Crimson Exploration Announces Fourth Quarter and Full Year 2012 Financial Results and an Operational Update
HOUSTON--(BUSINESS WIRE)-- Crimson Exploration Inc. (NasdaqGM:CXPO) today announced financial results for the fourth quarter and full year 2012 and an operational update.
2012 Summary & Highlights
- Full year revenue of $115.9 million and Adjusted EBITDAX of $81.0 million
- Increased quarterly crude oil and natural gas liquids production to 45% of total production, through a 90% increase in crude oil production
- Increased proved reserve PV-10 value to $340.1 million, a 28% year-over-year increase
- Increased proved crude oil and natural gas liquids reserve volumes by 66% and 18%, respectively, to a total of 9.2 million barrels
Allan D. Keel, President and Chief Executive Officer, commented, "The Company entered 2012 with two main objectives. The first objective was to continue our transition to a balanced profile of natural gas and crude oil and NGLs. Second, validate our Woodbine acreage position. I am pleased to say the Company accomplished both tasks. In 2012, crude oil production increased by 90% to 753,980 net barrels, so total liquids production represented 45% of total production, up from 30% in 2011, and our year-end proved reserves were 47% crude oil and NGLs, up from 19% at year-end 2011. In our Woodbine play in Madison and Grimes counties, Texas, Crimson has emerged as an industry leader offering significant exposure to the core parts of the play. Since completing our Mosley #1H well in March 2012, Crimson's operated properties in the Woodbine have produced over 550,000 gross barrels of oil equivalent and our operated and non-operated wells have achieved an average 24-hr initial production rate of 1,108 boepd and a 30-Day average production rate of 748 boepd. In 2013, we will continue to develop our assets in the Woodbine formation, while concurrently expanding our focus on oil-weighted opportunities to include the crude oil rich Buda formation in South Texas and look to possibly execute a drilling program for the James Lime in East Texas."
Summary Fourth Quarter Financial Results
The Company reported Adjusted EBITDAX, as defined below, of $17.5 million in the fourth quarter of 2012 compared to Adjusted EBITDAX for the prior year quarter of $17.2 million. Net loss for the fourth quarter of 2012, exclusive of special non-cash charges discussed below, was $3.4 million, or ($0.08) per basic share, compared to a net loss of $3.5 million, or ($0.08) per basic share, in the fourth quarter of 2011. Net loss including those special charges was $87.7 million, or ($1.98) per basic share, for the fourth quarter of 2012 compared to a net loss of $5.0 million, or ($0.11) per basic share, for the fourth quarter of 2011. Special non-cash items impacting the fourth quarter of 2012 were a $115.6 million non-cash impairment of certain natural gas assets in South and East Texas, a $10.2 million deferred tax valuation charge related to net operating loss carryforwards, and an unrealized pre-tax charge of $0.2 million related to the mark-to-market valuation requirement on our commodity price hedges. In the fourth quarter of 2011, the Company recognized an unrealized pre-tax charge of $1.6 million related to the mark-to-market valuation on commodity price hedges and a $0.7 million leasehold impairment charge.
Revenues for the fourth quarter of 2012 were $27.9 million compared to revenues of $27.4 million in the prior year quarter. The slight increase results primarily from a 48% increase in higher value oil production, offset, in part, by declines in natural gas production and lower realized natural gas liquids ("NGL") pricing.
Production for the fourth quarter of 2012 was approximately 3.4 Bcfe, or 36,840 Mcfe per day, achieving the upper end of the Company's production guidance range of 34,000 to 37,000 Mcfe per day. Crude oil and NGL production increased to 254,039 barrels, or 45% of total production for the quarter, up from 207,272 barrels, or 34% of total production, in the fourth quarter of 2011. The increase in liquids production is a result of a strategic shift toward crude oil and liquids-rich projects in the Woodbine and Eagle Ford Shale formations initiated in 2011.
The weighted average field sales price in the fourth quarter of 2012 (before the effects of realized gains/losses on our commodity price hedges) was $7.87 per Mcfe compared to an average field sales price of $6.72 for the fourth quarter of 2011. The weighted average realized sales price in the fourth quarter of 2012 (including the effects of realized gains/losses on our commodity price hedges) was $8.24 per Mcfe compared to a weighted average realized sales price of $7.45 per Mcfe for the fourth quarter of 2011. The increase in the weighted average equivalent prices resulted from higher levels of crude oil and NGL production, despite the decrease in prices.
Lease operating expenses for the fourth quarter of 2012 were $3.7 million, or $1.10 per Mcfe, compared to $3.7 million, or $1.00 per Mcfe, in the fourth quarter of 2011. Lease operating expenses increased on a per Mcfe basis due to the lower equivalent production volumes and higher lifting costs associated with oil production compared to natural gas production.
Production and ad valorem tax expenses for the fourth quarter of 2012 were $1.8 million, or $0.52 per Mcfe, compared to $1.3 million, or $0.35 per Mcfe, for the fourth quarter of 2011, an increase resulting from higher tax rates paid on higher crude oil sales revenue.
Depreciation, depletion and amortization ("DD&A") expense for the fourth quarter of 2012 was $15.4 million, or $4.53 per Mcfe, compared to $15.6 million, or $4.24 per Mcfe, for the fourth quarter of 2011. DD&A expense was relatively flat period over period as the slightly higher rate associated with recently developed crude oil wells was offset, in part, by lower equivalent production.
Non-cash impairment and abandonment of oil and gas properties in the fourth quarter of 2012 was $115.6 million compared to $0.7 million in the fourth quarter of 2011. Impairment and abandonment of oil and gas properties in the fourth quarter of 2012 was primarily caused by a continued trend of depressed natural gas prices and Crimson's decision to reduce future dry gas related drilling and development activity in South and East Texas for the foreseeable future. This decision triggered the re-classification of primarily undeveloped reserves previously classified as proved which resulted in a reduction in value for the Company's conventional natural gas assets in South Texas (purchased in a higher natural gas price environment in 2007 and 2008) and unconventional natural gas assets in East Texas. The Company will continue to hold proved producing acreage in these areas and may be able to re-book all or some portion of these reserves as proved once the commodity price environment improves.
In 2012, Crimson recorded an income tax benefit of $34.7 million compared to $8.1 million in 2011. The income tax benefit of $34.7 million is net of a $10.2 million partial valuation allowance of net operating loss carryforwards. The Company recorded this partial valuation allowance as it has been unable to realize significant net operating loss carryforwards in recent years nor does it expect that a significant amount will be realized in 2013.
General and administrative expense in the fourth quarter of 2012 was $5.6 million, or $1.66 per Mcfe, compared to $5.7 million, or $1.55 per Mcfe, in the fourth quarter of 2011. General and administrative expenses, exclusive of non-cash stock option expense recognized in each quarter, was $5.0 million for the fourth quarter of 2012 compared to $5.3 million for fourth quarter of 2011.
2012 & 2013 Capital Programs
Capital expenditures for the fourth quarter of 2012 were $5.0 million, allocated between completion operations and leasehold acquisitions in Madison and Grimes counties, Texas. In 2012, Crimson invested approximately $79.3 million, of which $63.5 million was used to drill 12 gross (7.9 net) wells and to sidetrack one (0.6 net) well, with a 100% success rate. The remaining $15.8 million was used to build facilities, acquire and extend leases, and complete wells drilled in late 2011.
The table below outlines Crimson's 2012 drilling activity by area:
|Well Name||WI - %||County / Formation||IP Rate||Liquids - %||IP Date|
|Mosley #1H||84.3||Madison / Woodbine||1,203 Boepd||91.8||Mar 2012|
|Pavelock #1H||2.7||Madison / Woodbine||1,808 Boepd||85.7||Mar 2012|
|Vick Trust #1H||75.0||Madison / Woodbine||383 Boepd||74.9||May 2012|
|Grace Hall #1H||82.5||Madison / Woodbine||1,080 Boepd||87.5||June 2012|
|A. Yates #1H||50.0||Grimes / Woodbine||472 Boepd||90.9||June 2012|
|Payne #1H||92.1||Madison / Woodbine||1,332 Boepd||93.1||July 2012|
|Catherine Henderson A-6 ST||60.8||Liberty / Cook Mtn.||7.2 Mmcfepd||47.0||Aug 2012|
|Covington-Upchurch #1H*||67.8||Grimes / Woodbine||6.9 Mmcfepd||33.4||Nov 2012|
|Gatlin #1H||3.1||Madison / Woodbine||1,436 Boepd||88.1||Dec 2012|
|Littlepage McBride #7H||53.0||Karnes / Eagle Ford||1,019 Boepd||89.0||Jan 2012|
|Beeler #1H||50.0||Dimmit / Eagle Ford||370 Boepd||91.1||Feb 2012|
|Glasscock A #1H||95.5||Karnes / Eagle Ford||726 Boepd||91.6||Mar 2012|
|Glasscock B #1H||90.7||Karnes / Eagle Ford||685 Boepd||89.8||May 2012|
|KM Ranch #2H||50.0||Zavala / Eagle Ford||511 Boepd||89.4||Aug 2012|
*Initial production rate only reflects data from an unstimulated toe stage 24-hour test. Full scale flowback operations are currently pending the installation of midstream services to handle higher BTU content natural gas production. Initial production rates do not necessarily indicate current production.
Crimson's 2013 capital budget is currently forecasted to be approximately $58.7 million focusing on its inventory of crude oil and liquids-rich projects in the Woodbine formation with a continuous rig program planned for 2013. The Company currently plans to drill one or more test wells in the crude oil rich Buda formation in the Zavala/Dimmit counties in South Texas. If warranted by market conditions, success in these areas and capital availability, the Company may further accelerate the drilling program in one or both of these areas.
2012 Year End Reserves
Proved reserves at December 31, 2012, as estimated by Netherland, Sewell & Associates, Inc., Crimson's independent petroleum engineering firm, in accordance with reserve reporting guidelines mandated by the Securities and Exchange Commission ("SEC"), were 117.0 Bcfe, consisting of 61.9 billion cubic feet of natural gas, 6.2 million barrels of crude oil, and 3.0 million barrels of natural gas liquids, with a present value of proved reserves discounted at 10% ("PV-10") of $340.1 million.
Crimson's strong success drilling the Woodbine formation in Madison and Grimes counties, Texas contributed to a 66% increase in crude oil proved reserves and an 18% increase in NGLs proved reserves over 2011. Accordingly, crude oil and NGL reserves now represent 47% of proved reserves at December 31, 2012, up from 19% in 2011, further balancing Crimson's reserve profile. Additionally, the sharp increase in PV-10 demonstrates the value added from targeting crude oil and NGL weighted assets and further validates Crimson's ability to evaluate and execute a high impact, lower risk drilling program.
Benchmark commodity prices used in calculating the proved reserve estimates and present value were the twelve month un-weighted arithmetic average of the first-day-of-the-month prices for the period January 2012 through December 2012. For crude oil and NGL reserves, the average West Texas Intermediate posted price of $91.21 per barrel at December 31, 2012, compared to $92.71 per barrel at December 31, 2011, is adjusted by field for quality, transportation fees, and regional price differentials. For natural gas reserves, the average Henry Hub spot price of $2.757 per MMBTU at December 31, 2012, compared to $4.118 per MMBTU December 31, 2011, is adjusted by field for energy content, transportation fees and regional price differentials. All prices are held constant for the lives of the reserves.
Due to a continuing low natural gas price environment, Crimson was required to remove approximately 92 Bcfe of proved undeveloped reserves (PUDs) in East Texas from its proved reserve base until natural gas prices return to more economical levels. Notwithstanding the removal of East Texas PUDs, Crimson increased year-over-year PV-10 to $340.1 million, a 28% increase, from $266.5 million in 2011, as the Company continued its transition to crude oil and natural gas liquid weighted projects.
Price related reserve revisions are an uncontrollable consequence of operating in a commodity price driven industry. Since year-end 2011, the prices used to calculate natural gas reserves declined $1.36 per MMBTU, or 33%, down to $2.757 per MMBTU. Crimson's East Texas proved undeveloped reserves have been reclassified as unproved reserves but can be reinstated once natural gas prices improve. Assuming the East Texas PUDs were not reclassified, reserve growth in 2012 would have been 11% with a reserve replacement of 160%.
As of December 31, 2012, 53% of proved reserves were natural gas, 54% were proved developed and 90% were attributed to wells and properties operated by Crimson.
The following table summarizes Crimson's total proved reserves as of December 31, 2012:
|Net Reserves||Present Value|
|Category||(MBBL)||(MBBL)||(MMCF)||(MMCFE)||at 10% (MM)|
|Note: Total numbers may not add due to rounding.|
Madison County, Texas - Force Area Woodbine
Crimson drilled the Nevill-Mosley #1H well (82.0% WI), targeting the Woodbine formation, to a total measured depth of 15,011 feet, including a 6,360 foot lateral. Crimson has begun completion operations and anticipates initial production in April after completing the well with approximately 22 stages of fracture stimulation. The Nevill-Mosley #1H is Crimson's first well in the 2013 capital program.
Approximately 1.7 miles east of the Nevill-Mosley #1H well, Crimson spud the Mosley B #1H well (85.4% WI), targeting the Woodbine formation, which is currently drilling at a depth of 7,913 feet. Crimson anticipates drilling to a total measured depth of approximately 14,805 feet, including a 6,200 foot lateral, and conducting approximately 22 stages of fracture stimulation. Completion operations are expected to begin in April with initial production to follow in May. Upon completion of drilling operations, the rig will be moved 1 mile east to begin drilling the Payne B #1H.
Grimes County, Texas - Iola/Grimes Area Woodbine
As previously disclosed, full flow back operations on the Covington-Upchurch #1H well (67.8% WI) has been postponed as a result of delays in completing infrastructure capable of handling natural gas production with higher BTU content in the area. Crimson was informed by the service provider that installation of the refrigeration unit will now be completed by the end of March. The service provider indicated unforeseen regulatory issues, which are now resolved, as the reason for delay on completion of the project.
Dimmit County, Texas - Buda
Crimson recently secureda one well contract for a 1,000 horsepower drilling rig with anticipated delivery by the end of March. Crimson plans to spud the Beeler #2H well (50.0% WI), a horizontal well targeting the Buda formation, the first week of April with initial production rates expected in May. The Buda is a naturally fractured limestone formation located below the Eagle Ford and Austin Chalk formations at an average depth of 7,000 feet. The Beeler #2H will be drilled to a total measured depth of 11,180 feet, including an approximate 4,000 foot lateral.
Selected Financial and Operating Data
The following table reflects certain comparative financial and operating data for the three and twelve month periods ended December 31, 2012 and 2011: