Double Eagle Petroleum reports 2012 full year results

Thursday, March 14, 2013
  • The Company experienced a 24% decrease in its average realized natural gas price, decreasing from $4.64 per Mcfe in 2011 to $3.52 per Mcfe in 2012.
  • The Company achieved record production in 2012 of 10.5 Bcfe, an increase of 13% over 2011.
  • The Company had an unrealized non-cash loss from its commodity derivatives of $7,410,000 in 2012, resulting from the change in the fair value of its commodity contracts at December 31, 2012.

Double Eagle Petroleum Co. (NASDAQ: DBLE) reported its financial results for the year ended December 31, 2012. The Company had net loss attributable to common stock of $14,050,000, or $1.25 per share, for 2012 as compared to net income of $7,964,000, or $0.71 per share, for 2011. Clean earnings, a non GAAP measure, totaled $15,200,000, or $1.35 per share, for 2012, as compared to $21,068,000 or $1.88 per share, in 2011. Clean earnings excludes the effects on net income (loss) of non-cash charges, consisting of depreciation, depletion and amortization expense, unrealized gains and losses related to the Company's economic hedges, impairment charges and stock-based compensation expense. Clean earnings also excludes the impact of income taxes, as the Company does not expect to pay income tax in the foreseeable future due to its net operating loss carryforwards. Please see the table at the end of this release for the reconciliation of clean earnings to GAAP income (loss). The following items impacted earnings (loss) during 2012:

  • Pricing.
    The Company experienced a 24% decrease in its average realized natural gas price, decreasing from $4.64 per Mcfe in 2011 to $3.52 per Mcfe in 2012.
  • Production.
    The Company achieved record production in 2012 of 10.5 Bcfe, an increase of 13% over 2011. The production growth was driven by higher volumes from its Atlantic Rim properties, which includes the Company-operated Catalina Unit. In the fourth quarter of 2012, the Company acquired additional working interest from a third-party in the Atlantic Rim for a total cost of $4,874,000. The acquisition was effective August 1, 2012 and provided approximately 500 Mmcf of additional production volumes in 2012. In addition, we realized full year production from 13 new production wells in the Catalina Unit that were completed in the fourth quarter of 2011.
  • Non-cash loss on derivative instruments.
    The Company had an unrealized non-cash loss from its commodity derivatives of $7,410,000 in 2012, resulting from the change in the fair value of its commodity contracts at December 31, 2012. This compared to an unrealized non-cash gain of $13,807,000 in 2011.
  • Impairment charges.
    The Company recorded impairment and abandonment expense of $4,988,000 in 2012, primarily due to the Company's write-off of exploration drilling and completion costs related to its Niobrara exploration well. The Company began an exploration program in 2011 of the Niobrara, Frontier and Dakota formations in the Atlantic Rim, and it completed a 9,400 foot appraisal well in the fourth quarter of 2012. Because the well was exploratory in nature, the Company incurred additional down-hole costs to study the well's geology. During drilling, the Company also experienced difficulty drilling through a three-pressure zone that resulted in additional capital expense. As a result, management determined that it did not expect to recover the full capitalized costs of this well, and recorded a $4,430,000 impairment charge in the fourth quarter of 2012.

Hedging Activity

The Company continues to benefit from its hedging program. Excluding the impact of its commodity hedges which settled during the year, the Company's realized natural gas price was $2.32, as the average Colorado Interstate Gas price, which is the market in which the Company sells most of its gas, decreased approximately 32% for the year ended December 31, 2012 as compared to 2011. The table below summarizes the Company's current open derivative contracts as of December 31, 2012.

Remaining
Contractual
Price
Type of Contract
Volume (Mcf)
Term
Price
Index (1)
Costless Collar
-
12/09-11/11
$4.50 floor
$9.00 ceiling
NYMEX
Fixed Price Swap
2,190,000
01/13-12/13
$5.16
NYMEX
Costless Collar
2,190,000
01/13-12/13
$5.00 floor
$5.35 ceiling
NYMEX
Costless Collar
2,160,000
01/13-12/13
$3.25 floor
$4.00 ceiling
NYMEX
Fixed Price Swap
1,825,000
01/14-12/14
$4.27
NYMEX
Costless Collar
1,800,000
01/14-12/14
$4.00 floor
$4.50 ceiling
NYMEX
Total
10,165,000


(1)
All contracts are indexed to the New York Mercantile Exchange.


Reserves

The Company had estimated proved reserves of 78.1 Bcfe as of December 31, 2012, with a PV-10 value of $58,225,000. The average natural gas price used in the reserve estimate, as calculated in accordance with the Securities and Exchange Commission ("SEC"), decreased 40% from $3.73 per MMbtu in 2011 to $2.24 per MMbtu, which resulted in a 43% decrease in the Company's reserve estimate. The decline in pricing resulted in 48.7 Bcfe of proved undeveloped reserves ("puds") included in the 2011 reserve estimate becoming uneconomic. Using the forward strip as of December 31, 2012, the Company estimates reserves to be 132.5 Bcfe with a PV-10 value of $162,700,000. The forward strip reserve amounts assume that the puds available to be drilled and completed would be developed with consistent historical decline curves. This is a non-GAAP measure. Please see the table at the end of this release for the reconciliation of GAAP reserves to reserves using forward-strip pricing.

Balance Sheet and Liquidity

The Company's working capital totaled $7,851,000 at December 31, 2012. It had $47,450,000 outstanding on its $150 millioncredit facility ($60 million borrowing base) as of December 31, 2012, with an average interest rate of 3.1%. The Company expects to invest $14 million in its development and exploration programs in the Atlantic Rim and Pinedale Anticline in 2013.

Form 10-K and Earnings Conference Call

Please refer to the Company's Form 10-K for the year ended December 31, 2012, which will be filed with the Securities and Exchange Commission on March 14, 2013, for a more detailed discussion of the Company's results.

Double Eagle will host a conference call to discuss results on Thursday, March 14, 2013 at 11:00 a.m. Eastern Time (9 a.m.Mountain). Those wanting to listen and participate in the Q&A portion can call (800) 434-1335 and use conference code 654851#.

A replay of this conference call will be available for one week by calling (800) 704-9804 and using pass code * then 654851#.

SUMMARY STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
Year Ended
December 31,
December 31,
2012
2011
Revenues
Oil and gas sales
$ 26,574
$ 44,160
Transportation revenue
4,999
4,894
Price risk management activities
4,939
14,740
Other income, net
1,653
909
Total revenues
38,165
64,703
Expenses
Lease operating expenses
12,299
11,047
Production taxes
3,000
4,365
Pipeline operating expenses
4,892
4,114
Exploration expenses including
dry holes
696
273
Impairment and abandonment
of equipment and properties
4,988
187
Total Expenses
25,875
19,986
Gross Margin Percentage
32.2%
69.1%
General and administrative
6,209
6,107
Depreciation, depletion and
amortization
20,216
18,844
Other expense, net
1,610
1,317
Pre-tax income
(15,745)
18,449
Provision (benefit) for deferred taxes
5,418
(6,762)
NET INCOME (LOSS)
(10,327)
11,687
Preferred stock requirements
(3,723)
(3,723)
NET INCOME (LOSS) attributable
to common stock
$ (14,050)
$ 7,964
Net income (loss) per common share:
Basic
$ (1.25)
$ 0.71
Diluted
$ (1.25)
$ 0.71
Weighted average
shares outstanding:
Basic
11,250,513
11,191,496
Diluted
11,250,513
11,210,604


SELECTED BALANCE SHEET DATA
(In thousands)
December 31,
December 31,
2012
2011
% Change
Total assets
$ 158,810
$ 170,594
-7%
Outstanding balance on credit facility
47,450
42,000
13%
Total stockholders' equity
43,470
56,209
-23%
SELECTED CASH FLOW DATA
(In thousands)
Year ended
December 31,
December 31,
2012
2011
% Change
Net cash provided by
operating activities
$ 19,468
$ 24,782
-21%
Net cash used in
investing activities
(25,773)
(23,946)
8%
Net cash provided by
financing activities
1,697
5,237
-68%
SELECTED OPERATIONAL DATA
Year ended
December 31,
December 31,
2012
2011
% Change
Total production (Mcfe)
10,514,841
9,343,201
13%
Average price realized per Mcfe
$ 3.70
$ 4.83
-23%

Use of Non-GAAP Financial Measures

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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