EVOLUTION PETROLEUM CORP

As of September 30, 2024, we had $6.9 million in cash and cash equivalents and $39.5 million outstanding borrowings on our Senior Secured Credit Facility compared to $6.4 million in cash and cash equivalents and $39.5 million borrowings outstanding on our Senior Secured Credit Facility at June 30, 2024. Our primary sources of liquidity and capital resources during the three months ended September 30, 2024 were cash provided by operations. Our primary uses of liquidity and capital resources for the three months ended September 30, 2024 were our cash dividend payments to our common stockholders and development capital expenditures. As of September 30, 2024, working capital was $8.5 million, an increase of $2.6 million from working capital of $5.9 million as of June 30, 2024.

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, with $39.5 million drawn as of September 30, 2024. 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 three months ended September 30, 2024, the weighted average interest on our borrowings was 8.09%. 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 September 30, 2024, we were in compliance with all covenants under the Senior Secured Credit Facility.

The Senior Credit Agreement contains hedging requirements that apply when there is 25% or more utilization of the Margined Collateral Value, as defined in the Senior Credit Agreement, to the extent it exceeds the borrowing base then in effect. 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 12, 2024, we entered into an amendment to the Senior Secured Credit Facility. This amendment required that we enter into hedges for the next 12-month period, and on a rolling 12-month basis thereafter, covering expected crude oil and natural gas production from proved developed reserves, calculated separately, equal to a minimum of 40% of expected crude oil production each month, or 25% each of expected crude oil and natural gas production each month over that period. Thus, we have the option to choose whether to hedge 40% of expected crude oil production or 25% each of expected crude oil and natural gas production.

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, existing working capital and, as needed, borrowings under our Senior Secured Credit Facility and any proceeds from ATM Sales Agreement (as described in “Recent Developments” above).

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 $10.5 million as of September 30, 2024. 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.

On October 21, 2024, we entered into an ATM Sales Agreement with Roth Capital Partners, LLC as our Lead Agent, Northland Securities Inc., and A.G.P./Alliance Global Partners pursuant to which we may issue and sell, from time to time, up to $30.0 million of shares of common stock through or to the Lead Agent, acting as agent or principal. We have not sold any shares of our common stock under the ATM Sales Agreement and are not obligated to sell any shares of common stock in the future.

Our Board of Directors instituted a cash dividend on common stock in December 2013. We have since paid 44 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 November 11, 2024, the Board of Directors declared a quarterly cash dividend of $0.12 per share of common stock to shareholders of record on December 13, 2024 and payable on December 31, 2024.

Capital Expenditures

During the three months ending September 30, 2024, we incurred $1.0 million on development capital expenditures. During the first quarter of 2024, capital spending occurred at our fields, including the SCOOP/STACK properties where our operators are actively drilling and have brought seven gross wells online. Based on discussions with our operators, we expect capital workover projects to continue in most of our fields throughout the year.

Overall, for fiscal year 2025, we expect budgeted capital expenditures to be in the range of $12.5 million to $14.5 million, which excludes any potential acquisitions. Our expected capital expenditures for fiscal year 2025 include the seven gross wells brought online at our SCOOP/STACK properties, discussed above, bringing an additional eight gross wells online at our SCOOP/STACK properties, the drilling and completion of four new wells at Chaveroo Field, and the drilling and completion of one new well at Delhi Field Test Site V.

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 September 30, 2024 were $79.40 per barrel of oil, $2.21 per MMBtu of natural gas and $23.63 per barrel of NGLs. As of September 30, 2024, 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 September 30, 2024 and remain down for a prolonged period of time, our valuation ceiling over our capitalized costs may be reduced and adversely impact our ceiling test results in future quarters. While a 10% reduction in respective commodity prices at September 30, 2024, while all other factors remained constant, would not have generated an impairment, we cannot give assurance that a write-down of capitalized oil and natural gas properties will not be required in the future.

Overview of Cash Flow Activities

Cash provided by operating activities for the three months ended September 30, 2024 increased $3.3 million compared to the three months ended September 30, 2023 primarily due to an increase in revenues. Total revenues increased $1.3 million as compared to the prior year period primarily due increased production volumes partially offset by lower commodity prices. Our average daily production increased 1,021 BOEPD or 15.8% from the prior year period; however our average realized price per barrel of oil equivalent (“BOE”) decreased $2.85, or 8.2% from the prior year period. Refer to*“Results of Operations”* below for further information.

Cash used in investing activities for the three months ended September 30, 2024 increased $1.2 million compared to the three months ended September 30, 2023 primarily due to the addition of our SCOOP/STACK properties since the prior year period and the active drilling and completion projects of our operators in the field.

Net cash flows used in financing activities were approximately $4.1 million for each of the three months ended September 30, 2024 and 2023. For each of the three months ended, September 30, 2024 and 2023, we paid $4.0 million in cash dividends to our common stockholders.