Form 10-K.

Risks and uncertainties

The global economy was deeply impacted by the effects of the novel coronavirus (“COVID-19”) pandemic and related efforts to mitigate the spread of the disease. These events led to crude oil prices falling to historic lows during the second quarter of 2020 and remaining depressed through much of 2020.

Beginning in 2021, the demand for oil and natural gas started to recover primarily as a result of the roll-out of the COVID-19 vaccine and lessening of pandemic related government restrictions on individuals and businesses. In addition, the military activities of Russia into Ukraine and the subsequent sanctions imposed on Russia and other actions have created significant market uncertainties, including uncertainties around potential supply disruptions for oil and natural gas, which further enhanced volatility in global commodity prices in the first half of 2022.

Additionally, in March 2023, the closures of Silicon Valley Bank and Signature Bank and their placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created broad uncertainty around world-wide financial institutions and liquidity risk. While we do not have exposure to these banks, we do maintain cash balances in excess of FDIC insurance protections at banks we believe to be financially sound. We also utilize insured cash sweep deposits to maximize the amount of our cash that is protected by FDIC insurance. We also rely heavily on our third-party operators who manage their own liquidity with various financial institutions.

31

Table of Contents

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that these market conditions will persist; predict the broader impact of liquidity concerns around financial institutions; or the impact on the commodity prices that we realize.

Currently, our oil and natural gas properties are operated by third-party operators and involve other third-party working interest owners. As a result, we have limited ability to influence the operation or future development of such properties. Despite these uncertainties, we remain focused on our long-term objectives and continue to be proactive with our third-party operators to review capital expenditures and present alternative plans as necessary.

Liquidity and Capital Resources

As of June 30, 2023, we had no borrowings outstanding on our Senior Secured Credit Facility and $11.0 million in cash and cash equivalents compared to $21.3 million of borrowings on our Senior Secured Credit Facility and $8.3 million in cash and cash equivalents at June 30, 2022. Our primary sources of liquidity and capital resources during the year ended June 30, 2023 were cash provided by operations and the unused portion of our Senior Secured Credit Facility. Our primary uses of liquidity and capital resources for the year ended June 30, 2023 were repayments on our Senior Secured Credit Facility, cash dividend payments to our common stockholders, common stock repurchases, and capital expenditures on our existing oil and natural gas properties. As of June 30, 2023, working capital was $8.9 million, an increase of $2.8 million from working capital of $6.1 million as of June 30, 2022.

The Senior Secured Credit Facility has a maximum capacity of $50.0 million subject to a borrowing base determined by the lender based on the value of our oil and natural gas properties. The Senior Secured Credit Facility has a current borrowing base of $50.0 million. The Senior Secured Credit Facility is secured by substantially all of our oil and natural gas properties and matures on April 9, 2026.

Borrowings bear interest, at our option, at either the SOFR plus 2.80% or the Prime Rate, as defined under the Senior Secured Credit Facility, plus 1.0%. For the year ended June 30, 2023, the weighted average interest on our borrowings was 5.25%. The Senior Secured Credit Facility contains covenants requiring the maintenance of (i) a total leverage ratio of not more than 3.00 to 1.00, (ii) a current ratio of not less than 1.00 to 1.00, and (iii) a consolidated tangible net worth of not less than $40.0 million, each as defined in the Senior Secured Credit Facility. It also contains other customary affirmative and negative covenants, including a hedging covenant discussed below, and events of default. As of June 30, 2023, we were in compliance with all covenants under the Senior Secured Credit Facility.

On May 5, 2023, we entered into the Tenth Amendment to the Senior Secured Credit Facility. This amendment, among other things, extended the maturity of our Senior Secured Credit Facility to April 9, 2026, converted our benchmark interest rate from LIBOR to SOFR plus a credit spread adjustment of 0.05%, and modified the Margined Collateral Value, as defined in the Ninth Amendment to the Senior Secured Credit Facility, to $95.0 million. We are required to enter into hedges on a rolling 12-month basis when the borrowings under the Senior Secured Credit Facility exceed 25% of the Margined Collateral Value. The required amount of hedged oil and natural gas production is related to the amount of borrowings outstanding. At each redetermination, our Margined Collateral Value takes into account the estimated value of our oil and natural gas properties, proved developed reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria.

On February 7, 2022, we entered into the Ninth Amendment to the Senior Secured Credit Facility. This amendment, among other things, modified the definition of utilization percentage related to the required hedging covenant such that for the purposes of determining the amount of future production to hedge, the utilization of the Senior Secured Credit Facility will be based on the Margined Collateral Value, as amended above, to the extent it exceeds the borrowing base then in effect. This amendment also required us to enter into hedges for the 12-month period ending February 2023, covering 25% of expected oil and natural gas production over that period.

On November 9, 2021, we entered into the Eighth Amendment to the Senior Secured Credit Facility. This amendment, among other things, increased the borrowing base to $50.0 million and added a hedging covenant whereby we must

32

Table of Contents

hedge a certain amount of our future production on a rolling 12-month basis when 25% or more of the borrowing base is utilized. The hedging covenant was amended in the Ninth Amendment, as discussed above.

On August 5, 2021, we entered into the Seventh Amendment of our Senior Secured Credit Facility which, among other things, added definitions for the terms “Acquired Entity or Mineral Interests” and “Acquired Entity or Mineral Interests EBITDA Adjustment.” Additionally, the consolidated tangible net worth covenant level was reduced to $40.0 million from $50.0 million.

We have historically funded operations through cash from operations and working capital. Our primary source of cash is the sale of produced crude oil, natural gas, and NGLs. A portion of these cash flows is used to fund capital expenditures and pay cash dividends to shareholders. We expect to fund near-future capital development activities for our properties with cash flows from operating activities and existing working capital.

We are pursuing new growth opportunities through acquisitions and other transactions. In addition to cash on hand, we have access to the undrawn portion of the borrowing base available under our Senior Secured Credit Facility, totaling $50.0 million as of June 30, 2023. We also have an effective shelf registration statement with the SEC under which we may issue up to $500.0 million of new debt or equity securities.

Our Board of Directors instituted a cash dividend on common stock in December 2013. We have since paid 39 consecutive quarterly dividends. Distribution of a substantial portion of free cash flow in excess of operating and capital requirements through cash dividends remains a priority of our financial strategy, and it is our long-term goal to increase dividends over time, as appropriate. On September 11, 2023, the Board of Directors declared a quarterly cash dividend of $0.12 per share of common stock to shareholders of record on September 22, 2023 and payable on September 29, 2023.

On September 8, 2022, our Board of Directors approved a share repurchase program, under which we are authorized to repurchase up to $25.0 million of our common stock in the open market through December 31, 2024. We intend to fund any repurchases from working capital and cash provided by operating activities. As we continue to focus on our goal of maximizing total shareholder return, the Board of Directors along with the management team believe that a share repurchase program is complimentary to the existing dividend policy and is a tax efficient means to further improve shareholder return.

Once we completed the repayment of borrowings on our Senior Secured Credit Facility and emerged from our blackout period in December 2022, we entered into a Rule 10b5-1 plan that authorizes a broker to repurchase shares in the open market subject to pre-defined limitations on trading volume and price. The plan included a 30-day cooling off period that did not allow repurchases to commence until January 2023. The plan was effective until June 30, 2023 and had a maximum authorized amount of $5.0 million over that period. During the year ended June 30, 2023, 0.6 million shares of our common stock were repurchased under the plan at a total cost of approximately $3.9 million, including incremental direct transaction costs. These treasury shares were subsequently cancelled. We may enter into additional Rule 10b5-1 plans in the future, the terms of which will be approved by the Board of Directors.

Capital Expenditures

For the year ended June 30, 2023, we incurred $6.2 million on development capital expenditures and $0.2 million for plugging and abandoning costs. During the latter half of fiscal year 2023, we participated in the completion and fracture stimulation of a vertical Bakken well. Toward the end of fiscal 2023 and into fiscal 2024 we have participated in the drilling of two new down dip wells in the Delhi Field. Completion and first production of the wells are expected in the first quarter of fiscal 2024.

Based on discussions with our operators, we expect capital workover projects to continue in all the fields. Overall, for fiscal year 2024, we expect budgeted capital expenditures to be in the range of $4.0 million to $5.0 million, which excludes any potential acquisitions. Our expected capital expenditures for the next 12 months include the two new drill wells at Delhi Field, discussed above, and also include Foundation, the operator of our Williston Basin properties, drilling two sidetrack locations targeting the Birdbear formation.

33

Table of Contents

As of June 30, 2023, our PUD reserves included 3.7 MMBOE of reserves and approximately $71.7 million of future development costs primarily associated with the Williston Basin properties.

Funding for our anticipated capital expenditures over the near-term is expected to be met from cash flows from operations and current working capital, and as needed from borrowings under our Senior Secured Credit Facility.

Full Cost Pool Ceiling Test

Under the full cost method of accounting, capitalized costs of oil and natural gas properties, net of accumulated depletion, depreciation, and amortization and related deferred taxes, are limited to the estimated future net cash flows from proved oil and natural gas reserves, discounted at 10%, plus the lower of cost or fair value of unproved properties, as adjusted for related income tax effects (the valuation “ceiling”). If capitalized costs exceed the full cost ceiling, the excess would be charged to expense as a write-down of oil and natural gas properties in the quarter in which the excess occurred. The quarterly ceiling test calculation requires that we use the average first day of the month price for our petroleum products during the 12-month period ending with the balance sheet date. The prices used in calculating our ceiling test as of June 30, 2023 were $83.23 per barrel of oil, $4.78 per MMBtu of natural gas and $33.71 per barrel of NGLs. As of June 30, 2023, our capitalized costs of oil and natural gas properties were below the full cost valuation ceiling. If commodity price levels were to substantially decline from the 12-month average first day of the month pricing levels as of June 30, 2023 and remain down for a prolonged period of time, our valuation ceiling over our capitalized costs may be reduced and adversely impact our ceiling tests in future quarters. We cannot give assurance that a write-down of capitalized oil and natural gas properties will not be required in the future. Additionally, a 10% reduction in respective commodity prices at June 30, 2023, while all other factors remained constant, would not have generated an impairment.

Overview of Cash Flow Activities

Years Ended June 30, 

    

2023

    

2022

    

Change

Cash flows provided by operating activities

$

51,272

$

52,460

$

(1,188)

Cash flows used in investing activities

(6,992)

(54,873)

47,881

Cash flows (used in) provided by financing activities

(41,526)

5,416

(46,942)

Net increase in cash and cash equivalents

$

2,754

$

3,003

$

(249)

Cash provided by operating activities decreased $1.2 million during the fiscal year ended June 30, 2023 compared to fiscal year ended June 30, 2022 primarily due to decreases in our operating assets and liabilities from the timing of converting working capital into cash. These decreases are partially offset by increases in total revenues over our increase in operating costs. Total revenues increased $19.6 million as compared to the prior year driven by an increase in our average daily production primarily due to our acquisition of non-operated working interests in the Jonah Field and Williston Basin in April 2022 and January 2022, respectively, partially offset by decreases in the average realized price per BOE.

Cash used in investing activities for the year ended June 30, 2023 decreased $47.9 million from the prior year. In fiscal year 2022, we completed the acquisition of our Jonah Field properties totaling $26.4 million and the acquisition of our Williston Basin properties total $25.8 million. The decrease was partially offset by an increase in development capital expenditures in the current fiscal year.

Net cash flows used in financing activities for the year ended June 30, 2023 were $41.5 million which included the repayment of $21.3 million of borrowings outstanding under our Senior Secured Credit Facility, $16.1 million in dividends paid to our common stockholders, and $3.9 million paid to repurchase shares of common stock under our share repurchase program. Net cash flows provided by financing activities for the year ended June 30, 2022 were $5.4 million which primarily included $17.3 million in net borrowings under our Senior Secured Credit Facility offset by $11.8 million in dividends paid to our common stockholders.

34

Table of Contents

Results of Operations

Years Ended June 30, 2023 and 2022

We reported net income of $35.2 million and $32.6 million for the years ended June 30, 2023 and 2022, respectively. The following table summarizes the comparison of financial information for the periods presented:

 

Years Ended June 30, 

(in thousands, except per unit and per BOE amounts)

    

2023

    

2022

    

Variance

    

Variance %

Net income (loss)

$

35,217

$

32,628

$

2,589

7.9

%

Revenues:

Crude oil

51,044

52,683

(1,639)

(3.1)

%

Natural gas

63,800

39,174

24,626

62.9