FX Energy announced net income of $9.4 million, or $0.22 per share, for the quarter ended September 30, 2009. Excluding non-cash foreign currency exchange gains of $12.2 million, the Company would have recorded a third quarter loss of $(2.8) million, or $(0.07) per share. Both figures are significant improvements over the net loss of $(3.9) million, or $(0.09) per share reported in the third quarter of 2008.
Production Gains and Lower Exploration Costs Drive Improved Third Quarter Results
The Company's production rose to 471 Mmcfe during the third quarter of 2009 from 391 Mmcfe during the 2008 quarter. The production increase was due to the commencement of production from the Company's Roszkow and Grabowka wells in Poland.
"The start of production from these wells represents a step-change for us," said Clay Newton, VP Finance for FX Energy. "Specifically, company-wide production jumped up to 12.2 Mmcfe per day, or 265% of the 4.6 Mmcfe daily rate at the beginning of the quarter. The Roszkow well came online only 13 days before the end of the quarter, so the full quarterly impact will not be seen until fourth quarter of this year."
Despite the Company's higher production volumes, lower oil prices and Zloty/US dollar exchange rate effects led to lower revenues of $2.7 million for the 2009 third quarter compared to $3.9 million for the 2008 quarter. Average oil prices of $57.83 in the 2009 third quarter were 45% lower than the $104.68 received per barrel during the same quarter of 2008, resulting in a decline in 2009 revenues of almost $1 million. Zloty-based gas prices in Poland were 5% higher in the 2009 third quarter than in the same quarter of 2008, but in US dollar terms the price was 34% lower, $4.65 per mcf in the 2009 third quarter compared to $7.00 per mcf in the 2008 third quarter.
Total costs for the period were almost 21 percent lower, falling from $8.2 million to $6.5 million. The most material reduction was exploration costs falling from $3.7 million to only $0.7 million. This was partially offset by a property impairment charge of $1.9 million attributable to the Company's Wilga well in Poland. Production at that well came to an end during the third quarter of 2009, despite repeated workover attempts. The Company impaired the remaining capitalized costs at Wilga, and plans to dismantle the production facility.
Nine Month Results
The Company reported a net loss of $(3.9) million, or $(0.09) per share, for the first nine months of 2009. Excluding non-cash foreign currency exchange gains of $5.6 million, the Company would have recorded a loss for the first nine months of 2009 of $(9.4) million, or $(0.22) per share, compared to a net loss of $(9.5) million, or $(0.24) per share reported in the first nine months of 2008.
The Company reported earnings before interest, taxes, depreciation, amortization, exploration expense, and other non-cash charges (EBITDAX)(1) during the first nine months of 2009 of $166,000, compared to $5.2 million in the first nine months of 2008. At September 30, 2009, the Company's cash and investments were $2.5 million and working capital was $2.7 million, in line with Company expectations. Also as expected, the new production streams are reversing the trend of declining cash balances this year. In the month of October, 2009, the Roszkow well alone generated $1.4 million in incremental revenues.
Oil and gas revenues for the 2009 first nine months were 45% lower than those recorded during the same period of 2008. The Company recognized oil and gas revenues of $6.3 million for the first nine months of 2009, compared to $11.4 million for the same period of 2008. Total revenues for the first nine months of 2009 were $8.1 million, compared to $14.5 million in the first nine months of 2008.
Natural gas production in Poland was 888 Mmcf during the first nine months of 2009, compared to 920 Mmcf during the same period of 2008. Production declines at the Wilga well were mostly offset by new production from the Company's Roszkow and Grabowka wells.
Though production for the first nine months of 2009 was down slightly from the year earlier, the Company believes this trend is now reversed. The new production streams just added are expected to increase full year 2009 production significantly above full year 2008 production.
Although zloty-based gas prices in Poland were higher, average gas prices as reported in U.S. dollars declined by 31% from 2008 to 2009, a function of the weaker Polish zloty. The average exchange rate during the first nine months of 2008 was 2.26 zlotys per U.S. dollar. The average exchange rate during the same period of 2009 was 3.22 zlotys per U.S. dollar, a change of 42%.
Non-Cash Foreign Exchange Effects
The foreign exchange gains of $12.2 million and $5.5 million for the third quarter and first nine months of 2009, respectively, are both included in other income and expense. These figures come primarily from recognizing gains and losses related to intercompany loans between the Company and its wholly owned Polish subsidiary. These non-cash foreign exchange effects are likely to continue to vary greatly depending upon future exchange rate changes.
Balance Sheet Changes
Cash and working capital balances at September 30, 2009 were substantially lower than those at the end of the 2008 third quarter. However, this results mostly from the temporarily high balances at the end of the 2008 third quarter. During the late third quarter and through the fourth quarter of 2008, the Company allowed cash balances to build and drew on its credit facilities to maximize financial liquidity during the world financial crisis of that period. The Company again noted that production from the Roszkow and Grabowka wells, which has more than doubled company-wide production, is expected to build the Company's cash balances through higher revenues and cash flow.
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