Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Approach Resources Inc | d80442e8vk.htm |
| EX-99.2 - EX-99.2 - Approach Resources Inc | d80442exv99w2.htm |
Exhibit 99.1
Approach Resources Inc.
Reports Fourth Quarter and Full Year 2010 Results
Reports Fourth Quarter and Full Year 2010 Results
Fort
Worth, Texas, March 8, 2011 — Approach Resources Inc. (NASDAQ: AREX) today reported
financial and operating results for the fourth quarter and year ended December 31, 2010.
Highlights for the year ended December 31, 2010, include:
| • | Net income increased 243% to $7.5 million, or $0.34 per diluted share | ||
| • | Adjusted net income (non-GAAP) increased 166% to $8.7 million, or $0.39 per diluted share | ||
| • | Revenues increased 42% to $57.6 million | ||
| • | EBITDAX (non-GAAP) increased 17% to $43 million, or $1.94 per diluted share | ||
| • | Production increased 6% to 1.6 MMBoe (4.3 MBoe/d) |
Full Year 2010 Results
Production for 2010 totaled 1.6 MMBoe (4.3 MBoe/d), compared to 1.5 MMBoe (4 MBoe/d) produced
in 2010, an increase of 6%. Oil and NGL production for 2010 increased 22% to 507 MBbls, compared
to 415 MBbls produced in 2009. Production for 2010 was 67% natural gas and 33% oil and NGLs,
compared to 72% natural gas and 28% oil and NGLs in 2009.
Net income for 2010 was $7.5 million, or $0.34 per diluted share, on revenues of $57.6
million, compared to a net loss of $5.2 million, or $0.25 per diluted share, on revenues of $40.6
million, for 2009. Of the $17 million increase in revenues in 2010, approximately $12 million was
attributable to an increase in prices we received for our natural gas, oil and NGL production, and
approximately $5 million was attributable to an increase in production volumes. Net income for
2010 included a realized gain on commodity derivatives of $5.8 million, an impairment of unproved
properties of $2.6 million related to our Boomerang project in Southwest Kentucky and an unrealized
gain on commodity derivatives of $788,000.
Excluding the impairment of unproved properties, unrealized gain on commodity derivatives and
related income taxes, adjusted net income (non-GAAP) for 2010 was $8.7 million, or $0.39 per
diluted share, compared to adjusted net income of $3.3 million, or $0.16 per diluted share, for
2009. See “Supplemental Non-GAAP Financial and Other Measures” below for our reconciliation of
adjusted net income to net income.
EBITDAX (non-GAAP) for 2010 was $43 million, or $1.94 per diluted share, compared to $36.7
million, or $1.75 per diluted share, for 2009. See “Supplemental Non-GAAP Financial and Other
Measures” below for our reconciliation of EBITDAX to net income.
Average realized prices for 2010, before the effect of commodity derivatives, were $4.48 per
Mcf of natural gas, $75.67 per Bbl of oil and $41.19 per Bbl of NGLs, compared to $3.70 per Mcf of
natural gas, $54.97 per Bbl of oil and $28.32 per Bbl of NGLs, for 2009. Our average realized
price, including the effect of commodity derivatives, was $40.72 per Boe for 2010, compared to
$37.68 per Boe for 2009.
Lease operating expenses (“LOE”) for 2010 were $8.6 million, or $5.50 per Boe, compared to
$7.8 million, or $5.30 per Boe, in 2009. The increase in LOE per Boe over the prior year was
primarily due to increases in water hauling, insurance and ad valorem taxes, partially offset by a
decrease in compressor rental and repair.
Severance and production taxes for 2010 were $3 million, or 5.2% of oil, NGL and gas sales,
compared to $2 million, or 4.9% of oil, NGL and gas sales, in 2009. The increase in production
taxes was primarily due to the increase in oil, NGL and gas sales over the prior year period.
Exploration expense for 2010 was $2.6 million, or $1.66 per Boe, compared to $1.6 million, or
$1.10 per Boe, in 2009. Exploration expense for 2010 resulted primarily from 3-D seismic
acquisition in Cinco Terry and lease renewals in Ozona Northeast, Cinco Terry and Kentucky.
Impairment of unproved properties for 2010 was $2.6 million, compared to $3 million in 2009.
The 2010 impairment resulted from a write-off of $2.6 million in costs in our Boomerang project in
Southwest Kentucky, and represented the remaining carrying value we had recorded for the project.
The 2009 impairment resulted from a write-off of $3 million in costs in Northeast British Columbia,
and represented the remaining carrying value we had recorded for the project.
General and administrative expenses (“G&A”) for 2010 were $11.4 million, or $7.34 per Boe,
compared to $10.6 million, or $7.23 per Boe, for 2009. The increase in G&A was principally due to
higher salaries and benefits, including share-based compensation.
Depletion, depreciation and amortization expense (“DD&A”) for 2010 was $22.2 million, or
$14.28 per Boe, compared to $24.7 million, or $16.80 per Boe, for 2009. The decrease in DD&A per
Boe was primarily attributable to an increase in estimated proved developed reserves at December
31, 2010, partially offset by higher capital costs over the prior year.
Fourth Quarter 2010 Results
Production for the fourth quarter of 2010 totaled 436 MBoe (4.7 MBoe/d), compared to 333 MBoe
(3.6 MBoe/d) in the fourth quarter of 2009, a 31% increase. Oil and NGL production for the fourth
quarter of 2010 increased 68% to 161 MBbls, compared to 96 MBbls produced in the fourth quarter of
2009. Production for the fourth quarter of 2010 was 63% natural gas and 37% oil and NGLs, compared
to 71% natural gas and 29% oil and NGLs in the fourth quarter of 2009.
Net income for the fourth quarter of 2010 was $261,000, or $0.01 per diluted share, on
revenues of $16.3 million, compared to net loss of $2.3 million, or $0.11 per diluted share, on
revenues of $11.9 million, for the fourth quarter of 2009. The $4.4 million increase in revenues
in the fourth quarter of 2010 is primarily attributable to an increase in production volumes, and
specifically an increase in oil and NGL production volumes. Net income for fourth quarter of 2010
included an impairment of unproved properties of $2.6 million related to our Boomerang project in
Southwest Kentucky, a realized gain on commodity derivatives of $2.2 million and an unrealized loss
on commodity derivatives of $2.1 million.
Excluding the impairment of unproved properties, unrealized loss on commodity derivatives and
related income taxes, adjusted net income (non-GAAP) for the fourth quarter of 2010 was $3.4
million, or $0.13 per diluted share, compared to adjusted net income of $539,000, or $0.03 per
diluted share, for the fourth quarter of 2009. See “Supplemental Non-GAAP Financial and Other
Measures” below for our reconciliation of adjusted net income to net income.
2
EBITDAX (non-GAAP) for the fourth quarter of 2010 was $12.1 million, or $0.48 per diluted
share, compared to $9.3 million, or $0.44 per diluted share, for the fourth quarter of 2009. See
“Supplemental Non-GAAP Financial and Other Measures” below for our reconciliation of EBITDAX to net
income.
Average realized prices for the fourth quarter of 2010, before the effect of commodity
derivatives, were $3.90 per Mcf of natural gas, $80.91 per Bbl of oil and $44.27 per Bbl of NGLs,
compared to $4.56 per Mcf of natural gas, $71.04 per Bbl of oil and $39.73 per Bbl of NGLs, for the
fourth quarter of 2009. Our average realized price, including the effect of commodity derivatives,
was $42.34 per Boe for the fourth quarter of 2010, compared to $43.98 per Boe for the fourth
quarter of 2009.
LOE for the fourth quarter of 2010 was $2.5 million, or $5.77 per Boe, compared to $1.8
million, or $5.29 per Boe, in the fourth quarter of 2009. The increase in LOE in the fourth quarter
of 2010 compared to the fourth quarter of 2009 is primarily due to water hauling, insurance,
repairs and maintenance.
Severance and production taxes for the fourth quarter of 2010 were $944,000, or 5.8% of oil,
NGL and gas sales, compared to $604,000, or 5.1% of oil, NGL and gas sales, in the fourth quarter
of 2009. The increase in production taxes was primarily due to the increase in oil, NGL and gas
sales over the prior year period.
Exploration expense for the fourth quarter of 2010 was $345,000, compared to $1.1 million in
the fourth quarter of 2009. Exploration expense for the fourth quarter of 2010 resulted primarily
from 3-D seismic acquisition and lease renewals in Cinco Terry.
Impairment of unproved properties for the fourth quarter of 2010 was $2.6 million, compared to
$3 million in the fourth quarter of 2009. The fourth quarter of 2010 impairment resulted from a
write-off of $2.6 million in costs in our Boomerang project in Southwest Kentucky, and represented
the remaining carrying value we had recorded for the project. The fourth quarter of 2009
impairment resulted from a write-off of $3 million in costs in Northeast British Columbia, and
represented the remaining carrying value we had recorded for the project.
G&A for the fourth quarter of 2010 was $3.5 million, or $8.07 per Boe, compared to $3.3
million, or $10.03 per Boe, for the fourth quarter of 2009. The decrease in G&A per BOE is
attributable to an increase in production in the fourth quarter of 2010, compared to the fourth
quarter of 2009.
DD&A for the fourth quarter of 2010 was $5.5 million, or $12.72 per Boe, compared to $5.9
million, or $17.70 per Boe, for the fourth quarter of 2009. The decrease in DD&A was primarily
attributable to an increase in estimated proved developed reserves at December 31, 2010, partially
offset by higher capital costs over the prior year.
Capital Expenditures
Costs incurred during 2010 totaled $90 million, and included $59.8 million for exploration and
development drilling, $21.2 million for the purchase of additional working interest in Cinco Terry
and $9 million for acreage acquisitions. During 2010, we drilled a total of 91 gross (56.2 net)
wells with a 100% success rate. At December 31, 2010, five gross (3.5 net wells) were waiting on
completion, all of which have since been completed as producers.
3
The Company’s 2011 capital budget is $220 million. Approximately $130 million of the 2011
capital budget will be allocated to drilling and recompletion projects in the Permian Basin and
approximately $90 million will be allocated to the previously announced acquisition of the
remaining 38% working interest in Cinco Terry (the “Working Interest Acquisition”) and lease
extensions, renewals and lease acquisitions in the Permian Basin. The 2011 drilling program
includes one rig to drill 11 horizontal wells targeting the Wolfcamp Shale, one rig to drill 19
vertical wells targeting the Wolfcamp Shale and Clearfork formations (the “Wolffork”) and Canyon
Sands, one rig to drill 26 vertical wells targeting the Canyon Sands (which we expect to recomplete
in the Wolffork in 2012), and one workover rig to recomplete 10 wells in the Wolffork.
As a result of the Working Interest Acquisition, our working interest in these wells will be
approximately 100%.
Our 2011 capital budget is subject to change depending upon a number of factors, including
additional data on our Wolffork oil resource play, results of Wolfcamp Shale and Wolffork drilling
and recompletions, economic and industry conditions at the time of drilling, prevailing and
anticipated prices for oil, gas and NGLs, the availability of sufficient capital resources for
drilling prospects, our financial results and the availability of lease extensions and renewals on
reasonable terms.
Liquidity and Commodity Derivatives Update
We have a $200 million revolving credit agreement with $150 million borrowing base. At
December 31, 2010, we had no long-term debt outstanding under our revolving credit facility, and
our liquidity was $173.1 million.
In February 2011, we acquired an additional 38% working interest in Cinco Terry from two
non-operating partners for $76 million, subject to usual and customary post-closing adjustments.
The Working Interest Acquisition was funded with borrowings under our revolving credit facility and
cash on hand. At February 28, 2011, we had $67 million outstanding under our revolving credit
facility, and our liquidity was $85.1 million. See “Supplemental Non-GAAP Financial and Other
Measures” below for our calculation of “liquidity.”
We believe we have adequate liquidity from cash generated from operations and unused borrowing
capacity under our revolving credit facility for current working capital needs and maintenance of
our current drilling program. However, we may determine to access the public or private equity or
debt markets for future development of reserves, acquisitions, additional working capital or other
liquidity needs, if such financing is available on acceptable terms. We cannot guarantee that such
financing will be available on acceptable terms or at all.
The following table details our commodity derivative positions at December 31, 2010:
| Volume (MMBtu) | $/MMBtu | |||||||||||
| Period | Monthly | Total | Fixed | |||||||||
NYMEX — Henry Hub |
||||||||||||
Price swaps 2011 |
230,000 | 2,760,000 | $ | 4.86 | ||||||||
Price call 2012 |
230,000 | 2,760,000 | $ | 6.00 | ||||||||
WAHA basis differential |
||||||||||||
Basis swaps 2011 |
300,000 | 3,600,000 | $ | (0.53 | ) | |||||||
4
2011 Financial and Operational Guidance
The table below sets forth the Company’s current 2011 production and operating costs and
expenses guidance. The guidance is forward-looking information that is subject to a number of
risks and uncertainties, many of which are beyond the Company’s control.
| Current 2011 | ||
| Guidance | ||
Production: |
||
Total (MBoe) |
2,300 — 2,450 | |
Percent oil and NGLs |
55% | |
Operating costs and expenses (per Boe): |
||
Lease operating |
$4.25 — 5.50 | |
Severance and production taxes |
$2.00 — 2.30 | |
Exploration |
$4.00 — 5.00 | |
General and administrative |
$5.00 — 6.00 | |
Depletion, depreciation and amortization |
$12.00 — 15.00 | |
Capital expenditures (in millions) |
Approximately $220 |
Conference Call Information
The Company will host a conference call on Wednesday, March 9, 2011, at 10:00 a.m. Central
Time (11:00 a.m. Eastern Time) to discuss fourth quarter and full year 2010 results. To participate
in the conference call, domestic participants should dial (866) 356-3377 and international
participants should dial (617) 597-5392 approximately 15 minutes before the scheduled conference
time. To access the simultaneous webcast of the conference call, please visit the Calendar of
Events page under the Investor Relations section of the Company’s website,
www.approachresources.com, 15 minutes before the scheduled conference time to register for the
webcast and install any necessary software. A replay of the webcast will be available for one year
on the Company’s website.
Approach Resources Inc. is an independent oil and gas company with core operations, production
and reserves located in the Permian Basin in West Texas. The Company targets multiple oil and
liquids-rich formations in the Permian Basin, where the Company operates approximately 133,000 net
acres. At December 31, 2010, the Company’s estimated proved reserves were 50.7 million barrels of
oil equivalent, 51% oil and NGLs and 49% natural gas. For more information about the Company,
please visit www.approachresources.com. Please note that the Company routinely posts important
information about the Company under the Investor Relations section of its website.
This press release contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements,
other than statements of historical facts, included in this press release that address activities,
events or developments that the Company expects, believes or anticipates will or may occur in the
future are forward-looking statements. Without limiting the generality of the foregoing,
forward-looking statements contained in this press release specifically include the expectations of
management regarding the Company’s expected 2011 capital expenditures and 2011 production and
operating costs and expenses guidance. These statements are based on certain assumptions made by
the Company based on management’s experience, perception of historical trends and technical
analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When
used in
5
this press release, the words “will,” “potential,” “believe,” “estimate,” “intend,”
“expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “project,” “profile,” “model,”
or their negatives, other similar expressions or the statements that include those words, are
intended to identify forward-looking statements, although not all forward-looking statements
contain such identifying words. Such statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the Company, which may cause actual results
to differ materially from those implied or expressed by the forward-looking statements. Further
information on such assumptions, risks and uncertainties is available in the Company’s Securities
and Exchange Commission (“SEC”) filings. The Company’s SEC filings are available on the Company’s
website at www.approachresources.com. Any forward-looking statement speaks only as of the date on
which such statement is made and the Company undertakes no obligation to correct or update any
forward-looking statement, whether as a result of new information, future events or otherwise,
except as required by applicable law.
For a glossary of oil and gas terms and abbreviations used in this release, please see our
Annual Report on Form 10-K filed with the SEC on March 12, 2010.
6
UNAUDITED RESULTS OF OPERATIONS
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues (in thousands) |
||||||||||||||||
Gas |
$ | 6,414 | $ | 6,470 | $ | 28,176 | $ | 23,406 | ||||||||
Oil |
6,010 | 3,623 | 18,640 | 11,323 | ||||||||||||
NGLs |
3,866 | 1,788 | 10,765 | 5,919 | ||||||||||||
Total oil, NGL and gas sales |
16,290 | 11,881 | 57,581 | 40,648 | ||||||||||||
Realized gain on commodity derivatives |
2,171 | 2,763 | 5,784 | 14,659 | ||||||||||||
Total oil, NGL and gas sales including
derivative impact |
$ | 18,461 | $ | 14,644 | $ | 63,365 | $ | 55,307 | ||||||||
Production |
||||||||||||||||
Gas (MMcf) |
1,644 | 1,420 | 6,290 | 6,320 | ||||||||||||
Oil (MBbls) |
74 | 51 | 246 | 206 | ||||||||||||
NGLs (MBbls) |
87 | 45 | 261 | 209 | ||||||||||||
Total (MBoe) |
436 | 333 | 1,556 | 1,468 | ||||||||||||
Total (MBoe/d) |
4.7 | 3.6 | 4.3 | 4.0 | ||||||||||||
Average prices |
||||||||||||||||
Gas (per Mcf) |
$ | 3.90 | $ | 4.56 | $ | 4.48 | $ | 3.70 | ||||||||
Oil (per Bbl) |
80.91 | 71.04 | 75.67 | 54.97 | ||||||||||||
NGLs (per Bbl) |
44.27 | 39.73 | 41.19 | 28.32 | ||||||||||||
Total (per Boe) |
$ | 37.36 | $ | 35.68 | $ | 37.00 | $ | 27.69 | ||||||||
Realized gain on commodity derivatives (per Boe) |
4.98 | 8.30 | 3.72 | 9.99 | ||||||||||||
Total including derivative impact (per Boe) |
$ | 42.34 | $ | 43.98 | $ | 40.72 | $ | 37.68 | ||||||||
Costs and expenses (per Boe) |
||||||||||||||||
Lease operating (1) |
$ | 5.77 | $ | 5.29 | $ | 5.50 | $ | 5.30 | ||||||||
Severance and production taxes |
2.17 | 1.81 | 1.92 | 1.36 | ||||||||||||
Exploration |
0.79 | 3.26 | 1.66 | 1.10 | ||||||||||||
Impairment of unproved properties |
6.01 | 8.90 | 1.68 | 2.02 | ||||||||||||
General and administrative |
8.07 | 10.03 | 7.34 | 7.23 | ||||||||||||
Depletion, depreciation and amortization |
12.72 | 17.70 | 14.28 | 16.80 | ||||||||||||
(1) Lease operating expenses per Boe include ad valorem taxes.
7
APPROACH RESOURCES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per-share amounts)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per-share amounts)
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
REVENUES: |
||||||||||||||||
Oil, NGL and gas sales |
$ | 16,290 | $ | 11,881 | $ | 57,581 | $ | 40,648 | ||||||||
EXPENSES: |
||||||||||||||||
Lease operating |
2,517 | 1,761 | 8,555 | 7,777 | ||||||||||||
Severance and production taxes |
944 | 604 | 2,990 | 1,996 | ||||||||||||
Exploration |
345 | 1,087 | 2,589 | 1,621 | ||||||||||||
Impairment of unproved properties |
2,622 | 2,964 | 2,622 | 2,964 | ||||||||||||
General and administrative |
3,520 | 3,340 | 11,422 | 10,617 | ||||||||||||
Depletion, depreciation and amortization |
5,547 | 5,894 | 22,224 | 24,660 | ||||||||||||
Total expenses |
15,495 | 15,650 | 50,402 | 49,635 | ||||||||||||
OPERATING INCOME (LOSS) |
795 | (3,769 | ) | 7,179 | (8,987 | ) | ||||||||||
OTHER: |
||||||||||||||||
Interest expense, net |
(557 | ) | (434 | ) | (2,189 | ) | (1,787 | ) | ||||||||
Realized gain on commodity derivatives |
2,171 | 2,763 | 5,784 | 14,659 | ||||||||||||
Unrealized (loss) gain on commodity
derivatives |
(2,093 | ) | (1,310 | ) | 788 | (9,899 | ) | |||||||||
INCOME (LOSS) BEFORE INCOME TAX PROVISION
(BENEFIT) |
316 | (2,750 | ) | 11,562 | (6,014 | ) | ||||||||||
INCOME TAX PROVISION (BENEFIT) |
55 | (468 | ) | 4,100 | (785 | ) | ||||||||||
NET INCOME (LOSS) |
$ | 261 | $ | (2,282 | ) | $ | 7,462 | $ | (5,229 | ) | ||||||
EARNINGS (LOSS) PER SHARE: |
||||||||||||||||
Basic |
$ | 0.01 | $ | (0.11 | ) | $ | 0.34 | $ | (0.25 | ) | ||||||
Diluted |
$ | 0.01 | $ | (0.11 | ) | $ | 0.34 | $ | (0.25 | ) | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: |
||||||||||||||||
Basic |
24,797,209 | 20,959,114 | 22,065,797 | 20,869,832 | ||||||||||||
Diluted |
25,010,188 | 20,959,114 | 22,214,070 | 20,869,832 | ||||||||||||
8
UNAUDITED SELECTED FINANCIAL DATA
| Unaudited Consolidated Balance Sheet Data | December 31, | December 31, | ||||||
| (in thousands) | 2010 | 2009 | ||||||
Cash and cash equivalents |
$ | 23,465 | $ | 2,685 | ||||
Other current assets |
17,865 | 9,318 | ||||||
Property and equipment, net, successful efforts method |
369,210 | 304,483 | ||||||
Other assets |
2,549 | 2,440 | ||||||
Total assets |
$ | 413,089 | $ | 318,926 | ||||
Current liabilities |
$ | 29,240 | $ | 21,996 | ||||
Long-term debt |
— | 32,319 | ||||||
Other long-term liabilities |
50,903 | 44,115 | ||||||
Stockholders’ equity |
332,946 | 220,496 | ||||||
Total liabilities and stockholders’ equity |
$ | 413,089 | $ | 318,926 | ||||
| Year Ended | ||||||||
| Unaudited Consolidated Cash Flow Data | December 31, | |||||||
| (in thousands) | 2010 | 2009 | ||||||
Net cash provided (used) by: |
||||||||
Operating activities |
$ | 42,377 | $ | 39,761 | ||||
Investing activities |
$ | (91,346 | ) | $ | (29,553 | ) | ||
Financing activities |
$ | 69,748 | $ | (11,618 | ) | |||
Effect of foreign currency translation |
$ | 1 | $ | 18 | ||||
Supplemental Non-GAAP Financial and Other Measures
This release contains certain financial measures that are non-GAAP measures. We have provided
reconciliations within this release of the non-GAAP financial measures to the most directly
comparable GAAP financial measures here and on the Non-GAAP Financial Information page in the
Investor Relations section of our website at www.approachresources.com.
Adjusted Net Income
This release contains the non-GAAP financial measures adjusted net income and adjusted net
income per diluted share, which exclude the impairment of unproved properties and an unrealized
loss (gain) on commodity derivatives and related income taxes. The amounts included in the
calculation of adjusted net income and adjusted net income per diluted share below were computed in
accordance with GAAP. We believe adjusted net income and adjusted net income per diluted share are
useful to investors because they provide readers with a more meaningful measure of our
profitability before recording certain items whose timing or amount cannot be reasonably
determined. However, these measures are provided in addition to, and not as an alternative for,
and should be read in conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on
our website.
9
The following table reconciles adjusted net income to net income for the three months and year
ended December 31, 2010 and 2009, respectively (in thousands, except per-share amounts):
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 261 | $ | (2,282 | ) | $ | 7,462 | $ | (5,229 | ) | ||||||
Adjustments for certain non-cash items: |
||||||||||||||||
Impairment of unproved properties |
2,622 | 2,964 | 2,622 | 2,964 | ||||||||||||
Unrealized loss (gain) on
commodity derivatives |
2,093 | 1,310 | (788 | ) | 9,899 | |||||||||||
Related income tax effect |
(1,603 | ) | (1,453 | ) | (623 | ) | (4,373 | ) | ||||||||
Adjusted net income |
$ | 3,373 | $ | 539 | $ | 8,673 | $ | 3,261 | ||||||||
Adjusted net income per diluted share |
$ | 0.13 | $ | 0.03 | $ | 0.39 | $ | 0.16 | ||||||||
EBITDAX
We define EBITDAX as net income, plus (1) exploration expense, (2) impairment of unproved
properties, (3) depletion, depreciation and amortization expense, (4) share-based compensation
expense, (5) unrealized loss (gain) on commodity derivatives, (6) interest expense and (7) income
taxes. EBITDAX is not a measure of net income or cash flow as determined by GAAP. The amounts
included in the calculation of EBITDAX were computed in accordance with GAAP. EBITDAX is presented
herein and reconciled to the GAAP measure of net income because of its wide acceptance by the
investment community as a financial indicator of a company’s ability to internally fund development
and exploration activities. This measure is provided in addition to, and not as an alternative
for, and should be read in conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on
our website.
The following table reconciles EBITDAX to net income for the three months and year ended
December 31, 2010 and 2009, respectively (in thousands, except per-share amounts):
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 261 | $ | (2,282 | ) | $ | 7,462 | $ | (5,229 | ) | ||||||
Exploration |
345 | 1,087 | 2,589 | 1,621 | ||||||||||||
Impairment of unproved properties |
2,622 | 2,964 | 2,622 | 2,964 | ||||||||||||
Depletion, depreciation and amortization |
5,547 | 5,894 | 22,224 | 24,660 | ||||||||||||
Share-based compensation |
585 | 392 | 2,628 | 1,826 | ||||||||||||
Unrealized loss (gain) on commodity
derivatives |
2,093 | 1,310 | (788 | ) | 9,899 | |||||||||||
Interest expense, net |
557 | 434 | 2,189 | 1,787 | ||||||||||||
Income tax provision (benefit) |
55 | (468 | ) | 4,100 | (785 | ) | ||||||||||
EBITDAX |
$ | 12,065 | $ | 9,331 | $ | 43,026 | $ | 36,743 | ||||||||
EBITDAX per diluted share |
$ | 0.48 | $ | 0.44 | $ | 1.94 | $ | 1.75 | ||||||||
10
Liquidity
Liquidity is calculated by adding the net funds available under our revolving credit facility
and cash and cash equivalents. We use liquidity as an indicator of the Company’s ability to fund
development and exploration activities. However, this measurement has limitations. This
measurement can vary from year to year for the Company and can vary among companies based on what
is or is not included in the measurement on a company’s financial statements. This measurement is
provided in addition to, and not as an alternative for, and should be read in conjunction with, the
information contained in our financial statements prepared in accordance with GAAP (including the
notes), included in our SEC filings and posted on our website.
The table below summarizes our liquidity at December 31, 2010, and February 28, 2011 (dollars
in thousands). Liquidity at February 28, 2011, is preliminary and unaudited.
| ($ in thousands) | December 31, 2010 | February 28, 2011 | ||||||
Borrowing base |
$ | 150,000 | $ | 150,000 | ||||
Cash and cash equivalents |
23,465 | 2,422 | ||||||
Outstanding letters of credit |
(350 | ) | (350 | ) | ||||
Long-term debt |
— | (67,000 | ) | |||||
Liquidity |
$ | 173,115 | $ | 85,072 | ||||
11