Crimson Exploration Exits '09 with $112MM

Crimson Exploration announced financial results for the fourth quarter and full year 2009.

2009 Summary

  • Revenue of $112.4 million; EBITDAX of $71.6 million
  • Reduction in direct LOE costs by $3.5 million, or 17%
  • Raised $94.0 million in net proceeds through public offering of common stock; increased float in trading volume
  • Simplified capital structure through conversion of all preferred stock
  • Began trading on the NASDAQ Global Market under the ticker "CXPO"
  • Divested non-core Southwest Louisiana assets for $7.8 million in December 2009, eliminating an estimated $5.3 million in future P&A liability

Management Commentary

Financial and operating results in 2009 were influenced by depressed commodity prices and related market conditions that restricted access to the capital markets. Acknowledging this trend at the beginning of the year, Crimson's 2009 strategy was to reduce outstandings under our credit facility and limit expenditures to strategic projects that would be key to future value generation for our shareholders. In April 2009, steps were taken to reduce G&A expenses by eliminating certain administrative support functions and to reduce lease operating expenses in the field by identifying operating efficiencies. Both of these measures were successful in reducing our cash expenses. In December 2009, in an effort to focus technical resources and divest non-core assets, we closed on a definitive agreement to sell substantially all of our Southwest Louisiana assets for $7.8 million (with the potential for up to an additional $2.4 million), plus eliminating an estimated $5.3 million in future P&A liability.

We began 2009 with a $200.0 million borrowing base and $126.7 million outstanding under our revolving credit facility. In conjunction with our equity offering completed in December 2009, Crimson's borrowing base was redetermined at $105.0 million, with $41.0 million outstanding, providing us with over $60 million of availability under the revolving credit facility. Our commitment to lower capital expenditures in 2009, the cost reductions and debt reduction resulting from lower costs and proceeds from our public equity offering, positions us financially to resume a capital program that will allow us to build value for our shareholders through expanded development of the potential in our East Texas and South Texas resource plays, as well as increase reserves, production and cash flow from our conventional assets.

Summary Financial Results

The Company reported a loss before income taxes for the fourth quarter of 2009 of $24.9 million compared to a profit before income taxes of $32.4 million for the fourth quarter of 2008. Recorded in the fourth quarters of 2009 and 2008, respectively, were a $6.6 million non-cash charge and a $47.7 million non-cash benefit related to the mark-to-market requirement on our commodity price and interest rate hedges. Also recognized in the fourth quarters of 2009 and 2008, respectively, were non-cash impairment charges of $5.7 million and $10.2 million. In the fourth quarter 2009, we also recorded a loss on sale of assets for $6.8 million attributed to our divestiture of non-core Southwest Louisiana properties. Exclusive of these special items, income before taxes for the fourth quarter of 2009 would have been a loss of $5.8 million, compared to a loss before taxes of $5.1 million in 2008, and full year income before taxes would have been a loss of $14.4 million in 2009 compared to income before taxes of $44.2 million in 2008. A net loss was recorded in the fourth quarter of 2009 of $17.3 million compared to net income of $20.9 million for the fourth quarter of 2008. A net loss was recorded for the full year 2009 of $34.1 million compared to net income of $46.2 million for 2008.

Revenues for the fourth quarter of 2009 were $26.2 million compared to revenue of $35.0 million in the prior year quarter, a decrease related to lower production and lower realized commodity prices. For the year 2009, revenues were $112.4 million, down from $186.8 million in 2008. The decrease in revenue for the year was also primarily due to the decrease in production related to natural field decline and limited production-enhancing capital activity, and to lower realized commodity prices.

Production for the fourth quarter of 2009 was approximately 3.2 Bcfe of natural gas equivalents, or 34,800 Mcfe per day, compared with production of approximately 4.6 Bcfe, or 50,300 Mcfe per day, in the 2008 quarter. Fourth quarter 2009 production was negatively impacted by approximately 1,500 Mcfe per day by settlement of a retroactive dispute related to historical royalty payments on certain lease use gas and a retroactive adjustment to production previously recognized from certain non-operated conventional properties. Production for the year 2009 was approximately 14.9 Bcfe of natural gas equivalents, or 40,900 Mcfe per day, compared with production in 2008 of approximately 19.2 Bcfe, or 52,500 Mcfe per day. In addition to these adjustments in the fourth quarter of 2009, production decreased in 2009 as a result of natural field decline and limited production enhancing capital expenditure activity in 2009.

Average realized prices in the fourth quarter of 2009 (including the effects of realized gains/losses on our commodity price hedges) were $92.19, $7.20, $42.87 and $8.15 per barrel, Mcf, barrel and Mcfe, respectively for oil, natural gas, natural gas liquids and natural gas equivalents. For the fourth quarter of 2008, average realized prices were $68.42, $7.20, $28.84 and $7.52 per barrel, Mcf, barrel and Mcfe, respectively for oil, natural gas, natural gas liquids and natural gas equivalents. Average realized prices for the year 2009 were $83.51, $6.86, $30.57 and $7.49 per barrel, Mcf, barrel and Mcfe, respectively for oil, natural gas, natural gas liquids and natural gas equivalents. For the 2008 year, average realized prices were $84.03, $8.86, $53.07, and $9.66 per barrel, Mcf, barrel and Mcfe, respectively for oil, natural gas, natural gas liquids and natural gas equivalents.

Direct lease operating expenses for the fourth quarter of 2009 were $3.8 million compared to $5.4 million in the prior year quarter, a decrease due to our cost reduction efforts and lower expense workovers. For the year 2009, lease operating expenses were $17.4 million, compared to $20.8 million in 2008, a decrease resulting from our cost reduction initiatives during 2009. On a per Mcfe produced basis, direct lease operating expenses were $1.20 and $1.16 per Mcfe for the fourth quarter and year 2009, respectively, compared to $1.18 and $1.08 per Mcfe for the fourth quarter and year 2008, respectively, comparable per unit costs despite the decrease in production volumes.

Production and ad valorem taxes for the fourth quarter 2009 were $1.1 million compared to $1.9 million in the prior year quarter due to lower revenues. For the year 2009, production and ad valorem taxes were $7.1 million compared to $16.3 million in 2008, a decrease resulting from lower revenues. On a per Mcfe produced basis, production and ad valorem taxes were $0.33 and $0.48 per Mcfe for the fourth quarter and year 2009, respectively, compared to $0.42 and $0.85 per Mcfe for the fourth quarter and year 2008, respectively.

Exploration expense was $0.9 million for the fourth quarter of 2009 compared to $8.1 million for the prior year quarter. For the year 2009, exploration expense was $3.8 million compared to $10.0 million in 2008. Current year charges were primarily due to abandonment expenses of unproved properties which were $1.1 million, while charges in 2008 resulted from a $7.1 million charge in December 2008, resulting from the release and abandonment of the undeveloped leasehold position in Culberson County, Texas that we acquired from Core Natural Resources in 2006.

DD&A expense for the fourth quarter of 2009 was $11.7 million, or $3.66 per mcfe, compared to $14.4 million, or $3.12 per mcfe, in the prior year quarter. For the year 2009, DD&A expense was $53.3 million, or $3.57 per mcfe, compared to $50.5 million, or $2.63 per mcfe, in 2008. The higher DD&A rates for the quarter and year resulted from the effect of negative price-related reserve revisions offset by lower production.

We recorded non-cash asset impairment and abandonment charges of $5.7 million and $10.2 million in the fourth quarters of 2009 and 2008 respectively. For the year 2009, non-cash asset impairment charges were $5.7 million compared to $36.0 million in 2008. In 2009, the non-cash impairment charges of $5.7 million were primarily due to negative reserve revisions and the abandonment of $2.5 million related to our Alwan Field in South Texas. In 2008, we impaired $10.2 million for our Grand Lake Field in Southwest Louisiana (sold in December 2009) and $25.8 million for our Madisonville Field in Southeast Texas.

General and administrative expense in the fourth quarter of 2009 was $5.4 million, or $1.68 per mcfe, compared to $4.6 million, or $0.99 per mcfe, in the prior year quarter. Included in the fourth quarter of 2009 and 2008 was a bonus accrual of $1.2 million and $1.2 million, respectively. For the year 2009, G&A expense was $18.8 million, or $1.26 per mcfe, compared to $22.4 million, or $1.17 per mcfe, in 2008. The reduction in G&A expense was primarily a result of cost reduction initiatives during 2009 and the decrease in non-cash stock expense from $5.4 million in 2008 to $2.4 million for 2009. Cash general and administrative expenses for 2009, exclusive of the non-cash stock option expense recognized pursuant to SFAS 123R, were $1.52 and $1.10 per mcfe for the fourth quarter and year, respectively, compared to $0.71 and $0.88 per mcfe, respectively, for the 2008 period.

Loss on the sale of assets for the year 2009 was $6.8 million compared to a gain on sale of assets of $15.2 million in 2008. The net loss on the sale of assets was primarily the result of the sale of our non-core Southwest Louisiana properties in December 2009. The sale of these assets represented a strategic exit from all operations in south Louisiana and removed approximately $5.3 million of our total recorded asset retirement obligation at December 31, 2009. The gain on sale of assets in 2008 was primarily due to the disposition of our interest in the Barnett Shale play in the first quarter of 2008, which resulted in a gain of $15.6 million.

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