Texas
|
76-0415919
|
|||
(State or other jurisdiction of
|
(IRS Employer Identification No.)
|
|||
incorporation or organization)
|
1000 Louisiana Street, Suite 1500, Houston, TX
|
77002
|
(Address of principal executive offices)
|
(Zip Code)
|
PART I. FINANCIAL INFORMATION
|
PAGE
|
||
Item 1.
|
Consolidated Financial Statements
|
||
As of September 30, 2010 (Unaudited) and December 31, 2009
|
2
|
||
Consolidated Statements of Operations (Unaudited)
|
|||
For the three and nine months ended September 30, 2010 and 2009
|
3
|
||
For the nine months ended September 30, 2010 and 2009
|
4
|
||
5
|
|||
Item 2.
|
19
|
||
Item 3.
|
31
|
||
Item 4.
|
31
|
||
31
|
|||
37
|
September 30,
|
December 31,
|
|||||||
ASSETS
|
2010
|
2009
|
||||||
(Unaudited)
|
||||||||
(In thousands, except per share amount)
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 2,748 | $ | 3,837 | ||||
Accounts receivable, net
|
||||||||
Oil and gas sales
|
13,988 | 13,202 | ||||||
Joint interest billing
|
9,445 | 4,901 | ||||||
Related party
|
521 | 445 | ||||||
Other
|
879 | 2,793 | ||||||
Advances to operators
|
63 | 540 | ||||||
Fair value of derivative instruments
|
25,105 | 8,404 | ||||||
Other current assets
|
2,544 | 1,278 | ||||||
Total current assets
|
55,293 | 35,400 | ||||||
PROPERTY AND EQUIPMENT, NET
|
||||||||
Oil and gas properties using the full-cost method of accounting:
|
||||||||
Proved oil and gas properties, net
|
502,506 | 399,182 | ||||||
Costs not subject to amortization
|
442,902 | 330,607 | ||||||
Land, building and other equipment, net
|
4,160 | 3,911 | ||||||
TOTAL PROPERTY AND EQUIPMENT, NET
|
949,568 | 733,700 | ||||||
DEFERRED FINANCING COSTS, NET
|
7,849 | 9,738 | ||||||
INVESTMENTS
|
3,341 | 3,358 | ||||||
FAIR VALUE OF DERIVATIVE INSTRUMENTS
|
10,662 | 6,477 | ||||||
DEFERRED INCOME TAX
|
49,441 | 70,217 | ||||||
INVENTORY
|
3,292 | 3,292 | ||||||
OTHER ASSETS
|
1,049 | 925 | ||||||
TOTAL ASSETS
|
$ | 1,080,495 | $ | 863,107 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable, trade
|
$ | 30,567 | $ | 19,907 | ||||
Revenue and royalties payable
|
27,397 | 27,390 | ||||||
Current state tax payable
|
1,989 | 107 | ||||||
Accrued drilling costs
|
24,277 | 17,251 | ||||||
Accrued interest
|
6,111 | 1,922 | ||||||
Other accrued liabilities
|
9,045 | 11,013 | ||||||
Advances for joint operations
|
1,344 | 1,739 | ||||||
Current maturities of long-term debt
|
160 | 148 | ||||||
Deferred income tax
|
6,405 | 1,474 | ||||||
Other current liabilities
|
5,033 | 1,777 | ||||||
Total current liabilities
|
112,328 | 82,728 | ||||||
LONG-TERM DEBT, NET OF CURRENT MATURITIES AND DEBT DISCOUNT
|
584,069 | 520,188 | ||||||
ASSET RETIREMENT OBLIGATION
|
4,415 | 5,410 | ||||||
FAIR VALUE OF DERIVATIVE INSTRUMENTS
|
- | 2,818 | ||||||
OTHER LIABILITIES
|
4,327 | 4,354 | ||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
SHAREHOLDERS' EQUITY:
|
||||||||
Common stock, par value $0.01 per share (90,000 shares authorized; 34,885 and
|
||||||||
31,100 issued and outstanding at September 30, 2010 and
|
||||||||
December 31, 2009, respectively)
|
349 | 311 | ||||||
Additional paid-in capital
|
513,606 | 431,757 | ||||||
Accumulated deficit
|
(138,672 | ) | (184,548 | ) | ||||
Accumulated other comprehensive income, net of taxes
|
73 | 89 | ||||||
Total shareholders' equity
|
375,356 | 247,609 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 1,080,495 | $ | 863,107 | ||||
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands, except per share amounts)
|
||||||||||||||||
REVENUES:
|
||||||||||||||||
Oil and gas revenues
|
$ | 30,502 | $ | 23,584 | $ | 102,380 | $ | 80,186 | ||||||||
Other revenues
|
310 | 263 | 1,047 | 1,035 | ||||||||||||
TOTAL REVENUES
|
30,812 | 23,847 | 103,427 | 81,221 | ||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||
Lease operating
|
7,117 | 3,339 | 18,365 | 19,598 | ||||||||||||
Production tax
|
692 | 640 | 2,482 | (382 | ) | |||||||||||
Ad valorem tax
|
749 | 1,234 | 2,421 | 3,621 | ||||||||||||
Gas purchases
|
311 | 272 | 1,043 | 1,139 | ||||||||||||
Depreciation, depletion and amortization
|
10,369 | 12,524 | 31,289 | 40,049 | ||||||||||||
Impairment of oil and gas properties
|
- | - | 2,731 | 216,391 | ||||||||||||
General and administrative (inclusive of stock-based compensation expense of
|
||||||||||||||||
$4,396 and $2,780 for the three months ended September 30, 2010 and 2009, respectively,
|
||||||||||||||||
and $9,716 and $8,514 for the nine months ended September 30, 2010 and 2009, respectively)
|
9,879 | 7,633 | 24,565 | 21,894 | ||||||||||||
Accretion expense related to asset retirement obligation
|
56 | 79 | 160 | 225 | ||||||||||||
TOTAL COSTS AND EXPENSES
|
29,173 | 25,721 | 83,056 | 302,535 | ||||||||||||
OPERATING INCOME (LOSS)
|
1,639 | (1,874 | ) | 20,371 | (221,314 | ) | ||||||||||
OTHER INCOME AND EXPENSES:
|
||||||||||||||||
Gain (loss) on derivative instruments, net
|
21,520 | (1,986 | ) | 47,536 | 25,802 | |||||||||||
Interest expense
|
(10,403 | ) | (9,903 | ) | (30,058 | ) | (28,617 | ) | ||||||||
Capitalized interest
|
5,601 | 4,996 | 15,062 | 15,065 | ||||||||||||
Impairment of investment in Pinnacle Gas Resources, Inc.
|
- | - | - | (2,091 | ) | |||||||||||
Distribution income - related party
|
20,793 | - | 20,793 | - | ||||||||||||
Other income (expense), net
|
6 | (22 | ) | (15 | ) | 29 | ||||||||||
INCOME (LOSS) BEFORE INCOME TAXES
|
39,156 | (8,789 | ) | 73,689 | (211,126 | ) | ||||||||||
INCOME TAX (EXPENSE) BENEFIT
|
(14,801 | ) | 3,994 | (27,813 | ) | 74,769 | ||||||||||
NET INCOME (LOSS)
|
$ | 24,355 | $ | (4,795 | ) | $ | 45,876 | $ | (136,357 | ) | ||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES:
|
||||||||||||||||
Increase (decrease) in market value of investment in Pinnacle Gas Resources, Inc., net of taxes
|
(16 | ) | 64 | (16 | ) | 179 | ||||||||||
Reclassification of cumulative decrease in market value of investment in
|
||||||||||||||||
Pinnacle Gas Resources, Inc., net of taxes
|
- | - | - | 1,359 | ||||||||||||
COMPREHENSIVE INCOME (LOSS)
|
$ | 24,339 | $ | (4,731 | ) | $ | 45,860 | $ | (134,819 | ) | ||||||
BASIC INCOME (LOSS) PER COMMON SHARE
|
$ | 0.70 | $ | (0.15 | ) | $ | 1.38 | $ | (4.40 | ) | ||||||
DILUTED INCOME (LOSS) PER COMMON SHARE
|
$ | 0.69 | $ | (0.15 | ) | $ | 1.36 | $ | (4.40 | ) | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
||||||||||||||||
BASIC
|
34,730 | 31,053 | 33,301 | 30,980 | ||||||||||||
DILUTED
|
35,101 | 31,053 | 33,724 | 30,980 | ||||||||||||
For the Nine
|
||||||||
Months Ended
|
||||||||
September 30,
|
||||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income (loss)
|
$ | 45,876 | $ | (136,357 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
|
||||||||
Depreciation, depletion and amortization
|
31,289 | 40,049 | ||||||
Impairment of oil and gas properties
|
2,731 | 216,391 | ||||||
Unrealized (gain) loss on derivative instruments
|
(24,677 | ) | 36,262 | |||||
Accretion of discount on asset retirement obligation
|
160 | 225 | ||||||
Stock-based compensation
|
9,716 | 8,514 | ||||||
Allowance for doutbful accounts
|
368 | 288 | ||||||
Deferred income taxes
|
25,716 | (74,834 | ) | |||||
Amortization of deferred financing costs and equity premium associated with
|
||||||||
Convertible Senior Notes
|
7,144 | 6,162 | ||||||
Impairment of investment in Pinnacle Gas Resources, Inc.
|
- | 2,091 | ||||||
Other
|
1,789 | 5,248 | ||||||
Changes in operating assets and liabilities-
|
||||||||
Accounts receivable
|
(3,860 | ) | 3,158 | |||||
Accounts payable
|
1,322 | (2,053 | ) | |||||
Accrued liabilities
|
2,328 | 4,242 | ||||||
Other, net
|
(270 | ) | (1,548 | ) | ||||
Net cash provided by operating activities
|
99,632 | 107,838 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Capital expenditures
|
(261,341 | ) | (143,036 | ) | ||||
Change in capital expenditure accruals
|
17,404 | (21,309 | ) | |||||
Proceeds from the sale of oil and gas properties
|
15,042 | 6 | ||||||
Advances to operators
|
477 | 12 | ||||||
Advances for joint operations
|
(395 | ) | 1,859 | |||||
Other
|
(445 | ) | (69 | ) | ||||
Net cash used in investing activities
|
(229,258 | ) | (162,537 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from borrowings
|
245,600 | 100,037 | ||||||
Debt repayments
|
(191,000 | ) | (43,886 | ) | ||||
Proceeds from common stock offering, net of offering costs
|
73,814 | - | ||||||
Proceeds from stock options exercised
|
667 | 9 | ||||||
Payments of financing costs and other
|
(544 | ) | (3,069 | ) | ||||
Net cash provided by financing activities
|
128,537 | 53,091 | ||||||
DECREASE IN CASH AND CASH EQUIVALENTS
|
(1,089 | ) | (1,608 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of period
|
3,837 | 5,184 | ||||||
CASH AND CASH EQUIVALENTS, end of period
|
$ | 2,748 | $ | 3,576 | ||||
1.
|
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Three Months
|
Nine Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Stock Options and SARs
|
$ | 1,675 | $ | 286 | $ | 2,196 | $ | 357 | ||||||||
Restricted Stock
|
2,721 | 2,494 | 7,520 | 8,157 | ||||||||||||
Total Stock-Based Compensation
|
$ | 4,396 | $ | 2,780 | $ | 9,716 | $ | 8,514 | ||||||||
Three Months
|
Nine Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands, except
|
||||||||||||||||
per share amounts)
|
||||||||||||||||
Net income (loss)
|
$ | 24,355 | $ | (4,795 | ) | $ | 45,876 | $ | (136,357 | ) | ||||||
Average common shares outstanding
|
||||||||||||||||
Weighted average common shares outstanding
|
34,730 | 31,053 | 33,301 | 30,980 | ||||||||||||
Restricted stock, stock options and SARs
|
371 | - | 423 | - | ||||||||||||
Diluted weighted average common shares outstanding
|
35,101 | 31,053 | 33,724 | 30,980 | ||||||||||||
Net income (loss) per common share
|
||||||||||||||||
Basic
|
$ | 0.70 | $ | (0.15 | ) | $ | 1.38 | $ | (4.40 | ) | ||||||
Diluted
|
$ | 0.69 | $ | (0.15 | ) | $ | 1.36 | $ | (4.40 | ) | ||||||
2.
|
INVESTMENTS
|
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
Pinnacle Gas Resources, Inc.
|
$ | 818 | $ | 835 | ||||
Oxane Materials, Inc.
|
2,523 | 2,523 | ||||||
$ | 3,341 | $ | 3,358 | |||||
3.
|
PROPERTY AND EQUIPMENT, NET
|
September 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
||||||
(In thousands)
|
||||||||
Proved oil and gas properties
|
$ | 801,685 | $ | 667,907 | ||||
Costs not subject to amortization:
|
||||||||
Unevaluated leaseholds and seismic costs
|
325,086 | 258,300 | ||||||
Capitalized interest
|
43,166 | 34,563 | ||||||
Exploratory wells in progress
|
74,650 | 37,744 | ||||||
Land, building and other equipment
|
7,332 | 6,475 | ||||||
Total property and equipment
|
1,251,919 | 1,004,989 | ||||||
Accumulated depreciation, depletion and amortization
|
(302,351 | ) | (271,289 | ) | ||||
Total property and equipment, net
|
$ | 949,568 | $ | 733,700 | ||||
4.
|
INCOME TAXES
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands)
|
||||||||||||||||
(Expense) benefit at the statutory rate
|
$ | (13,704 | ) | $ | 3,076 | $ | (25,791 | ) | $ | 73,894 | ||||||
State and local income tax expense,
|
||||||||||||||||
net of federal benefit
|
(1,115 | ) | 109 | (2,463 | ) | 2,618 | ||||||||||
Other
|
18 | 809 | 441 | (1,743 | ) | |||||||||||
Total income tax (expense) benefit
|
$ | (14,801 | ) | $ | 3,994 | $ | (27,813 | ) | $ | 74,769 | ||||||
5.
|
DEBT
|
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
Convertible Senior Notes
|
$ | 373,750 | $ | 373,750 | ||||
Unamortized discount for Convertible Senior Notes
|
(35,681 | ) | (45,122 | ) | ||||
Senior Secured Revolving Credit Facility
|
246,000 | 191,400 | ||||||
Other
|
160 | 308 | ||||||
584,229 | 520,336 | |||||||
Less: Current maturities
|
(160 | ) | (148 | ) | ||||
$ | 584,069 | $ | 520,188 | |||||
6.
|
ASSET RETIREMENT OBLIGATION
|
Nine Months Ended
|
Year Ended
|
|||||||
September 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
||||||
|
(In thousands)
|
|||||||
Asset retirement obligation at beginning of period
|
$ | 5,410 | $ | 6,503 | ||||
Liabilities incurred
|
125 | 444 | ||||||
Liabilities settled
|
(80 | ) | (36 | ) | ||||
Accretion expense
|
160 | 308 | ||||||
Revisions of previous estimates
|
(1,200 | ) | (1,809 | ) | ||||
Asset retirement obligation at end of period
|
$ | 4,415 | $ | 5,410 | ||||
7.
|
COMMITMENTS AND CONTINGENCIES
|
8.
|
SHAREHOLDERS’ EQUITY
|
Nine Months
|
||||||||
Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
(In thousands)
|
||||||||
Shares outstanding at January 1
|
31,100 | 30,860 | ||||||
Common stock offering
|
3,220 | - | ||||||
Restricted stock awards, net of forfeitures
|
303 | 179 | ||||||
Stock options exercised for cash
|
262 | 5 | ||||||
Other
|
- | 10 | ||||||
Shares outstanding at September 30
|
34,885 | 31,054 | ||||||
9.
|
DERIVATIVE INSTRUMENTS
|
Weighted
|
Weighted
|
|||||||||||
Average
|
Average
|
|||||||||||
Volume
|
Floor Price
|
Ceiling Price
|
||||||||||
Period
|
(in MMbtu)
|
($/MMbtu)
|
($/MMbtu)
|
|||||||||
2010
|
6,716,000 | $ | 5.76 | $ | 6.32 | |||||||
2011
|
21,340,000 | $ | 6.12 | $ | 6.49 | |||||||
2012
|
7,963,000 | $ | 6.53 | $ | 7.03 | |||||||
Weighted
|
Weighted
|
|||||||||||
Average
|
Average
|
|||||||||||
Volume
|
Short Put Price
|
Put Spread
|
||||||||||
Period
|
(in MMbtu)
|
($/MMbtu)
|
($/MMbtu)
|
|||||||||
2010
|
5,209,000 | $ | 4.11 | $ | 1.65 | |||||||
2011
|
16,799,000 | $ | 4.29 | $ | 1.83 | |||||||
2012
|
6,404,000 | $ | 4.47 | $ | 2.06 | |||||||
Three Months
|
Nine Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Realized gain
|
$ | 9,111 | $ | 16,038 | $ | 22,859 | $ | 62,064 | ||||||||
Unrealized gain (loss)
|
12,409 | (18,024 | ) | 24,677 | (36,262 | ) | ||||||||||
Gain (loss) on derivative instruments, net
|
$ | 21,520 | $ | (1,986 | ) | $ | 47,536 | $ | 25,802 | |||||||
10.
|
FAIR VALUE MEASUREMENTS
|
September 30, 2010
|
December 31, 2009
|
|||||||||||||||||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||||||||||
Investment in Pinnacle
|
||||||||||||||||||||||||||||||||
Gas Resources, Inc.
|
$ | 818 | $ | - | $ | - | $ | 818 | $ | 835 | $ | - | $ | - | $ | 835 | ||||||||||||||||
Derivative instruments
|
- | 65,213 | - | 65,213 | - | 48,192 | - | 48,192 | ||||||||||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||||||||||
Derivative instruments
|
- | 29,446 | - | 29,446 | - | 36,129 | - | 36,129 | ||||||||||||||||||||||||
Total
|
$ | 818 | $ | 35,767 | $ | - | $ | 36,585 | $ | 835 | $ | 12,063 | $ | - | $ | 12,898 | ||||||||||||||||
11.
|
MARCELLUS SHALE JOINT VENTURE
|
12.
|
RELATED PARTY TRANSACTIONS
|
13.
|
SUBSEQUENT EVENTS
|
•
|
$166 million for drilling, an increase from $147 million under the previous $225 million plan;
|
•
|
$102 million for land and seismic acquisitions, an increase from $76 million under the previous $225 million plan; and
|
•
|
$12 million for development of our Huntington Field in the U.K. North Sea, an increase from $2 million under the previous $225 million plan.
|
·
|
In April 2010, we announced a new growth strategy in crude oil and liquids-rich plays to take advantage of the attractive economics associated with those commodities in light of market conditions. We moved quickly to implement this strategy and currently own approximately 20,000 net acres in an unconventional play that is rich in condensate and natural gas liquids located in the Eagle Ford Shale, principally in LaSalle County, Texas and over 59,000 net acres in an unconventional oil play located in the Niobrara formation in the Denver-Julesberg basin in Weld County, Colorado. Since our announcement, we have drilled four horizontal gross wells (4.0 net) and we are drilling our fifth well in the Eagle Ford Shale. Prior to year-end, we expect to drill four gross wells (4.0 net) in the Niobrara formation. We currently expect initial production results from the Eagle Ford Shale in November 2010 and from the Niobrara formation by the end of 2010.
|
·
|
As a result of the joint venture with Reliance, we plan to accelerate our exploration activities in the Marcellus Shale. We have drilled seven gross wells (1.7 net) in the Marcellus Shale in 2010, including three gross wells (0.6 net) in Pennsylvania. In the third quarter of 2010, we entered into two long-term contracts for drilling rigs in the Marcellus Shale, one of which is expected to begin work in the fourth quarter of 2010 and the other of which is expected to begin work in the second quarter
|
·
|
As a result of the closing of the transactions related to the Marcellus Shale joint venture with Reliance described above, our Board of Directors approved a revised capital expenditure plan for 2010 of approximately $280 million (a $55 million increase over our prior capital expenditure plan of $225 million), which includes $166 million for drilling, $102 million for land and seismic acquisitions and $12 million for the development of our Huntington Field in the U.K. North Sea.
|
·
|
At September 30, 2010, we had hedged approximately 6,716,000 MMBtus of natural gas production (or 73,000 MMBtu per day for the fourth quarter of 2010), representing approximately 60% of our forecasted natural gas production for the fourth quarter of 2010, at a weighted average floor or swap price of $5.76 per MMBtu relative to WAHA and Houston Ship Channel prices.
|
Three Months Ended
|
2010 Period
|
|||||||||||||||
September 30,
|
Compared to 2009 Period
|
|||||||||||||||
Increase
|
% Increase
|
|||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Production volumes
|
||||||||||||||||
Oil and condensate (MBbls)
|
29 | 44 | (15 | ) | (34 | )% | ||||||||||
Natural gas and NGLs (MMcf)
|
8,417 | 7,947 | 470 | 6 | % | |||||||||||
Average sales prices
|
||||||||||||||||
Oil and condensate (per Bbl)
|
$ | 72.92 | $ | 66.25 | $ | 6.67 | 10 | % | ||||||||
Natural gas and NGLs (per Mcf)
|
3.37 | 2.60 | 0.77 | 30 | % | |||||||||||
Oil and gas revenues (In thousands)
|
||||||||||||||||
Oil and condensate
|
$ | 2,096 | $ | 2,886 | $ | (790 | ) | (27 | )% | |||||||
Natural gas and and NGLs
|
28,406 | 20,698 | 7,708 | 37 | % | |||||||||||
Total oil and gas revenues
|
$ | 30,502 | $ | 23,584 | $ | 6,918 | 29 | % | ||||||||
Nine Months Ended
|
2010 Period
|
|||||||||||||||
September 30,
|
Compared to 2009 Period
|
|||||||||||||||
Increase
|
% Increase
|
|||||||||||||||
2010
|
2009
|
(Decrease)
|
(Decrease)
|
|||||||||||||
Production volumes
|
||||||||||||||||
Oil and condensate (MBbls)
|
105 | 129 | (24 | ) | (19 | )% | ||||||||||
Natural gas and NGLs (MMcf)
|
25,524 | 23,589 | 1,935 | 8 | % | |||||||||||
Average sales prices
|
||||||||||||||||
Oil and condensate (per Bbl)
|
$ | 75.10 | $ | 54.08 | $ | 21.02 | 39 | % | ||||||||
Natural gas and NGLs (MMcf)
|
3.70 | 3.10 | 0.60 | 19 | % | |||||||||||
Oil and gas revenues (In thousands)
|
||||||||||||||||
Oil and condensate
|
$ | 7,854 | $ | 6,951 | $ | 903 | 13 | % | ||||||||
Natural gas and NGLs
|
94,526 | 73,235 | 21,291 | 29 | % | |||||||||||
Total oil and gas revenues
|
$ | 102,380 | $ | 80,186 | $ | 22,194 | 28 | % | ||||||||
·
|
Cash on hand and cash generated by operations. Cash flows from operations are highly dependent on commodity prices and market conditions for oil and gas field services. We hedge a portion of our production to reduce the downside risk of declining oil and gas prices.
|
·
|
Borrowings under the Senior Credit Facility. As of November 3, 2010, there was no outstanding balance under the Senior Credit Facility. We expect to fund the tender offer for our Convertible Senior Notes in late November 2010 primarily with borrowings under the Senior Credit Facility. We have also issued $4.1 million of letters of credit, which reduce the amounts available under the Senior Credit Facility. Future availability under our $375 million borrowing base is subject to the terms and covenants of the Senior Credit Facility. The Senior Credit Facility is used to fund ongoing working capital needs and the remainder of our capital expenditure plan only to the extent that such amounts exceed cash flow from operations, proceeds from the sale of oil and gas properties and securities offerings. The next borrowing base redetermination is expected in November 2010. In addition, the borrowing base will be reduced by 25% of the difference between the amount of Senior Notes issued and the Convertible Senior Notes tendered. We recently amended the terms and covenants under the Senior Credit Facility. Please read “-Recent Developments – Amendment to Senior Credit Facility.” As defined in the Senior Credit Facility, the current ratio was 1.56, the total net debt to Consolidated EBITDA ratio was 4.01 and the ratio of senior debt to Consolidated EBITDA ratio was 1.71 as of September 30, 2010. Because the calculation of the financial ratios are made as of a certain date, the financial ratios can fluctuate significantly period to period as the amounts outstanding under the Senior Credit Facility are dependent on, among other things, the timing of cash flows related to operations, capital expenditures, sales of oil and gas properties and securities offerings.
|
·
|
Asset sales. In order to fund our capital expenditure plan, we may consider the sale of certain properties or assets that are not part of our core business, or are no longer deemed essential to our future growth, if we are able to sell such assets on terms that are acceptable to us. We may consider the sale of additional non-core assets, including the possible sale of our interest in the Huntington Field located in the U.K. North Sea, provided that we can obtain terms that are acceptable to us.
|
·
|
Securities offerings. In November 2010, we sold $400 million aggregate principal amount of Senior Notes, which were guaranteed by substantially all of our wholly owned subsidiaries. We used the net proceeds of approximately $387.7 million after deducting initial purchasers’ discounts and our estimated expenses, to repay in full borrowings outstanding under the
|
·
|
Project financing in certain limited circumstances, particularly to fund a portion of our future development costs for the Huntington Field in the U.K. North Sea.
|
·
|
Lease option agreements and land banking arrangements, such as those we have entered into in the past regarding the Marcellus Shale, the Barnett Shale and other plays. Please read Part II - Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Quarterly Report on Form 10-Q.
|
·
|
Joint ventures through which parties fund a portion of our land acquisition exploration activities to earn an interest in our exploration acreage, such as our joint ventures with Avista and Reliance in the Marcellus Shale play and our joint venture with Sumitomo in the Barnett Shale.
|
·
|
We may consider sale/leaseback transactions of certain capital assets, such as pipelines and compressors, which are not part of our core oil and gas exploration and production business.
|
Weighted
|
Weighted
|
|||||||||||
Average
|
Average
|
|||||||||||
Volume
|
Floor Price
|
Ceiling Price
|
||||||||||
Period
|
(in MMbtu)
|
($/MMbtu)
|
($/MMbtu)
|
|||||||||
2010
|
6,716,000 | $ | 5.76 | $ | 6.32 | |||||||
2011
|
21,340,000 | $ | 6.12 | $ | 6.49 | |||||||
2012
|
7,963,000 | $ | 6.53 | $ | 7.03 | |||||||
Weighted
|
Weighted
|
|||||||||||
Average
|
Average
|
|||||||||||
Volume
|
Short Put Price
|
Put Spread
|
||||||||||
Period
|
(in MMbtu)
|
($/MMbtu)
|
($/MMbtu)
|
|||||||||
2010
|
5,209,000 | $ | 4.11 | $ | 1.65 | |||||||
2011
|
16,799,000 | $ | 4.29 | $ | 1.83 | |||||||
2012
|
6,404,000 | $ | 4.47 | $ | 2.06 | |||||||
Three Months
|
Nine Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Realized gain
|
$ | 9,111 | $ | 16,038 | $ | 22,859 | $ | 62,064 | ||||||||
Unrealized gain (loss)
|
12,409 | (18,024 | ) | 24,677 | (36,262 | ) | ||||||||||
Gain (loss) on derivative instruments, net
|
$ | 21,520 | $ | (1,986 | ) | $ | 47,536 | $ | 25,802 | |||||||
·
|
our joint venture partners may share certain approval rights over major decisions;
|
·
|
our joint venture partners may not pay their share of the joint venture’s obligations, leaving us liable for their shares of joint venture liabilities;
|
·
|
we may incur liabilities as a result of an action taken by our joint venture partners;
|
·
|
our joint venture partners may be in a position to take actions contrary to our instructions or requests or contrary to our policies or objectives; and
|
·
|
disputes between us and our joint venture partners may result in delays, litigation or operational impasses.
|
Exhibit
Number
|
Description
|
|
10.1
|
—
|
Thirteenth Amendment to Credit Agreement, dated as of August 23, 2010 and effective as of September 10, 2010, among Carrizo Oil & Gas, Inc., as Borrower, certain Subsidiaries of the Borrower, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, N.A., as administrative agent and issuing bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 16, 2010).
|
10.2
|
—
|
Amendment No. 1, dated as of August 4, 2010, to the Participation Agreement among Carrizo (Marcellus) LLC, Carrizo Oil & Gas, Inc., Avista Capital Partners II, L.P. and ACP II Marcellus LLC, effective as of August 1, 2008 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 16, 2010).
|
10.3
|
—
|
Omnibus Amendment among Carrizo (Marcellus) LLC, Carrizo Oil & Gas, Inc., Avista Capital Partners II, L.P. and ACP II Marcellus LLC, dated as of September 10, 2010 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 16, 2010).
|
10.4
|
—
|
Fourteenth Amendment to Credit Agreement, dated as of October 21, 2010, among Carrizo Oil & Gas, Inc., as Borrower, certain Subsidiaries of the Borrower, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, N.A., as administrative agent and issuing bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 25, 2010).
|
31.1
|
—
|
|
31.2
|
—
|
|
32.1
|
—
|
|
32.2
|
—
|
Carrizo Oil & Gas, Inc.
|
|
(Registrant)
|
|
Date: November 9, 2010
|
By: /s/ Paul F. Boling
|
Vice President, Chief Financial Officer and Secretary
|
|
(Principal Financial Officer)
|
|
Date: November 9, 2010
|
By: /s/ David L. Pitts
|
Vice President and Chief Accounting Officer
|
|
(Principal Accounting Officer)
|