Credo Petroleum Corporation (Nasdaq:CRED) today released the text
of the Report to Shareholders that is included in the company's
Annual Report for fiscal 2011. The Annual Report will be mailed to
shareholders of record on or about March 1, 2011. It will also be
available on-line through the Company's website
(www.credopetroleum.com). The 2012 Annual Meeting of Shareholders
will be held at the Brown Palace Hotel, 321 Seventeenth Street,
Denver, Colorado, 80202, on April 5, 2012 at 2:30 p.m. MST.
The table below is included on the inside front cover of the
2011 Annual Report. In the Report to Shareholders which follows the
table there are references to the information on the inside front
cover of the Annual Report which, for purposes of this press
release, is included in the table below.
|
Highlights |
|
|
|
|
|
4th Quarter 2011 |
Fiscal Year 2011 |
|
|
|
Revenue |
Up 94% |
Up 45% |
Net Income |
Up 242% |
Up 60% |
EBITDA |
Up 116% |
Up 55% |
Production |
Up 32% |
Up 12% |
Proved Reserves |
* |
Up 25% |
Proved Oil Reserves |
* |
Up 106% |
PV 10 Reserve Value |
* |
Up 61% |
|
* Quarterly calculation is
not applicable because year-end and fourth quarter reserves are the
same. |
Fellow Shareholders:
We continued to achieve major transition milestones
in 2011 which generated the excellent financial and operational
results shown on the inside front cover. For the past three
years our business strategy has been to rapidly transform Credo
from almost exclusively a natural gas producer into primarily an
oil producer. We began executing on that strategy by entering
then emerging drilling plays in the North Dakota Bakken and Three
Forks and the Tonkawa and Cleveland in the Texas Panhandle. We
also entered a vertical oil drilling play in Kansas and
Nebraska. While major transitions like this require a
rebuilding period, we are pleased to report that a majority of our
revenues and production now come from oil, and that all of our
performance metrics are on the threshold of becoming oil
weighted.
Successful drilling in 2011 drove
significantly improved operating results and achieved the milestone
of relative equilibrium in our oil and gas production and
reserves.
In 2011, we almost doubled capital spending to
$15.5 million and drilled a record 49 gross (20 net) oil wells, a
92% increase in net wells over last year. As a result we
added significant oil production and reserves, bringing the oil and
gas mix for both categories into relative balance.
Successful drilling results drove a 12% year over
year increase in total production volumes to 301,000 BOE. The
following table shows comparative year production volume
percentages by region.
|
2011 |
2010 |
North Dakota Bakken and Three Forks |
12% |
2% |
Kansas and Nebraska Lansing Kansas
City |
20% |
16% |
Texas Panhandle Tonkawa and Cleveland |
8% |
4% |
Other (primarily Oklahoma natural gas) |
60% |
78% |
Our oil production increased 53% compared to last
year. We suspended gas drilling in 2009 because of low natural
gas prices. As a result, mostly normal declines reduced gas
production by 12% in 2011. The decline in gas production
substantially offset the larger increase in oil production because
(as the table below shows) at the beginning of 2011 gas represented
almost two-thirds of our production volume. That situation
will significantly improve in 2012 as we enter the year with oil
and gas production quantities about equal. The following table
shows comparative year production percentages by product.
|
2011 |
2010 |
Crude Oil and NGLs |
49% |
36% |
Natural Gas |
51% |
64% |
Total reserve additions for 2011 were 1.1 million
barrels of oil equivalent ("MMBOE"), replacing 372% of the year's
production. At year end, proved reserves totaled 4.1 MMBOE, up
25% over last year. Oil represented 48% of year-end
reserve quantities compared to 29% last year. We expect to
achieve the milestone of oil becoming the largest component of
reserve quantities in early 2012. The following table shows
the percentage of our year-end proved reserve quantities by
region.
|
2011 |
2010 |
North Dakota Bakken and Three Forks |
32% |
8% |
Kansas and Nebraska Lansing Kansas
City |
8% |
7% |
Texas Panhandle Tonkawa and Cleveland |
7% |
10% |
Other (primarily Oklahoma natural gas) |
53% |
75% |
At year end 2011, the Company's proved reserves had
a PV-10 value (SEC basis) of $62.3 million, up 61% over last
year. Oil represented 74% of reserve values compared to only
48% of reserve quantities due to the significant price differential
between oil and natural gas. Proved undeveloped reserves
represented 51% of total 2011 reserves. The percentage of
proved undeveloped reserves increased primarily because a
significant amount of drilling occurred around our Bakken acreage
which proved‑up drilling locations on our acreage.
Based on actual production information from our
wells, Credo's "in-house" Bakken reserve estimates are more in line
with some of the larger Bakken operators who are estimating per
well reserves of around 600,000 BOE. By comparison, our
independent engineers are currently giving our wells average
reserves of 351,000 BOE. We, therefore, expect our reported
(SEC basis) per well Bakken reserves to increase with time as more
production history becomes available in our area.
Successful and cost efficient operating
results lead to significantly improved financial
performance.
Oil-weighted production growth, operating
efficiency and supportive oil prices resulted in Credo generating
$9,967,000 in EBITDA for 2011, a 55% increase over 2010. For
2011, the Company reported a 60% increase in net income to
$3,518,000, or $.35 per diluted share. Revenues increased 45%
to $16,767,000 compared to last year, and the company continued to
maintain a strong balance sheet and financial position.
Our fourth quarter results reflect the
build-up of new oil production and reserves as the year
progressed.
Record drilling drove sequential production
increases in each quarter of 2011. As the table on the inside
front cover shows, the resulting increases in our comparative
fourth quarter performance metrics were substantially better than
for the full year. Credo achieved the milestone of becoming
primarily an oil producer in the fourth quarter, when oil
production represented 56% of production quantities and 79% of
revenues. Total fourth quarter production increased 32% year
over year, and 12% sequentially. The Bakken and Three Forks
comprised 11% of fourth quarter production compared to 4% last
year. Average daily production increased to 943 BOEPD in the
fourth quarter.
For the fourth quarter, Credo generated $3,214,000
in EBITDA, a 116% increase over last year. Fourth quarter net
income increased 242% to $1,387,000, or $.14 per diluted
share. Fourth quarter revenue increased 94% to $4,961,000.
We enter 2012 with
diversified drilling projects, hundreds of de-risked drilling
locations and a positive outlook for oil prices.
Now that we have achieved relative balance in the oil and gas
mix of our production and reserves, the next milestone is to
significantly overweight oil in the mix. To accomplish that
goal, we will continue to ramp-up oil drilling in 2012 by more than
doubling Credo's drilling budget to $35,000,000. As a result,
we will set new drilling records, with 85 gross (37 net) oil wells
currently on our drilling schedule, representing an 85% increase in
net wells over 2011. The regional allocation of our 2012 and
2011 drilling budget is shown below (in millions).
|
2012 |
2011 |
North Dakota Bakken and Three Forks |
$ 22.4 |
$ 4.8 |
Kansas and Nebraska Lansing Kansas
City |
9.8 |
8.4 |
Texas Panhandle Tonkawa and Cleveland |
1.4 |
2.0 |
Other (primarily Oklahoma natural gas) |
1.4 |
.3 |
|
$ 35.0 |
$ 15.5 |
Technology will continue to drive Credo's drilling
success. Horizontal drilling is a key to success in the North
Dakota Bakken and Three Forks and in the Texas Panhandle Cleveland
and Tonkawa oil plays. In Kansas and Nebraska we are
successfully using 3-D seismic to identify structural features
likely to trap oil. We are also continuing to deploy our
patented Calliope Gas Recovery System for low pressure gas
reservoirs.
Credo's Bakken leases are located in the
heart of the play where recent drilling has significantly de-risked
our acreage.
The Bakken is the largest onshore crude oil
accumulation ever assessed by the United States Geological
Survey. We are seeing a dramatic increase in drilling on and
around Credo's acreage, virtually all of which is located in the
heart of the play on the Fort Berthold Reservation. Credo owns
approximately 8,000 gross (6,000 net) acres consisting of
approximately 57 initial well spacing units based mostly on 1,280
acre spacing. We currently classify 50 of the spacing units as
prime. While our interest in individual spacing units differs, our
average working interest is 9%. We believe that at least two
Bakken and two Three Forks wells are likely to be drilled on
most of our spacing units for a total of 200 to
250 wells. However, many of the larger Bakken operators
predict that up to eight wells could ultimately be drilled in the
primary Bakken and Three Forks zones, which could double potential
Company wells to 400 to 500.
Our Bakken and Three Forks project is particularly
exciting because we are participating with highly experienced
operators in a repeatable and scalable world class oil
play. Drilling on our acreage is in its infancy, but is
ramping-up fast. To date, Credo has completed 12 Bakken and
Three Forks wells, all high rate producers, and we currently
project at least 20 new wells in fiscal 2012, for a total of
32 wells by year end 2012. The Company's average working
interest in the wells is 9.1%. Seven of the 20 wells projected
for 2012 are currently in various stages of being drilled or
completed. Three of the wells target the Three Forks
formation and four target the Bakken formation.
A hallmark of outstanding oil plays, like the
Bakken and Three Forks, is that they get better with time as
operators continue to crack the code on how to efficiently recover
the oil in place. For example, other operators are now testing
the Lower Three Forks benches with initial positive
results.
Diversification is essential to properly
manage risks, and creates staying power in the event of regional
disruptions.
We are continuing to lease aggressively in Kansas
and Nebraska, and now own 147,000 gross (85,000 net)
acres. Our exploration team has created a statistically
repeatable exploration model using advanced 3‑D seismic technology
and subsurface geology. To date, we have drilled 114 wells and
continue to achieve very favorable results and excellent risk
adjusted economics. Our exploration team is applying its
considerable experience from Kansas to decode the potential in
Nebraska.
In the Texas Panhandle, Credo's acreage position
consisting of 8,500 gross (2,400 net) acres lends itself to
impactful, multi‑pay, horizontal drilling for the oil-rich Tonkawa
and Cleveland formations. Located in the Tonkawa fairway, our
first two horizontal Tonkawa wells continue to be strong producers,
and our first horizontal Cleveland well is scheduled to spud this
spring. We see potential for 15 to 20 horizontal wells on our
acreage, and estimate Credo's average ownership to be between 25%
and 30%.
In 2011, Credo took advantage of opportunities
created by low natural gas prices to buy wells for application of
its patented Calliope Gas Recovery System. We have dedicated a
team to Calliope with the objective of acquiring Calliope
candidates, as companies de-emphasize natural gas and "offload" gas
properties while shifting to oil development.
We own approximately 70,000 gross acres in
Oklahoma, most of which is natural gas prone. There is ample
development potential on our acreage when gas prices
recover. Most of the acreage is held by production, and thus
the timing of drilling is not critical to our lease ownership
position.
We have built an excellent
growth platform of scalable and repeatable drilling projects which
will drive Credo's long‑term success.
A balanced, multi-year inventory of development, exploitation,
and exploration projects will propel Credo's organic production and
reserve gains in the years ahead. The substantial increase in
our drilling and leasing budgets will further accelerate our growth
trajectory and drive earnings and shareholder returns.
While we expect to borrow between $7 and $12 million in 2012 to
finance our drilling programs, our Board and management are acutely
aware of the Company's time-honored commitment to profitability and
financial strength.
Marlis Smith stepped down as CEO in January to devote full time
to rapidly accelerating drilling activity in his personal
business. Marlis did an excellent job of executing our
drilling program which proved our technical concepts and converted
our projects into repeatable and scalable exploration
plays. We are grateful for his two years of leadership,
and we are pleased that Credo will continue to benefit from his
knowledge and experience as a Board member.
The Board believes that Credo has a number of viable go-forward
options. Accordingly, in addition to initiating a CEO search,
the Board is taking the opportunity to consider other strategic
options which may be available to the Company. During this
process, Credo's Chief Operating Officer, Michael Davis, will also
serve as interim Chief Executive Officer.
We thank our employees and our owners for your continued loyalty
and support.
Michael D. Davis |
James T. Huffman |
Interim CEO and COO |
Chairman of the Board |
|
|
February 1, 2012 |
|
The Report to Shareholders contains important information about
the company, including certain estimates. This information may
be deemed to include "forward‑looking statements" as described in
the last paragraph of this press release. Accordingly, readers
are encouraged to carefully review the "forward-looking statements"
section of this press release.
About Credo Petroleum
Credo Petroleum Corporation (Nasdaq:CRED) is a independent oil
and gas exploration and production company founded in 1978 and
headquartered in Denver, Colorado. Credo is conducting record
oil-focused drilling programs in the Bakken and Three Forks play in
North Dakota, the Lansing Kansas City play in Kansas and Nebraska,
the Tonkawa and Cleveland plays in the Texas Panhandle. In the
fourth quarter of 2011, the Company achieved the milestone of
becoming primarily an oil producer, and expects to achieve a
significant overweighting of oil in both its production and
reserves in 2012. Credo's patented Calliope Gas Recovery
System™ recovers stranded gas from low pressure gas
reservoirs. The Company has a time-honored commitment to
maintaining profitability and financial strength.
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.
CONTACT: Michael D. Davis
Chief Executive Officer (interim)
or
Alford B. Neely
Chief Financial Officer
303-297-2200
Website: www.credopetroleum.com
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