CREDO Petroleum Corporation (NASDAQ:CRED) today reported
financial results for the year ended October 31, 2008.
For the year, income from operations increased 42% to a record
$8,264,000 compared to $5,827,000 in 2007. Oil and gas sales
increased 22% to a record $17,345,000 compared to $14,265,000 last
year. During 2008, the company sold 1,150,000 shares of newly
issued stock for $16,675,000, resulting in a 93% increase in
working capital to $24,160,000 compared to $12,511,000�last
year.
Alford B. Neely, Chief Financial Officer, said, �We are pleased
with the substantial increase in operating income. Net income was
modestly higher in 2008 because of lower hedging gains and because
our investments swung to a loss in 2008. Those two items had a
$2,359,000 negative impact on 2008 pre-tax income compared to last
year.�
Net income rose 4% to $5,993,000 compared to net income of
$5,760,000 last year. The following table reconciles operating
income to net income for each year.
� � � � � � � � � � � � 2008 2007
Change
Operating Income $ 8,264,000 $ 5,827,000 $ 2,437,000 Net Hedging
Gains 188,000 1,455,000 (1,267,000 )
Investment, Interest and Other
Income (Loss)
(299,000 ) 793,000 (1,092,000 ) Income Taxes � (2,160,000 ) �
(2,315,000 ) �
155,000
� Net Income $ 5,993,000 � $ 5,760,000 � $ 233,000 � �
On a per diluted share basis, net income was $.61 in both years.
The per share amount for 2008 reflects the effect of 1,150,000
newly issued shares pursuant to a private equity transaction closed
in�July 2008.
MANAGEMENT COMMENT
James T. Huffman, CEO, said, �Our business was extremely
challenging in 2008. We had to measure the constant pressure on
public companies to forge ahead against the surging cost of doing
so and the escalating risks caused by degradation in the quality of
field services. Among other things during�2008, our Board retained
Merrill Lynch as an advisor. We ultimately made a very tough
decision to slow down spending on drilling and to ramp-up an effort
to raise capital. That decision resulted in a stock sale at an
opportune time that raised $16.7 million of equity capital.
�On balance our decisions in 2008 produced a very positive
outcome. We entered the current downturn well positioned with a
strong balance sheet, flush in cash and no debt. This provides
CREDO the flexibility to substantially increase capital spending as
opportunities arise. However, our decisions had some undesired
results. One such result was that production fell because we put
operated drilling projects on hold for several months. Further
delays were caused by rig shortages when we were again ready to
drill.
�Our reserve quantities were also down slightly in 2008. This
was caused by the requirement for mark-to-market valuation at our
October 31st year-end when natural gas prices were near their low
for the year. Oil and gas wells reach their economic limit more
quickly at low prices. That caused a significant downward revision
in our reserve quantities which was mostly offset by new reserve
additions. As a result, total reserve quantities fell only 4%. By
way of comparison, at last year�s prices, our reserve quantities
would have increased about 14%. Despite low prices at
October�31,�the cost of our oil and gas properties was not
impaired, and no cost write-down was required.
�By most measures, we had another very good year, and we are off
to an excellent start for 2009. It appears that we have already
discovered substantial production capacity and reserves which will
more than make up the 2008 deficit. We have recently announced four
new wells in which CREDO owns working interests ranging from 44% to
85%. Two of the wells appear to be high rate producers, and two are
in the process of being completed. In addition, we are discussing
Calliope projects with a number of companies which have the
potential for joint ventures during 2009.�
LOW YEAR-END NATURAL GAS PRICES
RESULT INDECLINE IN RESERVE�QUANTITIES AND VALUES
On a net basis, reserve quantities fell 4% to 19.8 Bcfe (billion
cubic feet equivalent) from last year�s record 20.5 Bcfe. Natural
gas reserves decreased to 15.5 Bcf from 17.0 Bcf last year, and oil
reserves increased 20% as the company�s Central Kansas Uplift
drilling began to make a significant contribution. Oil reserves
accounted for 22% of total reserves compared to 17% last year.
Under SEC regulations, the company must value its reserves and
compute the economics of its properties at the daily price in
effect on its October 31st fiscal year end. This is mark-to-market
valuation for oil and gas reserves. At October 31, 2008, natural
gas prices in the company�s primary producing areas averaged about
$3.50 per MMbtu. This low price shortened the economic life of many
of the company�s properties, resulting in a significant reduction
in reserve quantities.
On a mark-to-market valuation basis, low product prices at
October 31, 2008 also dramatically reduced the value of the
company�s reserves compared to last year. The undiscounted value of
reserves fell 47%�to $53,655,000 at October 31, 2008, and the
discounted value (at 10%) was $32,330,000. Average year-end
wellhead prices used to calculate reserves were $3.50�per�Mcf and
$62.25 per barrel compared to $5.89�per�Mcf and $86.61 per barrel
last year.
LOWER PRODUCTION CAUSED BY
DRILLING DELAYS
Fiscal 2008 production fell 16% to 1.88 Bcfe compared to 2.23
Bcfe last year. Production was down in 2008 primarily because
certain company operated projects were put on hold due to high
costs, and because the company experienced significant drilling rig
delays as demand surged in response to historically high
prices.
The company has recently announced four new wells in which it
owns working interests ranging from 44%�to 85%. Two of the wells
appear to be high rate producers, and two are in the process of
being completed. The company believes these new wells will overcome
last year�s production deficit.
AVERAGE WELLHEAD PRICES HIGHER IN
FISCAL 2008DESPITE PRICE COLLAPSE LATE IN THE YEAR
The average net wellhead natural gas price received by the
company for 2008 increased 32% to $7.65�per Mcf compared to $5.79
last year. Hedging derivative transactions reduced wellhead price
realizations $.25�per Mcf in 2008 compared to a gain of $.99 per
Mcf last year. As a result, total natural gas price realizations
rose 9% to $7.40 per Mcf compared to $6.78 last year. Wellhead oil
prices were $99.28 per barrel compared to $60.95 last year. There
were no oil hedging derivative transactions.
At October 31, 2008, open hedging derivative contracts covered
830 MMbtus at NYMEX prices ranging from $8.00 to $10.60, and
covered all production months from November 2008 through
October�2009. Subsequent to October 31, the November, December and
January contracts expired and the company realized net hedging
gains of $925,000 on those contracts. Hedging derivative contracts
are estimated to range from 30% to 50% of the company�s estimated
monthly production at the time the contract was initiated, taking
into consideration estimates for new production from certain future
operations. Depending on changes in the natural gas futures market
and management�s assessment of the underlying fundamentals
affecting natural gas prices, the company may either increase or
reduce the hedging derivative positions in the future.
All of the open hedge derivative contracts are indexed to the
NYMEX and are represented by short positions. Actual price
realizations in the company�s principal areas of operations
(primarily Oklahoma) are generally expected to be 10% to 12% below
NYMEX prices primarily due to basis differentials. However, as
experienced in late 2008, regional weather conditions and other
economic events may significantly increase the basis
differentials.
STRONG FINANCIAL CONDITION
CONTINUES TO PROVIDEA SOLID FOUNDATION FOR GROWTH
The company�s balance sheet and financial condition continue to
be very strong with ample cash and no debt. In addition, the
company expects operating cash flow to remain strong in 2009. This
provides the company great flexibility to increase capital spending
as opportunities arise. For 2008, net capital spending related to
oil and gas activities totaled $12,321,000. At October�31,�2008,
working capital was $24,160,000. Total assets were $80,560,000,
including cash and short-term investments of $25,376,000, and
stockholders� equity was a record $62,211,000.
LOOKING FORWARD
�This year marks CREDO�s 30th anniversary as a public company,�
Huffman said. �As shown on our website (credopetroleum.com), CREDO
has received many accolades for consistent top tier performance
over that long time period. CREDO was recognized by Forbes magazine
in 2008 (for the fourth year) as one of the �200 Best Small
Companies� in America, and CREDO was recently ranked by Bloomberg
as Colorado�s top performing energy stock for 2008.
�CREDO is extremely well positioned going into 2009, and it
appears that our drilling program is off to a very successful
start. We expect to see better, more cost effective opportunities
to build the company�s assets in 2009. Our strong balance sheet and
ample cash provide us the flexibility to significantly increase
capital spending as those opportunities arise.�
CREDO Petroleum Corporation is a publicly traded independent
energy company headquartered in Denver, Colorado. The company is
engaged in the exploration for and the acquisition, development and
marketing of natural gas and crude oil in the Mid-Continent and
Rocky Mountain regions. The company�s stock is traded on the NASDAQ
System under the symbol �CRED� and is quoted daily in the �NASDAQ
Global Market� section of The Wall Street Journal.
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
Year EndedOctober
31,2008
Year EndedOctober 31,2007
� Oil and Gas Sales
$
17,345,000
$ 14,265,000 � Expenses: Oil and Gas Production
3,861,000
3,375,000 Depreciation, Depletion and Amortization
3,583,000
3,666,000 General and Administrative �
1,637,000
� � 1,397,000 � �
9,081,000
� � 8,438,000 � � Income from Operations
8,264,000
5,827,000 � Other Income and (Expense) Gains (Losses) from
Derivatives Realized
(1,113,000
)
1,909,000 Unrealized �
1,301,000
� � (454,000 )
188,000
1,455,000 � Investment and Other Income (Loss)
(291,000
)
819,000 Interest (Expense) �
(8,000
)
� (26,000 ) �
(111,000
)
� 2,248,000 � � Income Before Income Taxes
8,153,000
8,075,000 Income Taxes �
(2,160,000
)
� (2,315,000 ) � Net Income
$
5,993,000
� $ 5,760,000 � � Basic Net Income Per Share
$
.62
� $ .62 � Diluted Net Income Per Share
$
.61
� $ .61 � � �
Condensed Balance Sheet
Information
October 31, 2008
October 31, 2007 � Cash and Short-Term Investments
$
25,376,000
$ 13,668,000 Other Current Assets
4,678,000
2,747,000 Oil and Gas Properties, Net
46,456,000
37,374,000 License Agreement and Other Intangible Assets, Net
1,079,000
198,000 Other Assets �
2,971,000
� � 1,362,000 � �
$
80,560,000
� $ 55,349,000 � � Current Liabilities
$
5,894,000
$ 3,904,000 Deferred Income Taxes
11,117,000
9,204,000 Exclusive License Agreement Obligation
�
-
85,000 Asset Retirement Obligations
1,338,000
1,016,000 Stockholders� Equity �
62,211,000
� � 41,140,000 � �
$
80,560,000
� $ 55,349,000 �
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