Credo Petroleum Corporation (NASDAQ:CRED), an oil and gas
exploration and production company with significant assets in
Central Kansas, Oklahoma and the Williston Basin, today reported
financial results for the six months and quarter ended
April 30, 2010.
First half net income increased 184% to $1,242,000, or
$.12 per diluted share, compared to adjusted net income of
$437,000, or $.04 last year. The company reported a net loss of
$14,601,000, or $1.41 per diluted share last year, which
includes a $15,038,000 after tax, non-cash property cost impairment
charge caused by last year’s energy price collapse. First half
revenue increased 36% to $6,087,000 compared to $4,461,000 last
year.
For the second quarter ended April 30, 2010, net income
increased 116% to $603,000, or $.06 per diluted share,
compared to adjusted net income of $231,000 last year. Last year
the company reported a second quarter net loss of $4,710,000, or
$.46 per diluted share, which includes a $4,941,000 after tax,
non-cash property cost impairment caused by last year’s energy
price collapse. Second quarter revenue increased 25% to $2,945,000
compared to $2,353,000 last year.
FIRST HALF OIL PRICES GAIN
89%;NATURAL GAS PRICE REALIZATIONS FALL 31%
First half net wellhead oil prices increased 89% to $72.74 per
barrel compared to $38.63 last year. Natural gas price realizations
fell 31% to $4.90 per Mcf compared to $7.13 last year.
Realized hedging transactions increased wellhead prices slightly
this year compared to $3.51 last year. Wellhead gas prices were
$4.89 per Mcf compared to $3.62 last year.
Wellhead oil prices for the second quarter increased 84% to
$72.31 compared to $39.25 last year. Natural gas price realizations
fell 40% to $4.65 per Mcf compared to $7.75 last year.
Realized hedging transactions increased wellhead prices $.05 per
Mcf this year compared to $4.74 last year. Wellhead prices were
$4.60 per Mcf compared to $3.01 last year.
At April 30, 2010 the company held open natural gas derivative
contracts for 40,000 net MMBtus at NYMEX basis prices ranging from
$5.31 to $7.27 and covering the production months of May 2010
through December 2010. The company also held natural gas basis
differential contracts on 280,000 MMBtus on Panhandle Eastern
Pipeline at $0.47 covering the production months of May 2010
through December 2010. Average prices received in the company’s
primary market have historically been 15% to 17% below NYMEX
prices, due to basis differentials, compared to the current
differential of about 4%. Differentials are affected by regional
weather, gas storage and other economic factors.
At April 30, 2010 the company also held costless collar
derivative contracts for 6,000 barrels of oil for the production
months of May through October 2010, with a $75.00 floor and $95.00
ceiling based on NYMEX prices. There were no realized gains or
losses on these derivatives for the reporting periods.
OIL PRODUCTION ACCOUNTS FOR
58%OF TOTAL PRODUCTION REVENUE
For the first half, oil accounted for 58% of total production
revenues verses 47% last year, as the company’s emphasis on
drilling for oil continues to have a substantial impact on its
revenues.
On the energy equivalency basis (six Mcf equals one barrel of
oil), total first half production was down 17% primarily due to the
impact of flush oil production last year from the company’s Huslig
Field discovery. For the period, oil production was down 12% and
natural gas production was down 19%. The company has concentrated
on oil drilling in Central Kansas and North Dakota during
2010 and has not drilled for gas due to low prices.
For the second quarter, total production was down 23% calculated
on the energy equivalency basis, due to flush production from the
Huslig Field discovery last year and suspension of natural gas
drilling. For the period, oil production was down 35% and natural
gas production was down 13%. The company has concentrated on oil
drilling in Central Kansas and North Dakota during 2010 and
has not drilled for gas due to low natural gas prices.
“Lower production volumes this year resulted because the Huslig
Field discovery peaked in the second quarter of last year,” said
Marlis E. Smith, Jr., CEO. “The field is a significant discovery
for Credo, and fortunately we own 85%. The 700 barrel per day
production peak set a high bar last year, making it very difficult
for us to increase year over year production in the short term.
Nevertheless, we hope that continuation of our Kansas drilling
success and our increased Bakken drilling will overcome the
shortfall by year end.”
STRONG FINANCIAL CONDITION
CONTINUES TO PROVIDEA SOLID FOUNDATION FOR GROWTH
The company’s financial condition continues to be very strong
with ample cash and no debt. In addition, the company expects
operating cash flow to remain strong in 2010. This provides the
company great flexibility to increase capital spending as
opportunities arise. At April 30, 2010, total assets were
$53,366,000 and working capital was $12,178,000, including cash and
short-term investments of $12,129,000.
MANAGEMENT COMMENT
“I am pleased with the significant increase in quarterly revenue
and net income compared to last year,” Smith said. “The success of
our focus on drilling for oil is reflected by the fact that oil
revenue exceeded natural gas revenue for the fifth consecutive
quarter. Our transition to oil drilling has paid great dividends
because oil enjoys an almost three to one price advantage over
natural gas, on an energy equivalent basis.
“We have not yet overcome the decline in flush production from
our Huslig Field discovery last year. The high rate field peaked in
the second quarter of last year at about 700 barrels per day.
Although the first year decline rate has been significant due to
the field’s high permeability, it is normal and was expected. Such
declines on significant discoveries make it very difficult to
increase year over year production in the short term. However, our
full year objective is to make up the shortfall with success from
increased Bakken drilling.
“We will continue to focus on drilling for oil, primarily in
Central Kansas and the North Dakota Bakken. Our drilling success
rate in Kansas is between 45% and 50%, and we are drilling about
three wells per month. Our first Bakken well has produced
40,000 barrels in the first 90 days and appears to be one of the
best wells in the area. Credo will issue a press release shortly
updating operational activities in the North Dakota Bakken
play.”
About Credo Petroleum: Credo Petroleum Corporation is an
independent exploration, development and production company based
in Denver, Colorado. The company has significant operations in the
Williston Basin of North Dakota, central Kansas, the Anadarko Basin
of North Texas 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.
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
Six Months Ended Three Months Ended April 30, April 30,
2010
2009
2010
2009
Oil sales
$
3,530,000
$ 2,118,000
$
1,806,000
$ 1,496,000
Natural gas sales
2,557,000
2,343,000
1,139,000
857,000
6,087,000
4,461,000
2,945,000
2,353,000
Costs and expenses:
Oil and natural gas production
1,658,000
1,623,000
802,000
737,000 Depreciation, depletion and amortization
1,723,000
2,540,000
858,000
1,203,000 Impairment of oil and gas properties and
long lived assets
-
24,652,000
-
8,030,000 General and administrative
1,119,000
1,389,000
577,000
521,000
4,500,000
30,204,000
2,237,000
10,491,000
Income (loss) from
operations
1,587,000
(25,743,000 )
708,000
(8,138,000 )
Other income and
(expense)
Realized and unrealized gains (losses) from derivative contracts
27,000
1,927,000
41,000
461,000 Investment and other income (loss)
43,000
(120,000 )
44,000
22,000
70,000
1,807,000
85,000
483,000
Income (loss) before
income
taxes
1,657,000
(23,936,000 )
793,000
(7,655,000 ) Income taxes
(415,000
)
9,335,000
(190,000
)
2,945,000
Net income (loss)
$
1,242,000
$ (14,601,000 )
$
603,000
$ (4,710,000 )
Earnings (loss) per share -
basic
$
.12
$ (1.41 )
$
.06
$ (.46 )
Earnings (loss) per share -
diluted
$
.12
$ (1.41 )
$
.06
$ (.46 )
Weighted average number of shares
of
Common Stock and dilutive securities: Basic
10,140,000
10,358,000
10,187,000
10,330,000 Diluted
10,179,000
10,358,000
10,205,000
10,330,000
CREDO PETROLEUM
CORPORATION
FINANCIAL HIGHLIGHTS
Condensed Balance Sheet
Information
April 30, 2010
October 31, 2009 Cash and short-term investments
$
12,129,000
$ 12,983,000 Other current assets
2,587,000
3,016,000 Oil and natural gas properties, net
32,496,000
30,279,000 Intangible assets, net
3,796,000
4,013,000 Other assets
2,358,000
2,261,000
$
53,366,000
$ 52,552,000 Current liabilities
$
2,538,000
$ 2,457,000 Deferred income taxes
2,902,000
2,537,000 Asset retirement obligations
1,411,000
1,502,000 Stockholders’ equity
46,515,000
46,056,000
$
53,366,000
$ 52,552,000
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