What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-09-14 compared with 2020-09-10 · 388 added, 283 removed, 584 unchanged (53% of the section changed)

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Changes in interest rates affect the interest earned on our cash and cash equivalents.

Additionally, any borrowings under the Senior Secured Credit Facility will bear interest, at our option, at either LIBOR plus 2.75%, subject to a minimum LIBOR of 0.25%, or the Prime Rate, as defined under the Senior Secured Credit Facility, plus 1.00%.

LIBOR rates are sensitive to the period of contract and market volatility, as well as changes in forward interest rate yields.

Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes.

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When oil, natural gas, and natural gas liquids prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted.

We expect energy prices to remain volatile and unpredictable, therefore we monitor commodity prices to identify the potential need for the use of derivative financial instruments to provide partial protection against declines in oil prices.We do not enter into derivative contracts for speculative trading purposes.

We do not enter into derivative contracts for speculative trading purposes.

In early March 2020, oil prices declined rapidly.

As a consequence of unprecedented commodity price volatility and uncertainty, on April 6, 2020 we elected to enter into NYMEX WTI oil swaps covering approximately 42,000 barrels per month for the period of April 2020 through December 2020, at a fixed swap price of $32 per barrel.

The fixed price swap contracts will significantly reduce volatility in our near-term realized oil price and resulting revenues, thus supporting our current business plans and objectives.

The fixed price swap contracts significantly reduced volatility in our near-term realized oil price and resulting revenues, thus supporting our current business plans and objectives.

We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties.

It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers.

As of June 30, 2020, we did not post collateral under our derivative contract as it is an uncollateralized trade.

For the derivative contracts settled during fiscal 2021, we did not post collateral as it was an uncollateralized trade.

We account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging, (“ASC 815”).

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

To the Shareholders and the Board of Directors of

Evolution Petroleum Corporation

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The Impact of Proved Oil and Natural Gas Reserves on Depreciation, Depletion and Amortization (“DD&A”) and Full Cost Ceiling Test Impairment Calculation (“Ceiling Test”)

As described in Note 2, the Company follows the full cost method of accounting, pursuant to which oil and natural gas properties are amortized using the unit-of-production method over total proved reserves.

The Company’s proved oil and natural gas properties are evaluated for impairment by the Ceiling Test, utilizing the Company’s proved oil and natural gas reserves in accordance with accounting principles generally accepted in the United States of America and SEC guidelines.

For the year ended June 30, 2021, the Company recorded DD&A related to its proved oil and natural gas properties of approximately $4.9 million and a ceiling test impairment of approximately $24.8 million.

The Company engages an independent reservoir engineering firm, to serve as a management specialist, to assist with the estimation of proved oil and natural gas reserves.

To estimate the volume of proved oil and natural gas reserves and associated future net cash flows, management and their specialist make significant estimates and assumptions including forecasting the production decline rate of producing properties and forecasting the timing and volume of production associated with the Company’s development plan for proved undeveloped properties (“PUDs”).

The estimation of proved oil and natural gas reserves is impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved reserves to determine if wells are expected, with reasonable certainty, to be economical under the appropriate pricing assumptions required.

Changes in significant assumptions or engineering data could have a significant impact on the amount of DD&A and impairment recorded for the Company’s proved oil and natural gas properties.

We identified the impact of proved oil and natural gas reserves on DD&A and the Ceiling Test as a critical audit matter due to use of significant judgment by management, including the use of specialists, when developing the estimates of proved oil and natural gas reserves.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the significant assumptions used in developing those estimates of proved oil and natural gas reserves.

The primary procedures we performed to address this critical audit matter included:

• Evaluated significant assumptions used by management and its specialist in developing the estimates of proved oil and natural gas reserves, including pricing differentials, future operations costs, future production rates and capital expenditures.

The procedures performed included:

◦ tests of the data inputs used by specialist for completeness and accuracy,

◦ an evaluation of the specialist’s findings,

◦ testing specialist’s findings for mathematical accuracy and

◦ analytical procedures on pricing, reserve quantities and cost estimates developed by management and its specialist.

Those procedures entailed comparisons of:

(i) prices to historical benchmark prices, adjusted for pricing differentials,

(ii) production forecasts to recent historical actual production,

(iii) projections of lease operating costs to fiscal year end costs, and

(iv) projected production taxes to recent historical taxes incurred and to statutory tax rates.

• Evaluated the experience, qualifications and objectivity of management’s specialist, an independent reservoir engineering firm.

• Evaluated the accuracy of revenue and working interest percentages used in the reserve report by comparing a sample of such interests to the land records.

• Evaluated the Company’s evidence supporting the amount of PUDs reflected in the reserve report by (i) considering the field operator’s intent to develop PUDs and (ii) testing the Company’s financial capability to participate in development of those reserves by comparing estimated development costs to the sources of capital available to the Company.

• Performed retrospective review of historical estimates of proved oil and natural gas reserves to identify potential management bias in estimates.

/s/ Moss Adams LLP

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Consolidated Balance Sheets

June 30, 2020

June 30, 2019

June 30, 2021 June 30, 2020

Current assets

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Other assets, net 70,789 291,618

Total assets $ 76,705,662 $ 92,138,236

Liabilities and Stockholders' Equity

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Long term liabilities

Senior secured credit facility 4,000,000 —

Deferred income taxes 5,957,202 11,061,023

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Total liabilities 22,110,859 18,013,754

Commitments and contingencies (Note 16)

Commitments and contingencies

Stockholders' equity

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issued and outstanding 33,514,952 and 32,956,469 shares as of June 30, 2021 and 2020, respectively

33,515 32,956

Additional paid-in capital 42,541,224 41,291,446

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Years Ended June 30,

Oil $ 26,411,132 $ 28,578,879

Natural gas liquids 3,662,478 1,018,349

Natural gas 2,628,744 2,068

Total revenues 32,702,354 29,599,296

Operating costs

Production costs

Lease operating costs 16,587,052 13,505,502

Depreciation, depletion, and amortization 5,166,626 5,761,498

Impairment of proved property 24,792,079 —

Impairment of Well Lift Inc.

- related assets 146,051 —

Net loss on derivative contracts 614,645 1,383,204

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Total operating costs 54,060,985 25,909,863

Income from operations

Enduro transaction breakup fee

Income (loss) from operations ( 21,358,631 ) 3,689,433

Interest and other income 39,401 177,418

Interest expense ( 102,965 ) ( 110,775 )

Income before income tax provision

Income tax provision (benefit)

Income (loss) before income tax provision ( 21,422,195 ) 3,756,076

Income tax expense (benefit) ( 4,984,261 ) ( 2,180,996 )

Net income (loss) attributable to common shareholders $ ( 16,437,934 ) $ 5,937,072

Earnings per common share

Earnings (loss) per common share

Basic $ ( 0.49 ) $ 0.18

Diluted $ ( 0.49 ) $ 0.18

Weighted average number of common shares outstanding

Basic 33,263,701 33,031,149

Diluted 33,263,701 33,033,091

* General and administrative expenses for the years ended June 30, 2021 and 2020 included non-cash stock-based compensation expense of $ 1,257,684 and $ 1,285,663 , respectively.

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Cash flows from operating activities

Net income attributable to the Company

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) attributable to common shareholders $ ( 16,437,934 ) $ 5,937,072

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation, depletion, and amortization 5,166,626 5,761,498

Impairment of proved property 24,792,079 —

Impairment of Well Lift Inc.

- related assets 146,051 —

Stock-based compensation 1,257,684 1,285,663

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Net loss on derivative contracts 614,645 1,383,204

Payments received for derivative settlements

Payments received (paid) for derivative settlements ( 2,791,176 ) 793,327

Other 10,316 39,783

Changes in operating assets and liabilities:

Receivables ( 6,632,121 ) ( 1,994,368 )

Prepaid expenses and other current assets ( 545,573 ) ( 33,408 )

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Development of oil and natural gas properties ( 472,401 ) ( 1,724,829 )

Capital expenditures for other property and equipment

Net cash used by investing activities ( 18,769,414 ) ( 11,062,545 )

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Common stock dividends paid ( 4,342,082 ) ( 10,740,754 )

Borrowings under credit facility 7,000,000 —

Repayments of credit facility ( 3,000,000 ) —

Net cash provided by (used in) financing activities ( 349,429 ) ( 13,224,111 )

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net decrease in cash, cash equivalents, and restricted cash ( 14,386,018 ) ( 11,890,005 )

Cash, cash equivalents, and restricted cash, beginning of year 19,662,528 31,552,533

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For the Years Ended June 30, 2021 and 2020

Capital Retained

Earnings Treasury

Stockholders'

Shares Par Value

Balance, June 30, 2019 33,183,730 $ 33,183 $ 42,488,913 $ 37,603,762 $ — $ 80,125,858

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Stock-based compensation — — 1,285,663 — — 1,285,663

Net income attributable to the Company

Common stock cash dividends

Net income attributable to common shareholders — — — 5,937,072 — 5,937,072

Common stock dividends paid — — — ( 10,740,754 ) — ( 10,740,754 )

Balance, June 30, 2020 32,956,469 32,956 41,291,446 32,800,080 — 74,124,482

Issuance of restricted common stock 561,115 562 ( 562 ) — — —

Forfeitures of restricted stock

Common share repurchases, including shares surrendered for tax withholding — — — — ( 7,347 ) ( 7,347 )

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Stock-based compensation — — 1,257,684 — — 1,257,684

Net income attributable to the Company

Common stock cash dividends

Net loss attributable to the Company — — — ( 16,437,934 ) — ( 16,437,934 )

Common stock dividends paid — — — ( 4,342,082 ) — ( 4,342,082 )

Balance, June 30, 2021 33,514,952 $ 33,515 $ 42,541,224 $ 12,020,064 $ — $ 54,594,803

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EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 – Organization and Basis of Preparation

Nature of Operations.

Evolution Petroleum Corporation is an oil and gas company focused on delivering a sustainable dividend yield to its shareholders through the ownership, management, and development of producing oil and gas properties.

The Company's long-term goal is to build a diversified portfolio of oil and gas assets primarily through acquisition, while seeking opportunities to maintain and increase production through selective development, production enhancement, and other exploitation efforts on its properties.

Our producing assets consist of our interests in the Delhi Holt-Bryant Unit in the Delhi field in Northeast Louisiana, a CO 2 enhanced oil recovery project, our interests in the Hamilton Dome field located in Hot Springs County, Wyoming, a secondary recovery field utilizing water injection wells to pressurize the reservoir, and overriding royalty interests in two onshore Texas wells.

Evolution Petroleum Corporation is an oil and natural gas company focused on delivering a sustainable dividend yield to its stockholders through the ownership, management, and development of producing oil and natural gas properties.

The Company's long-term goal is to build a diversified portfolio of oil and natural gas assets primarily through acquisitions while seeking opportunities to maintain and increase production through selective development, production enhancement, and other exploitation efforts on its properties.

Our producing assets consist of our interests in the Delhi Holt-Bryant Unit in the Delhi field in Northeast Louisiana, a CO 2 enhanced oil recovery (“EOR”) project, our interests in the Hamilton Dome field located in Hot Springs County, Wyoming, a secondary recovery field utilizing water injection wells to pressurize the reservoir, our interests in the Barnett Shale located in North Texas, a natural gas producing shale reservoir, and overriding royalty interests in two onshore Texas wells.

Principles of Consolidation and Reporting.

Our consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Our consolidated financial statements include the accounts of Evolution Petroleum Corporation and its wholly-owned subsidiaries (the “Company”).

All significant intercompany transactions have been eliminated in consolidation.

The consolidated financial statements of prior periods include certain reclassifications that were made to conform to the current presentation.

Such reclassifications have no impact on previously reported net income or stockholders' equity.

The consolidated financial statements for the previous year may include certain reclassifications to conform to the current presentation.

Any such reclassifications have no impact on previously reported net income or stockholders' equity.

Risk and Uncertainties.

The Company is continuously monitoring the current and potential impacts of the COVID-19 pandemic on its business, including how it has and may continue to impact its financial results, liquidity, employees and the operations of the Delhi and Hamilton Dome fields in which we hold non-operated interests.

During the six months ended June 30, 2020, primarily driven by the COVID-19 pandemic and actions taken by OPEC+, the benchmark price of WTI has declined to levels that have adversely impacted our earnings and reduced the maximum amount we could borrow under our senior secured facility.

In response to the pandemic, both of our operators have taken actions such as reducing operating and capital expenditures.

At Hamilton Dome the operator has also temporarily shut-in some producing wells.

In addition to the above, we also believe the pandemic has slowed the repair schedule of the Delhi CO 2 supply pipeline which together with the foregoing have negatively impacted our production.

The Company is continuously monitoring impacts of the COVID-19 pandemic on its business, including how it has and may continue to impact its financial results, liquidity, employees, and the operations of the Delhi field, Hamilton Dome fields, and its Barnett Shale assets in which it holds non-operated interests.

In response to the pandemic, the operator at Hamilton Dome temporarily shut-in some producing wells.

In addition to the above, the pandemic slowed the repair schedule of the Delhi CO 2 supply pipeline which, together with the foregoing, negatively impacted our production.

All of the Company’s property interests are not operated by the Company and involve other third-party working interest owners.

As a result, we have limited ability to influence or control the operation or future development of such properties.

As a result, the Company has limited ability to influence or control the operation or future development of such properties.

However, the Company has been proactive with its third-party operators to review spend and alter plans as appropriate.

The Company is focused on maintaining its operations and system of controls remotely and has implemented its business continuity plans in order to allow its employees to securely work from home.

The Company was able to transition the operation of its business with minimal disruption and to maintain its system of internal controls and procedures.

The Company is focused on putting long term measures to prevent future disruptions, maintaining its operations and system of controls remotely and has implemented its business continuity plans in order to allow its employees to securely work from home or in the corporate office.

The Company was able to transition the operation of its business with minimal disruption and has maintained its system of internal controls and procedures.

Use of Estimates.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Significant estimates include (a) reserve quantities and estimated future cash flows associated with proved reserves, which significantly impact depletion expense and potential impairments of oil and natural gas properties, (b) asset retirement obligations, (c) stock-based compensation, (d) fair values of derivative assets and liabilities, (e) income taxes and the valuation of deferred tax assets, and (f) commitments and contingencies.

Significant estimates include (a) reserve quantities and estimated future cash flows associated with proved reserves, which may significantly impact depletion expense and potential impairments of oil and natural gas properties, (b) asset retirement obligations, (c) stock-based compensation, (d) fair values of derivative assets and liabilities, (e) income taxes and the valuation of deferred tax assets, (f) commitments and contingencies and (g) oil, natural gas, and NGL revenues.

We analyze our estimates based on historical experience and various other assumptions that we believe to be reasonable.

While we believe that our estimates and assumptions used in preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 – Summary of Significant Accounting Policies

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At June 30, 2021 and 2020, we had no such balances.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts Receivable and Allowance for Doubtful Accounts.

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Gain or loss on the sale or other disposition of oil and natural gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves.

Oil and natural gas properties include costs that are excluded from costs being depleted or amortized.

Excluded costs represent investments in unproved and unevaluated properties and include non-producing leasehold, geological and geophysical costs associated with leasehold or drilling interests, and exploration drilling costs.

We exclude these costs until the project is evaluated and proved reserves are established or impairment is determined.

Excluded costs are reviewed at least quarterly to determine if impairment has occurred.

The amount of any evaluated or impaired oil and natural gas properties is transferred to capitalized costs being amortized.

Oil and natural gas properties include costs that are excluded from depletion and amortization, which represent investments in unproved and unevaluated properties and include non-producing leasehold, geologic and geophysical costs associated with leasehold or drilling interests, and exploration drilling costs.

These costs are excluded until the project is evaluated and proved reserves are established or impairment is determined.

As of June 30, 2021 and 2020, we did not have any costs excluded from depletion and amortization.

Limitation on Capitalized Costs.

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net of (d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties.

Our Ceiling Tests did not result in an impairment of our oil and natural gas properties during the years ended June 30, 2020 and 2019 .

See Note 6 - Property and Equipment for further information about impairment for the year ended June 30, 2021.

Other Property and Equipment.

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Repairs and maintenance costs are expensed in the period incurred.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Financing Costs.

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The cost of the tangible asset, including the asset retirement cost, is depleted over the useful life of the asset.

The initial recognition or subsequent revision of asset retirement cost is considered a level 3 fair value

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The initial recognition or subsequent revision of asset retirement cost is considered a Level 3 fair value measurement.

The asset retirement obligation is recorded at its estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at our credit-adjusted risk-free interest rate.

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Fair Value of Financial Instruments.

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and derivative instruments.

Except for derivatives, the carrying amounts of these approximate fair value due to the highly liquid nature of these short-term instruments.

The fair values of the Company’s derivative assets and liabilities are based on a third-party industry-standard pricing model that uses market data obtained from third-party sources, including quoted forward prices for oil and gas, discount rates, and volatility factors.

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, derivative instruments, and debt.

Except for derivatives, the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are short-term instruments and approximate fair value due to their highly liquid nature.

The carrying amount of debt approximates fair value as the variable rates on the Senior Secured Credit Facility are market interest rates.

Stock-based Compensation.

We estimate the fair value of stock-based compensation awards on the grant date to provide the basis for future compensation expense.

Service-based and performance-based Restricted Stock and Contingent Restricted Stock awards are valued using the market price of our common stock on the grant date.

Service-based and performance-based Restricted Stock and Contingent Restricted Stock awards (as defined in Note 11 - Stock-Based Incentive Plan) are valued using the market price of our common stock on the grant date.

Market-based awards are valued using a Monte Carlo simulation and geometric Brownian motion techniques applied to the historical volatility of the Company's total stock return compared to the historical volatilities of other companies or indices to which we compare our performance.

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Total compensation expense is independent of vesting or expiration of the awards, except for termination of service.

Revenue Recognition - Oil and Gas.

Our revenues are comprised solely of revenues from customers from the sale of crude oil, NGLs and natural gas.

Revenue Recognition - Oil and Natural Gas.

Our revenues are comprised solely of revenues from customers from the sale of oil, natural gas, and natural gas liquids.

The Company believes that the disaggregation of revenue on its consolidated statements of operations into these three major product types appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors based on our geographic locations.

Crude oil, NGL, and natural gas revenues are recognized at a point in time when production is sold to a purchaser at an index-based, determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable.

Oil, natural gas, and natural gas liquids revenues are recognized at a point in time when production is sold to a purchaser at an index-based, determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable.

The transaction price used to recognize revenue is a function of the contract billing terms which reference index price sources used by the industry.

Revenue is invoiced by calendar month based on volumes at contractually based rates with payment typically required within 30 days for crude oil and 60 days for NGLs after the end of the production month.

At the end of each month when the performance obligations have been satisfied, the consideration can be reasonably estimated and amounts due from customers are accrued in “Receivables from oil and gas sales” in our consolidated balance sheets.

Revenue is invoiced by calendar month based on volumes at contractually based rates with payment typically required within 30 days for oil and 60 days for natural gas and natural gas liquids after the end of the production month.

At the end of each month when the performance obligations have been satisfied, the consideration can be reasonably estimated and amounts due from customers (remitted to us by field operators) are accrued in “Receivables from oil and gas sales” in our consolidated balance sheets.

As of June 30, 2021 and 2020 receivables from contracts with customers were $ 8.7 million and $ 1.9 million, respectively.

This increase was related primarily to approximately two months of accrued revenue from the Barnett Shale Acquisition.

For additional revenue recognition information see Note 3 - Revenue Recognition.

Estimates of Proved Reserves .

The estimated quantities of proved oil and natural gas reserves have a significant impact on

the underlying financial statements.

The estimated quantities of proved reserves are used to calculate depletion expense and the

estimated future net cash flows associated with those proved reserves is the basis for determining impairment under the

quarterly ceiling test calculation.

The process of estimating oil and natural gas reserves is very complex and requires significant

decisions in the evaluation of all available geologic, geophysical, engineering, and economic data.

Estimated reserves are often

subject to future revisions, which could be substantial, based on the availability of additional information;

this includes

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reservoir performance, additional development activity, new geologic and geophysical data, additional drilling, technological

advancements, price changes, and other economic factors.

As a result, material revisions to existing reserve estimates may

occur from time to time.

Although every reasonable effort is made to ensure that the reported reserve estimates prepared by our

third-party independent engineers represent the most accurate assessments possible, the subjective decisions and variances in

available data for the properties make these estimates generally less precise than other estimates included in our financial

Material revisions to reserve estimates and/or significant changes in commodity prices could substantially affect our

estimated future net cash flows of our proved reserves.

These changes could affect our quarterly ceiling test calculation and

could significantly affect our depletion rate.

Derivative Instruments.

The Company follows ASC 815, Derivatives and Hedging (“ASC 815”).

From time to time, in accordance with the Company’s policy, it may hedge a portion of its forecasted oil and natural gas liquids production.

From time to time, in accordance with the Company’s policy, it may hedge a portion of its forecasted oil, natural gas, and natural gas liquids production.

All derivative instruments are recorded on the consolidated balance sheet as either an asset or liability measured at fair value.

The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to an ISDA master agreement;

The Company nets its derivative instrument fair value amounts executed with the same counterparty pursuant to an International Swap Dealers Association Master Agreement (“ISDA”) master agreement;

the agreement provides for net settlement over the term of the contract and in the event of default or termination of the contract.

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Other property, consisting of leasehold building improvements and office and computer equipment, is depreciated as described above in Other Property and Equipment.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Taxes.

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The computation of diluted EPS is similar to the computation of basic EPS, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.

Potentially dilutive common shares are our outstanding stock options and contingent restricted common stock.

Potentially dilutive common shares are our contingent restricted common stock.

We use the treasury stock method to determine the effect of potentially dilutive common shares on diluted EPS, unless the effect would be anti-dilutive.

Under this method, exercise of stock options and, under certain conditions, contingent restricted common stock is assumed to have occurred at the beginning of the period (or at time of issuance, if later);

Under this method, exercise of contingent restricted common stock, under certain condition, is assumed to have occurred at the beginning of the period (or at time of issuance, if later);

common shares are assumed to have been issued.

The proceeds from exercise of stock options and unamortized stock compensation expense related to restricted common stock are assumed to be used to repurchase common stock at the average market price during the period.

The unamortized stock compensation expense related to restricted common stock are assumed to be used to repurchase common stock at the average market price during the period.

The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed repurchased) are included in the denominator of the diluted EPS computation.

Contingent restricted stock is included in the computation of diluted shares, if dilutive, when the underlying performance conditions either (i) were satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period.

Recently Adopted Accounting Pronouncements - Leases

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recently Adopted Accounting Pronouncements

Effective July 1, 2019, the Company adopted the new standard using a modified retrospective approach and elected to use the optional transition methodology whereby reporting periods prior to adoption continue to be presented in accordance with legacy accounting guidance, Accounting Standard Codification 840 - Leases.

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Adoption of the new standard did not impact our consolidated statements of operations, cash flows or stockholders’ equity.

At adoption we recorded our operating lease as follows:

Asset (Liability)

Balance June 30, 2019

Adjustment at Adoption July 1, 2019

Operating lease right-of-use asset

Accrued liabilities and other:

Deferred rent

Operating lease liability

Operating lease liabilities - long-term

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Taxes.

In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12) as part of its initiative to reduce complexity in the accounting standards.

The amendments in ASU 2019-12 remove certain exceptions related to the incremental approach for intraperiod tax allocation and the general methodology for calculating income taxes in an interim period and reducing diversity in practice for the recognition of enacted changes in tax law.

ASU 2019-12 also clarifies and simplifies other aspects of accounting for income taxes.

ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020;

however, early adoption is permissible for periods for which financial statements have not yet been issued.

Effective October 1, 2020, the Company prospectively adopted this new standard.

Adoption of this standard had no impact on our consolidated financial statements nor would it have had if we had adopted the standard on July 1, 2020.

Recently Issued Accounting Pronouncements

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The adoption of ASU 2016-13 is currently not expected to have a material effect on our consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes ("Topic 740") - Simplifying the Accounting for Income Taxes.

ASU 2019-12 is intended to simplify accounting for income taxes.

It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020.

Early adoption is permitted.

We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements.

Other accounting pronouncements that have recently been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations, or cash flows.

Note 3 – Revenue Recognition

Our revenue is primarily generated from our interests in the Delhi field in Northeast Louisiana and, our interests in the Hamilton Dome field in Wyoming.

Our revenue is primarily generated from our interests in the Delhi field in Northeast Louisiana, the Barnett Shale assets of North Texas, and the Hamilton Dome field in Wyoming.

Additionally, an overriding royalty interest retained in a past divestiture of Texas properties provided de minimis revenue:

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Oil $ 26,411,132 $ 28,578,879

Natural gas liquids 3,662,478 1,018,349

Natural gas 2,628,744 2,068

Total revenues $ 32,702,354 $ 29,599,296

We are a non-operator and presently do not take production in-kind and do not negotiate contracts with customers.

We recognize crude oil, natural gas liquids, and natural gas production revenue at the point in time when custody and title (“control”) of the product transfers to the customer.

We recognize oil, natural gas, and natural gas liquids production revenue at the point in time when custody and title (“control”) of the product transfers to the customer.

Transfer of control drives the presentation of post-production expenses such as transportation, gathering, and processing deductions within the accompanying statements of operations.

Fees and other deductions incurred prior to control transfer are recorded within the production costs line item on the accompanying consolidated statements of operations, while fees and other deductions incurred subsequent to control transfer are embedded in the price and effectively recorded as a reduction of crude oil, natural gas liquids, and natural gas production revenue.

Fees and other deductions incurred prior to control transfer are recorded within the lease operating costs line item on the accompanying consolidated statements of operations, while fees and other deductions incurred subsequent to control transfer are embedded in the price and effectively recorded as a reduction of oil, natural gas, and natural gas liquids production revenue.

Transfer of control related to the Barnett Shale production does not occur until after the marketing, transportation and processing services have been performed, and as such, fees related to these services are recorded within the lease operating costs line item and do not reduce the oil, natural gas, and natural gas liquids production revenue.

Transfer of control related to the Hamilton Dome and Delhi production occurs prior to the fees and other deductions, and as such, these fees are recorded as a reduction to the oil and natural gas liquids production revenue.

Judgments made in applying the guidance in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, relate primarily to determining the point in time when control of product transfers to the customer.

3 unchanged sentences

The performance obligations are considered satisfied at a point in time upon control transferring to a customer at a specified delivery point.

Consideration is allocated to satisfied performance obligations at the end of an accounting period.

Consideration is allocated to completed performance obligations at the end of an accounting period.

Revenue is recorded in the month when contractual performance obligations are satisfied.

However, settlement statements from the purchasers of hydrocarbons and the related cash consideration are received one to two months after production has occurred, which is typical in the industry.

However, settlement statements from the purchasers of hydrocarbons and the related cash consideration are received by field operators before distributing the Company’s share one to two months after production has occurred, which is typical in the industry.

As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for the sale of the product.

Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimated revenue due to the Company is recorded within the “Receivables from oil and gas sales” line item on the accompanying consolidated balance sheets until payment is received from field operators.

The accounts receivable balances from contracts with customers as of June 30, 2021 and 2020, as presented on our respective consolidated balance sheets, were $ 8.7 million and $ 1.9 million, respectively.

To estimate accounts receivable from operators' contracts with customers, the Company uses knowledge of its properties, historical performance, contractual arrangements, index pricing, quality and transportation differentials, and other factors.

Differences between estimates and actual amounts received for product sales are recorded in the month that payment is received from the purchaser.

The increase between fiscal 2020 and fiscal 2021 is primarily due to the Barnett Shale Acquisition.

To estimate accounts receivable from operators’ contracts with customers, the Company uses knowledge of its properties, historical performance, contractual arrangements, index pricing, quality and transportation differentials, and other factors as the basis for these estimates.

Differences between estimates and actual amounts received for product sales are recorded in the month that payment is received from the purchaser as remitted to us by field operators.

Revenue recognized during the fiscal year ended June 30, 2021 and 2020 related to performance obligations satisfied in prior reporting periods, was immaterial.

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Certain leases have payment terms that vary based on the usage of the underlying assets.

Variable lease payments are not included in ROU assets and lease liabilities.

Variable lease payments are not included in ROU assets

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and lease liabilities.

For all operating leases, lease and non-lease components are accounted for as a single lease component.

6 unchanged sentences

At June 30, 2021, maturities of our operating lease liability are as follows:

Operating Lease Liability

Fiscal Year Operating Lease Liability

Total lease payments 87,941

1 unchanged sentence

Total lease liability $ 84,979

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Supplemental cash flow, balance sheet, and other disclosures information related to our operating leases are as follows:

As of and For the Year Ended June 30, 2020

As of and For the Year Ended June 30, 2021 As of and For the Year Ended June 30, 2020

Cash paid for amounts included in the measurement of lease liabilities $ 59,945 $ 4,903

7 unchanged sentences

Note 5 – Prepaid Expenses and Other Current Assets

2021 June 30,

Prepaid insurance $ 365,922 $ 289,999

Prepaid subscription and licenses 108,048 67,005

Prepaid federal and state income taxes 97,470 86,208

Prepaid investor relations and other

Prepaid expenses and other current assets

Note 6 – Property and Equipment

Carryback of EOR tax credit 416,441 —

Prepaid other 49,378 48,474

Total prepaid expenses and other current assets $ 1,037,259 $ 491,686

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6 – Property and Equipment, Net of Depreciation, Depletion, and Amortization

2021 June 30,

Oil and natural gas properties:

Property costs subject to amortization $ 129,123,227 $ 107,390,379

Accumulated depreciation, depletion, and amortization

Accumulated depreciation, depletion, and amortization and impairment (a) ( 70,607,367 ) ( 40,878,098 )

Unproved properties not subject to amortization — —

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Furniture, fixtures, and office equipment, at cost 154,731 154,731

Accumulated depreciation

Accumulated depreciation (b) ( 144,092 ) ( 137,092 )

Other property and equipment, net $ 10,639 $ 17,639

(a) Depletion on oil and natural gas properties was $ 4,901,969 for fiscal 2021 and $ 5,592,651 for fiscal 2020.

Impairment on oil and natural gas properties was $ 24,792,079 for fiscal 2021, and there was no impairment in fiscal 2020.

(b) Depreciation was $ 7,000 for fiscal 2021 and $ 8,779 for fiscal 2020.

As of June 30, 2021 and 2020, all oil and gas property costs were being amortized.

During the years ended June 30, 2021 and 2020, the Company incurred capital expenditures of $ 0.6 million and $ 1.5 million, respectively.

Hamilton Dome Acquisition

On November 1, 2019, and effective as of October 1, 2019, our wholly-owned subsidiary, Evolution Petroleum West, Inc., a Delaware corporation, purchased a 23.5% non-operated working interest and a 19.7% revenue interest in the Hamilton Dome unitized field located in Hot Springs County, Wyoming, from entities owned or controlled by Merit Energy Company ("Merit") of Dallas, Texas.

At closing on November 1, 2019, we paid a cash purchase price of $9.5 million subject to customary purchase

On May 7, 2021, the Company acquired an approximate 17 % working interest and a 14 % revenue interest in non-operated oil and gas assets in the Barnett Shale from Tokyo Gas Americas for $ 18.3 million, net of preliminary purchase price adjustments, and also recognized $ 2.8 million in non-cash asset retirement obligations.

The Company accounted for this transaction as an asset acquisition with an effective of January 1, 2021.

On November 1, 2019, the Company acquired a 23.5 % non-operated working interest and a 19.7 % revenue interest in the Hamilton Dome unitized field located in Hot Springs County, Wyoming, from the Merit Energy Company.

As a result of this cash purchase combined with its subsequent purchase adjustments, the Company recorded a purchase cost of $ 9.3 million, net of purchase price adjustments, and also recognized $ 0.9 million in non-cash asset retirement obligations.

The Company accounted for this transaction as an asset acquisition.

In accordance with the Financial Accounting Standards Board’s authoritative guidance on asset acquisitions, the Company allocated the cost of the acquisition to the assets acquired and liabilities assumed based on a relative fair value basis of the assets acquired and liabilities assumed, with no recognition of goodwill or bargain purchase gain recorded.

Incremental legal and professional fees related directly to the Acquisition were capitalized as part of the Acquisition cost.

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Fair value measurements also utilize market assumptions of market participants.

The Company uses the full cost method of accounting for its investments in oil and natural gas properties.

All costs of acquisition, exploration, and development of oil and natural gas reserves are capitalized as the cost of oil and natural gas and properties when incurred.

To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs result in an impairment charge.

At June 30, 2021, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended June 30, 2021 of the West Texas Intermediate (WTI) oil spot price of $49.72 per barrel and Henry Hub natural gas spot price of $2.46 per MMBtu, adjusted by market differentials by field.

The net price per barrel of NGLs was $ 19.81 , which does not have any single comparable reference index price.

The NGL price was based on historical prices received.

Using these prices, the Company’s net book value of oil and natural gas properties at June 30, 2021 did not exceed the current ceiling.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

price adjustments, which were settled in December 2019 upon our receipt of a $0.2 million cash payment made by Merit.

Given the effective date of the transaction, the purchase price adjustment consisted of our interest's share of sales proceeds from October sales net of our share of operating expenses.

Commencing November 1, 2019, we began recording our share of Hamilton Dome revenues, related expenses, and capital costs.

In connection with this acquisition, the Company recorded a $0.9 million non-cash addition of asset retirement obligations of wells and related assets.

The unit includes producing and water injection wells and associated facilities producing crude oil from proved developed reserves.

There were no proved undeveloped reserves.

We accounted for this acquisition transaction as an asset purchase.

Note 7 – Other Assets

At December 31, 2020 and September 30, 2020, the Company recorded ceiling test impairment charges of $ 15.2 million and $ 9.6 million, respectively.

The ceiling test impairments were driven by decreases in the first-day-of-the-month average for oil used in the ceiling test calculation, from $ 47.37 per barrel at June 30, 2020 to $ 43.63 per barrel at September 30, 2020 to $ 39.54 per barrel at December 31, 2020.

Note 7 – Other Assets, Net

2021 June 30,

Royalty rights — 108,512

8 unchanged sentences

Other assets, net $ 70,789 $ 291,618

Our royalty rights and investment in Well Lift, Inc.

("WLI") resulted from the separation of our artificial lift technology operations in December 2015.

Our royalty rights and investment in WLI resulted from the separation of our artificial lift technology operations in December 2015.

We conveyed our patents and other intellectual property to WLI and retained a 5 % royalty on future gross revenues associated with the technology.

We own 17.5% of the common stock of WLI and account for our investment in this private company at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if such were to occur.

We own 17.5 % of the common stock and 100 % of the preferred stock of WLI and account for our investment in this private company at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if such were to occur.

The Company evaluates the investment for impairment when it identifies any events or changes in circumstances that might have a significant adverse effect on the fair value of the investment.

At March 31, 2021, we reviewed our investment and technology rights in WLI for potential impairment and, as a result, recorded an impairment expense of $ 0.1 million.

This impairment charge was recorded based on a variety of factors including the lack of current revenue generated and the outlook for future activity associated with this technology primarily due to a reduction in drilling activities across the industry.

Note 8 – Accrued Liabilities and Other

2021 June 30,

Accrued incentive and other compensation $ 630,744 $ 176,636

Asset retirement obligations due within one year

Accrued retirement costs 52,786 —

Accrued franchise taxes 35,207 100,978

2 unchanged sentences

Operating lease liability, current 64,234 54,290

Asset retirement obligations due within one year 44,520 —

Accrued - other 11,554 11,556

Accrued liabilities and other

Total Accrued liabilities and other $ 947,045 $ 716,648

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

1 unchanged sentence

Note 9 – Asset Retirement Obligations

Our asset retirement obligations represent the estimated present value of the amount we will incur to plug, abandon, and remediate our producing properties at the end of their productive lives in accordance with applicable laws.

Our asset retirement obligations represent the estimated present value of the amount we expect to incur to plug, abandon, and remediate our producing properties at the end of their productive lives in accordance with applicable laws and regulations.

During the year ended June 30, 2021, the Delhi field operator abandoned two wells.

Presently, we expect the Hamilton Dome operator to plug four wells during the next twelve months.

The following is a reconciliation of the beginning and ending asset retirement obligations for the years ended June 30, 2021 and 2020:

1 unchanged sentence

Liabilities incurred — 40,698

Liabilities settled

Liabilities settled ( 99,231 ) (a) ( 86,592 )

Liabilities acquired 2,806,331 (b) 903,580

Accretion of discount 210,182 146,504

Revisions to previous estimates

Revisions of previous estimates 77,096 (c) ( 26,141 )

Asset retirement obligations — end of period 5,583,272 2,588,894

1 unchanged sentence

Long-term portion of asset retirement obligations $ 5,538,752 $ 2,588,894

(a) Liabilities incurred in fiscal 2020 included $0.9 million from our acquisition of our Hamilton Dome interest and remainder related to facilities at the Delhi field.

(b) We abandoned one well in the Delhi field and four wells in the Hamilton Dome field.

(a) Abandonment of two non-scheduled Delhi field wells in fiscal 2021, and abandonment of one Delhi field well and four Hamilton Dome field wells in fiscal 2020.

(b) Liabilities acquired in fiscal 2021 and 2020 were primarily due to our acquisition of the Barnett Shale interest and the Hamilton Dome interest, respectively.

Note 10 – Stockholders' Equity

1 unchanged sentence

The Company began paying quarterly cash dividends on common stock in December 2013.

As of June 30, 2020, we have cumulatively paid $70.2 million in cash dividends.

We paid dividends of $10,740,754 and $13,272,058 from retained earnings to our common shareholders during the years ended June 30, 2020 and 2019 , respectively.

The following table reflects the dividends paid per common share in each quarter within the respective two fiscal years:

As of June 30, 2021, we have cumulatively paid over $ 74.5 million in cash dividends.

We paid dividends of $ 4,342,082 and $ 10,740,754 to our common stockholders during the years ended June 30, 2021 and 2020, respectively.

The following table reflects the dividends paid within the respective three-month periods:

Fourth quarter ended June 30, $ 0.050 $ 0.025

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Since inception of the program through June 30, 2021, the Company has spent $ 4.0 million to repurchase 706,858 common shares at an average price of $ 5.72 per share.

There were no shares purchased under this program during the year ended June 30, 2021.

Under the program's terms, shares are repurchased only on the open market and in accordance with the requirements of the SEC.

2 unchanged sentences

There is no fixed termination date for this repurchase program, and it may be suspended or discontinued at any time.

The Company has also acquired treasury stock from holders of newly vested stock-based awards to fund the recipients' payroll tax withholding obligations.

Such shares were valued at fair market value on the date of vesting.

During the year ended June 30, 2021 and 2020, the Company also acquired treasury stock from holders of newly vested stock-based awards to fund the recipients' payroll tax withholding obligations.

The treasury shares were subsequently canceled.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The treasury shares were subsequently canceled.

The following summarized the Company's treasury stock purchases in its last two fiscal years.

Common Shares Acquired

Average Price per Share

Treasury Stock Purchases

shares were valued at fair market value on the date of vesting.

The following table shows all treasury stock purchases in the last two fiscal years:

Common Shares Acquired Average Price per Share Treasury Stock Purchases

Year Ended June 30, 2021:

1 unchanged sentence

Share repurchase program — $ — —

Total 2,632 $ 2.79 $ 7,347

Year Ended June 30, 2020:

1 unchanged sentence

Share repurchase program 440,666 $ 5.51 2,428,792

Tax Treatment of Dividends to Recipients

Based on our current projections for the fiscal year ended June 30, 2020 , we expect that all common stock dividends for this fiscal year will be treated for tax purposes as qualified dividend income to the recipients.

Total 449,921 $ 5.52 $ 2,483,357

Expected Tax Treatment of Dividends

For the fiscal year ended June 30, 2020, all common stock dividends for that fiscal year were treated for tax purposes as qualified dividend income to the recipients.

Based on our current projections for the fiscal year ended June 30, 2021, we expect all common stock dividends for such period to be treated as qualified dividend income to the recipients.

Note 11— Stock-Based Incentive Plan

At the December 8, 2016 annual meeting, the stockholders approved the adoption of the Evolution Petroleum Corporation 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the Evolution Petroleum Corporation Amended and Restated 2004 Stock Plan (the "2004 Plan").

The 2016 Plan authorizes the issuance of 1,100,000 shares of common stock prior to its expiration on December 8, 2026.

The Evolution Petroleum Corporation 2016 Equity Incentive Plan (“2016 Plan”), approved in the December 2016 annual meeting, authorized the issuance of 1,100,000 shares of common stock prior to its expiration on December 8, 2026.

Incentives under the 2016 Plan may be granted to employees, directors, and consultants of the Company in any one or a combination of the following forms:

incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance share awards, performance cash awards, and other forms of incentives valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value.

As of June 30, 2020 , 390,489 shares remained available for grant under the 2016 Plan.

All remaining outstanding awards granted under the 2004 Plan have vested during the year ended June 30, 2020 .

incentive stock options and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance share awards, performance cash awards, and other forms of incentives valued in whole or in part by reference to, or otherwise based on, our common stock, including its appreciation in value.

On December 9, 2020, an amendment to the 2016 Plan was approved by our stockholders which increased the number of shares available for issuance by 2,500,000 shares.

There were 2,206,294 shares available for grant under the 2016 Plan as of June 30, 2021.

Restricted Stock and Contingent Restricted Stock

The Company may award grants of both Restricted Stock and Contingent Restricted Stock as part of its long-term incentive plan.

The Company has awarded grants of both Restricted Stock and Contingent Restricted Stock as part of its long-term incentive plan.

Such grants, which expire after a maximum of four years if unvested, contain service-based, performance-based, and market-based vesting provisions.

The common shares underlying the Restricted Stock grants are issued on the date of grant.

Contingent Restricted Stock grants vest only upon the attainment of typically higher performance-based or market-based vesting thresholds and are issued only upon vesting.

Shares underlying Contingent Restricted Stock awards are reserved from the Plan under which they were granted under.

In July 2019, the new chief executive officer upon his employment received 48,872 shares of serviced-based restricted common stock which vest in three equal amounts on June 30, 2020, 2021 and 2022.

He was also awarded a total of 200,000 market-based restricted stock units consisting of four equal tranches, each of which may vest only if its respective stock price requirement is met before the award term expires.

Each tranche has a separate stated price requirement and respective vesting will occur only if, before July 1, 2023, the ninety-day trailing average Company stock share price equals or exceeds its tranche price requirement.

During the year ended June 30, 2020 , we also granted 52,119 service-based and 104,236 market-based Restricted Stock awards to our employees as well as 56,395 service-based awards to the Company's directors.

Contingent Restricted Stock grants vest only upon the attainment of higher performance-based or market-based vesting thresholds and are issued only upon vesting.

Shares underlying Contingent Restricted Stock awards are reserved from the Plan they were granted under.

During the year ended June 30, 2021, the Company granted 314,955 service-based restricted stock awards primarily to employees under its long term incentive program together with annual awards to its directors.

In addition, under this program, the Company granted 246,160 market-based restricted stock awards and 123,080 Contingent Restricted Stock awards to employees.

In addition to the foregoing, in connection with the retirement of the Company's former Chief Financial Officer, vesting was accelerated as to 50,524 aggregate shares of service- and market-based equity awards (with a weighted average fair value of $ 5.15 per share) which, for accounting purposes, was treated as a cancellation and replacement of the same number of awards which had a fair value of $ 2.79 per share.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Service-based awards vest with continuous employment by the Company, generally in annual installments over a three - or four -year period.

Certain awards may contain other vesting periods, including quarterly installments and one -year vesting.

Restricted Stock grants, which vest based on service, are valued at the fair market value on the date of grant and amortized over the service period.

During the year ended June 30, 2020, the Chief Executive Officer upon his July 2019 employment received 48,872 shares of service-based restricted common stock which vests in three equal amounts on June 30, 2020, 2021, and 2022;

he was also awarded a total of 200,000 market-based Contingent Restricted Stock units consisting of four equal tranches, each of which may vest only if its respective stock price requirement is met before the award term expires.

We also granted 52,119 service-based and 104,236 market-based Restricted Stock awards to our employees as well as 56,395 serviced-based awards to the company's directors.

Service-based awards vest with continuous employment by the Company, generally in annual installments over terms of three to four years .

Awards to the Company's directors have one-year cliff vesting.

Restricted Stock grants, which vest based on service, are valued at the fair market value of the Company’s common stock on the date of grant and amortized over the service period.

Performance-based grants vest upon the attainment of earnings, revenue, and other operational goals and require that the recipient remain an employee or director of the Company through the vesting date.

The Company recognizes compensation expense for performance-based awards ratably over the expected vesting period based on the grant date fair value when it is deemed probable, for accounting purposes, that the performance criteria will be achieved.

The Company recognizes compensation expense for performance-based awards ratably over the expected vesting period based on the grant date fair value of the Company’s common stock and when it is deemed probable, for accounting purposes, that the performance criteria will be achieved.

The expected vesting period may be deemed to be shorter than the term of the award.

As of June 30, 2021, there were no performance-based awards outstanding.

Market-based awards vest if their respective two - or three -year trailing total returns on the Company’s common stock exceed the corresponding total returns of various quartiles of indices consisting of either peer companies or a broad market index of companies in our industry.

More recent market-based awards vest if the average of the Company's closing stock prices over defined quarterly measurement periods together with accumulated paid dividends exceeds a defined value.

The fair values and expected vesting periods of these awards are determined using a Monte Carlo simulation based on the historical volatility of the Company's total return compared to the historical volatilities of the other companies in the index.

Many of our past market-based awards could vest if their respective two - or three-year trailing total returns on the Company’s common stock exceed the corresponding total returns of various quartiles of indices consisting of peer companies.

Additionally, more recent market-based awards vest when the average of the Company's closing stock price over a defined quarterly measurement period meets or exceeds a required stock price.

The third-party independent assessment of fair values and expected vesting periods of these awards are determined using a Monte Carlo simulation based on the historical volatility of the Company's total return compared to the historical volatilities of the other companies in the index.

Compensation expense for market-based awards is recognized over the expected vesting period using the straight-line method, so long as the holder remains an employee or director of the Company.

Total compensation expense is based on the fair value of the awards at the date of grant and is independent of vesting or expiration of the awards, except for termination of service.

Assumptions used in the Monte Carlo simulation valuations for the years ended June 30, 2020 and 2019 were:

For market-based awards granted during the years ended June 30, 2021 and 2020, the assumptions used in the Monte Carlo simulation valuations, expected lives and fair values were as follows:

Year Ended June 30,

Weighted average fair value of market-based awards granted $ 3.08 $ 3.79

Risk-free interest rate

1.65% to 1.87%

Expected life in years

Expected volatility

38.6% to 43.7%

Dividend yield

Risk-free interest rate 0.23 % 1.65 % to 1.87 %

Expected life in years 2.56 1.35 to 2.56

Expected volatility 56.9 % 38.6 % to 43.7 %

Dividend yield 3.2 % 6 % to 7.2 %

Unvested Restricted Stock awards at June 30, 2021 consisted of the following:

Award Type Number of

Shares Weighted

Service-based awards 348,762 $ 3.37

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The following table sets forth the Restricted Stock transactions for the year ended June 30, 2021:

Unamortized Compensation Expense at June 30, 2020

Weighted Average Remaining Amortization Period (Years)

Shares Weighted

Fair Value Unamortized Compensation Expense at June 30, 2021 Weighted Average Remaining Amortization Period (Years)

Unvested at July 1, 2020 285,028 $ 5.53 $ —

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Market-based shares granted 246,160 3.07

Vested ( 176,848 ) 5.09

Forfeited ( 50,524 ) 5.15

Unvested at June 30, 2021 669,295 $ 3.37 $ 1,530,550 1.88

4 unchanged sentences

Number of awards that vested 176,848 104,159

The following table summarizes Contingent Restricted Stock activity for the year ended June 30, 2020 :

Unamortized Compensation Expense at June 30, 2020

Weighted Average Remaining Amortization Period (Years)

Unvested Contingent Restricted stock awards table below consists solely of market-based awards for the year ended June 30, 2021:

Stock Units Weighted

Fair Value Unamortized Compensation Expense at June 30, 2021 Weighted Average Remaining Amortization Period (Years)

Unvested at July 1, 2020 200,000 $ 3.50

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Note 12 – Supplemental Disclosure of Cash Flow Information

Interest paid on the Senior Secured Credit Facility $ 86,347 $ 76,390

Income taxes paid 757,963 1,241,538

Income tax refunds 141,848 —

Non-cash transactions:

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The components of our income tax provision (benefit) are as follows:

June 30, 2020

June 30, 2019

June 30, 2021 June 30, 2020

Federal $ ( 334,473 ) $ ( 2,264,850 )

State 454,033 345,522

Total current income tax provision (benefit) 119,560 ( 1,919,328 )

Federal ( 3,987,211 ) ( 266,482 )

State ( 1,116,610 ) 4,814

Total deferred income tax provision (benefit) ( 5,103,821 ) ( 261,668 )

Total income tax provision (benefit) $ ( 4,984,261 ) $ ( 2,180,996 )

For the years ended June 30, 2020 and 2019 , respectively, we recognized income tax benefit of $(2.2) million and an income tax expense of $3.5 million reflecting corresponding effective tax rates of (58.1)% and 18.5% , respectively.

During the current year we undertook a project to seek potential cash tax savings opportunities identifying available Enhanced Oil Recovery credits (“EOR credits”) related to our interests in the Delhi field.

For the years ended June 30, 2021 and 2020, respectively, we recognized an income tax benefit of $ 5.0 million and an income tax benefit of $ 2.2 million reflecting corresponding effective tax rates of 23.3 % and ( 58.1 )%, respectively.

During the fiscal 2020 year we undertook a project to seek potential cash tax savings opportunities identifying available Enhanced Oil Recovery credits (“EOR credits”) related to our interests in the Delhi field.

To take advantage of the EOR credits, we amended federal and state tax returns for the years ended June 30, 2017 and 2018 and incorporated the associated impacts into our 2019 tax returns.

Principally as a result of the EOR credits, the Company recorded a net tax benefit of $2.8 million during the current year.

Relative to the foregoing, the Company has a $3.2 million receivable for income tax refunds at June 30, 2020.

Principally as a result of the EOR credits, the Company recorded a net tax benefit of $ 2.8 million during fiscal 2020.

Relative to the foregoing, the Company has a $ 3.1 million receivable for income tax refunds at June 30, 2021, which the Company currently anticipates to receive in the next twelve months based on inquiries and communication with the IRS, although no assurances can be made as to the actual date of receipt.

During fiscal 2021, we recognized an income tax benefit of $ 0.3 million attributable to the EOR credit.

EVOLUTION PETROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our effective tax rate will typically differ from the statutory federal rate as a result of state income taxes, primarily in the State of Louisiana, and differences related to percentage depletion in excess of basis, stock-based compensation, and other permanent differences.

The following table presents the reconciliation of our income taxes calculated at the statutory federal tax rate to the income tax provision (benefit) in our financial statements.

June 30, 2020

% of Income Before Income Taxes

June 30, 2019

% of Income Before Income Taxes

June 30, 2021 % of Income Before Income Taxes June 30, 2020 % of Income Before Income Taxes

Income tax provision (benefit) computed at the statutory federal rate:

$ ( 4,498,661 ) 21.0 % $ 788,776 21.0 %

Reconciling items:

Return to provision adjustments including returns amended for EOR credits

Return to provision adjustments 20,036 ( 0.1 ) % ( 2,823,527 ) ( 75.2 ) %

Depletion in excess of tax basis ( 175,840 ) 0.8 % ( 412,215 ) ( 11.0 ) %

1 unchanged sentence

Permanent differences related to stock-based compensation and other 55,278 ( 0.3 ) % 22,408 0.6 %

Expiration of Section 382 tax loss carryforwards

Change in valuation allowance for Section 382 tax loss carryforwards

Federal valuation allowance 570,064 ( 2.7 ) % — — %

EOR credit benefit ( 335,717 ) 1.6 % — — %

Other ( 95,985 ) 0.6 % ( 29,400 ) ( 0.8 ) %

Income tax provision (benefit) $ ( 4,984,261 ) 23.3 % $ ( 2,180,996 ) ( 58.1 ) %

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Asset (Liability)

June 30, 2020

June 30, 2019

June 30, 2021 June 30, 2020

Deferred tax assets:

Non-qualified stock-based compensation $ 309,671 $ 234,559

Net operating loss carry-forwards

Net operating loss carry-forwards and other carry-forwards 365,279 78,197

Derivative losses — 401,382

Asset retirement obligations (a) 1,284,907 650,042

Other deferred tax assets 160,313 53,159

Gross deferred tax assets 2,120,170 1,417,339

Valuation allowance ( 861,838 ) ( 53,218 )

Total deferred tax assets

Net deferred tax assets 1,258,332 1,364,121

Deferred tax liability:

Oil and natural gas properties

Oil and natural gas properties (a) ( 7,215,534 ) ( 12,425,144 )

Total deferred tax liability ( 7,215,534 ) ( 12,425,144 )

Net deferred tax liability $ ( 5,957,202 ) $ ( 11,061,023 )

(a) Certain deferred tax assets related to asset retirement obligations have been reclassified from the June 30, 2020 oil and natural gas properties deferred tax liability balance in order to conform to the current year presentation.

As of June 30, 2021, we had a federal tax loss carryforward of approximately $ 0.6 million that we acquired through a reverse merger in May 2004.

The majority of the tax loss carryforwards from the reverse merger expired without being utilized.

We will be able to utilize a maximum of $0.2 million of these carryforwards in equal annual amounts of $39,648 through 2023 and the balance is not able to be utilized based on the provisions of IRC Section 382.

We will be able to utilize a maximum of $ 0.2 million of these carryforwards in equal annual amounts of $ 39,648 through 2023 and the balance is not able to be utilized based on the provisions of Internal Revenue Code (“IRC”) Section 382.

We have recorded a valuation allowance for the portion of our net operating loss that is limited by IRC Section 382.

In addition, we must assess the likelihood that we will be able to realize our deferred tax assets.

Realization is dependent on generating sufficient taxable income over the period the deferred tax assets are deductible.

Given the Company is in a cumulative loss position, Management considered the reversal of deferred tax liabilities and tax planning strategies in making

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Net Income Per Share

the assessment of the realization of deferred tax assets.

Based upon the weight of available evidence, the Company believes that some of the deferred tax assets are not likely to be realized at the time of this report and have recorded an increase in the valuation allowance during the current year related to the federal and state deferred tax assets of $ 0.6 million and $ 0.2 million respectively.

Note 14 – Earnings (Loss) per Common Share

The following table sets forth the computation of basic and diluted net income per share:

Net income attributable to common shareholders

Net income (loss) attributable to common stockholders $ ( 16,437,934 ) $ 5,937,072

Weighted average number of common shares – Basic 33,263,701 33,031,149

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Contingent restricted stock grants — 1,942

Weighted average number of common shares and dilutive potential common shares used in diluted EPS

Net income per common share – Basic

Net income per common share – Diluted

Outstanding Potential Dilutive Securities

Exercise Price

Outstanding at

June 30, 2020

Weighted average number of common shares and dilutive potential common shares used in diluted earnings (loss) per share 33,263,701 33,033,091

Net earnings (loss) per common share – Basic $ ( 0.49 ) $ 0.18

Net earnings (loss) per common share – Diluted $ ( 0.49 ) $ 0.18

Outstanding Potentially Dilutive Securities Weighted

Exercise Price Outstanding at June 30, 2021

Contingent Restricted Stock grants $ — 323,080

Outstanding Potential Dilutive Securities

Exercise Price

Outstanding at

June 30, 2019

Outstanding Potential Dilutive Securities Weighted

Exercise Price Outstanding at June 30, 2020

Contingent Restricted Stock grants $ — 200,000

Note 15 – Senior Secured Credit Agreement

On April 11, 2016, the Company entered into a three -year, senior secured reserve-based credit facility ("Facility") in an amount up to $50 million .

On May 25, 2018, we entered into the third amendment to our credit agreement governing the revolving credit facility to, among other things, extend the maturity date to April 11, 2021.

On December 31, 2018, we entered into the fourth amendment to our credit agreement governing the revolving credit facility to broaden the definition for the Use of Proceeds.

On April 27, 2020, the Company completed its spring redetermination of the Facility resulting in a decrease of the borrowing base to $27 million .

The Company's ability to access the borrowing base is also limited by its compliance with certain financial covenants, including a debt service ratio covenant, described below.

As a consequence of declining oil prices adversely impacting the Company's EBITDA upon which the debt service ratio is calculated, at June 30, 2020 the Company's borrowings would have been limited to approximately $8 million .

There are no borrowings outstanding under the Facility, which matures on April 11, 2021.

The Facility is secured by substantially all of the reserves associated with the Delhi field.

As of June 30, 2020 , the Company was in compliance with all financial covenants and there were no amounts outstanding under the Facility.

Under the Facility the borrowing base shall be determined semiannually as of every May 15 and November 15 during the term of the Facility.

Borrowings from the Facility may be used for the acquisition and development of oil and gas properties, investments in cash flow generating assets complimentary to the production of oil and gas, and for letters of credit and other general corporate purposes.

The Facility carries a commitment fee of 0.25% per annum on the undrawn portion of the borrowing base.

Any borrowings under the Facility will bear interest, at the Company’s option, at either Libor plus 2.75% or the Prime Rate, as defined, plus

On April 11, 2016, the Company entered into a three-year , senior secured reserve-based credit facility (the “Senior Secured Credit Facility”) in an amount up to $ 50 million.

On May 25, 2018, we entered into the third amendment to our credit agreement governing the Facility to, among other things, extend the maturity date to April 11, 2021.

On December 31, 2018, we entered into the fourth amendment to our credit agreement governing the Senior Secured Credit Facility to broaden the definition for the Use of Proceeds.

Under the Senior Secured Credit Facility the borrowing base is redetermined semiannually.

On November 2, 2020, the Company completed its Fall redetermination of the Senior Secured Credit Facility, resulting in a borrowing base of $ 23 million, and entered into the fifth amendment to the Senior Secured Credit Facility extending the maturity to April 9, 2024.

On January 5, 2021 and effective as of December 28, 2020, we entered into the sixth amendment of our Senior Secured Credit Facility which replaced the Debt Service Coverage Ratio (as defined therein) maintenance covenant with a new covenant requiring Current Ratio (as defined therein) of not less than 1.00 to 1.00.

On March 30, 2021, the Company completed its spring redetermination of the Senior Secured Credit Facility, resulting in a borrowing base increase to $ 30 million.

On August 5, 2021, and effective as of June 30, 2021, we entered into the seventh amendment of our Senior Secured Credit Facility which added definitions for the terms “Acquired Entity or Mineral Interests” and “Acquired Entity or Mineral Interests EBITDA Adjustment.” Additionally, the Consolidated Tangible Net Worth was reduced to $ 40 million from $ 50 million.

We were in compliance with all financial covenants and there was $ 4 million outstanding under the Senior Secured Credit Facility at June 30, 2021 which is secured by substantially all of the Company's assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Facility contains financial covenants including a requirement that the Company maintain, as of the last day of each fiscal quarter, (a) a maximum total leverage ratio of not more than 3.00 to 1.00 , (b) a debt service coverage ratio of not less than 1.10 to 1.00 , and (c) a consolidated tangible net worth of not less than $50 million , all as defined under the Facility.

In connection with this agreement, the Company incurred $168,972 of debt issuance costs.

Such costs were capitalized in Other Assets and are being amortized to expense.

The unamortized balance in debt issuance costs related to the Facility was $11,888 as of June 30, 2020 .

Borrowings from the Senior Secured Credit Facility may be used for the acquisition and development of oil and natural gas properties, investments in cash flow generating assets complimentary to the production of oil and natural gas, and for letters of credit and other general corporate purposes.

The Senior Secured Credit Facility included a placement fee of 0.50 % on the initial borrowing base amounting to $ 50,000,000 and carries a commitment fee of 0.25 % per annum on the undrawn portion of the borrowing base.

Any borrowings under the Senior Secured Credit Facility will bear interest, at the Company’s option, at either LIBOR plus 2.75 %, subject to a minimum LIBOR of 0.25 %, or the Prime Rate, as defined under the Senior Secured Credit Facility, plus 1.00 %.

The Senior Secured Credit Facility contains financial covenants including a requirement that the Company maintain, as of the last day of each fiscal quarter, (a) a maximum total leverage ratio of not more than 3.00 to 1.00, (b) a current ratio of not less than 1.00 to 1.00, and (c) a consolidated tangible net worth of not less than $ 40 million, all as defined under the Senior Secured Credit Facility.

In connection with the Senior Secured Credit Facility, the Company has incurred $ 168,972 of past debt issuance costs.

Such costs were capitalized in "Other assets, net" and have been completely amortized to expense as of June 30, 2021.

Note 16 – Commitments and Contingencies

We are subject to various claims and contingencies in the normal course of business.

From time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate our business.

At a minimum, we disclose such matters if we believe it is reasonably possible that a future event or events will confirm a loss through impairment of an asset or the incurrence of a liability.

We accrue a loss if we believe it is probable that a future event or events will confirm a loss, we can reasonably estimate such loss, and we do not accrue future legal costs related to that loss.

Furthermore, we will disclose any matter that is unasserted if we consider it probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable.

In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate.

At a minimum, we disclose such matters if we believe it is reasonably possible that a future event or events will confirm a material loss through impairment of an asset or the incurrence of a liability.

We accrue a material loss if we believe it is probable that a future event or events will confirm a loss, we can reasonably estimate such loss, and we do not accrue future legal costs related to that loss.

Furthermore, we will disclose any matter that is unasserted if we consider it probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable and material in amount.

We expense legal defense costs as they are incurred.

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As a non-operator, we presently market our production through the field operators.

The majority of our operated gas, oil and condensate production is sold to purchasers under short-term (less than 12 months) contracts at market-based prices.

The majority of our natural gas, oil, and condensate production is sold to purchasers under short-term (less than 12 months) contracts at market-based prices.

The following table identifies customers from whom we derived 10 percent or more of our net oil and natural gas revenues during the years ended June 30, 2021 and 2020.

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Year Ended June 30,

Customer 2021 2020

Plains Marketing L.P.

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Merit Energy Company (Hamilton Dome field oil) 19 % 10 %

Third Coast Midstream (Delhi field NGLs)

All others 19 % 3 %

Total 100 % 100 %

Accounts Receivable.

Substantially all of our accounts receivable result from oil and natural gas sales to third parties in the oil and natural gas industry.

Substantially all of our accounts receivable from field operators result from oil and natural gas sales to third-parties in the oil and natural gas industry.

Our concentration of customers in this industry may impact our overall credit risk.

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At times, cash balances may exceed limits federally insured by the Federal Deposit Insurance Corporation (“FDIC”).

Note 18 – Retirement Plan

We have a Company sponsored 401(k) Retirement Plan ("Plan") which is available to all full-time employees.

We currently match 100% of employees' contributions to the Plan, to a maximum of the first 6% of each participant's eligible compensation, subject to IRS limits, with Company contributions fully vested when made.

Our matching contributions to the Plan totaled $41,127 and $52,809 for the years ended June 30, 2020 and 2019 , respectively.

Note 18 – Derivatives

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers.

As of June 30, 2020, the Company did not post collateral under its one open derivative contract as trades were uncollateralized.

As of June 30, 2021, the Company did not have any remaining open derivative contracts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company may utilize fixed-price swaps or costless put/call collars to hedge a portion of its anticipated future production.

The Company has in the past and may utilize in the future fixed-price swaps or costless put/call collars to hedge a portion of its anticipated future production.

Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for the volumes under contract.

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The Company’s derivative contract is recorded at fair market value and is included in the consolidated balance sheets as an asset or a liability.

Refer to Note 20 – Fair Value Measurement for the table summarizing the location and fair value amounts of the Company’s open derivative contract in the consolidated balance sheet as of June 30, 2020.

The Company did not have any open positions as of June 30, 2021.

The following sets forth a summary of the Company’s open crude oil derivative positions as of June 30, 2020.

Type of Contract

Volumes in Barrels

Price / Price Range

Weighted Average Floor Price per Bbl.

The following sets forth a summary of the Company’s oil derivative positions during the year ended June 30, 2021.

Period Type of Contract Volumes in Barrels Price / Price Range Weighted Average Floor Price per Bbl.

Weighted Average Ceiling Price per Bbl.

July 2020 to December 2020

Fixed-Price Swap

The Company presents the fair value of its derivative contracts at the gross amounts in the consolidated balance sheets.

The Company enters into an International Swap Dealers Association Master Agreement ("ISDA") with each counterparty prior to a derivative contract with such counterparty.

July 2020 to December 2020 Fixed-Price Swap 257,600 $ 32 $ 32 $ —

The Company nets its derivative instrument fair value amounts executed with the same counterparty.

The Company enters into an ISDA with each counterparty prior to a derivative contract with such counterparty.

The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty.

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The Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions with the Company resulting in receivables on the Company’s consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 – Fair Value Measurement (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the

The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.

These inputs are generally market corroborated (Level 2), and the Company classifies fair value balances as such.

There were no open positions as of June 30, 2021, and there were $ 1.9 million of open positions as of June 30, 2020 which were all settled during the current fiscal year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

inputs to the valuation technique.

These inputs can be readily observable (Level 1), market corroborated (Level 2), or generally unobservable (Level 3).

The Company classifies fair value balances based on the observability of those inputs.

As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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There were no transfers between fair value hierarchy levels for any period presented in this report.

The table below sets forth the Company’s derivative assets and liabilities whose fair value measurements all reflect Level 2 inputs as of June 30, 2020.

The Company did not have any open positions at June 30, 2019.

June 30, 2020

Asset (Liability)

Gross Amounts Recognized

Gross Amounts Offset in the Consolidated Balance Sheet

Net Amounts Presented in the Consolidated Balance Sheets

Current derivative assets

Current derivative contract liabilities

The Company did not have any open positions as of June 30, 2021.

Other Fair Value Measurements.

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Property acquisition costs are those costs incurred to lease property, including both undeveloped leasehold, and the purchase of reserves in place.

Exploration costs include costs of identifying areas that may warrant examination, examining specific areas that are considered to have prospects containing oil and natural gas reserves, costs of drilling exploratory wells, geological and geophysical assessment costs, and carrying costs on undeveloped properties.

Exploration costs include costs of identifying areas that may warrant examination, examining specific areas that are considered to have prospects containing oil and natural gas reserves, costs of drilling exploratory wells, geologic and geophysical assessment costs, and carrying costs on undeveloped properties.

Development costs are incurred to obtain access to proved reserves, including the cost of drilling.

Exploration and development costs also include amounts incurred due to the recognition of asset retirement obligations of $918,137 and $86,384 during the years ended June 30, 2020 and 2019 , respectively.

Development costs also include amounts incurred due to the recognition of asset retirement obligations of $ 2,883,426 and $ 918,137 during the years ended June 30, 2021 and 2020, respectively.

For the Years Ended June 30,

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Estimated Net Quantities of Proved Oil and Natural Gas Reserves

The following estimates of the net proved oil and natural gas reserves of our oil and gas properties located entirely within the United States of America are based on evaluations prepared by third-party reservoir engineers.

Reserve volumes and values were determined under the method prescribed by the SEC for our fiscal years ended June 30, 2020 and 2019 , SEC methodology requires the application of the previous 12 months unweighted arithmetic average first-day-of-the-month price, and current costs held constant throughout the projected reserve life, when estimating whether reserve quantities are economical to produce.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Proved oil and natural gas reserves are estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

Reserve volumes and values were determined under the method prescribed by the SEC for our fiscal years ended June 30, 2021 and 2020.

SEC methodology requires the application of the previous 12 months unweighted arithmetic average first-day-of-the-month price, and current costs held constant throughout the projected reserve life, when estimating whether reserve quantities are economical to produce.

Proved oil and natural gas reserves are estimated quantities of oil, natural gas, and natural gas liquids that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved developed oil and natural gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

1 unchanged sentence

Accordingly, reserve estimates often differ from the quantities of oil and natural gas that are ultimately recovered.

Estimated quantities of proved crude oil, natural gas liquids , and natural gas reserves and changes in quantities of proved developed and undeveloped reserves for each of the periods indicated are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimated quantities of proved oil, natural gas, and natural gas liquids reserves and changes in quantities of proved developed and undeveloped reserves for each of the periods indicated are as follows:

(Bbls) Natural Gas

Proved developed and undeveloped reserves:

3 unchanged sentences

Sales of minerals in place — — — —

Purchase of reserves in place (c) 3,426,756 — 3,426,756

Production (sales volumes) ( 638,464 ) ( 106,340 ) — ( 744,804 )

14 unchanged sentences

June 30, 2021 1,604,541 208,551 — 1,813,092

(a) The positive crude oil revision resulted from better production performance during fiscal 2018.

The negative NGL revision results primarily from lower expectations for ultimate NGL recoveries from the plant based on production data subsequent to the commencement of plant production.

(b) Primarily due to negative revisions at Hamilton Dome field reflecting the impact of pricing on future economic production.

(a) Revisions in fiscal year 2020 were primarily due to negative revisions at Hamilton Dome field reflecting the impact of pricing on future economic production.

In March 2020 when the oil price decreased, the operator began to shut-in wells that were not economic at those lower prices to try and keep the field cash flow positive.

1 unchanged sentence

Positive NGL revisions at Delhi field reflect adjusted methodology of forecasting NGLs independently from the oil production as forecasted by our independent reservoir engineering firm.

(c) On November 1, 2019, the Company acquired certain mineral interests in the Hamilton Dome field from Merit, who owns the vast majority of the remaining working interest in the field.

(b) Revisions in fiscal year 2021 were primarily due to positive revisions at Hamilton Dome reflecting the impact of increased oil pricing in the field on future production and extension of reserves economic limit.

Positive NGL revisions at Delhi field reflect the impact of increased pricing on future production and the extension of reserves economic limit.

Positive natural gas revisions in the Barnett Shale reflect the impact of increased natural gas prices from the date of the Barnett Shale Acquisition on May 7, 2021 to the end of the fiscal year on June 30, 2021.

(c) On May 7, 2021, the Company acquired the Barnett Shale assets from Tokyo Gas Americas for $ 18.3 million, net of preliminary purchase price adjustments.

On November 1, 2019, the Company acquired certain mineral interests in the Hamilton Dome field from Merit, who owns the vast majority of the remaining working interest in the field.

Standardized Measure of Discounted Future Net Cash Flows

Future oil and natural gas sales, production, and development costs have been estimated using prices and costs in effect at the end of the years indicated, as required by ASC 932, Extractive Activities - Oil and Gas (“ASC 932”).

ASC 932 requires that net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

cash flow amounts be discounted at 10%.

ASC 932 requires that net cash flow amounts be discounted at 10%.

Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing our proved oil and natural gas reserves and for asset retirement obligations, assuming continuation of existing economic conditions.

Future income tax expenses are computed by applying the appropriate period-end statutory tax rates to the future pretax net cash flow relating to our proved oil and natural gas reserves, less the tax basis of the related properties.

The future income tax expenses do not give effect to tax credits, allowances, or the impact of general and administrative costs of ongoing operations relating to the Company's proved oil and natural gas reserves.

The future income tax expenses do not give effect to tax credits, allowances, or the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

impact of general and administrative costs of ongoing operations relating to the Company's proved oil and natural gas reserves.

Changes in the demand for oil and natural gas, inflation, and other factors make such estimates inherently imprecise and subject to substantial revision.

11 unchanged sentences

For the Years Ended June 30,

NYMEX prices used in determining future cash flows

There were no natural gas reserves in 2020 and 2019.

NYMEX prices used in determining future cash flows $ 49.72 $ 2.46 $ 47.37 n/a

There were no natural gas reserves in 2020.

The NGL prices utilized for future cash inflows were based on historical prices received, where available.

For the Delhi NGL plant, we utilized historical prices for the expected mix and net pricing of natural gas liquid products projected to be produced by the plant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved crude oil, natural gas liquids, and natural gas reserves is as follows:

A summary of the changes in the standardized measure of discounted future net cash flows applicable to proved oil, natural gas, and natural gas liquids reserves is as follows:

For the Years Ended June 30,

11 unchanged sentences

Balance, end of the fiscal year $ 87,582,551 $ 62,490,836

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 21 – Selected Quarterly Financial Data (Unaudited)

2021 First (a) Second (b) Third Fourth (c)

Revenues $ 5,595,376 $ 5,768,152 $ 7,635,748 $ 13,703,078

Income (loss) from operations $ ( 9,429,720 ) $ ( 15,910,266 ) $ 980,605 $ 3,000,750

2 unchanged sentences

Diluted earnings (loss) per common share $ ( 0.22 ) $ ( 0.38 ) $ 0.04 $ 0.07

Income from operations

Net income attributable to common shareholders

2020 First Second Third (d) Fourth

Revenues $ 9,152,215 $ 9,381,615 $ 7,712,619 $ 3,352,847

Income (loss) from operations $ 3,274,019 $ 2,249,764 $ 951,814 $ ( 2,786,164 )

Net income (loss) attributable to common shareholders $ 2,792,820 $ 1,764,918 $ 3,710,159 $ ( 2,330,825 )

Basic earnings per common share $ 0.08 $ 0.05 $ 0.11 $ ( 0.07 )

Diluted earnings per common share $ 0.08 $ 0.05 $ 0.11 $ ( 0.07 )

(1) The third quarter of fiscal 2020 was impacted by a $2.8 million tax benefit attributable to the EOR tax credits.

(2) The first quarter of fiscal 2019 included other income of $1.1 million for the Enduro transaction breakup fee.

(a) The first quarter of fiscal 2021 included a ceiling test impairment charge of $ 9.6 million.

(b) The second quarter of fiscal 2021 included a ceiling test impairment charge of $ 15.2 million.

(c) The fourth quarter of fiscal 2021 includes approximately two months of production and related revenues and expenses from the Barnett Shale assets.

(d) The third quarter of fiscal 2020 was impacted by a $ 2.8 million tax benefit attributable to the EOR tax credits.

Note 22 – Subsequent Events

On September 9, 2021, the Company declared a quarterly cash dividend of $ 0.075 per share of common stock to shareholders of record on September 20, 2021 and payable on September 30, 2021.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk