Evolution Petroleum has signed an authorization for expenditure regarding construction of a natural gas liquids (NGL) recovery plant in the Delhi Field, which will extract both NGL and methane from the field.
Evolution and Denbury also executed an agreement under which Denbury will reverse the previously disclosed suspension of 2.89% of our overriding royalty interest revenues and will release to Evolution amounts previously suspended totaling approximately US$712,000. Denbury further agreed not to suspend any future revenues attributable to any of our revenue interests, except under limited circumstances related to any non-payment of joint interest billings or court order, and will limit any cash calls to amounts needed to fund near term capital expenditures. This agreement does not settle any of the outstanding litigation matters with Denbury, including their counterclaim related to the net revenue interest conveyed in the 2006 Purchase and Sale Agreement. The litigation is continuing and currently scheduled for trial in July 2015.
The NGL plant has an estimated gross cost of $103 million ($24.6 million net to Evolution) projected to be expended through the summer of 2016. Recovered methane will be utilized to generate electricity for the operation of the gas plant and other CO2 field operations. This will substantially reduce operating costs for both the existing field operation and the new plant operating costs. The plant is projected to produce up to 1500-2000 bbl/d when in full operation, and is expected to be placed in service during the second half of calendar 2016. NGL production volumes potentially may be higher based on performance and yield. In addition, the improved efficiency of the CO2 flood is expected to result in improved crude oil production and/or accelerated recovery of oil reserves.
Of the total capital expenditures, approximately 60%, or $15 million net to Evolution, are expected to be incurred during calendar 2015, with the balance being spent during installation of the plant in the first half of 2016. Capital expenditures associated with the plant will be funded from existing working capital and expected cash flow from operations. Evolution also has $5 million of available capacity under its unsecured credit line.
Randy Keys, President and CFO, said, "We are very pleased to be moving forward with this important phase of development in the Delhi Field and to restore the cash flow that had been reduced by the previously disclosed suspension of approximately 11% of our revenues. This NGL plant will allow us to capture significant additional value from the field's production stream that is currently being recycled. We are in the fortunate position of having a debt-free balance sheet and ample liquidity to fund our portion of the capital expenditures from internal resources. It has always has been, and remains, our intent to work constructively with the operator for the successful development of the Delhi Field, and this agreement marks a positive step in that direction."
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