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<SEC-DOCUMENT>0001104659-09-020087.txt : 20090615
<SEC-HEADER>0001104659-09-020087.hdr.sgml : 20090615
<ACCEPTANCE-DATETIME>20090325210338
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001104659-09-020087
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20090325

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			EVOLUTION PETROLEUM CORP
		CENTRAL INDEX KEY:			0001006655
		STANDARD INDUSTRIAL CLASSIFICATION:	CRUDE PETROLEUM & NATURAL GAS [1311]
		IRS NUMBER:				411781991
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		2500 CITYWEST BLVD
		STREET 2:		SUITE 1300
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77042
		BUSINESS PHONE:		713-935-0122

	MAIL ADDRESS:	
		STREET 1:		2500 CITYWEST BLVD
		STREET 2:		SUITE 1300
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77042

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NATURAL GAS SYSTEMS INC/NEW
		DATE OF NAME CHANGE:	20040817

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NATURAL GAS SYSTEMS, INC.
		DATE OF NAME CHANGE:	20040810

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	REALITY INTERACTIVE INC
		DATE OF NAME CHANGE:	19960301
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>

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<div style="font-family:Times New Roman;">

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman"><img width="228" height="70" src="g86391bci001.jpg"></font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:3.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">March&nbsp;24,
2009</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Via Facsimile and EDGAR</font></u></i></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Mr.&nbsp;H.
Roger Schwall</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Assistant
Director</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">U.S.
Securities and Exchange Commission</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Division
of Corporation Finance</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">100
F Street, NE &#150; Mail Stop 7010</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Washington,
D.C. 20549-7010</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Re:
Evolution Petroleum Corporation</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Form&nbsp;10-K for Fiscal Year Ended June&nbsp;30, 2008</font></b></p>

<p style="margin:0in 0in .0001pt 1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Filed September&nbsp;24, 2008</font></b></p>

<p style="margin:0in 0in .0001pt 1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Amended Schedule 14A</font></b></p>

<p style="margin:0in 0in .0001pt 1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Filed November&nbsp;4, 2008</font></b></p>

<p style="margin:0in 0in .0001pt 1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Response Letter Dated March&nbsp;4, 2009 Filed March&nbsp;5, 2009</font></b></p>

<p style="margin:0in 0in .0001pt 1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">File No.&nbsp;001-32942</font></b></p>

<p style="margin:0in 0in .0001pt 1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dear
Mr.&nbsp;Schwall:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On
behalf of Evolution Petroleum Corporation (the &#147;Company&#148;, &#147;we&#148;, &#147;our&#148; or &#147;us&#148;),
I am responding to comments received in your follow up letter dated March&nbsp;12,
2009 with respect to the filings listed above.&#160;
For your convenience, I have repeated in bold type the comments and
requests for additional information as set forth in your letter.&#160; My response follows each applicable comment
or request.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-autospace:none;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Evolution Petroleum Corporation&#160;&#160; </font><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;
2500 CityWest Blvd., Suite 1300&#160;&#160; </font><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&#160;&#160; Houston, Texas&#160; 77042</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-autospace:none;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Tel:&#160;
713-935-0122&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FAX:&#160; 713-935-0199</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Form&nbsp;10-K
for the Fiscal Year Ended June&nbsp;30, 2008</font></u></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">General</font></u></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">We note
your response to our prior comment 1. Given that you determined that the sales
contracts with DCP Midstream, LP, and ETC Texas Pipeline, LTD may be considered
material contracts, please amend Part&nbsp;IV of your Form&nbsp;10-K to include
such contracts as exhibits.</font></b></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Response:</font></u></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We
undertake to timely file an amendment to our Form&nbsp;10-K for our fiscal year
ended June&nbsp;30, 2008, by attaching the above referenced contracts as
Exhibits.</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Item 2.
Properties, page&nbsp;16</font></u></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">We note
your response to our prior comment 2. Please provide an example of disclosure
you will use in future filings using the information you provided in your
response.</font></b></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Response:</font></u></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">To
the extent we choose to again make any statements regarding our &#147;belief that
the Delhi Holt Bryant Unit is an excellent candidate for a CO2-EOR project&#148;, we
offer the following proposed disclosure:</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 35.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We,
and the companies that submitted offers to participate with us in the Delhi
Holt Bryant Unit, believe that the Unit is an excellent candidate for a CO2-EOR
project.&#160; We base our belief on (i)&nbsp;our
internal analyses of CO2 pilot tests successfully completed in the Delhi Holt
Bryant Unit by a prior field operator, (ii)&nbsp;our analysis of favorable
analogous comparisons to successful full scale projects in the same or similar
geological formation, (iii)&nbsp;a competitive offering process, wherein we
solicited major participants with CO2-EOR expertise, funding and operating
abilities, leading to two confidential competitive offers made to us in
writing, (iv)&nbsp;our qualitative assessment that the competitive offers were
based on the CO2-EOR potential of the Unit, and not on the relatively minor
associated proved reserves existing at that time, and (v)&nbsp;the buyer&#146;s
written commitment of a portion of its proved CO2 reserves and a minimum $100
million minimum future investment in a CO2 project in the Unit.</font></p>

<p style="margin:0in 0in .0001pt 35.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>

</div>
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<div style="font-family:Times New Roman;">

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 35.0pt;text-indent:-35.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Amended Schedule 14A filed November&nbsp;4,
2008</font></u></b></p>

<p style="margin:0in 0in .0001pt 35.0pt;text-indent:-35.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Short
Term Incentive Bonuses, page&nbsp;11</font></u></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">We note
your response to our prior comment 8 and reissue the comment in part.</font></b></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in .3in .0001pt .75in;text-autospace:none;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font size="2" style="font-size:10.0pt;font-weight:bold;">Please
clarify the significance of the &#147;bonus targets&#148; and whether the percentage
listed for the executive officers (100% or 75%) is the percentage of base
salary that will be paid as a short term incentive bonus if all of the goals
are achieved.</font></b></p>

<p style="margin:0in .3in .0001pt .75in;text-autospace:none;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font size="2" style="font-size:10.0pt;font-weight:bold;">To the
extent necessary, make changes to other disclosure in your compensation
discussion and analysis so as to present a clear and uniform discussion of your
executive compensation practices. In particular, please refer uniformly to the
corporate and individual</font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">  </font></b><b><i><font size="2" style="font-size:10.0pt;font-style:italic;font-weight:bold;">factors
</font></i></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">throughout your compensation discussion and analysis.</font></b></p>

<p style="margin:0in .3in .0001pt .75in;text-autospace:none;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font size="2" style="font-size:10.0pt;font-weight:bold;">Discuss
whether the market factors discussed in the section, Setting Executive
Compensation, are included in the determination of short term incentive bonus
and how this changes the equation for calculating the singe payout factor.</font></b></p>

<p style="margin:0in .3in .0001pt .75in;text-autospace:none;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font size="2" style="font-size:10.0pt;font-weight:bold;">Please
include the corporate goals on which each executive officer&#146;s corporate
performance is measured when determining the corporate factor.</font></b></p>

<p style="margin:0in .3in .0001pt .75in;text-autospace:none;text-indent:-.25in;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font size="2" style="font-size:10.0pt;font-weight:bold;">We note
your statement that your &#147;named executive officers <i>took </i>a
substantial portion of their short term bonus in the form of restricted stock.&#148;
Emphasis added. Please disclose who makes the determination as to whether the
executive officers are to be paid their short term incentive bonus in cash or
restricted stock.</font></b></p>

<p style="margin:0in .3in .0001pt .75in;text-autospace:none;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Please provide an example of disclosure you will use in future filings
using the information you provided in your response.</font></b></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Response</font></u><font size="2" style="font-size:10.0pt;">:</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bullet &#160;1 &#151; See proposed disclosure below.</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bullet &#160;2 &#151; See proposed disclosure below.</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bullet &#160;3 &#151; See proposed disclosure below.</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in .4in .0001pt 1.2in;text-autospace:none;text-indent:-.7in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bullet &#160;4 &#151; The executive officer&#146;s individual
performance factor does not determine the corporate performance factor.&#160; The corporate performance factor is
determined by the Compensation Committee of the Board of Directors, expressed
as a percentage from 0 to 100%, assessing the qualitative achievement of the
corporation&#146;s stated goals itemized in the section &#147;Additional Material
Matters&#148;, taken as a whole.</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bullet &#160;5 &#151; &#147;Took&#148; was an inadequate description in
our previous response.&#160; See new
disclosure below.</font></p>

<p style="margin:0in .4in .0001pt 1.25in;text-autospace:none;text-indent:-.75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 35.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We
offer the following revised disclosure, in part.</font></p>

<p style="margin:0in 0in .0001pt 35.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Determination of Executive
Compensation</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Compensation
Objectives</font></i></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Compensation
Committee of the Board of Directors (the &#147;<b>Committee</b>&#148;) is
responsible for the oversight and determination of compensation, including
salaries, equity compensation<u>, short-term incentive bonuses</u> and other
benefits for all of our executive officers and senior management, and
administers our Evolution Petroleum Corporation Amended and Restated 2004 Stock
Plan (the &#147;2004 Stock Plan&#148;) and our 2003 Stock Plan, as may be further amended
from time to time. The Committee delegates its authority for salary adjustments
for other employees to the Chief Executive Officer. The primary objectives of
the Company&#146;s executive compensation program are to attract and retain key
executives, to stimulate management&#146;s efforts on our behalf in a way that
supports our business plan and to align management&#146;s incentives with the
long-term interests of the Company and its stockholders.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Setting
Executive Compensation</font></i></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Committee meetings
involving consideration of compensation adjustments and awards for executive
officers (other than the chief executive officer) typically include the <u>C</u>ommittee
members and our Chief Executive Officer.&nbsp; T<u>he Committee considers
compensation adjustments and awards for our Chief Executive Officer, without
his participation.&#160; </u><strike>For
compensation decisions relating to executive officers and senior management
other than our Chief Executive Officer, the Chief Executive Officer typically
makes recommendations in line with the policy and structure established by the
Compensation Committee and reviews them with the Compensation Committee for
adjustments and approval.&nbsp;&nbsp; The recommendations of the Chief
Executive Officer are primarily derived from an equal weighting of corporate
achievements against goals for the fiscal year and a review of each person&#146;s
achievements against their individual goals and objectives mutually set and
approved by the Committee at the beginning of the fiscal year, as well as by
market factors. Market factors include compensation being offered for
equivalent positions by competitors, the overall relative contributions of the
person, the future contributions expected and the difficulty in replacing the
person should they choose to leave. The Committee meets in executive session
outside of the presence of any senior executive officer to determine the
amount, form and terms of compensation for the Chief Executive Officer.</strike></font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The recommendations of
the Chief Executive Officer and considerations of the Committee are influenced
by the (i)&nbsp;findings and recommendations of the compensation consultant
employed from time to time by the Committee to confirm industry competitive pay
and ratify our executive officer compensation levels, and (ii)&nbsp;specific
and localized industry and market conditions directly affecting the Company&#146;s
ability to recruit new staff and retain existing staff. The findings of the
compensation consultant include surveys of relevant peer groups, as determined
by industry and size. The current practice of the Committee and Chief Executive
Officer is to consider the average base pay of the peer groups in determining
our executive officers&#146; base, but to more heavily weight total compensation
towards short term and long term variable components tied to individual and
corporate performance.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Committee engaged
Thomas J. Reno&nbsp;&amp; Associates,&nbsp;Inc. (&#147;<b>Reno</b>&#148;)
as its independent compensation consultant for fiscal 2008.&nbsp; The role of
the compensation consultant is to provide the Committee with information on
competitive practices and pay levels and to advise the Compensation Committee
on executive compensation issues. Reno recommended pay level ranges for the
three executive officers&#146; base pay, targets for short term incentive pay and
long term incentive awards for fiscal 2008.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For his report, Reno
conducted a competitive market analysis based on data of companies in the
Energy industry with annual revenue of less than $41 million and active in
similar geographic areas and industry segment. The Company had no input into
the selection of the peer group by Reno. This analysis drew data from various
sources including the Mercer Energy Compensation 2006 Survey and information
available from filings by public companies in the energy industry with revenues
between $24 million and $79 million. The Mercer Survey provides information on
305 positions reported by 184 organizations in the energy industry. The Reno
Report utilized only information on base salary and short term incentives from
the Mercer Survey. Due to our early stage of growth, Reno established our peer
group more on the basis of assets under management than on revenues.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Reno did not attend our
Board of Directors meeting, nor our Committee meetings. He was employed
directly by the Committee and received no fees from the Company other than for
the services rendered to the Committee.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">With the exception of
significant promotions and new hires, we review compensation, including equity
awards, annually following the preliminary closing of the books for the fiscal
year.&nbsp; Actual payment of short term incentive awards is subject to
approval by the Board of Directors following Audit Committee approval of the
report of the independent audit of the financial results for the fiscal
year.&nbsp; Equity awards are generally made at the same time, following
adoption of a policy in 2006 that all employees would be evaluated for base
salary adjustments, awards of long term incentives, determination of short term
incentive awards and setting of objectives for future short term awards. This
timing enables us to consider full, prior year audited performance by the
Company and the potential recipients against our expectations. Our policy is
that all grants to newly hired employees are effective on the latter of the
employee&#146;s first day of employment or upon authorization of the grant by the
Board of Directors upon the recommendation of the Committee.&nbsp; The exercise
price of stock options awarded is based upon the grant date fair market value,
which is the closing market price of our common stock on the date of grant.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Elements
of Compensation</font></i></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company&#146;s executive
compensation program consists of the following basic components: base salary,
long-term incentives pursuant to the 2003 and 2004 Stock Plans, short term cash
bonuses and limited perquisites.&nbsp; Each component of the compensation
program serves a particular purpose and is considered independently on the
basis of achieving that respective purpose.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Base
Salary</font></i><font size="2" style="font-size:10.0pt;">.&nbsp;
Base salary is primarily designed to reward current and past performance and
may be adjusted from time to time to realign salaries with market levels. The
Committee annually reviews the base salary of each executive officer in
relation to market and specific industry conditions and relative to staff
salaries. In determining the appropriate level of compensation for each
executive officer, the Committee evaluates the responsibilities and authority
of the executive as well as the executive&#146;s performance as to the Company&#146;s
goals, objectives and strategic business plan and reviews. Base salaries for
fiscal 2008 were determined by utilizing the lower end of Reno&#146;s report survey
range, due to our size compared to the peers in the cited surveys and our
stated compensation practice.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In September&nbsp;2007,
the Committee increased base pay for executive management to reflect market <strike>factors</strike>
<u>conditions</u>. The base pay for Mr.&nbsp;Mazzanti and Mr.&nbsp;McDonald was
increased to $190,000 and the base pay for Mr.&nbsp;Herlin was increased to
$240,000.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Long-Term
Incentive Compensation.</font></i><font size="2" style="font-size:10.0pt;">&nbsp; Grants of long-term incentives are primarily designed to tie a
major portion of each executive&#146;s compensation to long-term future performance
tied directly to the interests of our stockholders.&nbsp; In determining the
long-term incentive component of our executive officers&#146; compensation for
fiscal 2008, the Committee reviewed their past contributions in directly
building net asset value per share, their expected future contributions to
building net asset value per share, and their existing equity holdings. Our
intent is for that staff that has contributed or is contributing materially to
building the Company to have a material stake in that value creation without <u>materially</u>
diluting the current stock value to our shareholders.&nbsp; Our staff is
currently eligible to receive awards under our 2004 Stock Plan, while no new
awards are available under our 2003 Stock Plan.&nbsp; The 2004 Stock Plan
permits the Board of Directors to award eligible employees, directors and
consultants with restricted stock grants, incentive stock options,
non-statutory stock options and stock appreciation rights. Awards to senior
management and executive officers under the 2004 Stock Plan have generally
consisted of incentive options and warrants.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Under the 2004 Stock
Plan, no more than 5,500,000 shares of our common stock may be subject to
incentive awards.&nbsp; As of June&nbsp;30, 2008, there were
1,325,859&nbsp;shares available to be granted under the 2004 Stock Plan. During
fiscal 2008, we awarded options to purchase 1,435,000 shares of stock to
employees and contractors, and 25,899 shares of restricted stock to the three
independent members of our board of directors.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Short
Term Incentive Bonus</font></i><font size="2" style="font-size:10.0pt;">.&nbsp;
Short term incentive bonuses, generally and historically paid in cash, are a
major portion of total compensation paid and are intended to vary with
individual <u>overall performance against pre-determined individual goals (the
&#147;Individual Performance Factor&#148;) </u>and Company overall performance against
pre-determined <u>corporate </u>goals <u>(the &#147;Corporate Performance Factor&#148;)</u>.&#160; The &#147;Bonus Targets</font><font size="2" style="font-size:10.0pt;">&#148; are</font><font size="2" style="font-size:10.0pt;"> 100% of <u>Base Salary</u><strike> base pay</strike>
for the chief executive officer and 75% of <u>Base Salary</u><strike> base salary</strike>
for other named executive officers. <u>All employees participate in this plan
at percentages of Base Salary ranging from 10% up to 100%.</u> The Committee
determines awards of short term incentive bonuses to our executive officers
based upon overall performance against <u>the predetermined </u><strike>those </strike>goals
on a &#147;qualitative&#148; basis <u>as follows: </u><strike>wherein individual and corporate
performances are equally weighted, then multiplied to reach a payout factor.</strike></font></p>

<p style="margin:0in 0in .0001pt .55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Bonus to be Paid</font></u></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">=</font></u></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Individual
Performance Factor % * Corporate Performance Factor % * Bonus Target % * Base
Salary $</font></u></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Since the <u>Individual
Performance Factor and the Corporate Performance Factor </u><strike>two factors </strike>are
multiplied, a 0% factor on either results in no <u>Bonus </u><strike>bonus </strike>being
paid.</font></p>

<p style="margin:0in 0in .0001pt .55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .55in;"><strike><font size="2" face="Times New Roman" style="font-size:10.0pt;">A substantial list
of goals is</font></strike><font size="2" style="font-size:10.0pt;">  <u>T</u>he<u>
pre-determined goals are</u> mutually agreed upon between the employee, the
chief executive officer and the compensation committee through a series of
meetings.&#160; Each goal is not individually
weighted &#151; the chief executive officer reviews progress against those goals as
a whole and then proposes an <u>Individual Performance Factor </u><strike>individual
factor </strike>to the Committee for consideration.&#160;
The Committee evaluates the corporate performance as a whole against the
corporate goals to determine the <u>Corporate Performance Factor</u><strike>
corporate factor</strike>.&#160; Progress against
goals is measured and reviewed quarterly by the Board of Directors. Short term
incentive <u>Bonus Targets</u><strike> bonus targets</strike> are set to allow recipients
to achieve base and short-term incentive compensation at the upper quartile of
the Reno survey range, if all goals are accomplished.&#160; For fiscal 2008, the chief executive officer
requested that his <u>Individual Performance Factor</u><strike> individual factor</strike>
be lowered from that recommended by the Committee to the lowest <u>Individual
Performance Factor</u><strike> individual factor</strike> awarded to his direct
reports.&#160; Short term incentive awards for
fiscal 2008 for executive officers averaged 17% below <u>Bonus </u>Target
awards.&#160; <u>For 2008, the Board of
Directors offered all employees the opportunity to elect to receive up to
one-third of their annual cash bonus in common stock issuable from the 2004
Plan.&nbsp; Mr.&nbsp;Herlin, Mr.&nbsp;McDonald and Mr.&nbsp;Mazzanti each
elected to receive 15,958, 5,000 and 9,475 shares of common stock,
respectively, in lieu of cash for the fiscal year ended June&nbsp;30,
2008.&#160; These amounts were calculated
using the closing stock price of $4.02 per share as of the date of the offer by
the Committee.</u></font></p>

<p style="margin:0in 0in .0001pt .55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><strike><font size="2" face="Times New Roman" style="font-size:10.0pt;">Short term
incentive bonuses, primarily paid in cash, are a major portion of total
compensation paid and are intended to vary with individual and Company
performance against pre-determined goals. The Committee determines awards of
short term incentive bonuses to our executive officers based upon overall
performance against those goals on a qualitative basis, wherein individual and
corporate performances are equally weighted, then multiplied to reach a payout
factor. Progress against goals is measured and reviewed quarterly by the Board
of Directors. Short term incentive bonus targets are set to allow recipients to
achieve base and short-term incentive compensation at the upper quartile of the
Reno survey range, if all goals are accomplished.&nbsp; Short term incentive
awards for fiscal 2008 for executive officers averaged 17% below target awards.</font></strike></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Perquisites</font></i><font size="2" style="font-size:10.0pt;">.&nbsp; We limit the perquisites that we
make available to our executive officers. At this time, the only material
potential perquisite provided is to the CEO. The Company owns a 10.5% interest
in a single engine airplane use license that is utilized by the CEO for
business travel. The Company permits the CEO to utilize this interest for personal
use, provided that the CEO reimburses the company using the equivalent rental
cost of a similar airplane. Our CEO did not utilize the aircraft for personal
use during fiscal 2008.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Other
Compensation</font></i><font size="2" style="font-size:10.0pt;">.&nbsp;
In addition, senior executives participate in the benefit plans and programs
that are available to all full time employees of the Company, which include
medical, dental, vision, long- term disability and life insurance. Most of the
premiums for each employee are paid by the Company under a pre-tax 125 plan,
assuming the employee elects to participate in a &#147;high benefit&#148; medical plan.
Those employees covered under another medical plan, and electing to not
participate in the Company&#146;s healthcare plan, receive cash compensation equal
to the Company subsidy for an employee with no family participation. The
Company believes that the benefit plans compare very favorably to its
competitors. The Company also offers a 401(k)&nbsp;&#147;safe harbor&#148; plan which
matches employee contributions in an amount equal to 4% of the employee&#146;s
salary, subject to the maximum employee contributions allowed under current
law.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Termination
Benefits</font></i><font size="2" style="font-size:10.0pt;">. In the
event of termination by the Company of Mr.&nbsp;Herlin for reasons other than
cause, the terms of his employment contract provide for the payment of up to
one year of base pay. The terms of the employment contracts for Mr.&nbsp;McDonald
and Mr.&nbsp;Mazzanti provide for severance payments of up to six months of
base pay, plus an additional six months of base pay if the termination follows
within twelve months of a change in control. For all employees, a change in
control of the Company causes half of all remaining unvested compensation
options and warrants to vest immediately, and the balance vest if the employee
is terminated for any reason within one year of a change of control. Without
this feature, employees terminated due to a change in control would lose
unvested options and, therefore, be incentivized to oppose a merger or sale
that would otherwise be in the best interests of the stockholders. Since the
majority of the incentive options and warrants were awarded in the startup
phase of the company to induce talented staff to leave other jobs, join a
potentially risky new venture and contribute their intellectual property to our
company, a change in control is likely to result in an exercise of a large
number of options and warrants that would accelerate a substantial book expense
to the company.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Certain Policies of Executive
Compensation</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Timing of
Stock-based Incentive Awards.</font></i><font size="2" style="font-size:10.0pt;"> In 2006, the Company adopted the policy that all
compensation adjustments and awards of incentive pay would be made following
the end of the fiscal year and those employees not on a fiscal year basis were
moved to a fiscal year basis. Cash bonuses are not paid until the fiscal year
end audit is approved by the audit committee, but within seventy-five (75) days
of the end of the fiscal year. Stock-based incentives are awarded only after a
review has been completed by the Chief Executive Officer and the Committee of
achievements against full year objectives and goals and following preliminary
financial results of the fiscal year. Base pay adjustments and long term
incentives are determined following the end of the fiscal year.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Exceptions
to Procedure.</font></i><font size="2" style="font-size:10.0pt;"> The
Committee will consider and the Board of Directors will authorize long term
incentives for newly hired employees at times other than immediately following
the end of the fiscal year audit.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Additional Material Factors</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company was founded
in September&nbsp;of 2003 by Mr.&nbsp;Herlin, joined later in 2003 by Mr.&nbsp;McDonald
and in mid-2005 by Mr.&nbsp;Mazzanti (senior management). All operations and
value creation have occurred under their management and all past, present and
contemplated projects are a result primarily of the efforts by senior management.
Equity participation and substantial earned, short term incentive pay were, and
continue to be, the major components of compensation provided to induce the
senior management to join and remain with the Company and contribute their
efforts and ideas for continued value creation.&nbsp; All, or essentially all,
of the stock, options and warrants paid to senior management is still held by
the recipients, thereby closely aligning senior management with the interests
of shareholders.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Due to our mission
to increase underlying intrinsic value per fully diluted share, and the early
development nature of our Company, we do not set EPS or EBITDA current goals
for the Company.&#160; </font></u><font size="2" style="font-size:10.0pt;">Goals and objectives for the Company for
fiscal 2008 included, but were not limited to, the following:</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>

</div>
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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operational improvements &#151; substantially increased net production compared to
fiscal 2007, but less than budgeted; realized first quarterly earnings and
realized a substantial reduction in operating costs per BOE.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Value addition &#151; substantially increased net oil and gas reserves without the
issuance of common shares.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Administrative improvements &#151; reduced timeline for quarterly reporting, added
expertise in SEC reporting requirements and initiated timely SOX/404 compliance
process.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Infrastructure additions &#151; expanded operating staff to allow development
drilling activities and expanded leasing activities.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
New project development and implementation &#151; initiated development drilling in
the Giddings Field, added 22 proved undeveloped drilling/reentry locations and
added a new project with significant potential.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Technology development &#151; successfully deployed and tested technology for
production of moderately heavy oil in contact with water and identified targets
for application.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Expanded investor relations efforts &#151; substantially increased independent
analyst coverage.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Symbol" style="font-size:10.0pt;">&#183;</font><font size="2" style="font-size:10.0pt;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Liquidity &#151; remained debt free and avoided any illiquid short-term investments,
mark-to-market losses and/or loss of principal on our short-term investments.</font></p>

<p style="margin:0in 0in .0001pt 1.1in;text-indent:-19.8pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company generally met
these objectives, with the primary exception being budgeted net production and
drilled well costs, and greatly exceeded expectations through the 135% increase
in proved reserves over and above production and the sale of approximately 23%
of beginning year in place proved reserves, leasing of more than 16,000 net
acres within our Oklahoma gas projects and more than 14,000 net acres within
the Giddings Field.&nbsp; The shortfall in net production was primarily due to
a delay in the commencement of drilling operations resulting from a delay in
obtaining a suitable drilling rig and unexpected mechanical problems in the
first three wells planned for re-entry operations, combined with the
anticipated distribution of wells results actually being more heavily weighted
towards better wells in the latter stage of the program.&nbsp; Well costs were
higher than expected due to inclusion of a grass roots well being substituted
for a lower cost re-entry, higher costs for vendor services and downhole
mechanical problems.&nbsp; Consequently, fiscal 2008 short term incentive
awards were materially less than the targeted maximum amounts.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.55in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 35.0pt;text-indent:-35.0pt;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Form&nbsp;10-Q for the Quarter
Ended December&nbsp;31, 2008 Certifications, exhibits 31.1 and 31.2</font></u></b></p>

<p style="margin:0in 0in .0001pt 35.0pt;text-indent:-35.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">Please
revise your certifications to match the <i>exact </i>form set
forth in Item 601(h)(31) of Regulation S-K, including the phrase in paragraph
4, &#147;and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f)&nbsp;and
15d-15(f))&#148; which you omitted from the certifications.</font></b></p>

<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Response:</font></u></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We
acknowledge the reference you sited is missing from our 2008 Form&nbsp;10-K and
the following two Form&nbsp;10-Q&#146;s filed with the Commission.&#160; We will undertake, prospectively, to ensure
compliance in future filings.</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div style="margin:0in 0in .0001pt;"><hr size="3" width="100%" noshade color="#010101" align="left"></div>

</div>
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<div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">If you have any questions or comments concerning these
comments, please contact me at (713) 935-0122 or Mr.&nbsp;Michael Larkin at
(713) 308-0166.</font></p>

<p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
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  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">Very truly yours,</font></p>
  </td>
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  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
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  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">/s/ Sterling H. McDonald</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">Sterling H. McDonald</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">VP and</font><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;"> Chief Financial
  Officer</font></p>
  </td>
 </tr>
</table>

<p align="center" style="color:black;line-height:normal;margin:0in 0in .0001pt;text-align:center;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.56%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">cc:</font></p>
  </td>
  <td width="95%" valign="top" style="padding:0in .7pt 0in .7pt;width:95.44%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">Michael T. Larkin</font></p>
  </td>
 </tr>
 <tr>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.56%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="95%" valign="top" style="padding:0in .7pt 0in .7pt;width:95.44%;">
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  </td>
 </tr>
 <tr>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.56%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="95%" valign="top" style="padding:0in .7pt 0in .7pt;width:95.44%;">
  <p style="color:black;line-height:normal;margin:0in 0in .0001pt;"><i><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;font-style:italic;">Adams and Reese LLP</font></i></p>
  </td>
 </tr>
</table>

<p style="color:black;line-height:normal;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" color="black" face="Times New Roman" style="color:windowtext;font-size:10.0pt;">&nbsp;</font></p>

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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
