FX Energy announced financial results for its fourth quarter and the full year of 2009. The Company reported a net loss for 2009 of $0.5 million, or $0.01 per share, compared to a net loss in 2008 of $54.7 million, or $1.35 per share. Some $44 million of the improvement was due to the reduction of non-cash charges in 2009. For 2009, the positive impact of non-cash items was mildly offset by a decrease in revenue from all sources of 18%, to $14.7 million compared to $17.8 million for the prior year.
For the fourth quarter of 2009, the Company reported record net operating income of $2.0 million, or $0.05 per share, compared to a net operating loss of $21.3 million, or $0.53 per share during the same quarter of 2008. Though non-cash items contributed to improvement in the 2009 fourth quarter, revenues and oil and gas production were at record levels. The Company reported record oil and gas production of 1,080 million cubic feet equivalent (Mmcfe) and record revenues of $6.6 million. The primary drivers for the loss in 2008 were non-cash charges related to property impairments and foreign exchange losses associated with intercompany debt.
Clay Newton, FX's Vice President Finance, remarked, "The fourth quarter results, which were driven by real oil and gas production gains, should be sustainable. The biggest change for the fourth quarter was the addition of the Roszkow well to our production base. This well has added some 7 million net cubic feet of gas to our daily production. Wells in the Fences area have historically sustained something close to their initial production rates for several years.
"Additionally, we believe further production gains will be achieved from four wells already completed and tested. During 2010, we expect to complete construction of our KSK production facilities in western Poland. This would allow us to bring 3 additional wells into production late in the year. These three wells together should add as much production as the Roszkow well."
Production Gains Help Drive Fourth Quarter Results
As mentioned above, 2009 fourth quarter net operating income was $2.0 million as the Company enjoyed record oil and gas production. Total production of 1,080 Mmcfe was 280% of the 385 Mmcfe in the fourth quarter of 2008. Oil and gas revenues, also a Company record, increased to $6.5 million, triple the $2.1 million in the fourth quarter of 2008. Revenue from all sources for the fourth quarter of 2009 was $6.6 million, double the revenues of $3.3 million during the fourth quarter of 2008.
The production and revenue increases for the quarter were primarily the result of the Roszkow well in Poland, which began producing in late September 2009. An increase in Polish natural gas prices was also a factor. The average gas price in Poland during the fourth quarter of 2009 was $5.53 compared to $4.84 during the fourth quarter of 2008. Oil prices also increased, resulting in 42% higher oil revenues from the Company's US oil production during the fourth quarter 2009.
Full Year Cash Results Decline on Temporarily Lower Revenues
Though the fourth quarter operating results were at all time records, the full year cash results were lower. Total revenues from all sources were down 18% from 2008 to 2009, with lower revenues from both the Company's oil and gas services segment and lower oil and gas revenues. The Company recorded oil and gas revenues of $12.8 million, compared to $13.5 million for 2008, a decrease of 5%. Oilfield services revenues declined from $4.3 million for 2008 to $1.9 million for 2009. However, as stated above, these declines in oil and gas revenues were largely reversed and became increases in the fourth quarter.
For the full year 2009, the Company's total net production increased to 2,266 Mmcfe (million cubic feet of gas equivalent) from 1,671 Mmcfe during 2008. The production increase was due entirely to production from the Company's Roszkow well. Lower oil and gas prices offset the production increase. The Company's average price for natural gas in Poland declined 15% from 2008 levels, averaging $5.01 per Mcf. Polish gas tariffs were reduced by 5% in June. The remainder of the decrease in gas prices was due to foreign exchange rate differences from year to year. Oil prices also decreased, with prices averaging $52 per barrel, down 41% from the $88 per barrel in 2008.
Exploration expenses decreased 69% from 2008 levels. These expenses, which reflected the Company's focus on 3-D seismic acquisition, processing, and interpretation in its Fences core area, dropped from $15.4 million in 2008 to $4.8 million in 2009 as we matched expenditures with available cash.
The Company recorded impairment charges during 2009 and 2008 totaling $1.9 million and $14.7 million, respectively. The Company's Wilga well, located in eastern Poland, stopped producing during 2009, resulting in an impairment of its remaining capital costs. Lower oil prices at the end of 2008 caused a reduction in the productive life calculation of the Company's oil properties in Montana. This resulted in a required write down of the Company's net book value of the Montana properties. The total U.S. impairment charge for 2008 was approximately $3.8 million. The Montana wells continue to produce approximately 170 barrels of oil per day, net to the Company's interest. In Poland, the Company impaired the costs of the Grundy and Sroda-6 wells, a total of $11.0 million in 2008.
Also included in non-cash charges for both years are foreign exchange gains and losses related to intercompany loans between the Company and its wholly owned subsidiary. These are non-cash items primarily related to currency exchange rate fluctuations between reporting periods.
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