Crimson Exploration announces third quarter 2012 financial results

Friday, November 9, 2012      
 
  • The Company reported a net loss of $3.8 million, or ($0.09) per basic share, for the third quarter of 2012 compared to net income of $0.5 million, or $0.01 per basic share, for the third quarter of 2011.
  • The weighted average field sales price in the third quarter of 2012 (before the effects of realized gains/losses on our commodity price hedges) was $8.13 per Mcfe compared to an average field sales price of $6.50 for the third quarter of 2011.

Crimson Exploration Inc. (NasdaqGM:CXPO) today announced financial results for the third quarter and first nine months of 2012 and provides operational update.

Highlights

  • Revenue of $30.8 million and adjusted EBITDAX of $21.6 million for the quarter
  • Increased total liquids production to 3,255 barrels per day, a 49% volume increase over the prior year quarter
  • Achieved crude oil and natural gas liquids production ratio of 50.4% for the quarter

Management Commentary

Allan D. Keel, President and Chief Executive Officer, commented, “Our focus on targeting oil and liquid-rich assets in the Woodbine formation in Madison and Grimes Counties, Texas and the Eagle Ford Shale formation in South Texas yielded exceptional operating results during the third quarter of 2012. During the quarter, the Company increased crude oil and natural gas liquids production 49% over the prior year quarter and achieved a crude oil and natural gas liquids production ratio above 50 percent for the first time in Company history. Our strategy for 2013 will be to continue to concentrate on the development of these areas where we have a multi-year inventory of high quality targets.”

Summary Financial Results

The Company reported a net loss of $3.8 million, or ($0.09) per basic share, for the third quarter of 2012 compared to net income of $0.5 million, or $0.01 per basic share, for the third quarter of 2011. Special non-cash items impacting the third quarter of 2012 were an unrealized pre-tax charge of $4.6 million related to the mark-to-market valuation requirement on our commodity price hedges and a $0.9 million leasehold impairment charge. In the third quarter of 2011, we recognized a $2.3 million lease operating expense credit for accrual estimates, an unrealized pre-tax gain of $4.2 million related to the mark-to-market valuation requirement on commodity price hedges and a $4.8 million leasehold impairment charge. Exclusive of these special cash and non-cash items, the net loss for the third quarter of 2012 would have been $0.3 million, compared to a net loss of $0.6 million in 2011. Adjusted EBITDAX, as defined below, was $21.6 million in the third quarter of 2012 compared to Adjusted EBITDAX for the prior year quarter of $22.4 million.

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Revenues for the third quarter of 2012 were $30.8 million compared to revenues of $28.9 million in the third quarter of 2011. Revenue for the quarter increased as a result of our shift to oil and liquids-rich weighted projects over the last twelve months. Partially offsetting the benefits of this increased oil revenue were a decline in natural gas production and lower realized natural gas and natural gas liquids prices.

Production for the third quarter of 2012 was approximately 3.6 Bcfe, or 38,759 Mcfe per day, compared to production of 4.2 Bcfe, or 45,160 Mcfe per day, in the third quarter of 2011, and at the mid-point of management’s guidance of 37,000 – 40,000 Mcfe per day. Though we experienced a decrease in equivalent quarterly production, crude oil and natural gas liquids production was 50.4% of total production for the third quarter of 2012, up from 29% in the third quarter of 2011. This marks the first quarter in which Crimson’s crude oil and natural gas liquids production has exceeded a ratio greater than 50 percent. Since 2011, Crimson has achieved its goal of a balanced production profile by targeting its extensive liquids-rich inventory of projects in the East Texas Woodbine formation and South Texas Eagle Ford Shale.

The weighted average field sales price in the third quarter of 2012 (before the effects of realized gains/losses on our commodity price hedges) was $8.13 per Mcfe compared to an average field sales price of $6.50 for the third quarter of 2011. The weighted average realized sales price in the third quarter of 2012 (including the effects of realized gains/losses on our commodity price hedges) was $8.63 per Mcfe compared to a weighted average realized sales price of $6.96 per Mcfe for the third quarter of 2011. During the third quarter, realized prices increased period over period due to a more balanced product mix.

Direct lease operating expenses for the third quarter of 2012 were $3.3 million, or $0.93 per Mcfe, compared to $0.9 million, or $0.22 per Mcfe, in the third quarter of 2011. Lease operating expenses in the third quarter of 2011 reflected a change in accrual estimates which lowered lease operating expenses by $2.3 million. Exclusive of this adjustment, quarter over quarter lease operating expenses would be comparable.

Production and ad valorem tax expenses for the third quarter of 2012 were $1.8 million, or $0.51 per Mcfe, compared to $1.6 million, or $0.39 per Mcfe, for the third quarter of 2011, a slight increase primarily due to higher revenues in 2012.

Depreciation, depletion and amortization (“DD&A”) expense for the third quarter of 2012 was $14.3 million, or $4.00 per Mcfe, compared to $13.4 million, or $3.24 per Mcfe, for the third quarter of 2011. DD&A expense increased period over period due to the higher rate associated with drilling higher cost, and higher-margin crude oil wells, offset in part by lower natural gas production.

General and administrative expense in the third quarter of 2012 was $4.7 million, or $1.32 per Mcfe, compared to $4.5 million, or $1.08 per Mcfe, in the third quarter of 2011. General and administrative expenses, exclusive of non-cash stock option expense recognized in each quarter, was $4.1 million for the third quarter of 2012 and $4.0 million for third quarter of 2011.

Capital expenditures for the third quarter of 2012 were $14.1 million, consisting of drilling and completion operations in the Woodbine formation and the successful sidetrack of the Catherine Henderson A-6 well in Liberty County, Texas. Year to date, Crimson has invested approximately $74.4 million in its capital program which is currently forecasted to total approximately $80.0 million for the 2012 year.

Borrowing Base & Liquidity

On October 30, 2012, Crimson’s borrowing base under its $400 million senior secured revolving credit agreement (the “Senior Credit Agreement”) was reaffirmed by its bank group at $100 million. The next borrowing base redetermination under the Senior Credit Agreement is scheduled for May 1, 2013. As of September 30, 2012, Crimson had $71.1 million outstanding, with availability of $28.9 million, under the Senior Credit Agreement.

Hedging Activity

In early October, Crimson added the following crude oil and natural gas derivative contracts to its existing hedge position as part of its continued effort to mitigate risks associated with commodity price fluctuations:

Crude Oil Volume/Month Price/Unit
Brent
Jan 2013-Dec 2013 Swap 9,000 Bbls $109.13
Jan 2014-Dec 2014 Swap 7,500 Bbls $102.10
Natural Gas Volume/Month Price/Unit
Henry Hub
Jan 2013-Dec 2014 Collar 42,500 Mmbtu $3.75-$4.60
Jan 2013-Dec 2014 Collar 42,500 Mmbtu $3.50-$5.00

Selected Financial and Operating Data

The following table reflects certain comparative financial and operating data for the three and nine month periods ended September 30, 2012 and 2011:

Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 % 2012 2011 %
Total Volumes Sold:
Crude oil (barrels) 228,895 98,523 132 584,713 282,774 107
Natural gas liquids (barrels) 70,607 102,595 -31 215,663 324,670 -34
Natural gas (Mcf) 1,768,778 2,948,021 -40 5,933,989 9,234,785 -36
Natural gas equivalents (Mcfe) 3,565,790 4,154,729 -14 10,736,245 12,879,449 -17
Daily Sales Volumes:
Crude oil (barrels) 2,488 1,071 132 2,134 1,036 106
Natural gas liquids (barrels) 767 1,115 -31 787 1,189 -34
Natural gas (Mcf) 19,226 32,044 -40 21,657 33,827 -36
Natural gas equivalents (Mcfe) 38,759 45,160 -14 39,183 47,177 -17
Average sales prices (before hedging):
Oil $ 95.82 $ 96.21 0 $ 102.45 $ 100.59 2
NGLs 31.05 52.74 -41 36.56 48.28 -24
Gas 2.75 4.11 -33 2.44 4.04 -40
Mcfe 8.13 6.50 25 7.66 6.32 21
Average sales price (after hedging):
Oil $ 97.27 $ 89.99 8 $ 103.75 $ 90.95 14
NGLs 31.05 51.66 -40 36.56 47.65 -23
Gas 3.57 5.00 -29 3.27 4.87 -33
Mcfe 8.63 6.96 24 8.19 6.69 22
Selected Costs ($ per Mcfe):
Lease operating expenses $ 0.93 $ 0.22 323 $ 1.08 $ 0.75 44
Production and ad valorem taxes $ 0.51 $ 0.39 31 $ 0.07 $ 0.42 -83
Depreciation and depletion expense $ 4.00 $ 3.24 24 $ 4.04 $ 3.21 26
General and administrative expense (cash) $ 1.14 $ 0.95 20 $ 1.14 $ 0.87 31
Interest expense $ 1.81 $ 1.46 24 $ 1.76 $ 1.48 19
Adjusted EBITDAX (1) $ 21,579,942 $ 22,435,395 -4 $ 63,505,201 $ 59,922,258 6
Capital expenditures
Property acquisition – proved $ -
$ 241 $ -
$ 940,586
Leasehold acquisitions 1,267,001 5,217,469 5,258,214 7,691,567
Exploratory 43,967 (395,354 ) 9,793,303 5,625,125
Development 12,760,004 12,769,690 59,288,195 47,253,309
Other 5,693 -
25,410 5,416
$ 14,076,665 $ 17,592,046 $ 74,365,122 $ 61,516,003
Weighted Average Shares Outstanding
Basic 44,208,471 45,121,172 44,106,956 45,084,200
Diluted 44,208,471 45,166,566 44,106,956 45,084,200

(1) Adjusted EBITDAX is a non-GAAP financial measure. See below for a reconciliation to net income (loss).

CRIMSON EXPLORATION INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2012 2011
(unaudited)
ASSETS
Accounts receivable $ 14,642,466 $ 16,059,667
Current mark to market value of derivatives 1,992,532 4,538,897
Other current assets 603,891 473,616
Deferred tax asset (current and non-current) 18,624,542 17,297,621
Net property and equipment 426,048,022 396,781,299
Other non-current assets 1,390,309 1,174,774
TOTAL ASSETS $ 463,301,762 $ 436,325,874
LIABILITIES AND STOCKHOLDERS' EQUITY
Current mark to market value of derivatives $ $ 290,703
Other current liabilities 44,966,908 66,795,433
Long-term debt, net of current portion 240,948,063 190,041,933
Other non-current liabilities 10,528,815 9,692,107
Total stockholders’ equity 166,857,976 169,505,698
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 463,301,762 $ 436,325,874

CRIMSON EXPLORATION INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
OPERATING REVENUES
Crude oil sales $ 22,265,178 $ 8,866,235 $ 60,663,558 $ 25,718,944
Natural gas sales 6,312,901 14,747,982 19,433,566 45,011,246
Natural gas liquids sales 2,192,377 5,299,854 7,883,922 15,470,606
Total operating revenues 30,770,456 28,914,071 87,981,046 86,200,796
OPERATING EXPENSES
Lease operating expenses 3,318,057 912,698 11,558,488 9,600,620
Production and ad valorem taxes 1,806,631 1,615,539 726,375 5,454,014
Exploration expenses (gain) (186,550 ) 573,697 163,041 954,906
Depreciation, depletion and amortization 14,273,884 13,445,305 43,411,828 41,311,873
Impairment and abandonment of oil & gas properties 850,980 4,810,708 2,333,521 14,220,733
General and administrative 4,722,057 4,473,022 14,019,234 12,700,744
Gain on sale of assets -
-
(8,900 ) -
Total operating expenses 24,785,059 25,830,969 72,203,587 84,242,890
INCOME (LOSS) FROM OPERATIONS 5,985,397 3,083,102 15,777,459 1,957,906
OTHER INCOME (EXPENSE)
Interest expense, net of amount capitalized (6,454,526 ) (6,045,543 ) (18,912,514 ) (19,028,127 )
Other income (expense) and financing cost (106,801 ) (252,611 ) (453,088 ) (1,407,490 )
Unrealized (loss) gain on derivative instruments (4,564,414 ) 4,222,523 (2,052,314 ) 2,059,233
Total other income (expense) (11,125,741 ) (2,075,631 ) (21,417,916 ) (18,376,384 )
INCOME (LOSS) BEFORE INCOME TAXES (5,140,344 ) 1,007,471 (5,640,457 ) (16,418,478 )
Income tax (expense) benefit 1,294,220 (480,871 ) 1,306,067 5,572,553
NET INCOME (LOSS) $ (3,846,124 ) $ 526,600 $ (4,334,390 ) $ (10,845,925 )

Non-GAAP Financial Measures

EBITDAX represents net income (loss) before interest expense, taxes, and depreciation, amortization and exploration expenses. Adjusted EBITDAX represents EBITDAX as further adjusted to reflect the items set forth in the table below, all of which will be required in determining our compliance with financial covenants under the credit agreements representing our senior credit facility and our second lien credit facility.

We have included EBITDAX and Adjusted EBITDAX in this release to provide investors with a supplemental measure of our operating performance and information about the calculation of some of the financial covenants that are contained in our credit agreements. We believe EBITDAX is an important supplemental measure of operating performance because it eliminates items that have less bearing on our operating performance and so highlights trends in our core business that may not otherwise be apparent when relying solely on GAAP financial measures. We also believe that securities analysts, investors and other interested parties frequently use EBITDAX in the evaluation of companies, many of which present EBITDAX when reporting their results. Adjusted EBITDAX is a material component of the covenants that are imposed on us by our credit agreements. We are subject to financial covenant ratios that are calculated by reference to Adjusted EBITDAX. Non-compliance with the financial covenants contained in these credit agreements could result in a default, an acceleration in the repayment of amounts outstanding, and a termination of lending commitments. Our management and external users of our financial statements, such as investors, commercial banks, research analysts and others, also use EBITDAX and Adjusted EBITDAX to assess:

  • the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
  • the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness;
  • our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure; and
  • the feasibility of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDAX and Adjusted EBITDAX are not presentations made in accordance with generally accepted accounting principles, or GAAP. As discussed above, we believe that the presentation of EBITDAX and Adjusted EBITDAX in this release is appropriate. However, when evaluating our results, you should not consider EBITDAX and Adjusted EBITDAX in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as net income (loss). EBITDAX and Adjusted EBITDAX have material limitations as performance measures because they exclude items that are necessary elements of our costs and operations. Because other companies may calculate EBITDAX and Adjusted EBITDAX differently than we do, EBITDAX may not be, and Adjusted EBITDAX as presented in this release is not, comparable to similarly-titled measures reported by other companies.

The following table reconciles net income to EBITDAX and Adjusted EBITDAX for the periods presented:

Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Net income (loss) $ (3,846,124 ) $ 526,600 $ (4,334,390 ) $ (10,845,925 )
Interest expense 6,454,526 6,045,543 18,912,514 19,028,127
Income tax (benefit) expense (1,294,220 ) 480,871 (1,306,067 ) (5,572,553 )
Depreciation, Depletion and amortization 14,273,884 13,445,305 43,411,828 41,311,873
Exploration expense (186,550 ) 573,697 163,041 954,906
EBITDAX 15,401,516 21,072,016 56,846,926 44,876,428
Unrealized loss (gain) on derivative instruments 4,564,414 (4,222,523 ) 2,052,314 (2,059,233 )
Non-cash equity-based compensation charges 656,231 522,583 1,828,252 1,476,840
Impairment and abandonment of oil and gas properties 850,980 4,810,708 2,333,521 14,220,733
Other income (expense) and financing costs 106,801 252,611 453,088 1,407,490
Gain on sale of assets -
-
(8,900 ) -
Adjusted EBITDAX $ 21,579,942 $ 22,435,395 $ 63,505,201 $ 59,922,258

Updated Guidance for Fourth Quarter 2012

The Company is providing the following updated guidance for the fourth calendar quarter of 2012.

Fourth quarter 2012 production 34,000 – 37,000 mcfe per day
Lease operating expenses ($M) $4,200 – $4,500
Production and ad valorem taxes 8% of actual prices
Cash G&A ($M) $4,000 – $4,500
DD&A rate $4.00 – $4.25 per mcfe


 

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Crimson Exploration United States North America Finance Operations Update Production Update Houston


This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More


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