TXCO Resources Inc. (Nasdaq:TXCO) today reported financial results for the quarter ended March 31, 2008, and provided an operations update. Highlights include record first-quarter:
• Net income, revenues and assets.
• Oil and gas volumes.
• Drilling activity.
First-Quarter Results
Net income attributable to common stock was $3.3 million, equal to $0.09 per share, compared with a net loss of $1.9 million, or $0.06 per share, for first-quarter 2007. Total revenues rose to $32.3 million from $11.2 million in the earlier period. Assets increased to $384.1 million from $354.6 million at year-end 2007.
Ebitda – earnings before income taxes, interest, depreciation, depletion, amortization, impairment and abandonment expense – was a first-quarter record $19.2 million, up from $4.4 million in the 2007 quarter. Ebitdax – Ebitda plus exploration expense – also was a quarterly record, $19.8 million, compared with $4.8 million a year earlier. Net cash used by operating activities was $9.9 million, compared with net cash provided from operations of $1.0 million in the year-earlier period. Before certain changes in operating assets and liabilities, net cash provided by operating activities for the three months was $15.5 million, compared with $9.7 million for the 2007 quarter. The changes include increases or decreases in current receivables, payables and prepaid expenses from the prior year-end balances.
All per-share amounts are on a diluted basis. See the accompanying table for a reconciliation of non-GAAP financial measures.
Both crude oil and natural gas volumes rose sharply compared with the 2007 quarter. Oil sales averaged 2,717 bopd, up 61 percent from 1,683 bopd in first-quarter 2007, while gas averaged 7.3 mmcfd, up 192 percent from 2.5 mmcfd a year earlier. The Company’s sales mix was 69 percent oil and 31 percent gas.
Operations Update
TXCO has a record CAPEX program of more than $125 million planned for this year with more than 100 wells budgeted. Currently, TXCO has a record 11 rigs operating, including seven on its core Maverick Basin acreage, one in the East Texas Fort Trinidad Field, two in Oklahoma and one offshore Louisiana. In the Maverick Basin, two rigs target the Glen Rose Porosity, three the Pearsall shale gas resource play and two target other formations.
On its Pearsall play, TXCO has drilled the first well horizontally and successfully fractured two of five intervals in the Cage 26-2 (50 percent working interest). The well averaged a little more than 1.1 mmcfd for the first 30 days of production after the fracturing treatment and also is still producing 100 bwpd of fracturing fluid. Management is encouraged with the results in this first attempt at fracturing a horizontal Pearsall well.
A second Pearsall well, the Comanche 34-1 (38% WI) has been drilled horizontally and casing has been run in the lateral. The rig is currently moving to another well, the Meyers 2-683 (50% WI), and should spud shortly. The Briscoe Chupadera Ranch 1 (25% WI), a horizontal re-completion started in late April, and TXCO’s third horizontal Pearsall well, is the first on Anadarko Petroleum Corp. acreage in the Maverick Basin, under an agreement announced by the firms in early April.
Glen Rose Porosity oil sales for the first quarter were 152,532 barrels, or 1,676 bopd, a 24 percent increase from first-quarter 2007. Porosity sales seasonally declined from the fourth quarter, as in past years, due to an annual hunting season drilling moratorium on certain Maverick Basin leases that halts field activity from November into January. For April, production averaged approximately 2,100 bopd as normal drilling operations resumed during the first quarter, offset by a temporary production curtailment of certain non-operated wells due to a discharge permit renewal delay. Schlumberger presented its comprehensive reservoir optimization study in early May and the study is now under review by TXCO’s technical staff with Schlumberger.
On TXCO’s San Miguel oil sands pilot projects, installation is nearing completion on a second, 25 mmBtu steam generator for the Company’s steam-assisted gravity drainage (SAGD) pilot project (50% WI). SAGD steam injection is expected to begin later in May. On the second, fracture-assisted steamflood technology (FAST) pilot (50% WI), drilling is nearly finished on a second horizontal production well. Two, 50 mmBtu steam generators are now scheduled for delivery in June and steam injection is expected to start in the third quarter.
In the East Texas Fort Trinidad Field, TXCO is completing its second Glen Rose well, the Forrest 3H (100% WI). Its first Glen Rose shoal project, the Forrest 2H (100% WI), went on production during the first quarter and in April averaged approximately 535 mmcfd and 35 bcpd as it recovered water lost into the reservoir while drilling. The Company is moving in a second rig to expedite drilling in the field.
Management Perspective
“We had an excellent first quarter,” said CEO James E. Sigmon. “Our increased sales volumes, coupled with record oil and gas prices, created strong financial results during what is usually our weakest quarter each year.
“Meanwhile, our drilling activity currently is at a record pace,” he added. “We’re cautiously optimistic with the results of our initial Pearsall wells as we move ahead in the initial development of this exciting play. Coupled with our continued development of the Glen Rose Porosity play and other targets, I look forward to further growth in shareholder value as TXCO’s production, reserves and profitability climb in what I expect to be a record year.”