EVOLUTION PETROLEUM CORP

Three Months Ended March 31, 2024 and 2023

We reported net income of $0.3 million and $14.0 million for the three months ended March 31, 2024 and 2023, respectively. The following table summarizes the comparison of financial information for the periods presented:

Revenues

Crude oil, natural gas and NGL revenues were $23.0 million and $36.9 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in revenues is primarily due to the decrease in our average realized price per BOE partially offset by an increase in our crude oil sales volumes. Our average realized commodity price (excluding the impact of derivative contracts) for the three months ended March 31, 2024 decreased approximately $22.69 per BOE, or 39.3%, compared to the prior year period. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, inventory storage levels, basis differentials and other factors. Realized natural gas prices decreased 71.7% from the prior year period, which was the largest portion of the driver of the decrease in revenues. This was partially attributed to the prior year period benefit of strong natural gas price differentials received at the Jonah Field where we realized an average natural gas price of $20.31 per MCF in the prior year period compared to $3.94 per MCF in the current year quarter. Average daily equivalent production increased 1.7% from 7,089 BOEPD in the prior year period to 7,209 BOEPD in the current period primarilydue to the acquisitions of non-operated working interests in the SCOOP/STACK in the latter part of February 2024 and first production at our wells in the Chaveroo Field in early February 2024, which collectively increased current quarter production by approximately 1,020 BOEPD. These increases were partially offset by a decrease in production at our Barnett Shale properties. We began experiencing production declines and downtime in April 2023 at Barnett Shale. Production declines were primarily related to compression issues due to excessive heat, downtime in the gathering and processing system, pipeline rerouting and optimization, and our operator’s decision to temporarily shut-in certain low margin wells. As of March 31, 2024, the midstream issues have been moderated, but due to low natural gas prices the shut-in wells remain offline which has continued to negatively impact production volumes.

Lease Operating Costs

Ad valorem and production taxes were $1.5 million and $1.6 million for the three months ended March 31, 2024 and 2023, respectively. On a per unit basis, ad valorem and production taxes were $2.22 per BOE and $2.57 per BOE for the three months ended March 31, 2024 and 2023, respectively. The decrease in ad valorem and production taxes is primarily due to decreases in realized natural gas and NGLs revenues described above, as production taxes are based on sales at the wellhead.

The following table summarizes CO 2 costs per Mcf and CO 2 volumes for the three months ended March 31, 2024 and 2023. CO 2 purchase costs are for the Delhi Field. Under our contract with the Delhi Field operator, purchased CO 2 is priced at 1% of the realized oil price in the field per MCF, plus sales taxes and transportation costs as per contract terms.

The $0.8 million decrease in CO 2 costs for the three months ended March 31, 2024 was primarily due to a 43.2% decrease in purchased CO 2 volumes, which was primarily due to the suspension of CO 2 purchases at the end of February 2024 due to maintenance on the CO 2 pipeline. CO 2 purchases provide approximately 20% of the injected volumes in the field and the field’s recycle facilities provide the other 80%. We do not have any ownership in the CO 2 pipeline which is owned and operated by Denbury. On a per unit basis, CO 2 costs were $1.58 per BOE and $2.85 per BOE for thethree months ended March 31, 2024 and 2023, respectively.

Other lease operating costs were primarily flat, compared to the prior year period. On a per unit basis, other lease operating costs decreased slightly to $15.44 per BOE for the three months ended March 31, 2024 from $15.84 per BOE in the year-ago quarter. The largest decrease in operating costs was at our Barnett Shale properties offset by an additional LOE incurred as a result of our SCOOP/STACK Acquisitions. At the Barnett Shale, significant cost savings efforts are being prioritized due to the lower realized natural gas prices and the shut-in of certain low margin wells at current natural gas prices. We are experiencing lower operating costs in all cost categories, especially lower water hauling costs and lower gathering, transportation and processing charges.

Depletion of Full Cost Proved Oil and Natural Gas Properties

Depletion expense increased $2.4 million or 78.6% from $3.1 million to $5.5 million for the three months ended March 31, 2024 primarily due to an increase in the depletion rate. On a per unit basis, depletion expense was $8.43 per BOE and $4.86 per BOE for the three months ended March 31, 2024 and 2023, respectively. The depletion rate of our unit of production calculation increased due to decreases in proved reserve volumes as well as increases in our depletable base due to our SCOOP/STACK Acquisitions and capital expenditures since March 31, 2023. Our proved reserves volumes have decreased since the prior year period primarily due to oil and natural gas volumes produced combined with a reduction in the SEC prices used in calculating proved reserves since the prior year period.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2024 increased minimally over the prior year period. General and administrative expenses were $1.9 million for the three months ended March 31, 2024 compared to $1.8 million for the prior year period. The increase primarily relates to an increase in salary and employee benefits due to additional personnel added as additional assets were acquired. On a per unit basis, general and administrative expenses were $2.85 per BOE and $2.84 per BOE for the three months ended March 31, 2024 and 2023, respectively.

Stock-based Compensation Expense

Stock-based compensation expense for the three months ended March 31, 2024 remained flat at $0.5 million for each period.

Net Gain (Loss) on Derivative Contracts

Periodically, we utilize commodity derivative financial instruments to reduce our exposure to fluctuations in oil and natural gas prices. We have elected not to designate our open derivative contracts for hedge accounting, and accordingly, we recorded the net change in the mark-to-market valuation of the derivative contracts in the unaudited condensed consolidated statements of operations. The amounts recorded on the unaudited condensed consolidated statements of operations related to derivative contracts represent the (i) gains (losses) related to fair value adjustments on our open, or unrealized, derivative contracts, and (ii) gains (losses) on settlements of derivative contracts for positions that have settled or been realized. The table below summarizes our net realized and unrealized gains (losses) on derivative contracts as well as the impact of net realized (gains) losses on our average realized prices for the periods presented. As a result of our SCOOP/STACK Acquisitions in the current quarter and our acquisitions during fiscal year 2022 and the corresponding borrowings on our Senior Secured Credit Facility, we were required by terms set in the Senior Secured Credit Facility to hedge a portion of our production. The increase in commodity prices since entering into the hedges and the continued increase in forward commodity prices resulted in a realized loss on hedges for the current quarter and an unrealized loss on the mark-to-market of our hedges, respectively. As of March 31, 2024, we had $0.3 million derivative asset all of which was classified as current, and a $1.4 million derivative liability, all of which was classified as current.

Interest Expense

Interest expense increased $0.5 million for the three months ended March 31, 2024 compared to the prior year period primarily due to borrowings drawn on our Senior Secured Credit Facility to finance our SCOOP/STACK Acquisitions during the current period.

Income Tax (Expense) Benefit

For the three months ended March 31, 2024, we recognized income tax expense of $0.2 million on net income before income taxes of $0.4 million compared to income tax expense of $3.9 million on net income before income taxes of $17.9 million for the three months ended March 31, 2023. The effective tax rates were 35.2% and 22.0% for three months ended March 31,2024 and 2023, respectively. The effective tax rate increased compared to the prior year period as projected state income taxes have become a larger component of our overall income tax expense during the period.