Increased Oil Production Drives
Significant Improvement in Financial
Results
First Quarter Oil Production Increased
99% and Operating Income Increased 127%
Credo Petroleum Corporation (Nasdaq:CRED), an oil and gas
exploration and production company with significant assets in the
North Dakota Bakken and Three Forks, Kansas, Nebraska, the Texas
Panhandle and Oklahoma, today reported financial results for its
first fiscal quarter of 2012.
A 99% increase in oil production volumes drove significantly
improved financial performance in the first quarter of 2012. The
following table shows the changes in certain financial and
operational categories for the quarter ended January 31, 2012
compared to the same quarter last year.
Revenue |
+79% |
Operating Income |
+127% |
EBITDA |
+96% |
Net Income |
+515% |
Adjusted Net Income |
+88% |
Total Production (BOE) |
+36% |
Oil Production (BO) |
+99% |
Operating income increased to $2,052,000 compared to $904,000
last year on revenue of $5,821,000 compared to $3,250,000 last
year. Increased production volumes accounted for 94% of the
revenue increase while price changes accounted for 6% of the
increase.
EBITDA (a non-GAAP measure; see reconciliation below) for the
first quarter of 2012 increased to $3,842,000 compared to
$1,960,000 last year. Net income was $1,040,000, or $.10 per
diluted share, compared to $169,000, or $.02 per diluted share,
last year. Adjusted net income (a non-GAAP measure; see
reconciliation below) increased to $1,367,000, or $.14 per share,
compared to $726,000, or $.07 per share last year.
DRILLING SUCCESS DRIVES SURGE
IN OIL PRODUCTION AND 36% INCREASE IN TOTAL
PRODUCTION VOLUMES
The Company's oil-focused drilling success yielded a 99%
increase in first quarter 2012 oil production compared to last
year. Natural gas drilling was suspended in 2009 because of
low natural gas prices. As a result, mostly normal declines
reduced gas production by 9% in the first quarter compared to last
year. The following table shows that the Company's comparative
first quarter production mix shifted solidly in favor of oil.
First Quarter Production Mix |
2012 |
2011 |
Crude Oil |
61% |
42% |
Natural Gas |
39% |
58% |
Total production volumes increased 36% in the first quarter to
91,000 BOE (barrels of oil equivalent based on six Mcf of gas to
one barrel of oil) compared to last year. The following table
shows comparative first quarter production volume percentages by
region and highlights the robust shift occurring in the Company's
production mix to crude oil in North Dakota, Kansas and Nebraska
and away from natural gas in Oklahoma.
First Quarter Production by Region |
2012 |
2011 |
North Dakota Bakken and Three Forks |
21% |
10% |
Kansas and Nebraska Lansing Kansas
City |
21% |
15% |
Texas Panhandle Tonkawa and Cleveland |
10% |
8% |
Other (primarily Oklahoma natural gas) |
48% |
67% |
Michael D. Davis, interim Chief Executive Officer, stated,
"Although we are required to report production volumes on their six
to one energy equivalent basis, the current price equivalent is
more than forty to one. That makes oil worth about seven times
more than natural gas, which is magnifying our revenue growth and
bottom line results compared to our production growth. For
example, in the first quarter of 2012, oil represented 86% of the
value of production compared to 61% of production volumes."
The following table shows comparative first quarter revenue
percentages by region.
First Quarter Revenue by Region |
2012 |
2011 |
North Dakota Bakken and Three Forks |
27% |
15% |
Kansas and Nebraska Lansing Kansas
City |
32% |
26% |
Texas Panhandle Tonkawa and Cleveland |
9% |
5% |
Other (primarily Oklahoma natural gas) |
32% |
54% |
FIRST QUARTER WELLHEAD PRICES
MIXED
First quarter wellhead oil prices increased 13% to $90.33
compared to $79.75 last year. Natural gas prices fell 14% to
$3.73 compared to $4.34 last year. For the quarter ended
January 31, 2012, the Company had realized hedging losses
of $44,000 compared to gains of $36,000 last year. First
quarter oil hedges had the effect of reducing the Company oil price
realizations by $.79 per barrel to $89.54. Last year, natural
gas hedges increased first quarter price realizations by $.16 per
Mcf to $4.50.
At January 31, 2012, the Company held short swap hedge positions
on 6,000 barrels of oil per month for the production months of
February 2012 through December 2012, at prices ranging from
$91.95 to $93.00. The hedge is expected to cover
approximately 15% to 25% of estimated production for the hedged
period. At first quarter end, unrealized hedging losses were
$481,000 compared to $741,000 last year. The unrealized losses
are a non-cash charge calculated at a point in time by applying oil
prices as of first quarter-end to open hedging contract
volumes. Actual realized gains or losses on the hedges are
determined based on oil prices at the time each month's hedge
contract expires.
RECORD CAPITAL EXPENDITURES
TO BE PARTIALLY FINANCED BY BANK BORROWING
Capital expenditures are expected to more than double in fiscal
2012 to $35,000,000, of which approximately 65% is earmarked for
Bakken and Three Forks drilling. For the first time in Credo's
history, financing will be required to fund a portion of the
Company's capital expenditures. Accordingly, the Company has
established a revolving credit line with its principal bank which
provides for a $25,000,000 credit facility. The initial
borrowing base is $7 million but will be increased as the Company
pledges additional properties as collateral. Borrowing in 2012
is expected to range from $7 million to $12 million.
The credit facility is governed by a borrowing base which is
determined semi-annually by the lender based on review of the
Company's reserves at April 30 and October 31. To date, the
Company has drawn $2 million on the line of credit with an
effective interest rate of 3.5%.
MANAGEMENT
COMMENT
Davis continued, "We have been extremely successful
transitioning Credo from natural gas to oil in a relatively short
time frame. Our comparative first quarter oil production grew
99% and for the quarter, oil represented 61% of our production
mix. We will continue to build on that momentum throughout
2012 with the objective of oil comprising 75% of our production mix
by year-end.
"We entered 2012 with a balanced, multi-year inventory of
projects that will propel Credo's organic production and
reserve gains in the years ahead. In our Bakken and Three
Forks project alone we have approximate 200 to 250 drilling
locations based on two Bakken and two Three Forks wells in each
spacing unit. That number could double if, as many of the
larger Bakken operators predict, well density increases to eight
wells per spacing unit."
About Credo Petroleum
Credo Petroleum Corporation is an independent oil and gas
exploration and production company based in Denver,
Colorado. The Company has significant operations in the
Williston Basin of North Dakota, Kansas, Nebraska, the Anadarko
Basin of the Texas Panhandle and northwest Oklahoma, and in
southern Oklahoma. Credo uses advanced technologies to
systematically explore for oil and gas and, through its patented
Calliope Gas Recovery System, to recover stranded reserves from
depleted gas reservoirs. For more information, please visit
our website at www.credopetroleum.com or contact us at
303-297-2200.
Supplemental Non-GAAP Financial
Measures
EBITDA
The Company uses this non‑GAAP operating performance measure
primarily to compare its performance with other companies in the
industry that make a similar disclosure. The Company believes
that this performance measure may also be useful to investors for
the same purpose. Investors should not consider this measure
in isolation or as a substitute for operating income or any other
measure for determining the Company's operating performance that is
calculated in accordance with GAAP. In addition, because
EBITDA is not a GAAP measure, it may not necessarily be comparable
to similarly titled measures employed by other companies. A
reconciliation of Net Income to EBITDA (as used by the Company) is
provided in the table below:
|
Three Months Ended
January 31, |
|
2012 |
2011 |
|
|
|
Net Income as reported |
$ 1,040,000 |
$ 169,000 |
Add Back): |
|
|
Income Tax Expense |
489,000 |
56,000 |
Depreciation, Depletion and
Amortization Expense |
1,832,000 |
994,000 |
Unrealized Derivative
Losses |
481,000 |
741,000 |
|
|
|
EBITDA |
$ 3,842,000 |
$ 1,960,000 |
Adjusted Net Income
The following table provides information that the Company
believes may be useful to investors that follow the practice of
some industry analysts who adjust reported company earnings to
match realizations to production settlement months and make other
adjustments to exclude certain non-cash items. The following
table provides a reconciliation of Net Income to non-GAAP Adjusted
Net Income.
|
Three Months Ended
January 31, |
|
2012 |
2011 |
|
|
|
Net Income as reported |
$ 1,040,000 |
$ 169,000 |
|
|
|
Adjustments for certain non-cash items: |
|
|
Unrealized mark-to-market loss
on commodity derivatives |
$ 481,000 |
$ 741,000 |
Tax impact |
$ (154,000) |
$ (184,000) |
|
|
|
Adjusted Net Income |
$ 1,367,000 |
$ 726,000 |
|
|
|
Adjusted Diluted Earnings per Share |
$ 0.14 |
$ 0.07 |
|
|
|
Weighted Average Diluted Shares
Outstanding |
10,078,000 |
10,070,000 |
This press release includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All statements included in this press release, other
than statements of historical facts, address matters that the
Company reasonably expects, believes or anticipates will or may
occur in the future. Such statements are subject to various
assumptions, risks and uncertainties, many of which are beyond the
control of the Company. Investors are cautioned that any such
statements are not guarantees of future performance and that actual
results or developments may differ materially from those described
in the forward-looking statements. Investors are encouraged to
read the "Forward-Looking Statements" and "Risk Factors" sections
included in the Company's Annual Report on Form 10-K for more
information. Although the Company may from time to time
voluntarily update its prior forward looking statements, it
disclaims any commitment to do so except as required by securities
laws.
CREDO PETROLEUM
CORPORATION |
FINANCIAL
HIGHLIGHTS |
|
|
|
Condensed Operating
Information |
|
|
|
Three Months Ended |
|
January 31, |
|
2012 |
2011 |
REVENUES: |
|
|
Oil sales |
$5,031,000 |
$2,235,000 |
Natural gas sales |
790,000 |
1,015,000 |
|
5,821,000 |
3,250,000 |
COSTS AND EXPENSES: |
|
|
Oil and natural gas
production |
1,187,000 |
867,000 |
Depreciation, depletion and
amortization |
1,832,000 |
994,000 |
General and
administrative |
750,000 |
485,000 |
|
3,769,000 |
2,346,000 |
|
|
|
Income from Operations |
2,052,000 |
904,000 |
|
|
|
Other Income and (Expense) |
|
|
Realized and unrealized
(losses) from derivative contracts |
(525,000) |
(705,000) |
Investment and other
income |
2,000 |
26,000 |
|
(523,000) |
(679,000) |
|
|
|
INCOME BEFORE INCOME TAXES |
1,529,000 |
225,000 |
|
|
|
INCOME TAXES |
(489,000) |
(56,000) |
|
|
|
NET INCOME |
$1,040,000 |
$169,000 |
|
|
|
Earnings per share - basic |
$ .10 |
$ .02 |
|
|
|
Earnings per share - diluted |
$ .10 |
$ .02 |
|
|
|
Weighted average number of shares
of Common Stock and dilutive securities: |
|
|
Basic |
10,041,000 |
10,043,000 |
|
|
|
Diluted |
10,078,000 |
10,070,000 |
|
CREDO PETROLEUM
CORPORATION |
FINANCIAL
HIGHLIGHTS |
|
|
|
Condensed Balance Sheet
Information |
January 31,
2012 |
October 31, 2011 |
Cash and Short-Term Investments |
$2,165,000 |
$4,800,000 |
Other Current Assets |
4,355,000 |
3,457,000 |
Oil and Natural Gas Properties, Net |
50,504,000 |
47,850,000 |
Intangible Assets, Net |
3,033,000 |
3,142,000 |
Other Assets |
1,925,000 |
1,787,000 |
|
|
|
|
$61,982,000 |
$61,036,000 |
|
|
|
Current Liabilities |
$4,812,000 |
$5,317,000 |
Deferred Income Taxes |
4,994,000 |
4,505,000 |
Asset Retirement Obligations |
1,120,000 |
1,213,000 |
Stockholders' Equity |
51,056,000 |
50,001,000 |
|
|
|
|
$61,982,000 |
$61,036,000 |
CONTACT: Michael D. Davis
Chief Operating Officer
and CEO (Interim)
or
Alford B. Neely
Chief Financial Officer
303-297-2200
Website: www.credopetroleum.com
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