TIDMRSOX
RNS Number : 4153A
Resaca Exploitation Inc
30 March 2012
for IMMEDIATE release 30 march 2012
Resaca Exploitation, Inc.
("Resaca" or "the Company")
Interim results for the six months ended 31 December 2011
Resaca (AIM:RSOX), the oil and natural gas production,
exploitation, and development company focused on the Permian Basin
in the USA, is pleased to announce its interim results for the six
months ended 31 December 2011.
Highlights
Operational Highlights
-- Proved developed producing reserves of 3.7 million barrels of
oil equivalents ("MMboe") as of 31 December 2011 (40.8% increase
over prior year); PV10 value of $81.0 MM (80.1% increase over prior
year)
-- Proved reserves of 15.8 MMboe as of 31 December 2011 (10.5%
increase over prior year); PV10 value of $366.5 MM (42.4% increase
over prior year)
-- Proved and probable reserves of 30.6 MMboe as of 31 December
2011 (3.4% increase over prior year); PV10 value of $572.4 MM
(43.8% increase over prior year)
-- Production averaged 707 boepd (net) for six months ended 31
December 2011 (8.6% increase over production for six months ended
31 December 2010)
-- Production averaged 778 boepd (net) for March 2012 to date
(17.0% increase over production for March 2011)
-- Sold Grand Clearfork Unit and purchased Langlie Jal Unit
Financial Highlights
-- Oil and gas revenues of $10.54 million (24.0% increase over
revenue for six months ended 31 December 2010); hedging settlements
of $(0.7) million
-- Unrealized gain from hedging activities of $3.4 million
-- Net income of $3.4 million versus net loss of $5.6 million
for six months ended 31 December 2010
-- EBITDA of $4.9 million (36.1% increase over EBITDA for six months ended 31 December 2010)
J.P. Bryan, Resaca Chairman and CEO commented
"We are pleased with our increases in proved producing reserves,
total proved reserves, 2P reserves, production, revenues, income
and EBITDA. All of these improvements are measures of our success
over the last year. We are excited about the upgrade in our
property portfolio with the addition of the Langlie Jal Unit. We
look forward to further implementing our development plans
throughout 2012, which should continue to increase our production
and enhance the value of our properties."
For further information please contact:
Resaca Exploitation, Inc.
J.P. Bryan, Chairman and Chief Executive
Officer +1 713-753-1300
John J. ("Jay") Lendrum, III, Vice Chairman +1 713-753-1400
Dennis Hammond, President and Chief
Operating Officer +1 713-753-1281
Chris Work, Chief Financial Officer +1 713-753-1406
Buchanan (Investor Relations) +44 (0)20 7466 5000
Tim Thompson
Helen Chan
Ben Romney
finnCap Limited (Nomad and Broker) + 44 (0) 20 7600 1658
Sarah Wharry, Corporate Finance
Victoria Bates, Corporate Broking
About Resaca
Resaca is an independent oil and gas development and production
company based in Houston, Texas. Resaca is focused on the
acquisition and exploitation of long-life oil and gas properties,
utilizing a variety of primary, secondary and tertiary recovery
techniques. Resaca's current properties are located in the Permian
Basin of West Texas and Southeast New Mexico. Additional
information is available at www.resacaexploitation.com.
Report and accounts
The interim report and accounts of Resaca for the six months
ended 31 December 2011 will be available on the company's website
www.resacaexploitation.com.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to present the Interim Report and Accounts for
Resaca Exploitation for the six months ended 31 December 2011.
During this period, we continued our development plans at our
Cooper Jal, Jordan San Andres, and Edwards Grayburg properties.
Following the sale of our Grand Clearfork property in July 2011, we
closed on the purchase of our Langlie Jal property in August 2011.
We immediately returned a number of Langlie Jal wells to production
and began the first phases of re-starting the waterflood on that
property. On all of our waterflood projects across the property
portfolio, we see signs of response from increased injection,
including higher fluid production rates and improved bottom hole
pressure levels. Our investments in infrastructure and equipment
are paying off through greater run times at both the well and field
levels and enhanced waterflood optimization, resulting in increased
production. In addition to these projects, we recently returned a
number of wells to production at our Kermit property. In summary,
our recent efforts and the capital expenditure program during the
first half of calendar year 2011 directly resulted in increases in
our proved producing reserves, total proved reserves, 2P reserves,
production, revenues, income and EBITDA over the last twelve
months.
For the quarter ended 31 December 2011, we were not in
compliance with two of our financial covenants under our
subordinated credit facility. We were in compliance with all of the
covenants under our senior credit facility but for the covenant
breaches under our subordinated credit facility. Since these two
facilities could be called within the next twelve months as a
result of the covenant breaches, we were required to classify these
liabilities are current liabilities on our balance sheet at 31
December 2011. Given our solid asset base and cash flow position,
we believe we have a number of alternatives at our disposal to
bring our subordinated facility into compliance and continue to
operate and grow our business effectively.
We remain confident about our portfolio of properties. In
addition to our booked 3P reserves, we have identified additional
resource potential at Cooper Jal, Jordan San Andres, Langlie Jal
and our Kermit properties that we continue to evaluate. We believe
our stock is significantly undervalued in the market place and is
significantly disconnected from our true enterprise value given our
current production profile and the value of our reserves.
We are optimistic about the opportunities we see in our business
and look forward to finishing our current fiscal year on a strong
note.
J.P. Bryan Chairman and Chief Executive Officer
Resaca Exploitation, Inc.
Consolidated Balance Sheets
December 31,
2011 June 30, 2011
------------------ -----------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 69,238 $ 1,005,863
Accounts receivable 3,050,219 3,169,637
Other receivable, net 1,480,986 1,480,986
Due from affiliates, net 22,374 186,917
Prepaids and other current assets 745,692 556,957
Deferred tax assets 617,782 490,433
--- ------------- -------------
Total current assets 5,986,291 6,890,793
Property and equipment, at cost
Oil and gas properties - full
cost method 156,085,309 146,934,137
Fixed assets 2,060,201 1,929,998
--- ------------- -------------
158,145,510 148,864,135
Accumulated, depreciation, depletion
and amortization (19,562,578) (17,551,787)
--- ------------- -------------
138,582,932 131,312,348
Other property 270,783 270,783
--- ------------- -------------
Total property and equipment 138,853,715 131,583,131
Deferred finance costs, net 776,722 949,835
--- ------------- -------------
Total assets $ 145,616,728 $ 139,423,759
=== ============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 5,447,799 $ 5,076,906
Capital lease obligations, current 33,092 65,839
Senior credit facility 30,927,198 -
Unsecured debt 20,026,268 -
Derivative liabilities 1,714,458 1,912,550
--- ------------- -------------
Total current liabilities 58,148,815 7,055,295
Senior credit facility, net of
current portion - 28,500,000
Unsecured debt - 18,600,262
Notes payable, affiliates 2,171,259 2,043,973
Capital lease obligations, net
of current portion 94,080 56,165
Deferred tax liabilities 617,782 490,433
Derivative liabilities 2,753,737 5,982,504
Asset retirement obligations 4,134,152 4,138,677
Commitments and contingencies
Stockholders' equity
Common stock 207,474 196,632
Additional paid-in capital 99,174,523 97,408,857
Accumulated deficit (21,685,094) (25,049,039)
--- ------------- -------------
Total stockholders' equity 77,696,903 72,556,450
--- ------------- -------------
Total liabilities and stockholders'
equity $ 145,616,728 $ 139,423,759
=== ============= =============
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Consolidated Statements of Operations
Six Months Ended December
31,
----------------------------------------------------------
2011 2010
---------------------------- ----------------------------
(unaudited) (unaudited)
Income
Oil and gas revenues $ 9,876,226 $ 8,046,222
Unrealized gain (loss) from
price risk
management activities 3,426,859 (3,177,273)
Interest and other income - 444
Gain on sale of assets 17,242 -
--- ----------------------- --- -----------------------
Total income 13,320,327 4,869,393
Costs and expenses
Lease operating 3,464,457 2,720,075
Production and ad valorem taxes 745,392 606,919
Depreciation, depletion and
amortization 2,065,292 2,045,918
Accretion 93,137 95,907
General and administrative 803,775 1,135,019
Share based compensation 396,763 2,186,228
Interest 2,387,566 1,718,366
--- ---
Total costs and expenses 9,956,382 10,508,432
--- ----------------------- --- -----------------------
Income (loss) before income taxes 3,363,945 (5,639,039)
Income tax benefit - 18,424
--- ----------------------- --- -----------------------
Net income (loss) $ 3,363,945 $ (5,620,615)
=== ======================= === =======================
Income (loss) per share:
Basic income (loss) per share $ 0.16 $ (0.29)
Diluted income (loss) per share $ 0.16 $ (0.29)
Basic weighted-average shares
outstanding 20,566,253 19,639,357
Diluted weighted-average shares
outstanding 20,647,988 19,639,357
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Consolidated Statements of Stockholders' Equity
Six Months Ended December 31, 2011
(unaudited)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
--------------------------------
Par
Shares value Capital Deficit Equity
------------------- ----------- --- ---------------- --- -------------- --- ---------------------
Balance at
July 1, 2011 19,663,157 $ 196,632 $ 97,408,857 $ (25,049,039) $ 72,556,450
Stock issued
upon vesting
of
restricted
stock 242,945 2,429 (2,429) -
Stock issued
for the
acquisition
of assets 841,308 8,413 1,371,332 1,379,745
Share based
compensation 396,763 396,763
Net income 3,363,945 3,363,945
-------------- --- ----------- --- ---------------- --- -------------- --- ---------------------
Balance at
December 31,
2011 20,747,410 $ 207,474 $ 99,174,523 $ (21,685,094) $ 77,696,903
============== === =========== === ================ === ============== === =====================
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Consolidated Statements of Cash Flows
Six Months Ended December
31,
-----------------------------------------------------------
2011 2010
----------------------------- ----------------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income (loss) $ 3,363,945 $ (5,620,615)
Adjustments to reconcile net income (loss)
to net cash
provided by operating activities
Depreciation, depletion and amortization 2,065,292 2,045,918
Accretion 93,137 95,907
Amortization of deferred finance costs 173,113 169,174
Payment of interest in kind 1,333,659 -
Amortization of debt discount 92,347 -
Gain on sale of assets (17,242) -
Unrealized (gain) loss on price risk management
activities (3,426,859) 3,177,273
Share based compensation costs 396,763 2,186,228
Settlement of asset retirement obligations - (59,634)
Changes in operating assets and liabilities:
Accounts receivable 119,418 (344,057)
Prepaids and other current assets 291,829 (65,670)
Accounts payable and accrued liabilities 370,893 (241,169)
Due to affiliates, net (188,735) 1,231,949
--- ------------------------ ------------------------
Net cash provided by operating activities 4,667,560 2,575,304
Cash flows from investing activities
Restricted cash - 25,000
Proceeds from sale of oil and gas properties 4,099,526 -
Proceeds from sale of fixed assets 17,242 -
Investment in oil and gas properties (11,968,615) (2,358,760)
Investment in fixed assets (72,920) (9,744)
--- ------------------------ ------------------------
Net cash used in investing activities (7,924,767) (2,343,504)
Cash flows from financing activities
Proceeds from notes payable 6,500,000 143,600
Payments on notes payable (4,072,802) (107,700)
Payments on capital lease obligations (106,616) -
Deferred finance costs - (389,314)
--- ------------------------ ------------------------
Net cash provided by (used in) financing
activities 2,320,582 (353,414)
--- ------------------------ ------------------------
Net decrease in cash and cash equivalents (936,625) (121,614)
Cash and cash equivalents, beginning of period 1,005,863 481,853
------------------------ ------------------------
Cash and cash equivalents, end of period $ 69,238 $ 360,239
=== ======================== ========================
Supplemental cash flow information
Cash paid during the period for interest $ 643,441 $ 1,470,947
=== ======================== ========================
Non cash investing and financing activities
Establishment of asset retirement obligations $ 234,548 $ 1,972
=== ======================== ========================
Decrease in asset retirement obligations
due to sale of properties $ (332,210) $ -
=== ======================== ========================
Acquisition of assets under capital lease
obligations $ 111,783 $ -
=== ======================== ========================
Assets acquired for issuance of stock $ 1,379,745 $ -
=== ======================== ========================
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Notes to Consolidated Financial Statements
Six Months Ended December 31, 2011 and 2010
Note A - Organization and Nature of Business
Resaca Exploitation, L.P. (the "Partnership") was formed on
March 1, 2006 for the purpose of acquiring and exploiting interests
in oil and gas properties located in New Mexico and Texas and to
conduct, directly and indirectly through third parties, operations
on the properties. The Partnership was funded and began operations
on May 1, 2006. Resaca Exploitation, G.P. served as the sole
general partner (.667%) and various limited partners owned the
remaining 99.333%. Under the terms of the Limited Partnership
Agreement, profits and losses were allocated to the general partner
and limited partners based upon their ownership percentages.
On July 10, 2008, the Partnership converted from a Delaware
partnership to a Texas corporation and became Resaca Exploitation,
Inc. ("Resaca"). Following conversion, Resaca became subject to
federal and certain state income taxes and adopted a June 30 year
end for federal income tax and financial reporting purposes. On
July 17, 2008, Resaca completed an initial public offering (the
"Offering") on the Alternative Investment Market of the London
Stock Exchange. In the initial public offering, Resaca raised $83.4
million before expenses.
Resaca Operating Company ("ROC"), a wholly-owned subsidiary, was
formed on October 16, 2008 for the purpose of operating Resaca's
oil and gas properties. Resaca and ROC are referred to collectively
as the "Company". Activities for ROC are consolidated in the
Company's financial statements.
Note B - Going Concern
These consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going concern.
These principles assume that the Company will be able to realize
its assets and discharge its obligations in the normal course of
operations for the foreseeable future.
As of December 31, 2011, the Company had an accumulated deficit
of approximately $22 million and a working capital deficit of
approximately $52 million due to the classification of the Chambers
Facility and Regions Facility balances as current liabilities due
to the Company being in default of such credit agreements. See Note
F. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company's continuation
as a going concern is dependent on its ability to meet its
obligations, to obtain additional financing as may be required and
ultimately to attain sustained profitability.
Management believes that cash on hand and anticipated cash flows
from operations will be sufficient to satisfy its currently
expected working capital requirements (other than the Chambers
Facility and the Regions Facility) and limited capital expenditure
requirements through December 31, 2012. The Company anticipates
amending the Chambers Facility, which would rectify the events of
default under that facility and the Regions facility. However,
there is no assurance that the Company will be able to rectify this
event of default. If the Company is unsuccessful, the Company may
be required to sell one or more of its oil and gas properties,
issue additional equity or refinance its debt to progress with its
business plan. There can be no assurance that such capital will be
available at terms acceptable to the Company, or at all.
Management believes the going concern assumption to be
appropriate for these financial statements. If the going concern
assumption was not appropriate, adjustments would be necessary to
the carrying values of assets and liabilities, reported revenues
and expenses and in the balance sheet classifications used in these
consolidated financial statements.
Note C - Summary of Significant Accounting Policies and Basis of
Presentation
Principles of Consolidation: The consolidated financial
statements include the accounts of Resaca and ROC. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents: Cash in excess of the Company's daily
requirements is generally invested in short-term, highly liquid
investments with original maturities of three months or less. Such
investments are carried at cost, which approximates fair value and,
for the purposes of reporting cash flows, are considered to be cash
equivalents. The Company maintains its cash in bank deposits with
various major financial institutions. These accounts, at times,
exceed federally insured limits. The Company monitors the financial
condition of the financial institutions and has not experienced any
losses on such accounts.
Note C - Summary of Significant Accounting Policies and Basis of
Presentation (Continued)
Accounts Receivable: Accounts receivable primarily consists of
accrued revenues for oil and gas sales. The Company routinely
assesses the recoverability of all material receivables to
determine their collectability. The Company records a reserve on a
receivable when, based on the judgment of management, it is likely
that a receivable will not be collected and the amount of any
reserve may be reasonably estimated. As of December 31, 2011 and
June 30, 2011, the Company had an allowance for doubtful accounts
of $650,000.
Inventory: Inventory totaling $462,386 and $485,807 at December
31, 2011 and June 30, 2011, respectively, consists of piping and
tubulars valued at the lower of cost or market and is included
within prepaids and other current assets in the accompanying
consolidated balance sheets.
Oil and Gas Properties: Oil and gas properties are accounted for
using the full-cost method of accounting. Under this method, all
productive and nonproductive costs incurred in connection with the
acquisition, exploration, and development of oil and natural gas
reserves are capitalized. This includes any internal costs that are
directly related to acquisition, exploration and development
activities, including salaries and benefits, but does not include
any costs related to production, general corporate overhead or
similar activities. During the six months ended December 31, 2011
and 2010, the Company capitalized $218,042 and $127,384,
respectively, relating to these internal costs.
No gains or losses are recognized upon the sale or other
disposition of oil and natural gas properties except in
transactions that would significantly alter the relationship
between capitalized costs and proved reserves.
Under the full cost method, the net book value of oil and
natural gas properties, less related deferred income taxes, may not
exceed the estimated after-tax future net revenues from proved oil
and natural gas properties, discounted at 10% (the "Ceiling
Limitation"). In arriving at estimated future net revenues,
estimated lease operating expenses, development costs, and certain
production-related and ad valorem taxes are deducted. In
calculating future net revenues, prices and costs in effect at the
time of the calculation are held constant indefinitely, except for
changes that are fixed and determinable by existing contracts. The
excess, if any, of the net book value above the Ceiling Limitation
is charged to expense in the period in which it occurs and is not
subsequently reinstated. The Company prepared its ceiling test at
December 31, 2011 and June 30, 2011, and no impairment was deemed
necessary.
The costs of unevaluated oil and natural gas properties are
excluded from the amortizable base until the time that either
proven reserves are found or it has been determined that such
properties are impaired. The Company currently has no material
capitalized costs related to unevaluated properties. All
capitalized costs are included in the amortization base as of
December 31, 2011 and June 30, 2011.
Depreciation and Amortization: All capitalized costs of oil and
natural gas properties and equipment, including the estimated
future costs to develop proved reserves, are amortized using the
unit-of-production method based on total proved reserves.
Depreciation of fixed assets is computed on the straight line
method over the estimated useful lives of the assets, typically
three to five years.
General and Administrative Expenses: General and administrative
expenses are reported net of recoveries from owners in properties
operated by the Company.
Revenue Recognition: The Company recognizes oil and gas revenues
from its interests in oil and natural gas producing activities as
the hydrocarbons are produced and sold.
Accounting for Price Risk Management Activities: The Company
periodically enters into certain financial derivative contracts
utilized for non-trading purposes to hedge the impact of market
price fluctuations on its forecasted oil and gas sales. The Company
follows the provisions of ASC 815, Accounting for Derivative
Instruments and Hedging Activities ("ASC 815"), for the accounting
of its hedge transactions. ASC 815 establishes accounting and
reporting standards requiring that all derivative instruments be
recorded in the consolidated balance sheet as either an asset or
liability measured at fair value and requires that the changes in
the fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has certain
over-the-counter collar contracts to hedge the cash flow of the
forecasted sale of oil and gas sales. The Company did not elect to
document and designate these contracts as hedges. Thus, the changes
in the fair value of these over-the-counter collars are reflected
in earnings for the six months ended December 31, 2011 and
2010.
Note C - Summary of Significant Accounting Policies and Basis of
Presentation (Continued)
Income Taxes: The Company is subject to federal income tax,
Texas state margin tax, and New Mexico state income tax. The
Company follows the guidance in ASC 740, Accounting for Income
Taxes, which requires the use of the asset and liability method of
accounting for deferred income taxes and provides deferred income
taxes for all significant temporary differences.
The Company follows ASC 740-10, Accounting for Uncertainty in
Income Taxes. The Interpretation prescribes guidance for the
financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. To recognize a tax
position, the enterprise determines whether it is more likely than
not that the tax position will be sustained upon examination,
including resolution of any related appeals or litigation, based
solely on the technical merits of the position. A tax position that
meets the more likely than not threshold is measured to determine
the amount of benefit to be recognized in the financial statements.
The amount of tax benefit recognized with respect to any tax
position is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon
settlement.
Deferred Finance Costs: The Company capitalizes all costs
directly related to obtaining financing and such costs are
amortized to interest expense over the life of the related
facility. For the six months ended December 31, 2011 and 2010, the
Company incurred and capitalized finance costs of $0 and $389,314,
respectively. At December 31, 2011 and June 30, 2011, the deferred
finance costs balance is presented net of accumulated amortization
of $346,226 and $173,113 respectively.
Use of Estimates: Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
Independent petroleum engineers have prepared estimates of the
Company's oil and natural gas reserves at June 30, 2011 and 2010.
Proved reserves, estimated future net revenues and the present
value of our reserves are estimated based upon a combination of
historical data and estimates of future activity. In accordance
with the current authoritative guidance, effective December 31,
2009, the Company calculated its estimate of proved reserves using
a twelve month average price, calculated as the unweighted
arithmetic average of the first-day-of-the-month price for each
period within the twelve month period prior to the end of the
reporting period. The reserve estimates are used in calculating
depreciation, depletion and amortization and in the assessment of
the Company's ceiling limitation. Significant assumptions are
required in the valuation of proved oil and natural gas reserves
which, as described herein, may affect the amount at which oil and
natural gas properties are recorded. Actual results could differ
materially from these estimates.
Asset Retirement Obligations: The Company follows ASC 410 ("ASC
410"), Asset Retirement and Environmental Obligations. ASC 410
requires that an asset retirement obligation ("ARO") associated
with the retirement of a tangible long-lived asset be recognized as
a liability in the period in which a legal obligation is incurred
and becomes determinable, with an offsetting increase in the
carrying amount of the associated asset. The cost of the tangible
asset, including the initially recognized ARO, is depreciated such
that the cost of the ARO is recognized over the useful life of the
asset. The ARO is recorded at fair value, and accretion expense
will be recognized over time as the discounted liability is
accreted to its expected settlement value. The fair value of the
ARO is measured using expected future cash outflows discounted at
the company's credit-adjusted risk-free interest rate.
Inherent in the fair value calculation of ARO are numerous
assumptions and judgments, including the ultimate settlement
amounts, inflation factors, credit adjusted discount rates, timing
of settlement, and changes in the legal, regulatory, environmental
and political environments. To the extent future revisions to these
assumptions impact the fair value of the existing ARO liability, a
corresponding adjustment is made to the oil and gas property
balance.
Note C - Summary of Significant Accounting Policies and Basis of
Presentation (Continued)
The following table is a reconciliation of the asset retirement
obligation:
Six Months Ended December
31,
-----------------------------------------------------
2011 2010
--- -------------------- --- ---------------------
Asset retirement obligations, beginning
of the period $ 4,138,677 $ 4,114,974
Liabilities incurred 234,548 1,972
Liabilities settled (332,210) (59,634)
Accretion 93,137 95,907
-------------------- ---------------------
Asset retirement obligations, end
of the period $ 4,134,152 $ 4,153,219
=== ==================== === =====================
Share-Based Compensation: The Company follows ASC 718 ("ASC
718"), Compensation-Stock Compensation, for all equity awards
granted to employees. ASC 718 requires all companies to expense the
fair value of employee stock options and other forms of share-based
compensation over the requisite service period. The Company's
share-based awards consist of stock options and restricted
stock.
Earnings per Share: Basic earnings per share is computed by
dividing net income (loss) by the weighted-average number of shares
of common stock outstanding during the period. Except when the
effect would be anti-dilutive, the diluted earnings per share
include the dilutive effect of restricted stock awards and the
assumed exercise of stock options using the treasury stock method.
The following table sets forth the calculation of basic and diluted
earnings per share ("EPS"):
Six Months Ended December
31,
-------------------------------------------------
2011 2010
----------------------- ------------------------
Net income (loss) $ 3,363,945 $ (5,620,615)
======================================= === ================== ====================
Weighted average shares outstanding
for basic EPS 20,566,253 19,639,357
Add dilutive securities 81,735 -
--------------------------------------- --- ------------------ --------------------
Weighted average shares outstanding
for diluted EPS 20,647,988 19,639,357
============================================ ================== ====================
Net income (loss) per share
Basic $ 0.16 $ (0.29)
Diluted 0.16 (0.29)
For the periods ended December 31, 2011 and 2010, 1,008,680 and
676,625, respectively, common stock equivalents were excluded from
the diluted average shares due to an anti-dilutive effect.
Subsequent Events: The Company evaluates events and transactions
that occur after the balance sheet date but before the financial
statements are available for issuance. The Company evaluated such
events and transactions through March 28, 2012, the date the
financial statements were available to be issued. See Note N.
Recently Adopted Accounting Principles:
ASU 2010-06: In January 2010, the FASB issued ASU 2010-06, Fair
Value Measurements and Disclosures (Topic 820). ASU 2010-06
Subtopic 820-10 provides new guidance on improving disclosures
about fair value measurements. The new standard requires some new
disclosures and clarifies some existing disclosure requirements
about fair value measurement. Specifically, the new standard will
now require: (a) a reporting entity should disclose separately the
amounts of significant transfers in and out of Level 1 and Level 2
fair value
Note C - Summary of Significant Accounting Policies and Basis of
Presentation (Continued)
measurements and describe the reasons for transfers and (b) in
the reconciliation for fair value measurements using significant
unoberservable inputs, a reporting entity should present separately
information about purchases, sales, issuances, and settlements. In
addition, the new standard clarifies the requirements of the
following existing disclosures: (a) for purposes of reporting fair
value measurements for each class of assets and liabilities, a
reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities and (b) a reporting
entity should provide disclosures about the valuation techniques
and inputs used to measure fair value for both recurring and
nonrecurring fair value measurements. The new standard is effective
for interim and annual reporting periods beginning after December
15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level
3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. Early application is permitted.
We adopted the provisions of this standard required for interim and
annual reporting periods beginning after December 15, 2009, for the
six months ended June 30, 2010 and we adopted the provisions of
this standard required for fiscal years beginning after December
15, 2010, the six months ended June 30, 2011. The adoption of the
statement did not have a material impact on our financial position,
results of operations or cash flows.
Note D - Other Receivable
In September 2009, the Company entered into a merger agreement
with Cano Petroleum, Inc. (the "Cano merger agreement"),
subsequently terminated in July 2010. The Cano merger agreement
provided for Resaca and Cano to, among other things, share equally
certain expenses related to the printing, filing and mailing of the
registration statement, the proxies/prospectuses, and the
solicitation of stockholder approvals. Following the termination of
the Cano merger agreement, Resaca requested that Cano reimburse
Resaca for Cano's share of such expenses. Resaca has recorded a
receivable of approximately $1.5 million, net of a $650,000
provision for credit losses, related to this reimbursement request.
On September 2, 2010, Cano filed an action against Resaca in the
Tarrant County District Court seeking a declaratory judgment to
clarify the scope and determine the amount of any expenses that are
reimbursable by Cano under the Cano Merger Agreement. Resaca
disputes the allegations made by Cano and management believes the
amount recorded on Resaca's balance sheet will ultimately be
collected from Cano. See Note N.
Note E - Related Party Transactions
The Company receives support services from Torch Energy Advisors
Incorporated ("TEAI") and its subsidiaries, which include office
administration, risk management, corporate secretary, legal
services, corporate and litigation legal services, graphic
services, tax department services, financial planning and analysis,
information management, financial reporting and accounting
services, and engineering and technical services. The Company was
charged by TEAI and a subsidiary of TEAI $455,749 and $590,801
during the six months ended December 31, 2011 and 2010,
respectively, for such services. The majority of such fees are
included in general and administrative expenses.
In the ordinary course of business, the Company incurs payable
balances with TEAI resulting from the payment of costs and expenses
of the Company and from the payment of support services fees. Such
amounts had been settled on a regular basis, generally monthly.
However, a subordinated unsecured note was issued on June 30, 2010
for the outstanding balance payable to TEAI of $1,854,722 as of
June 30, 2010. The principal balance payable to TEAI was amended on
December 15, 2010 to be $1,915,800. See Note F.
Note F - Notes Payable
On June 26, 2009, the Company entered into a $50 million,
three-year Senior Secured Revolving Credit Facility ("CIT
Facility") with CIT Capital USA Inc. ("CIT") with a maturity date
of July 1, 2012, which replaced a credit facility entered into in
2006. The initial borrowing base of the CIT Facility was $35
million and CIT served as administrative agent. Interest on the CIT
Facility was set at LIBOR plus 5.5% subject to a 2.5% LIBOR floor.
Recourse for the CIT Facility was limited to the Company, as
borrower, and the note was secured by all of the Company's oil and
gas properties. Throughout the term of the CIT Facility, the
interest rate was 8.0%. As a condition of closing the CIT Facility,
the Company entered into additional natural gas hedges for January
2011 through June 2012 and additional oil hedges for June 2011
through June 2012. Additionally, upon closing of the CIT facility,
the Company wrote off $536,579 in deferred financing costs
associated with a previous facility with third parties and paid
debt extinguishment fee of $250,000. The CIT Facility contained,
among other terms, provisions for the maintenance of
Note F - Notes Payable (Continued)
certain financial ratios and restrictions on additional debt. On
December 22, 2009, the Company executed an amendment to the CIT
Facility which amended some of the financial ratio requirements. On
January 6, 2011, the CIT Facility was paid in full from proceeds
received from the debt issuances described below.
On May 18, 2010, the Company, TEAI, and CIT entered into an
agreement, which provided that, if the CIT Facility was not repaid
in full by June 30, 2010, the outstanding payable by the Company to
TEAI as of June 30, 2010 would be contractually subordinated to
amounts payable under the CIT Facility. On June 30, 2010, the
Company entered into a Subordinated Unsecured Note ("Torch Note")
with TEAI for $1,854,722. The Torch Note had a maturity date of
October 1, 2012 and bore interest at Amegy Bank N. A.'s prime rate
plus two percent. At June 30, 2010 the interest rate was 7.0%. On
December 15, 2010 the Torch Note was amended to increase the
outstanding balance to $1,915,800, the interest provisions, provide
for subordination to the Chambers Facility in addition to the
Company's secured credit facility and extend the maturity date to
January 31, 2014. At December 31, 2011 the interest rate was 12.0%.
The maturity date shall be accelerated in the event the senior debt
issuance described below is repaid in full. Interest shall only be
payable in kind.
On January 7, 2011, the Company entered into a $20 million,
four-year unsecured credit facility (the "Chambers Facility") which
bears interest at 9.5% per year. Resaca also has the option to pay
interest under the Chambers Facility in kind for the first two
years at an interest rate of 12% per year. The Chambers Facility
contains certain financial ratio restrictions and other customary
covenants. This credit facility matures December 31, 2014. Proceeds
from the Chambers Facility were used to repay a portion of the CIT
Facility, to fund future acquisitions and for general corporate
purposes. In conjunction with the funding, Resaca issued warrants
to the lenders under the Chambers Facility to purchase
approximately 4.8 million shares of Resaca common stock at $1.93
per share. The purchase price for the Resaca common shares under
the warrants is subject to customary weighted average dilution
protections if Resaca issues stock at a price below the purchase
price under the warrants. In addition, the exercise price and the
number of shares the lenders are able to purchase under the
warrants will be adjusted in the case of certain Company
distributions, dilutive equity issuances, share subdivisions, or
share combinations. The warrants were recorded and are adjusted
every reporting period to fair value. See Note J. As a result of
the issuance of stock as part of the purchase price for the Langlie
Jal Unit as described in Note M, the warrant price was adjusted to
$1.92 per share in August 2011. The Company has elected to pay
interest in kind through December 1, 2012. As of December 31, 2011
the Company was not in compliance with all of the covenants under
the Chambers Facility, which resulted in an event of default. On
March 6, 2012, the Company received notice that default interest
(an additional 2% over the applicable cash or paid in kind interest
rate) would be charged under the Chambers Facility until the
Company is no longer in default. The Company is in discussions with
the administrative agent under the Chambers Facility regarding an
amendment and waiver in order to resolve the event of default. The
Company has classified the balance of the Chambers Facility at
December 31, 2011 to current due to the default status of the
loan.
On January 7, 2011, the Company entered into a $75 million
senior secured revolving credit facility (the "Regions Facility")
with Regions Bank ("Regions"). The Regions Facility contains
certain financial ratio restrictions and other customary covenants,
including a requirement to hedge at least 75% of proved developed
producing reserves through December 31, 2014. This credit facility
matures January 7, 2014. Proceeds from the Regions Facility were
used to repay a portion of the CIT Facility, to fund future
acquisitions and for general corporate purposes. The Regions
Facility is governed by semi-annual borrowing base redeterminations
assigned to the Company's proved crude oil and natural gas
reserves. An initial borrowing base of $33 million was established
based on the Company's reserves and the borrowing base has not been
redetermined. Under the Regions, Facility, $30.9 million was
outstanding at December 31, 2011. The interest rate on outstanding
borrowings was 4% at December 31, 2011. At December 31, 2011, due
to the noncompliance with the covenants under the Chambers
Facility, the Company was not in compliance with the covenants
related to this facility. Accordingly, The Company has classified
the balance of the Regions Facility at December 31, 2011 to current
due to the default status of the loan.
Note G - Price Risk Management and Financial Instruments
The Company enters into hedging transactions with a major
counterparty to reduce exposure to fluctuations in the price of
crude oil and natural gas. We use financially settled crude oil and
natural gas zero-cost collars and swaps. Any gains or losses
resulting from the change in fair value are recorded to unrealized
gain (loss) from price risk management activities, whereas gains
and losses from the settlement of hedging contracts are recorded in
oil and gas revenues.
Note G - Price Risk Management and Financial Instruments
(Continued)
With a zero-cost collar, the counterparty is required to make a
payment to us if the settlement price for any settlement period is
below the floor price of the collar, and we are required to make a
payment to the counterparty if the settlement price for any
settlement period is above the cap price for the collar.
Cash settlements for the six months ended December 31, 2011 and
2010 resulted in a decrease in crude oil and natural gas sales in
the amount of $665,925 and $445,252, respectively.
As of December 31, 2011, we had the following contracts
outstanding:
Crude Oil Natural Gas
--------------------------------------------------------- -----------------------------------------------------
Total Total Total
Volume Contract Asset Volume Contract Asset Asset
Price Price
Period (Bbls) (1) (Liability) (MMBtus) (1) (Liability) (Liability)
--------------- ----------- -------------- -------------- ------- ------------- --------- --- ------------ ------- --------------
Collars
1/12
- 6/12 6,000 60.00/77.00 (714,736) (714,736)
Swaps
1/12
- 5/12 1,300 102.05 14,472 14,472
1/12
- 6/12 3,900 84.05 (334,173) 7,500 6.30 143,239 (190,934)
7/12
- 3/13 1,100 100.00 16,243 16,243
7/12
- 12/12 10,000 84.05 (831,668) (831,668)
1/13
- 12/13 9,200 84.95 (1,161,073) (1,161,073)
4/13
- 12/13 500 98.50 11,710 11,710
1/14
- 12/14 8,600 85.80 (692,609) (692,609)
Total $ (3,691,834) $ 143,239 $ (3,548,595)
(1) The contract price is weighted-averaged by contract
volume.
Note G - Price Risk Management and Financial Instruments
(Continued)
The following table quantifies the fair values, on a gross
basis, of all our derivative contracts and identifies its balance
sheet location as of December 31, 2011:
Total
Asset Derivatives (Liability) Derivatives Asset
------------------------------------------ ------------------------------------
Balance Balance
Sheet Fair Sheet Fair
Location Value Location Value (Liability)
------------- --------------------- ------------- -------------- ------------
Derivatives not
designated as
hedging instruments
under
ASC 815
Derivative Derivative
Commodity financial financial
Contracts instruments instruments
Current Current
Liability $ 166,118 Liability $ (1,880,576) $ (1,714,458)
Non-current Non-current
Liability 19,546 Liability (1,853,683) (1,834,137)
Non-current Non-current
Warrants Liability - Liability (919,600) (919,600)
----------------- --------------- -----------------
Total
derivatives
not designated
as hedging
instruments
under
ASC 815 185,664 (4,653,859) (4,468,195)
---- ----------------- --------------- -----------------
Total derivatives $ 185,664 $ (4,653,859) $ (4,468,195)
==== ================= =============== =================
While notional amounts are used to express the volume of puts
and over-the-counter options, the amounts potentially subject to
credit risk, in the event of nonperformance by the third parties,
are substantially smaller. The Company does not anticipate any
material impact to its financial position or results of operations
as a result of nonperformance by third parties on financial
instruments related to its option contracts.
Note H - Commitments and Contingencies
The Company, from time to time, is involved in certain
litigation arising out of the normal course of business, none
currently outstanding of which, in the opinion of management, will
have any material adverse effect on the financial position, results
of operations or cash flows of the Company as a whole.
On September 2, 2010, Cano filed an action against Resaca in the
Tarrant County District Court seeking a declaratory judgment to
clarify the scope and determine the amount of any expenses that are
reimbursable by Cano under the Cano merger agreement. Resaca
disputes the allegations by Cano and management believes the amount
recorded on Resaca's balance sheet will ultimately be collected
from Cano. See Note N.
Note I - Share-Based Compensation
The Company has adopted a Share Incentive Plan ("The Plan") to
foster and promote the long-term financial success of the Company
and to increase shareholder value by attracting, motivating and
retaining key personnel. The Plan is considered an important
component of total compensation offered to key employees and
outside directors. The Plan consists of stock option and restricted
stock awards. The Company expenses the fair-value of the
share-based payments over the requisite service period of the
awards. At December 31, 2011, there was $540,170 in unrecognized
compensation expense related to non-vested restricted stock grants
and non-vested stock option grants. The restricted stock vests over
a three-year period while the stock options vest over a three-year
or one-year period. At December 31, 2011 there were 833,680 stock
options and 175,000 shares of restricted stock outstanding.
Additionally, the Board of Directors has the ability to authorize
the issuance of another 46,145 stock options and restricted stock
to key personnel.
Note I - Share-Based Compensation (Continued)
The following summary represents restricted stock awards
outstanding at December 31, 2011:
Grant Date
Shares Fair Value
---------------------- ------------------------
Awards outstanding at
June 30, 2011 242,948 $ 3,260,062
Restricted Shares
granted 175,000 253,750
Restricted Shares
vested (242,948) (3,260,062)
Restricted Shares
forfeited - -
---------------------- ------------------------
Awards outstanding at December
31, 2011 175,000 $ 253,750
====================== ========================
For stock options, the Company determines the fair value of each
stock option at the grant date using a Black-Scholes model, with
the following assumptions used for the grants made on the date
indicated:
9/25/2009 11/16/2009 1/18/2011 8/1/2011 8/8/2011
---------- ----------- ---------- --------- ---------
Risk-free interest rate 2.37% 2.18% 1.97% 1.32% 1.11%
Volatility factor 81% 88% 74% 71% 71%
Expected dividend
yield percentage 0% 0% 0% 0% 0%
Weighted average expected
life in years 3.5 3.5 4.5 3.5 3.5
All stock option awards have a three-year or one-year vesting
period and expire five years or seven years after the vesting date.
A summary of stock options awarded during the six months ended
December 31, 2011 is as follows:
Grant
Average Date
Exercise Fair
Shares Price Value
----------------- --- ----------------------- --- -----------------
Options outstanding at June
30, 2011 433,680 $ 2.08 $ 537,799
Grants 400,000 1.46 263,692
Exercised or
forfeited - - -
----------------- --- -----------------
Options outstanding at December
31, 2011 * 833,680 $ 1.78 $ 801,491
Note I - Share-Based Compensation (Continued)
A summary of stock options outstanding at December 31, 2011 is
as follows:
Option Option
Converted Awards Remaining Awards
Grant Exercise Exercise Option
Date Price Price Outstanding Life Exercisable
---------- ---------- ------------------- ------------------- -------------- ------------------------
09/25/09 GBP 2.50 $ 3.86 * 79,000 5.74 52,666
11/16/09 GBP 2.35 3.63 * 13,333 0.14 13,333
01/18/11 $1.61 1.61 341,347 7.05 -
08/01/11 $1.52 1.52 40,000 7.58 -
08/08/11 $1.45 1.45 360,000 7.60 -
------------------- ------------------- -------------- ------------------------
$ 1.78 833,680 7.08 65,999
*Exercise prices are denominated in British pounds and have been
converted at a rate of $1.5453 USD/GBP.
Note J - Fair Value Measurements
ASC 820 requires enhanced disclosures regarding the assets and
liabilities carried at fair value. The pronouncement establishes a
fair value hierarchy such that "Level 1" measurements include
unadjusted quoted market prices for identical assets or liabilities
in an active market, "Level 2" measurements include quoted market
prices for identical assets or liabilities in an active market
which have been adjusted for items such as effects of restrictions
for transferability and those that are not quoted but observable
through corroboration with observable market data, including quoted
market prices for similar assets, and "Level 3" measurements
include those that are unobservable and of a highly subjective
measure.
The fair value of the warrants was determined using a Monte
Carlo valuation model. At December 31, 2011 the assumptions used in
the model to determine the fair value of the outstanding warrants
included the warrant exercise price of $1.93 per share, the
Company's stock price at December 31, 2011 of $0.90 per share,
volatility of 55% and a risk free discount rate of 0.4%.
The Company utilizes the market approach for recurring fair
value measurements of its oil and gas hedges. The following table
sets forth, by level within the fair value hierarchy, the Company's
financial assets and liabilities that are accounted for at fair
value on a recurring basis as of December 31, 2011. As required by
ASC 820, financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to
the fair value measurement:
Market Significant
Prices Other Significant
for Identical Observable Unobservable
Items Inputs Inputs
(Level (Level (Level
1) 2) 3) Total
---------------------- ------------------------ ---------------------- ----------------
Assets:
Oil and Gas
Hedges - - - $ -
Total Assets - - - $ -
---------------------- ------------------------ ---------------------- ----------------
Liabilities:
Oil and Gas
Hedges - 3,548,595 - $ 3,548,595
Derivative
Warrants - 919,600 919,600
Total Liabilities - 3,548,595 919,600 $ 4,468,195
---------------------- ------------------------ ---------------------- ----------------
Total Net
Liabilities - 3,548,595 919,600 $ 4,468,195
====================== ======================== ====================== ================
Note J - Fair Value Measurements (Continued)
The carrying amounts of the Company's cash and cash equivalents,
receivables and payables approximate the fair value at December 31,
2011 and June 30, 2011 due to their short-term nature. The carrying
amounts of the Company's debt instruments at December 31, 2011 and
June 30, 2011 approximate their fair values due to the interest
rates being at market.
Note K - Stockholders' Equity
As described in Note A, the Company converted from a partnership
to a corporation on July 10, 2008. As such, partners' capital was
converted to stockholders' equity. On June 23, 2010, the Board of
Directors approved a one for five reverse stock split effective
June 24, 2010. At December 31, 2011, the Company had 230,000,000
common shares authorized and 20,747,410 shares issued and
outstanding.
Note L - Employee Benefit Plans
Under the Resaca Exploitation, Inc 401(k) Plan (the "Plan")
established in fiscal year 2009, contributions are made to the Plan
by qualified employees at their election and our matching
contributions to the Plan are made at specified rates. Our
contribution to the Plan for the six months ended December 31, 2011
and 2010 was $18,744 and $15,137, respectively.
Note M - Acquisitions and Dispositions of Assets
On July 15, 2011 the Company sold the Grand Clearfork Field
located in Pecos County, Texas for $4.1 million. On August 3, 2011
the Company purchased the Langlie Jal Unit located in Lea County,
New Mexico for $8.3 million, comprised of $6.9 million in cash and
the issuance of 845,254 shares of its common stock. The following
table presents the preliminary purchase price allocation to the
assets acquired and liabilities assumed, based on their fair values
on August 3, 2011:
Oil and gas properties $ 8,485,841
Asset retirement
obligations (234,548)
-----------
$ 8,251,293
============================ ===========
Note N - Subsequent Events
On February 27, 2012, the Company entered into commodity swap
transactions with a major counterparty effective from March 1, 2012
through March 31, 2015.
On March 6, 2012, the Company received notice that default
interest would be charged under the Chambers Facility until the
Company is no longer in default.
On March 8, 2012, Cano Petroleum, Inc. and various of its
affiliates filed a chapter 11 case in the bankruptcy court for the
northern district of Texas.
On March 19 2012, the Company changed the trading denomination
of its common stock from United States dollars to British
pounds.
Note O - Director Compensation
During the six months ended December 31, 2011, Resaca directors
J.P. Bryan, Judy Ley Allen, Richard Kelly Plato, John William Sharp
Bentley, and John J. Lendrum, III each received director's fees in
the amount of $25,000. Stock option awards of 100,000 were made to
J. P. Bryan and stock option awards of 30,000 were made to each of
the remaining directors during the six months ended December 31,
2011. No salaries, bonuses or pension contributions
Note O - Director Compensation (Continued)
were paid to or for the benefit of any Resaca directors during
the six months ended December 31, 2011. During the
six months ended December 31, 2010, Resaca directors J.P. Bryan,
Judy Ley Allen, Richard Kelly Plato, and John William Sharp Bentley
each received director's fees in the amount of $25,000 and director
John J. Lendrum, III received $19,780. No equity grants were made
and no salaries, bonuses or pension contributions were paid to or
for the benefit of any Resaca directors during the six months ended
December 31, 2010.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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