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EXCEL - IDEA: XBRL DOCUMENT - FIELDPOINT PETROLEUM CORP | Financial_Report.xls |
EX-31 - EX-31 - FIELDPOINT PETROLEUM CORP | d398192dex31.htm |
EX-32 - EX-32 - FIELDPOINT PETROLEUM CORP | d398192dex32.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2012
¨ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period from to
Commission file number: 001-32624
FieldPoint Petroleum Corporation
(Exact name of small business issuer as specified in its charter)
Colorado | 84-0811034 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
1703 Edelweiss Drive
Cedar Park, Texas 78613
(Address of Principal Executive Offices) (Zip Code)
(512) 250-8692
(Issuers Telephone Number, Including Area Code)
(former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 14, 2012, the number of shares outstanding of the Registrants $.01 par value common stock was 8,043,936.
PART I
Item 1. Financial Statements
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2012 |
December 31, 2011 |
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ASSETS | ||||||||
CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 1,330,457 | $ | 2,037,593 | ||||
Certificates of deposit |
44,675 | 44,469 | ||||||
Accounts receivable: |
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Oil and natural gas sales |
1,336,033 | 1,007,025 | ||||||
Joint interest billings, less allowance for doubtful accounts of $99,192, each period |
275,135 | 209,209 | ||||||
Commodity derivatives |
99,000 | | ||||||
Prepaid income taxes |
349,709 | 332,134 | ||||||
Deferred income tax assetcurrent |
72,000 | 58,000 | ||||||
Prepaid expenses and other current assets |
52,349 | 121,745 | ||||||
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Total current assets |
3,559,358 | 3,810,175 | ||||||
PROPERTY AND EQUIPMENT: |
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Oil and natural gas properties (successful efforts method) |
31,305,081 | 27,616,928 | ||||||
Other equipment |
52,113 | 52,113 | ||||||
Less accumulated depletion and depreciation |
(11,593,827 | ) | (10,116,327 | ) | ||||
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Net property and equipment |
19,763,367 | 17,552,714 | ||||||
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Total assets |
$ | 23,322,725 | $ | 21,362,889 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
$ | 1,405,901 | $ | 2,506,145 | ||||
Oil and gas revenues payable |
275,257 | 259,129 | ||||||
Asset retirement obligation current |
| 25,000 | ||||||
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Total current liabilities |
1,681,158 | 2,790,274 | ||||||
LONG-TERM DEBT |
6,740,000 | 6,740,000 | ||||||
DEFERRED INCOME TAXES |
2,411,000 | 1,467,000 | ||||||
ASSET RETIREMENT OBLIGATION |
1,605,002 | 1,490,002 | ||||||
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Total liabilities |
12,437,160 | 12,487,276 | ||||||
STOCKHOLDERS EQUITY: |
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Common stock, $.01 par value, 75,000,000 shares authorized; 8,970,936 and 8,910,175 shares issued, respectively and 8,043,936 and 7,983,175 outstanding, respectively |
89,709 | 89,101 | ||||||
Additional paid-in capital |
11,661,922 | 4,573,580 | ||||||
Retained earnings |
1,100,826 | 6,179,824 | ||||||
Treasury stock, 927,000 shares, respectively, at cost |
(1,966,892 | ) | (1,966,892 | ) | ||||
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Total stockholders equity |
10,885,565 | 8,875,613 | ||||||
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Total liabilities and stockholders equity |
$ | 23,322,725 | $ | 21,362,889 | ||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
2
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
REVENUE: |
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Oil and natural gas sales |
$ | 2,266,920 | $ | 1,707,210 | $ | 7,608,497 | $ | 5,283,169 | ||||||||
Well operational and pumping fees |
17,066 | 17,067 | 51,198 | 51,199 | ||||||||||||
Disposal fees |
20,000 | 12,000 | 73,996 | 46,269 | ||||||||||||
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Total revenue |
2,303,986 | 1,736,277 | 7,733,691 | 5,380,637 | ||||||||||||
COSTS AND EXPENSES: |
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Production expense |
659,227 | 684,391 | 2,445,389 | 1,904,218 | ||||||||||||
Depletion and depreciation |
507,500 | 302,500 | 1,477,500 | 793,500 | ||||||||||||
Accretion of discount on asset retirement obligations |
22,000 | 21,000 | 68,000 | 63,000 | ||||||||||||
General and administrative |
298,830 | 209,556 | 906,549 | 674,480 | ||||||||||||
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Total costs and expenses |
1,487,557 | 1,217,447 | 4,897,438 | 3,435,198 | ||||||||||||
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OPERATING INCOME |
816,429 | 518,830 | 2,836,253 | 1,945,439 | ||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||
Interest income |
221 | 1,503 | 2,111 | 3,522 | ||||||||||||
Interest expense |
(67,926 | ) | (58,528 | ) | (196,194 | ) | (179,679 | ) | ||||||||
Realized gain on commodity derivative |
51,681 | | 129,012 | | ||||||||||||
Unrealized gain (loss) on commodity derivatives |
(314,000 | ) | 232,000 | 99,000 | 164,000 | |||||||||||
Loss on sale of oil and gas properties |
| (69,771 | ) | | (80,441 | ) | ||||||||||
Miscellaneous |
| | 181 | (6,611 | ) | |||||||||||
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Total other income (expense) |
(330,024 | ) | 105,204 | 34,110 | (99,209 | ) | ||||||||||
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INCOME BEFORE INCOME TAXES |
486,405 | 624,034 | 2,870,363 | 1,846,230 | ||||||||||||
INCOME TAX EXPENSE CURRENT |
(2,000 | ) | 194,000 | (124,000 | ) | (23,000 | ) | |||||||||
INCOME TAX EXPENSE DEFERRED |
(182,000 | ) | (433,000 | ) | (930,000 | ) | (650,000 | ) | ||||||||
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TOTAL INCOME TAX PROVISION |
(184,000 | ) | (239,000 | ) | (1,054,000 | ) | (673,000 | ) | ||||||||
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NET INCOME |
$ | 302,405 | $ | 385,034 | $ | 1,816,363 | $ | 1,173,230 | ||||||||
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EARNINGS PER SHARE: |
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BASIC |
$ | 0.04 | $ | 0.05 | $ | 0.23 | $ | 0.15 | ||||||||
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DILUTED |
$ | 0.04 | $ | 0.05 | $ | 0.21 | $ | 0.15 | ||||||||
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WEIGHTED AVERAGE SHARES OUTSTANDING: |
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BASIC |
8,016,758 | 7,997,175 | 7,994,541 | 8,026,060 | ||||||||||||
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DILUTED |
8,575,094 | 7,997,175 | 8,484,429 | 8,026,060 | ||||||||||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
3
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, |
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2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 1,816,363 | $ | 1,173,230 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Loss on sale of oil and natural gas properties |
| 80,441 | ||||||
Unrealized (gain) on commodity derivatives |
(99,000 | ) | (164,000 | ) | ||||
Depletion and depreciation |
1,477,500 | 793,500 | ||||||
Accretion of discount on asset retirement obligations |
68,000 | 63,000 | ||||||
Deferred income tax expense |
930,000 | 650,000 | ||||||
Changes in current assets and liabilities: |
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Accounts receivable |
(394,934 | ) | 49,547 | |||||
Prepaid expenses and other assets |
69,396 | (117,550 | ) | |||||
Prepaid income taxes |
(17,575 | ) | | |||||
Accounts payable and accrued expenses |
(1,100,244 | ) | (125,459 | ) | ||||
Oil and gas revenues payable |
16,128 | 42,145 | ||||||
Other |
(206 | ) | (36 | ) | ||||
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Net cash provided by operating activities |
2,765,428 | 2,444,818 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to oil and natural gas properties |
(3,666,153 | ) | (462,491 | ) | ||||
Proceeds from the sale of oil and natural gas properties |
| 68,330 | ||||||
Acquisition of transportation equipment |
| (27,485 | ) | |||||
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Net cash used in investing activities |
(3,666,153 | ) | (421,646 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Sale of common stock |
193,589 | | ||||||
Purchase of treasury shares |
| (323,373 | ) | |||||
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Net cash provided by (used in) financing activities |
193,589 | (323,373 | ) | |||||
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
(707,136 | ) | 1,699,799 | |||||
CASH AND CASH EQUIVALENTS, beginning of the period |
2,037,593 | 984,770 | ||||||
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CASH AND CASH EQUIVALENTS, end of the period |
$ | 1,330,457 | $ | 2,684,569 | ||||
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SUPPLEMENTAL INFORMATION: |
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Cash paid during the period for interest |
$ | 196,194 | $ | 58,528 | ||||
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Cash paid during the period for taxes |
$ | 5,410 | $ | | ||||
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See accompanying notes to these unaudited condensed consolidated financial statements.
4
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Nature of Business, Organization and Basis of Preparation and Presentation |
FieldPoint Petroleum Corporation (the Company, our, or we) is incorporated under the laws of the state of Colorado. The Company is engaged in the acquisition, operation and development of oil and natural gas properties, which are located in Louisiana, New Mexico, Oklahoma, Texas, and Wyoming.
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented have been made. You should read these condensed consolidated financial statements in conjunction with the consolidated financial statements and the notes thereto included in the Companys Form 10-K filing for the year ended December 31, 2011.
2. | Earnings Per Share |
Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share take common stock equivalents (such as options and warrants) into consideration using the treasury stock method. The Company distributed warrants as a dividend to stockholders as of the record date, March 23, 2012. The dilutive effect of the warrants for the three and nine months ended September 30, 2012 is presented below. The potential dilutive effect of the warrants was 7,983,175 shares as of September 30, 2012. The Company had no dilutive or potentially dilutive common stock equivalents outstanding during the three or nine months ended September 30, 2011.
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income |
$ | 302,405 | $ | 385,034 | $ | 1,816,363 | $ | 1,173,230 | ||||||||
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Weighted average common stock outstanding |
8,016,758 | 7,997,175 | 7,994,541 | 8,026,060 | ||||||||||||
Weighted average dilutive effect of stock warrants |
558,336 | | 489,888 | | ||||||||||||
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Dilutive weighted average shares |
8,575,094 | 7,997,175 | 8,484,429 | 8,026,060 | ||||||||||||
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Earnings per share: |
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Basic |
$ | 0.04 | $ | 0.05 | $ | 0.23 | $ | 0.15 | ||||||||
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Diluted |
$ | 0.04 | $ | 0.05 | $ | 0.21 | $ | 0.15 | ||||||||
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5
3. | Treasury Stock Repurchase Program |
We repurchased a total of 80,000 common shares with an aggregate cost of $323,373 during the nine months ended September 30, 2011. No stock was repurchased during the 2012 period.
4. | Related Party Transactions |
The Company leases office space from its president. Rent expense for this month-to-month lease was $22,500 for each of the nine month periods ended September 30, 2012 and 2011 and $7,500 for each of the three month periods ended September 30, 2012 and 2011.
5. | Long-Term Debt |
Effective May 11, 2012, the borrowing base under our line of credit was increased from $9,250,000 to $11,000,000.
6. | Stockholders Equity |
The Company approved a stock warrant dividend of one warrant per one common share outstanding in the fourth quarter of 2011 with the record date of March 23, 2012. A total of 7,983,175 warrants were issued and have an exercise price of $4.00. The warrants are exercisable over 6 years from the record date. The Company has the right to call the warrants in the future if the market price of the common stock exceeds 150% of the exercise price of the warrant ($6.00). The fair value of the warrants of approximately $8,000,000 was reclassified from retained earnings to additional paid in capital to the extent of available retained earnings of $6,895,361 on the record date.
Effective May 16, 2012, we executed an At Market Issuance Sales Agreement with MLV & Co., LLC (MLV) providing for an at-the-market offering of securities of up to 900,000 shares of common stock (the ATM Offering). The ATM Offering is being undertaken pursuant to Rule 415 and a universal shelf Registration Statement on Form S-3 which was declared effective by the SEC on December 9, 2011. We will pay a sales commission equal to 7% of the gross sales price per share sold in addition to other cost to register the securities. Effective June 25, 2012 to September 30, 2012, we sold through MLV 60,761 shares of common stock pursuant to this agreement for gross proceeds of $257,358. Expenses associated with the sale of common shares were $63,769 which includes commissions and costs of registering the securities.
6
7. | Commodity Derivatives |
In April 2012, we entered into the following commodity derivatives positions to hedge our oil production price risk. These positions were outstanding at September 30, 2012:
Period |
Volume (Barrels) | $/Barrel | ||||||||||||||
Daily | Total | Floor | Ceiling | |||||||||||||
NYMEX WTI Collars October 2012 December 2012 |
200 | 18,400 | $ | 95.00 | $ | 110.30 |
The following table summarizes the fair value of our open commodity derivatives as of September 30, 2012 and December 31, 2011:
Liability Derivatives | ||||||||||||
Fair Value | ||||||||||||
Balance Sheet | September 30, | December 31, | ||||||||||
Location | 2012 | 2011 | ||||||||||
Derivatives not designated as hedging instruments |
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Commodity derivatives |
Current Assets | $ | 99,000 | $ | |
The following table summarizes the change in fair value of our commodity derivatives:
Fair Value | ||||||||||||||||||
Income Location |
3 Months Ended September 30, |
Nine Months Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||||
Derivatives not designated as hedging instruments |
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Unrealized gain (loss) on commodity derivatives |
Other Income (Expense) |
$ | (314,000 | ) | $ | 232,000 | $ | 99,000 | $ | 164,000 | ||||||||
Realized gain on commodity derivatives |
$ | 51,681 | $ | | $ | 129,012 | $ | |
Unrealized gains and losses, at fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts are recorded in earnings as they occur and included in other income (expense) on our consolidated statements of operations. We estimate the fair values of collar contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. We internally valued the option contracts using industry-standard option pricing models and observable market inputs. We use our internal valuations to determine the fair values of the contracts that are reflected on our consolidated balance sheets. Realized gains and losses are also included in other income (expense) on our consolidated statements of operations.
We are exposed to credit losses in the event of non-performance by the counterparties on our commodity derivatives positions and have considered the exposure in our internal valuations. However, we do not anticipate non-performance by the counterparties over the term of the commodity derivatives positions.
7
To estimate the fair value of our commodity derivatives positions, we use market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements and attempt to use the best available information. We determine the fair value based upon the hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and lowest priority to unobservable inputs (Level 3 measurement). The three levels of fair value hierarchy are as follows:
| Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. At September 30, 2012, we had no Level 1 measurements |
| Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Our derivatives, which consist of commodity collars, are valued using commodity market data which is derived by combining raw inputs and quantitative models and processes to generate forward curves. Where observable inputs are available, directly or indirectly, for substantially the full term of the asset or liability, the instrument is categorized in Level 2. At September 30, 2012, all of our commodity derivatives were valued using Level 2 measurements. |
| Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in managements best estimate of fair value. At September 30, 2012, we had no Level 3 measurements. |
8. | Subsequent Events |
Subsequent to September 30, 2012 through the date of this filing, we sold interest in the South Vacuum Field for net proceeds of $204,000 and we will record a $204,000 gain on the sale in the fourth quarter as the property was fully impaired previously.
On October 19, 2012, shareholders approved the Company to issue 10,000 shares of common stock, with no vesting terms to non-management members of the board of directors. The value of the stock at the date of the grant was $43,700, which will be recorded in general and administrative expenses in the fourth quarter of 2012.
8
PART I
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Companys Condensed Consolidated Financial Statements, and respective notes thereto, included elsewhere herein. The information below should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of the management of FieldPoint Petroleum Corporation.
General
FieldPoint Petroleum Corporation derives its revenues from its operating activities including sales of oil and natural gas and operating oil and natural gas properties. The Companys capital for investment in producing oil and natural gas properties has been provided by cash flow from operating activities and from bank financing. The Company categorizes its operating expenses into the categories of production expenses and other expenses.
Results of Operations
Comparison of three months ended September 30, 2012 to the three months ended September 30, 2011
Quarter Ended September 30, | ||||||||
2012 | 2011 | |||||||
Revenue: |
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Oil sales |
$ | 2,131,526 | $ | 1,486,546 | ||||
Natural gas sales |
135,394 | 220,664 | ||||||
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Total oil and natural gas sales |
$ | 2,266,920 | $ | 1,707,210 | ||||
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Sales volumes: |
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Oil (Bbls) |
24,214 | 17,203 | ||||||
Natural gas (Mcf) |
40,565 | 50,300 | ||||||
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Total (BOE) |
30,975 | 25,586 | ||||||
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Average sales prices: |
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Oil ($/Bbl) |
$ | 88.03 | $ | 86.41 | ||||
Natural gas ($/Mcf) |
3.34 | 4.39 | ||||||
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Total ($/BOE) |
$ | 73.19 | $ | 66.72 | ||||
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Costs and expenses ($/BOE) |
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Lease operating expense |
$ | 21.28 | $ | 26.75 | ||||
Depletion and depreciation |
16.38 | 11.82 | ||||||
Accretion of discount on asset retirement obligations |
0.71 | 0.82 | ||||||
General and administrative |
9.65 | 8.19 | ||||||
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Total |
$ | 48.02 | $ | 47.58 | ||||
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Oil and natural gas sales revenues increased 33% or $559,710 to $2,266,920 for the three-month period ended September 30, 2012 from the comparable 2011 period. Average oil sales prices increased 2% to $88.03 for the three-month period ended September 30, 2012 compared to $86.41 for the period ended September 30, 2011. Average natural gas sales prices decreased 24% to $3.34 for the three-month period ended September 30, 2012 compared to $4.39 for the period ended September 30, 2011. Sales volumes increased 21% on a BOE basis, primarily due to production from the two new wells in New Mexico completed in December, 2011 and September 2012. The higher sales volumes accounted for an increase in revenue of approximately $563,000 which was offset by approximately $3,000 due to lower commodity prices. We anticipate volumes to increase in the coming quarters primarily due to production from the new well in New Mexico completed in September 2012.
Lease operating expenses decreased 4% or $25,164 to $659,227 for the three month period ended September 30, 2012 from the comparable 2011 period. This was primarily due to decreases in costs associated with remedial repairs in 2012 as compared to 2011 offset by costs associated with new field production. Lifting
9
costs per BOE decreased 20% or $5.47 to $21.28 for the period primarily due to higher production. We anticipate lease operating expenses to increase over the following quarters due to additional remedial repairs and workover expenses and production costs related to the new well completed in September 2012 in New Mexico.
Depletion and depreciation increased 68% or $205,000 to $507,500 for the three month period ended September 30, 2012 versus $302,500 in the 2011 comparable period. This was primarily due to the addition of the East Lusk wells #1 and #2 completed in December 2011 and September 2012, respectively and higher production during the quarter ended September 30, 2012 as compared to the same period in 2011.
General and administrative overhead cost increased 43% or $89,274 to $298,830 for the three-month period ended September 30, 2012 from the three-month period ended September 30, 2011. This was primarily attributable to an increase in legal, consulting and administration services during the 2012 period. At this time, the Company anticipates general and administrative expenses to remain stable or increase slightly in the coming quarters.
Other expense, net for the quarter ended September 30, 2012, were $330,024 compared to other income, net of $105,204 for quarter ended September 30, 2011. The net increase was primarily due to a $314,000 unrealized loss and a $51,681 realized gain on commodity derivatives during the 2012 period. We expect the unrealized loss to decrease in the coming quarters.
Results of Operations
Comparison of Nine Months Ended September 30, 2012 to the Nine Months Ended September 30, 2011
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
Revenues: |
||||||||
Oil sales |
$ | 7,062,474 | $ | 4,771,225 | ||||
Natural gas sales |
546,023 | 511,944 | ||||||
|
|
|
|
|||||
Total |
$ | 7,608,497 | $ | 5,283,169 | ||||
|
|
|
|
|||||
Sales volumes: |
||||||||
Oil (Bbls) |
77,312 | 51,213 | ||||||
Natural gas (Mcf) |
126,759 | 105,519 | ||||||
|
|
|
|
|||||
Total (BOE) |
98,439 | 68,800 | ||||||
|
|
|
|
|||||
Average sales prices |
||||||||
Oil ($/Bbl) |
$ | 91.35 | $ | 93.16 | ||||
Natural gas ($/Mcf) |
4.31 | 4.85 | ||||||
|
|
|
|
|||||
Total ($/BOE) |
$ | 77.29 | $ | 76.79 | ||||
|
|
|
|
|||||
Costs and expenses ($/BOE) |
||||||||
Lease operating expense |
$ | 24.84 | $ | 27.68 | ||||
Depletion and depreciation |
15.01 | 11.53 | ||||||
Accretion of discount on asset retirement obligations |
0.69 | 0.92 | ||||||
General and administrative |
9.21 | 9.80 | ||||||
|
|
|
|
|||||
Total |
$ | 49.75 | $ | 49.93 | ||||
|
|
|
|
Oil and natural gas sales revenues increased 44% or $2,325,328 to $7,608,497 for the nine month period ended September 30, 2012 from $5,283,169 for the comparable 2011 period. This was due primarily to the overall increase in production. Sales volumes increased 43% on a BOE basis primarily due to production from the
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two new wells in New Mexico completed in December 2011 and September 2012. Average oil sales prices decreased 2% to $91.35 for the nine month period ended September 30, 2012 compared to $93.16 for the nine month period ended September 30, 2011. Average natural gas sales prices decreased 11% to $4.31 for the nine month period ended September 30, 2012 compared to $4.85 for the nine month period ended September 30, 2011. The higher sales volumes accounted for an increase in revenue of approximately $2,534,000 which was offset by approximately $209,000 due to lower commodity prices. We anticipate volumes to increase in the coming quarters primarily due to production from the new well in New Mexico completed in September 2012.
Lease operating expenses increased 28% or $541,171 to $2,445,389 for the nine month period ended September 30, 2012 from the comparable 2011 period. This was primarily due to the costs associated with new field production in 2012 as compared to 2011 and to the increase in additional repairs and workover expenses on properties in 2012. Additionally, we had a one-time charge to settle a severance tax claim for the period from 2006 through 2011 of approximately $251,000. Lifting cost per BOE decreased 10%, from $27.68 to $24.84 for the period primarily due to higher production. We anticipate lease operating expense to increase over the following quarters due to additional remedial repairs and workover expenses and expenses associated with the new East Lusk #2 well completed in September 2012.
Depletion and depreciation expense increased 86% to $1,477,500, compared to $793,500 for the comparable 2011 period. This was primarily due to the addition of the new East Lusk wells and increased sales volumes during the current period.
General and administrative overhead cost increased 34% or $232,069 to $906,549 for the nine month period ended September 30, 2012 from the nine month period ended September 30, 2011. This was attributable primarily to an increase in salaries, bonuses, administrative services such as contract labor and professional services. In the coming quarters we anticipate general and administrative expenses to remain stable or increase slightly.
Other income, net for the nine months ended September 30, 2012, amounted to $34,110 compared to other expenses, net of $99,209 for the comparable 2011 period. The net increase was primarily due to a $129,012 realized gain on commodity derivatives during the 2012 period. We expect the unrealized gain to decrease and realized gain to increase in the coming quarter.
Liquidity and Capital Resources
Cash flow provided by operating activities was $2,765,428 for the nine month period ended September 30, 2012, as compared to $2,444,818 of cash flow provided by operating activities in the comparable 2011 period. The increase in cash flows from operating activities was primarily due to changes in net income, and increased depletion expense offset by a decrease in accounts payable.
Cash flow used in investing activities was $3,666,153 for the nine month period ended September 30, 2012 which included approximately $2,489,000 for drilling the Lusk #2 well completed in September 2012. Cash flow used in investing activities was $421,646 for additions to oil and natural gas properties during the nine month period ended September 30, 2011.
Cash flow provided by financing activities was $193,589, net after expenses of approximately $63,769, from the sale of 60,761 shares of stock during the nine months ended September 30, 2012. Cash flow used in financing activities was used to repurchase 80,000 shares of common stock for a total of $323,373 during the nine month period ended September 30, 2011.
We may continue to raise financing through draws from our line of credit. Effective May 11, 2012, the borrowing base under our line of credit was increased from $9,250,000 to $11,000,000. We anticipate our operating cash flow and other capital resources, including our Citibank revolving credit facility, if needed, will
11
adequately fund planned capital expenditures and other capital uses over the near term. Based on industry outlook for the remainder of 2012, prices for oil could be higher than the prior year but may be lower for natural gas.
Through September 30, 2012, we have sold an aggregate of 60,761 shares of common stock in the ATM Offering, realizing net proceeds of $193,589. An additional 839,239 shares of common stock have been registered for sale in the ATM Offering, which may continue until May 16, 2014 unless terminated sooner as provided for in the Sales Agreement with MLV. As there is no commitment for future sales of additional shares, we cannot predict how much, if any, additional proceeds may be realized in the ATM Offering.
PART I
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We periodically enter into certain commodity price risk management transactions to manage our exposure to oil and natural gas price volatility. These transactions may take the form of futures contracts, swaps or options. All data relating to our derivative positions is presented in accordance with authoritative guidance. Accordingly, unrealized gains and losses related to the change in fair value of derivative contracts that qualify and are designated as cash flow hedges are recorded as other comprehensive income or loss and such amounts are reclassified to oil and natural gas sales revenues as the associated production occurs. Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value in the consolidated balance sheet, and the associated unrealized gains and losses are recorded as current expense or income in the consolidated statement of operations. While such derivative contracts do not qualify for hedge accounting, management believes these contracts can be utilized as an effective component of commodity price risk management activities. At September 30, 2012, we had collars with a floor of $95.00 and a ceiling of $110.30 for 200 barrels of oil per day from October 1, 2012 to December 31, 2012. We had unrealized loss of $314,000 and unrealized gain of $99,000 on commodity derivative transactions during the three month and nine month periods ending September 30, 2012, respectively.
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PART I
Item 4. CONTROLS AND PROCEDURES
a) | Disclosure Controls and Procedures |
The Companys Principal Executive Officer and Principal Financial Officer, Ray Reaves, has established and is currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure.
The Principal Executive Officer and Principal Financial Officer conducted a review and evaluation of the effectiveness of the Companys disclosure controls and procedures and have concluded, based on his evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure and we refer you to Exchange Act Rule 13a-15(e).
b) | Changes in Internal Control over Financial Reporting |
There has been no change in our internal control over financial reporting during the third quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
c) | Limitations of Any Internal Control Design |
Our principal executive and financial officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive and financial officer has determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following sets forth information required by Item 701(f) of Regulation S-K with respect to the sale of securities registered for sale under the Securities Act of 1933, as amended (Securities Act):
1. The Companys universal shelf Registration Statement on Form S-3 (the Registration Statement) was declared effective by the SEC on December 9, 2011. On May 16, 2012, the Company filed its Prospectus Supplement in accordance with Rule 424(b)(5) under the Securities Act covering the sale of up to 900,000 shares of common stock through MLV in the ATM Offering.
2. The ATM Offering commenced on May 16, 2012.
3. The ATM Offering is continuing until May 16, 2014, unless sooner terminated pursuant to the terms of the Sales Agreement between the Company and MLV & Co., LLC (MLV).
4. The Sales Agent in the ATM Offering is MLV.
5. The Registration Statement registers for sale in the ATM Offering up to 900,000 shares of common stock.
6. Expenses incurred through September 30, 2012 in connection with the ATM Offering have been:
a. | Expenses paid to affiliates of the Company: none. |
b. | Expenses paid to others: |
Sales Agent commissions: |
$ | 18,179 | ||
Other expenses: |
$ | 45,590 | ||
|
|
|||
$ | 63,769 |
7. Net ATM Offering proceeds through September 30, 2012: $193,589
8. Use of net ATM Offering proceeds: working capital. Such use consisted exclusively of payments to persons other than affiliates of the Company.
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Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits | ||
31 | Certification | |
32 | Certification Pursuant to U.S.C. Section 1350 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document |
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 2012 |
By: | /s/ Ray Reaves | ||||
Ray Reaves, President, Principal Executive Officer, Treasurer and Principal Financial Officer |
16