Evolution Petroleum Corporation (EPM) Q1 2014 Earnings Report, Transcript and Summary

Good morning, and welcome to the Evolution Petroleum First Quarter Fiscal 2014 Earnings Release Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Sterling McDonald. Mr. McDonald, please go ahead.

Thank you, Dana. Good morning, and thank you for listening to Evolution Petroleum's conference call to discuss results for the quarter ended September 30, 2013, our first quarter of fiscal 2014. My name is Sterling McDonald, I'm the CFO of Evolution Petroleum. And with me today are Robert Herlin, our CEO; and Daryl Mazzanti, our VP of Operations. Before we begin, let us cover the basics. If you would like to be on the company's e-mail distribution list to receive future news releases, please see the contact information on our news release. If you wish to listen to a replay of today's call, it will be available shortly by going to the company's website at www.evolutionpetroleum.com, or via recorded telephone replay for the next few weeks. The necessary information can be found in the earnings release, and please note that any statements and information provided today are time-sensitive and may not be accurate at a later date. Our discussion today may contain forward-looking statements that are based on management's beliefs and assumptions that are based on currently available information. We can give no assurance that such forward-looking statements will prove to be correct, as they are subject to risks and uncertainties that are listed and described in our filings with the SEC. Actual results may differ materially from those expected. Our discussion also may include discussions of probable, possible or potential reserves or recovery. Such unproven estimates are more speculative than proven reserves. We'll begin with comments about our results for the recent quarter ended and then go to questions. Bob?

Thanks, Sterling, and good morning to everyone. Since detailed numbers are readily available to everyone in the release that was submitted yesterday evening, I'll focus my remarks on key overall results and operations. Sterling is going to provide some commentary about our position and results, and then we'll take your questions. Quarterly earnings rebounded this quarter to $1.3 million or about $0.04 per diluted share, that's an increase of some 32% over last year and 38% over the last quarter. While our revenues of $4.6 million were higher than last year, they do reflect a decline from the previous quarter. The decrease in revenues from last quarter is due primarily to Delhi gross production declining to 5,912 barrels of oil per day, compared to the previous quarter's rate -- gross rate of 7,188 barrels a day. This temporary production decline at Delhi was partially offset by higher oil prices, as we average about $110 per barrel of oil there. Delhi does represent 92% of our total volumes and about 94% of revenue. And I'll talk a little bit more about Delhi later on. Compared to last year, lease operating expense increased somewhat due to the addition of several GARP-installed wells that we operate, plus workovers and recompletions at our Miss Lime wells and our 2 oil producers in South Texas. These are partially offset by the sale of our non-GARP production at Giddings Field during the course of fiscal '13. LOE was 10% lower than the prior quarter and it should decline going forward further with the divestment of South Texas and limited well work in Oklahoma. Now, let's talk about some of our specific projects. The operator of Delhi, Denbury, announced recently that the remediation efforts of the June fluids release is nearly complete, that they are working to complete the redrill and plugging of one well as a precautionary measure. The further good news is that the CO2 injection has resumed in some wells adjacent to the remediation area. Now, please remember that substantial CO2 injection has continued throughout the rest of the field during this whole remediation effort. Combined with expected production response from development work in 2012 and earlier this year, we expect to see oil production in the affected areas to begin rebounding, and overall field production growth to resume. Indeed, production is already climbing. Please keep in mind that gross field production is projected to exceed 12,000 barrels a day by 2017, and that doesn't even include several thousand barrels of oil equivalent per day and expected production of natural gas liquids and methane from growth capital expenditures over the next few years. Obviously, this event has had impact on the expected date of reversion of our some 24% working interest. And it has also reduced revenues to our totally separate 7.4% royalty interest. The temporarily reduced oil production and the cost of remediation, now up to some $98 million gross expected total costs, were offset by lower concurrency of 2 purchases, future insurance reimbursements and the application of the operator's disputed indemnity of us, these are all delaying the reversion date. Due to the dispute, the uncertainty as to the timing and amount of insurance reimbursement, the pace of production recovery, along with normal variables such as oil price, we cannot accurately project the reversion date other than sometime in fiscal 2014. I do want to point out the effect of any delay in reversion date is substantially reduced by a corresponding reduction in our share of 2014 capital expenditures. In other areas, we successfully installed our GARP technology in the Appelt well in Giddings Field, where we own a 90% working interest before payout and about a 68% work interest after payout. Production there has increased from essentially no production to about 8 barrels of oil per day plus a small volume of natural gas. Our other GARP-installed wells continue to perform as expected. Our best installation has restored production to more than 40 barrels of oil equivalent per day in the well, the Philip. And our first commercial installation, Morgan-Kovar, has been producing about 7.5 barrels of oil equivalent per day without material decline for about 2 years now. We are working to finalize an agreement to install GARP on a larger group of wells in Guinea, and we are in discussions with several other operators and -- for other fields. The GARP artificial lift technology is being marketed by our wholly owned subsidiary, NGS Technologies, and it has his own separate website of www.garplift.com. In the Mississippi Lime project, our test of the upper sections of the formation was not successful in producing commercial volumes. That well has now been recompleted in another reservoir as a minor oil well. We are evaluating a new well proposal to test the Mississippi Lime from the operator, as well as evaluating the overall project and how it fits in with our overall business strategy. We are finalizing the divestment of our interest in the Lopez Field in South Texas; that sale will substantially reduce our LOE and overhead, and free up staff and capital. Our capital expenditures for fiscal '14 are highly dependent upon when the Delhi reversion occurs. Our regional plan included up to $17 million for Delhi based on reversion occurring on January 1, 2014. CapEx for GARP is projected to be between $1 million and $3 million. And no material amount of capital is currently slotted for other projects. Sterling will now give you some additional commentary.

Thanks, Bob. I'd like to focus today on what our investors can expect regarding our financial performance going forward. As a prelude, we're transitioning from a deep value play, to what we see as a total return play consisting of 3 elements: growth, value and potential for income distribution. I'll come back to this later. But looking back at our success, and based on sell-side research we gathered from the Street, Evolution has been an industry leader in capital efficiency. Out of the 100 largest publicly traded oil and gas companies, Evolution ranks #1 in all source finding and development cost per barrel of oil equivalent over the last 3- and 5-year periods. When combining our low finding and development costs per BOE as the denominator, with cash flow per BOE as the numerator, dubbed the recycle ratio by one of our analysts, we again rank #1 in the 3- and 5-year periods among the 100 largest publicly traded oil and gas companies. Although Delhi has propelled these metrics over time, we believe GARP presents us with a similar opportunity for superior capital efficiency uncommon in our capital-intensive industry space. Concurrently, recent changes in U.S. tax policy are highly favoring capital gains and dividend income from C corps. So here's how we see this all fitting together over the next 3 years. The first leg of our stool is growth. At Delhi, we have 3 years of increasing production growth that are already baked in. Reversion of our working interest will more than triple our production there, at very small capital cost to us, and production will approximately double again, as Delhi reaches its peak production. GARP layers in our next visible growth catalyst over the next 3 years, also with a high capital efficiency. GARP potential has a very large worldwide footprint. There's a visible current inventory of applicable horizontal wellbores, accompanied by an exponentially growing backlog due to horizontal drilling becoming the norm. In addition, we see GARP applications for deep and long pay intervals in vertical wells. Due to successful installations and increased industry interest, via repeating customers, we will pare down our technical and human resources to make way for the addition of sales and marketing to increase our chances for success. The second leg of our stool is underlying value. The PV-10 of our existing 2P reserves is greater than our enterprise value for Delhi alone. Many of our peers, including the yield-paying ones, cannot make this claim. We believe that the market is designed as no value for GARP. It's questionable we're getting market value for our $26 million of cash, and how about our unlevered balance sheet. The third leg of our stool, free cash flow and income. Our capital efficient model that produces lots of free cash flow makes us look more like Apple or Microsoft than your typical exploration and production company. Tax policy is also favoring dividends and capital gains; whereas almost nonexistent fixed-income yields are taxed at up to 43% individual rates, dividends and capital gains are taxed at a maximum 23.8% marginal rate for individuals. Regarding the latter, the blended dividend cap gain rate is 14.2% on the first $450,000 of jointly taxable income, assuming all income is from this source, and it's 23.8%, thereafter. Meanwhile, nontaxable institutional investors that have avoided MLP units due to UBIT, or the unrelated business income tax, can now invest in EPM as a C corp with the potential for 1099 dividend income, although we're not just a yield story. Ditto for tax-deferred accounts such as IRAs and 401(k)s, that also have UBIT problems with K-1s. Under a GARP risk-sharing model, our capital efficiency should still look very favorable to our industry peers. Although not as efficient as Delhi, very good nevertheless. If our current risk-sharing model evolves into a technology licensing usage-fee model, our high-class problem and opportunity of capital efficiency will be compounded further. So there you have it. Future investor success is evolving we believe from a deep value play into a total return story consisting of growth, underlying value and income distribution that's borne out of low capital investment and outsized returns aided by tax policy that's further favoring after-tax returns. Execution of this vision will require new visible faces in our organization, focusing on sales and marketing that heretofore have not been necessary or required in our upstream production operations. Bob?

Thanks. I think, looking forward, it should be clear that we're increasing our focus on delivering to our shareholders the value that we've created today, as well as the value in the future. We believe that we can continue growing share value while beginning to distribute to shareholders a material portion of our success. The ending of the remediation work at Delhi, production response, development expenditures, and resumption in production in the affected area should allow resumption of strong performance and production growth. And that should lead to a major step change in our cash flow earnings during 2014, that would be also reinforced by the working interest reversion. We're expecting to have continued growth from Delhi over the next couple of years and then that would be followed by strong growth, we believe, from our GARP initiative. We're also working to substantially increase our bank revolver to increase our flexibility. Now, with no debt, growing cash flow, cash-on-hand, focus on these core growth projects and a staff fully aligned with the interest of our shareholders, we believe that we are continuing to be well positioned to perform on our overall strategy. Add with that, we'll take questions. Operator?

[Operator Instructions] The first question comes from Joel Musante with Euro Pacific.

On your GARP technology, it seems like you're going to be accelerating those efforts in the coming time frame. So I was just wondering what your plans were going forward with that to accelerate the commercialization process.

Sure. Of course, Daryl, who is here with us, his title is VP of Operations for Evolution, but really his function right now, full-time, is Chief Operating Officer of NGS Technologies, which is the subsidiary that commercializes that technology. And what we're doing is we're starting to focus more and more staff and capital on that. We are ramping up our marketing efforts. And we are going to companies and offering to install the technology at our cost as a demonstration to show the effect and benefit. We are in conversations with companies to install and demonstrate in a variety of areas, East Texas, up in the Barnett, out in the Permian, as well as in Giddings Field, and we hope to expand into other areas, Oklahoma and up in the Bakken play as well. So we think that there's tremendous opportunity. We're getting, I think, more and more interest. This is a service that we currently are primarily installing on a risk-sharing basis for a fee. We expect at some point we will move more towards just a fee-for-service, just like any other oilfield service that's provided. So that's only after we've got the industry to accept the benefits as a given, and they don't have to be educated. So it's an ongoing effort, we've been at this for a while. And if -- we've starting to get a little more traction with this in the last 6 months, I think. And they're feeling pretty good about it.

Okay. And on the wells that you've drilled so far -- and I don't recall hearing about this before, but have you booked any reserves or reserve increase from the GARP technology?

Yes, we have. We actually do have reserves in our June 30, 2013, report, reflecting the wells we've installed on. Keep in mind that reserve report would not capture reserves associated with these last 2 wells, which have been particularly successful, the Philip and the Appelt. They came online pretty much after the June 30 deadline date. But we do have reserves on the other 2 significant wells we've installed on, the Morgan-Kovar and Select Lands #2 well. The other 2 wells we've installed it on, one is a well that we actually end up selling to another company, and so we don't have access to that production anymore, so we don't know how it's doing. And then the last well -- or not last, but the sixth well we installed it on, not the most recent one -- which is the Select Lands #1, we actually had good initial results but then an operator offsetting us went and frac-ed a well and the water from that frac communicated with our well and watered us out, so that kind of torpedoed that one. But we had good results on that one until that happened. So, yes, we have booked reserves. I don't, off the top of my head, have what those numbers are.

Is it -- are they pretty consistent with what you were -- you've been saying?

They're fairly consistent, except that, keep in mind, reserve engineers are very conservative on reserves on wells that are fairly low history of production. So, typically, what we expect to see is that booked reserves will go up over time as the reserve engineers get more comfortable with the results. We have very little data, you don't know how much of that -- is that decline going to hold or not. So I think that as we get more and more data, we'll be able to book more and more reserves on these wells. For example, on the Morgan-Kovar, that well has really shown no decline in the last 2 years. So that's something that the reserve engineers, as they see more evidence of that, they will get more comfortable with giving us that kind of a slow decline.

Okay, all right. And just real quick on Delhi, the production rate is, is it -- was it lower at the end of the quarter than what you saw for the average for the quarter? Was -- kind of where did it stand?

I would say that we're seeing a gradual increase over the course of the quarter. So the average -- so the production rate was less at the beginning of the quarter and higher at the end of the quarter. And that's why I stated that we've already started to see production improvement. Now, that improvement, I don't believe, is in the affected area, it's a result of production response to CapEx that was done over the prior 18 months, that's starting to be incorporated. So we've got a couple of elements going on there that are going to fuel production growth. It's resumption -- a rebound of production in the area affected by the fluids release combined with FX response in other areas of the field.

Our next question is from Mr. Jeff Grampp from Northland Capital Markets.

Just a question on the potential income distribution here, obviously, I don't want to tie you guys down too much here, but any additional color on timing of that? I mean, is that going to maybe coincide with your reversion and maybe how you guys look at what amount to distribute relative to the cash flow that you need to run the business?

Well, Jeff, right now, we really can't go into a lot of detail on that, but we will be providing more detail in the very near term. I think it's fairly safe to say that we're looking at a recurring dividend that we're going to be comfortable with, that's going to be funded from ongoing cash flow and not tied to anything specific like a reversion. So, obviously, as our cash flow ramps up, we would anticipate a growth. I really don't want to go into more detail, because that is something that we are going to be talking about more in the near term.

Sure. Okay. And then on the Hendrickson well in the Miss Lime, do you have any color as to why you think that upper part of the zone didn't work out as expected, and kind of what you guys are looking at in terms of doing any other wells there?

Sure. Whenever you start doing test results in wells that you've already drilled and frac-ed and so forth, whatever answers you get from those tests are going to be somewhat colored by all the other stuff that you did. And I think I might have mentioned before that when we did the test, there's a wide range of possible outcomes, very few of them would give us a very clear-cut answer, mostly it was just some additional information that might give you some indication better than what you had. So that's kind of what we've got. We got some indication that -- the result was that we had some depletions in the upper zone and we got some gas and water. And so was it a hard core? Yes, definitely. It tells us something? No. But it wasn't exactly slam dunk, yes it definitely tells us a positive answer. So at this point in time, what we are doing is looking at this saying, okay, maybe our initial thought as to how this project works, this play works, doesn't fit and it's a different mechanism. It's -- maybe it's not a resource play, maybe it's a structural play. We just don't know the answer to that. Before we spend any more money on it, we want to know what the answer is. And then when you get past that issue, then you get the question, okay, what kind of a project is it? Is this a development project that fits with our business model? Or is it more exploration or is it exploitation or is it devel cat [ph], is it something that really fits in with what we do? And we have to get through that question and answer before we decide what to do going forward. We're going through this whole process of revaluation working with the operator. Now, they have made a proposal to drill another well, we are evaluating that. We're working very closely with them. And at this point in time, we haven't made a decision about what we're going to do. Obviously, we're very pleased that last spring, we were able to sell down our position at the same price we bought in at. I mean, that was a very fortuitous and/or smart decision, take your pick, to reduce our exposure, get some of our money back, while still retained upside if that is something that we think is there.

Okay that's some good color. And with that -- is that proposed well a vertical or horizontal or is that still kind of up in the air at this point?

Actually, the proposal is really one of each.

Our next question is from Mr. Jeffrey Connolly with Brean Capital.

I'll follow up on the Miss Lime, the Hendrickson well, that test, did you drill another lateral or just complete the vertical portion higher in the zone?

We just plugged off the lateral and did -- we opened up the wellbore in the upper portion of the formation. And then did a light acid frac, and then pumped back. We started pumping back. And just put that on production and see what we could get. And we were looking for 2 things, what pressure do we get and what was our product. How much water. How much oil. How much gas.

Okay. And then on the GARP, with your current staff, how many installations could you do per quarter?

With our current staff, we could probably do 10 to 12 in a quarter, basically 3 to 4 a month with our current people. To upgrade from that we'd have to start adding someone out in the field. Basically one person in the field can oversee 4 installations a month.

Okay. And do you think in the future you would sell or lease the GARP product or install it in groups versus just on individual wells once it becomes more widely accepted?

Well, I think it's going to be a graduated process. I think, initially, we're doing specific projects covering a specific number of wells in an area. Whether it'd be -- I think, in one, we're looking at doing 3, another we're looking at doing 10, and so forth, with the potential of that growing. And that will be, right now, it's on a risk-sharing basis, where we get a contractual fee that's associated with the profits from the well. I think as time goes on and we get more accepted, then, one, we'll add more and more wells to that. I can see getting to the point where perhaps companies would want to come to us and say they want to do a paid-up royalty for a field, where it's a specific amount per well that they pay and they do all the work. It could be a specific flat amount for a field, has nothing to do with how many wells. Ultimately, I wouldn't be surprised if we looked at other opportunities, including licensing and so forth, especially as we get into a larger and larger application, perhaps getting outside the U.S. and so forth. So really, there's no limitation. Our focus is on getting acceptance by industry, which means a lot more hands-on. But I suspect as time goes on, that will not be the case.

Great. And can you give us any guidance for GARP installations for the remainder of this year, for this fiscal year?

We don't do guidance. We're not big enough to be able to have the numbers to be able to do that with a reliable basis. At Delhi, since we don't operate that, we can't give guidance on something we don't operate. On GARP, we're still at such a small level right now, having one installation versus 2 installations in a month makes a big difference. But that's a function of how we -- our success in marketing and so forth.

Our next question is from Mr. Brett Hendrickson with Nokomis Capital.

So it sounds like the Miss Lime is a little bit kind of in limbo while you guys evaluate if you want to participate in the next well. Do you have much in the pipeline in terms of other situations where you have acreage-rich and cash-poor potential partners, where they might want to do a JV with you guys? I mean, I guess what I'm getting at, is there much potential to develop other projects? At one point, the company was really trying to skim down and got rid of all the non-GARP Giddings stuff and so forth, and you have characterized Lopez as noncore. But I'm wondering if there's anything else in the pipeline that would help with drilling credits or if you're just content to kind of let that be what it may.

Well, right now, we're anticipating a fairly near-term reversion at Delhi. Once that occurs, we're going to be bearing 24% of all CapEx in the field there. It appears that installation of the gas-processing facility there is going to be sooner than later, which is good in the sense that, that's going to add reserves that we hadn't previously expected. And the reserves associated with that would be sooner than expected, so it's going to generate more revenues and so forth. But it does represent a significant CapEx exposure. And the one thing that we want to be careful of is that we do not put at risk our ability to fully participate in development in Delhi, since it's such a high value project for us. It looks to us that our net exposure to CapEx there over the next 3 years is about $70 million, which is not a small number. But it's well within our cash flow. But that's our #1 priority. Our #2 priority is expanding GARP. Now, that, fortunately, allows us to do a rapid growth, a high amount of growth, without really spending a lot of capital. It's not capital-rich project. It's not capital intensive. So that's kind of a nice add-on. It's actually, potentially, could have as much of an impact on us, I think, as Delhi, the same kind of effect, a big value increase without much capital investment. So once we get our hands pretty much around those 2 items, I think we'll be in a lot better position to consider other projects that you just mentioned, joint ventures with other parties that are opportunity-rich, cash-poor. And we think there's quite a few of those, and that's going to continue to be the case over the next couple of years. But right now, our focus is really the 2 things that we have in hand, plus to start allowing our shareholders to benefit from our success, not just in terms of stock price, but in terms of actual dollars in their hand. I think we've been real straightforward and clear over the years that we do not follow the herd. We don't do things the way everyone else does. We like to think in terms of shareholders come first and not how big we can make the company, regardless of when it does to dilution and so forth. So we're comfortable with leading the pack in a sense of going to a model of returning dollars to our shareholders. So that really is one of our key focus going forward. Now, as we have the opportunity next couple of years to have cash -- to devote to these other projects, that's certainly something we'll look at.

Got you. And this is perhaps a dumb question, Bob. The gas facility, 2 questions on it. One, when you make capital expenditures on -- and maybe it's more for Sterling, but when you make capital expenditures on something like a gas facility as opposed to new drilling, does that still qualify for the appropriate credits that allow you to avoid some of the income tax on the profitable stream there?

That will all be -- lease and wellhead property has 7-year tax life. In other words, it would not be IDCs that would give you an upfront tax deferral. That will be just 1 year of CapEx at Delhi. We still have 2 years there of CapEx. We'll be out in the field drilling wells and so forth that would provide that kind of a tax deferral that you are referring to.

Okay. So some of that $70 million would get IDC credits, is what you're telling me, right, Bob?

Yes, and actually the current structure for what we're doing with GARP may -- I better not say that. I think that might have some [indiscernible] IDCs as well, but that may not be the case.

Okay. And one more question on the gas facility. Is this the idea that you came up with and spent some money on over the summer and brought to the operator? Is that what this facility is going towards to get an uplift in the NGLs that are stripped out?

I'm sure that you would get a different answer depending on who you ask. This is something that we have been pushing for a couple of years now. I think we've brought this up, again, earlier in 2013. We asked Denbury if we -- we said that we would conduct the evaluation and engineering study at our expense if they would at least provide the data, and they agreed. So it turns out that they ended up doing their own parallel study as well. I'm sure if you asked them that they would say that, well, they knew this was a possibility and an opportunity and that we had nothing to do with it. So -- I don't really care who gets credit for it.

Got you. And I really appreciate the dividend, as you guys know, I appreciate it. Thanks in advance for it. And you can tell my questions are about the CIDC credits and how we can efficiently get the -- that cash flow from Delhi into your hands and in mine. I hope I'm not overstepping the bounds here, but there is a tax inefficient structure to setting up a dividend-paying corp. And I know they're popular in Canada, but set it up here in the States if it's not part of an MLP. And I guess I know there's some similarities between Berry's main asset in California and your asset main at Delhi, and then it's low-decline, capital-efficient asset that is very oily and -- on a net basis and would be attractive to an MLP. So we just saw Berry is a bigger enterprise value, but just saw LINN actually raise their offer for Berry. If you got the right offer for shareholders from an MLP, you guys aren't -- there's nothing like the GARP upside or anything that would prevent you from accepting it. And again, I hope I'm not overstepping my bounds but asking that, but I just kind of got to know.

You can ask any question you want. Of course, I reserve the right to not answer it. I have said, I think, from Day 1 that we have absolutely no problem -- either staff, management, board, in terms of -- if somebody gives us a fair price, we'll sell the company tomorrow. Or recommend to sell it to shareholders tomorrow. And I have absolutely no problem with that whatsoever. We are not in this to become the next big company. We're in this to deliver value to shareholders. If that means a sale, by god, let's go do it. Keep in mind that there's a lot of things that go into that kind of a decision. The first question you have to ask is, is what you're doing actually better for your shareholder, what they're going to get is actually better than what they have right now. Is it going -- are they still going to have a security at the end of the day? If they do still have a security, is it going to be more liquid? Is it going to be more valuable? Are they better off? So that's something you have to really consider carefully. Now we're watching, obviously, what LINN is doing, with LinnCo and so forth, and we think it's really interesting. But at the end of the day if you do a transaction like that, is the liquidity actually going to change for the shareholder? Are they going to be in position where they can monetize that security or not? Is the volume still there, what's the value? So we look at all these things and have been for some time now. And I can assure you that one of the reasons our G&A has been high these last 12 or 18 months, is we spent a fair amount of money on lawyers and tax advisors analyzing these issues and questions. But, yes, we're always open, but it's got to make sense to the shareholders. I think that's one of the things that our shareholders can be comfortable with is that things -- we own 23% of the company on a [indiscernible] basis. We're not going to make the recommendation to shareholders that is not in their interest, because it's in our interest.

Yes, I never lose one wink of sleep about you thinking like a shareholder, Bob, and I appreciate that. My closing question is just -- or maybe something to point out is, the difference between you and Berry and enterprise value might mean that if you sold to an MLP they wouldn't have to do it for stock, they could -- with the debt market still being pretty buoyant, they could issue debt and still have it be very accretive to the distribution that could pay out. And so, that liquidity thing...

[indiscernible] Why don't you make that suggestion to somebody at the right price?

I might, but I'm confident you guys will do the right thing either way.

So, Brett, I might add to that, that basically -- oh, I lost my thought. Let's go on to the next question.

Our next question is from a shareholder, Mr. John Poehler [ph].

Most of my questions have been answered. And I guess, and this may be just denseness on my part. But it sounds like from where you stand right now, you're not going to be looking for any other opportunities in the near term for other avenues for the cash, so it's just going to be Delhi and GARP. And then once you feel comfortable that those are in hand and underway, then you'll look at deploying capital to other opportunities that may or may not present themselves. Is that a fair assessment?

I think it's a fair assessment, but we're also going to be looking at growing our distribution or the amount that shareholders get from us. We're not going to hold onto cash thinking that, oh, gee, we're going to find some neat opportunity to go invest it. I mean, if we don't have something that makes compelling sense, then we're going to want to get that cash into the hands of the shareholder.

Okay. That's great. I have no complaints about that, I was just curious. And then the opportunities beyond what your agreement is with Denver. Do you have a timeline on when you think you might be able to nail down any additional work with them, as far as other areas of the field that aren't currently being exploited?

Well, they have -- I mean, the -- what's left of installing the project throughout the field is pretty straightforward. We basically have 2 years of CapEx to expand it throughout the field. And then a third year, related to the gas-processing facility, and that's kind of a rough way of looking at it. Now the only question is, how those 3 years get scheduled. And our reserve report from last June 30, the NGL facility came last. At this point, it looks like that, that order is likely to get reversed. We will probably be hearing here pretty soon from Denbury what they're proposing for the project CapEx. Keep in mind that until we're working [indiscernible], we're really spectators. We're not in the decision process whatsoever. We can make suggestions which every once in a while they may listen to. We had some success, I think, on the NGL side in terms of being heard. But I mean, they're smart people. They're -- they came to that conclusion probably on their own, right? So I think that, going forward, the CapEx at Delhi is fairly straightforward, it's just a question of timing and ordering.

Okay. I misunderstood. I thought there were some other areas of the field that were not under the current agreement.

I'm sorry. Yes, that is true. There are 3 small -- actually there are 4 smaller reservoirs. Of the 4, 1 was half the total, and 3 others made up the other half. Of those 4, the big piece got actually included in the project this year. And that was a portion of our reserves increase in June 30. There are still 3 smaller reservoirs within the unit that are the same age of formation. They're currently still in our reserve report for being developed afterward, sometime next decade, so they are outside the 5-year SEC window, so there's no proved reserves associated with them, it's all probable. That, at this point in time, is not in the formal project definition and scheduled by the operator. I suspect that's primarily because they do reflect a fairly small addition to reserves. They do require some additional CapEx. And I think they're probably going to be added in at some point when it makes sense in terms of availability of CO2 for additional injection and so forth. So I really can't tell you that, that has changed anything, and I don't anticipate it to change for several years.

[Operator Instructions] All right, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. McDonald for any closing remarks.

Well, we thank you, all, for participating today. And things that we've discussed, I think, are clear that it doesn't change the options that we have available to us. And people talk about could we sell the company or particular assets, I think Bob made that pretty clear. All of our plans, going forward, don't foreclose any of that. But in the meantime, we need to make plans to be good stewards of the assets that we have and develop those going forward, and directly reward our shareholders. Bob, do you have anything else?

Just that we will be coming out in the not too distant future with some additional color on what we've talked about today. And, of course, our Q is going to get filed here, pretty quick, too, as well. So, all right. Thanks, everyone.

All right. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.