Third Quarter Oil Production Increased
92% and Achieved 1,187 BOE Per Day
Third Quarter Revenue Increased 42% and
EBITDA Increased 30%
Stockholder Meeting to Consider Forestar
Merger Set for September 25, 2012
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 the
quarter and nine months ended July 31, 2012.
Higher oil production volumes continued to drive improved
financial performance in the third quarter and nine months ended
July 31, 2012. The following table shows the changes in certain
financial and operational categories for the third quarter and nine
months ended July 31, 2012 compared to the same periods last
year.
|
3rd Quarter |
Nine Months |
Revenue |
+ 42% |
+ 53% |
EBITDA |
+ 30% |
+ 59% |
Net Income |
- 46% |
+ 42% |
Adjusted Net Income |
- 41% |
+ 20% |
Adjusted Net Income excluding merger
costs |
+ 55% |
+ 56% |
Total Production (BOE) |
+ 41% |
+ 36% |
Oil Production (BO) |
+ 92% |
+ 86% |
Operating income decreased to $876,000 compared to $1,349,000 in
the third quarter last year. Excluding one-time merger related
costs of $994,000, operating income would have increased to
$1,870,000. Revenue increased to $6,362,000 compared to
$4,488,000 in the third quarter last year. Increased revenue
was driven by increased production volumes which accounted for 143%
of the increase which was partially offset by a decrease in
prices.
For the nine months ended July 31, 2012, operating income
increased to $4,807,000 compared to $3,496,000 last
year. Excluding one-time merger related costs of $1,026,000,
operating income would have increased to $5,833,000. Revenue
increased to $18,043,000 compared to $11,806,000 last
year. Increased revenue was driven by increased production
volumes which accounted for 115% of the revenue increase which
was partially offset by a decrease in prices.
EBITDA (a non-GAAP measure; see reconciliation below) for the
third quarter of 2012 increased to $3,264,000 compared to
$2,509,000 third quarter last year. Excluding one-time merger
related costs, EBITDA would have increased to $4,258,000. Net
income was $928,000, or $.09 per diluted share, compared to
$1,707,000, or $.17 per diluted share third quarter last
year. Excluding one-time merger related costs, net income
would have increased to $1,810,000, or $.18 per diluted
share. Adjusted net income (a non-GAAP measure; see
reconciliation below) decreased to $539,000, or $.05 per
share, compared to $919,000, or $.09 per share third quarter last
year. Excluding one-time merger related costs, adjusted net
income would have increased to $1,421,000, or $.14 per share.
For the nine months ended July 31, 2012, EBITDA increased to
$10,792,000 compared to $6,778,000 last year. Excluding
one-time merger related costs, EBITDA would have increased to
$11,818,000. Net income was $3,018,000 or $.30 per diluted
share, compared to $2,131,000, or $.21 per diluted share last
year. Excluding one-time merger related costs, net income
would have increased to $3,912,000, or $.39 per dilutive
share. Adjusted net income increased to $2,997,000, or $.30
per share, compared to $2,499,000, or $.25 per share last
year. Excluding one-time merger related costs, adjusted net
income would have increased to $3,891,000, or $.39 per share.
DRILLING SUCCESS DRIVES SIGNIFICANT
PRODUCTION INCREASES
The Company's oil-focused drilling success yielded a 92%
increase in third quarter oil production compared to last year, and
an 86% increase for the first nine months of fiscal 2012 compared
to the same period last year. Natural gas drilling was
suspended in 2009 because of low natural gas prices. As a
result, mostly normal declines reduced gas production about 7% in
the first nine months of fiscal 2012.
The following table shows that the Company's comparative
production mix has shifted solidly in favor of oil.
|
Three Months Ended July
31 |
Nine Months Ended July
31 |
Production Mix |
2012 |
2011 |
2012 |
2011 |
Crude Oil |
67% |
49% |
63% |
46% |
Natural Gas |
33% |
51% |
37% |
54% |
Total production volumes increased 41% in the third quarter to
109,200 BOE, or 1,187 BOE per day, (barrels of oil equivalent based
on six Mcf of gas to one barrel of oil) compared to last
year. This represents the second consecutive quarter that the
Company's total quarterly production has exceeded 1,000 BOE per
day. For the nine months, total production increased 36% to
291,100 BOE, or 1,062 BOE per day.
The following table shows comparative production volume
percentages by region and highlights the shift occurring in the
Company's production mix to crude oil in North Dakota, Kansas and
Nebraska and away from natural gas in Oklahoma.
|
Three Months Ended July
31 |
Nine Months Ended July
31 |
Production by Region |
2012 |
2011 |
2012 |
2011 |
North Dakota Bakken and Three Forks |
27% |
12% |
23% |
12% |
Kansas and Nebraska Lansing Kansas
City |
23% |
18% |
22% |
17% |
Texas Panhandle Tonkawa and Cleveland |
9% |
13% |
10% |
11% |
Other (primarily Oklahoma natural gas) |
41% |
57% |
45% |
60% |
Michael D. Davis, interim Chief Executive Officer, stated, "Our
production volumes reached 1,187 BOE per day during the third
quarter which consisted of 67% oil, both new records for the
Company. Despite substantially improved operating results,
the one-time costs associated with the potential merger transaction
with Forestar had a significant negative impact on both our third
quarter and nine month financial results. Nevertheless, we are
continuing to have a very successful year."
The following table shows comparative revenue percentages by
region and highlights the Company's shift away from natural gas
production in Oklahoma in favor of oil production primarily in
North Dakota, Kansas and Nebraska.
|
Three Months Ended July
31 |
Nine Months Ended July
31 |
Revenue by Region |
2012 |
2011 |
2012 |
2011 |
North Dakota Bakken and Three Forks |
34% |
17% |
30% |
18% |
Kansas and Nebraska Lansing Kansas
City |
32% |
29% |
31% |
27% |
Texas Panhandle Tonkawa and Cleveland |
7% |
12% |
8% |
9% |
Other (primarily Oklahoma natural gas) |
27% |
42% |
31% |
46% |
WELLHEAD PRICES MIXED
Third quarter wellhead oil prices decreased 12% to $78.00
compared to $88.32 last year. Natural gas prices fell 36% to
$3.09 compared to $4.81 last year. For the quarter ended July
31, 2012, the Company had realized crude oil hedging gains of
$45,000 compared to losses of $96,000 last year. Third
quarter oil hedges had the effect of increasing oil price
realizations by $0.61 per barrel to $78.61. Last year, oil
hedges reduced third quarter price realizations by $2.53 per barrel
to $85.79.
Wellhead oil prices for the nine months ended July 31, 2012
decreased slightly to $86.64 compared to $87.49 last
year. Natural gas prices fell 28% to $3.26 compared to $4.53
last year. For the nine months, the Company had realized
crude oil hedging losses of $199,000 compared to
$233,000 last year. The nine month oil hedges had the
effect of reducing oil price realizations by $1.08 per barrel to
$85.56. Last year, oil hedges decreased the nine month
price realizations by $2.36 per barrel to $85.13. For the
nine months last year, the Company had realized natural gas hedging
gains of $59,000. The nine month natural gas hedges had the
effect of increasing natural gas price realizations by $0.09 per
Mcf to $4.62. There were no natural gas hedges in the current
year.
At July 31, 2012, the Company held open short swap hedge
positions on 5,000 barrels of oil (five contracts) per month
for the production months of August 2012 through December 2012, at
prices ranging from $91.95 to $92.21. The hedge is
expected to cover approximately 15% to 25% of estimated production
for the hedged period. During the third quarter, the Company
closed one contract per month at a price of $99.80 per
barrel. Unrealized hedging gains were $671,000 for the three
months ended July 31, 2012 compared to $1,080,000 last
year. Unrealized hedging gains were $32,000 for the nine
months ended July 31, 2012 compared to losses of $497,000 last
year. The unrealized losses are a non-cash charge calculated
at a point in time by applying oil prices as of period 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
BEING PARTIALLY FINANCED BY BANK BORROWING
Capital expenditures for fiscal 2012 are now expected to be
approximately $37.0 million compared to our original budget of
$35.0 million, of which approximately 95% will have been earmarked
for drilling and completion activities. By the end of fiscal
2012, the Company expects to have drilled seventy five (75) gross
(30 net) oil wells. Costs incurred through third quarter-end
totaled approximately $30.3 million. Financing has been
required to fund a portion of fiscal 2012 capital
expenditures. The current borrowing base under the Company's
$25 million credit facility is $9.3 million. To date,
$8.8 million has been drawn-down under such credit facility with an
interest rate of about 3%.
FORESTAR MERGER
On June 3, 2012, the Company signed a merger agreement with
Forestar Group Inc. ("Forestar") pursuant to which Forestar will
pay $14.50 for each share of the Company's stock, or approximately
$146 million in cash. Consummation of the merger is not
subject to a financing condition, but is subject to customary
closing conditions, including the approval of Credo's
stockholders. A special meeting of the Company's stockholders
is scheduled to be held on September 25, 2012, at which
stockholders will vote whether or not to approve the
merger. Proxy materials were mailed on or about August 15,
2012 to stockholders of record on August 10, 2012. The merger
has been approved by the boards of directors of the Company and
Forestar. Assuming the satisfaction of conditions, the merger
could close prior to the Company's fiscal year-end.
Additional information regarding the merger can be found in
our Form 8-K filed on June 4, 2012 and our Definitive
Proxy Statement filed on August 10, 2012.
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.
Additional Information Regarding the Proposed
Transaction
In connection with the proposed transaction, Credo filed a proxy
statement with the Securities and Exchange Commission (the "SEC")
on August 10, 2012. The definitive proxy statement was first
mailed to stockholders of Credo on August 15, 2012. Credo
urges investors to read the proxy statement regarding the proposed
transaction because it contains important information about the
proposed transaction. You may obtain a free copy of the proxy
statement and other related documents filed by Credo with the SEC
at the SEC's website at www.sec.gov. The proxy statement may also
be obtained for free by accessing Credo's website at
www.credopetroleum.com by clicking on the link for "Investor
Relations", then clicking on the link for "Proxy Statement".
Participants in the Proposed Transaction
Credo and its directors, executive officers and certain other
members of management and employees may be deemed to be
participants in the solicitation of proxies from Credo's
stockholders in connection with the proposed transaction.
Information regarding the persons who may, under the rules of
the SEC, be considered participants in the solicitation of Credo's
stockholders in connection with the proposed transaction, including
the interests of such participants in the proposed transaction, are
set forth in the definitive proxy statement filed with the SEC on
August 10, 2012. You can find information about Credo's
executive officers and directors in Credo's definitive proxy
statements filed with the SEC on February 28, 2012 and August 10,
2012.
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
set forth below.
|
Three Months Ended July
31, |
Nine Months Ended July
31, |
|
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
Net Income as reported |
$ 928,000 |
$ 1,707,000 |
$ 3,018,000 |
$ 2,131,000 |
Add Back: |
|
|
|
|
Income Tax Expense |
664,000 |
622,000 |
1,625,000 |
749,000 |
Depreciation, Depletion and
Amortization Expense |
2,343,000 |
1,260,000 |
6,181,000 |
3,401,000 |
Unrealized Derivative
(Gains)/Losses |
(671,000) |
(1,080,000) |
(32,000) |
497,000 |
|
|
|
|
|
EBITDA |
$ 3,264,000 |
$ 2,509,000 |
$ 10,792,000 |
$ 6,778,000 |
|
|
|
|
|
Add Back: |
|
|
|
|
Merger-related costs |
994,000 |
-- |
1,026,000 |
-- |
|
|
|
|
|
Adjusted EBITDA |
$ 4,258,000 |
$ 2,509,000 |
$ 11,818,000 |
$ 6,778,000 |
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 (as used by the Company).
|
Three Months Ended July
31, |
Nine Months Ended July
31, |
|
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
Net Income as reported |
$ 928,000 |
$ 1,707,000 |
$ 3,018,000 |
$ 2,131,000 |
|
|
|
|
|
Adjustments for certain non-cash items: |
|
|
|
|
Unrealized mark-to-market
(gain) loss on commodity derivatives |
$ (671,000) |
$ (1,080,000) |
$ (32,000) |
$ 497,000 |
Tax impact |
$ 282,000 |
$ 292,000 |
$ 11,000 |
$ (129,000) |
|
|
|
|
|
Adjusted Net Income |
$ 539,000 |
$ 919,000 |
$ 2,997,000 |
$ 2,499,000 |
|
|
|
|
|
Adjusted Diluted Earnings per Share |
$ .05 |
$ .09 |
$ .30 |
$ .25 |
|
|
|
|
|
Adjusted Net Income excluding merger related
costs: |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
Net Impact of merger-related
costs |
$ 882,000 |
$ -- |
$ 894,000 |
$ -- |
|
|
|
|
|
Adjusted Net Income |
$ 1,421,000 |
$ 919,000 |
$ 3,891,000 |
$ 2,499,000 |
|
|
|
|
|
Adjusted Diluted Earnings per Share |
$ .14 |
$ .09 |
$ .39 |
$ .25 |
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/A 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 |
|
|
|
|
|
Nine Months Ended July
31, |
Three Months Ended
July 31, |
|
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
REVENUES: |
|
|
|
|
Oil sales |
$ 15,952,000 |
$ 8,678,000 |
$ 5,691,000 |
$ 3,358,000 |
Natural gas
sales |
2,091,000 |
3,128,000 |
671,000 |
1,130,000 |
|
18,043,000 |
11,806,000 |
6,362,000 |
4,488,000 |
COSTS AND EXPENSES: |
|
|
|
|
Oil and natural gas production
|
3,521,000 |
2,893,000 |
1,294,000 |
1,059,000 |
Depreciation, depletion and
amortization |
6,181,000 |
3,401,000 |
2,343,000 |
1,260,000 |
General and
administrative |
3,534,000 |
2,016,000 |
1,849,000 |
820,000 |
|
13,236,000 |
8,310,000 |
5,486,000 |
3,139,000 |
|
|
|
|
|
Income from Operations
|
4,807,000 |
3,496,000 |
876,000 |
1,349,000 |
|
|
|
|
|
Other Income and (Expense) |
|
|
|
|
Realized and unrealized
(losses) from derivative contracts |
(167,000) |
(671,000) |
716,000 |
984,000 |
Investment and other
income |
3,000 |
55,000 |
-- |
(4,000) |
|
(164,000) |
(616,000) |
716,000 |
980,000 |
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
4,643,000 |
2,880,000 |
1,592,000 |
2,329,000 |
|
|
|
|
|
INCOME
TAXES |
(1,625,000) |
(749,000) |
(664,000) |
(622,000) |
|
|
|
|
|
NET INCOME |
$ 3,018,000 |
$ 2,131,000 |
$ 928,000 |
$ 1,707,000 |
|
|
|
|
|
Earnings per share - basic |
$ .30 |
$ .21 |
$ .09 |
$ .17 |
|
|
|
|
|
Earnings per share - diluted |
$ .30 |
$ .21 |
$ .09 |
$ .17 |
|
|
|
|
|
Weighted average number of shares
of Common Stock and dilutive securities: |
|
|
|
Basic
|
10,041,000 |
10,042,000 |
10,041,000 |
10,041,000 |
|
|
|
|
|
Diluted
|
10,088,000 |
10,078,000 |
10,096,000 |
10,072,000 |
|
CREDO PETROLEUM
CORPORATION |
FINANCIAL
HIGHLIGHTS |
|
|
|
Condensed Balance Sheet
Information |
July 31, 2012 |
October 31, 2011 |
Cash and Short-Term Investments |
$ 2,654,000 |
$ 4,800,000 |
Other Current Assets
|
9,386,000 |
4,271,000 |
Oil and Natural Gas Properties, Net |
73,905,000 |
49,851,000 |
Intangible Assets, Net
|
2,815,000 |
3,142,000 |
Other Assets |
1,286,000 |
1,857,000 |
|
|
|
|
$ 90,046,000 |
$ 63,921,000 |
|
|
|
Current Liabilities |
$ 23,515,000 |
$ 8,248,000 |
Long-term Debt |
6,000,000 |
-- |
Deferred Income Taxes
|
6,149,000 |
4,524,000 |
Asset Retirement Obligations
|
1,444,000 |
1,213,000 |
Stockholders' Equity
|
52,938,000 |
49,936,000 |
|
|
|
|
$ 90,046,000 |
$ 63,921,000 |
CONTACT: Michael D. Davis
Chief Operating Officer
and CEO (Interim)
or
Brian C. Mazeski
Chief Accounting Officer
303-297-2200
Website: www.credopetroleum.com
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