FX Energy's Revenues Stable, But Loss Widens on '08 Non-Cash Charges
FX Energy has announced financial results for its fourth quarter and the full year of 2008. For 2008, the Company reported essentially flat revenues of $17.8 million compared to $18.0 million for the prior year. However, total expenses and other income (loss) for 2008 were $72.5 million compared to $29.7 million for 2007. The difference, $42.8 million, was primarily from $39.0 million in non-cash charges. The non-cash charges include a write-down of the book value of U.S. oil properties and two Poland wells and a change in the timing of converting the Company's Polish results to U.S. currency. For 2008, the Company reported a net loss of $54.7 million, or $1.35 per share. This compares to a net loss of $11.7 million, or $0.32 per share for fiscal 2007.
Clay Newton, FX's Vice President Finance, remarked, "Aside from the non-cash charges, our fourth quarter and full year results remained fairly level. Because of the non-cash charges, we reported a much larger loss for 2008. The non-cash charges had no impact on our revenues, cash flow, and most importantly, our liquidity. Coupled with significant increases in 2009 revenues and cash flow, primarily from new production at Roszkow planned to start before mid-year, we remain in a good financial position to fund our capital program for 2009."
Full Year Results
Total revenues from all sources were stable from 2007 to 2008, with higher revenues from the Company's oil and gas services segment offsetting lower oil and gas revenues. The Company recorded oil and gas revenues of $13.5 million, compared to $14.9 million for 2007, a decrease of 9%. Oilfield services revenues rose from $3.1 million for 2007 to $4.3 million for 2008.
The Company's total net production decreased from 2,412 Mmcfe (million cubic feet of gas equivalent) during 2007 to 1,666 Mmcfe during 2008. The production decline is due almost entirely to the expected, and previously disclosed, decline at the Company's Wilga well in eastern Poland. New production is planned to increase the production base in 2009. Of particular note, the Roszkow well is expected to begin production at a rate of 7.5 Mmcfd net to the Company before mid-year. Consequently, 2009 production should be well ahead of 2008.
Higher oil and gas prices helped to offset most of the production decline. The Company's average price for natural gas in Poland increased 20% from 2007 levels, reaching an average of $5.92 per Mcf. Oil prices also increased, with prices averaging $88 per barrel in 2008.
Exploration expenses increased 45% from 2007 levels. These expenses, which reflected the Company's focus on 3-D seismic acquisition, processing, and interpretation in its Fences core area, rose from $10.6 million in 2007 to $15.4 million in 2008.
As announced earlier, the Company recorded impairment charges during the fourth quarter of 2008 totaling $14.7 million. 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 was approximately $3.8 million. The wells continue to produce approximately 180 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 $10.9 million. Both wells were suspended, but not plugged, because initial drilling results were inconclusive. Accounting rules require that capitalized costs of exploratory wells be expensed if reserves cannot be classified as proved after one year following the completion of initial drilling. It is unlikely, in either case, that the Company will conduct sufficient additional testing within the one-year requirement to establish economic reserves at these two locations.
Also included in non-cash charges for the year is a foreign exchange loss of $24.3 million, reported in other income and expense. The Company changed the functional currency for its Polish subsidiary from the US dollar to the Polish zloty at the beginning of the 4th quarter of 2008. The Company's Polish financial statements will now be translated into US dollars at period-end rates, rather than recording them at daily exchange rates. The two different methods typically would not result in wide variations for items of revenue and expense. However, as the zloty is now the functional currency of the Polish subsidiary, the provisions of FAS 52 require the Company to recognize 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 from time to time.
Balance Sheet Remains Liquid and Cash Flow Positive
At December 31, 2008, the Company's cash and investments were approximately $20.7 million. Working capital was $14.0 million at December 31, 2008 versus $15.4 million at December 31, 2007. Long-term debt was $25.0 million at the end of 2008.
Earnings before interest, taxes, depreciation, amortization, and exploration expense (EBITDAX)(1), a non-GAAP financial measure, during 2008 declined to $4.7 million, compared to $5.9 million for 2007.
Fourth Quarter Results
For the fourth quarter of 2008, the company reported a net loss of $45.2 million, or $1.09 per share. This compares to a net loss of $6.6 million, or $0.17 per share, for the fourth quarter of 2007. The primary driver for the higher loss in 2008 was the non-cash charges discussed above.
Revenue from all sources for the fourth quarter of 2008 was $3.3 million, down 20% from revenues of $4.1 million for the fourth quarter of 2007. The Company recognized oil and gas revenues of $2.1 million for the 2008 quarter, compared to $3.6 million for 2007.
Gas production for the fourth quarter was 287 Mmcf, compared to 397 Mmcf for the same quarter of 2007. Total oil and gas production Company-wide, including the Company's US properties, declined from 516 Mcfe in the fourth quarter of 2007 to 385 Mcfe in the fourth quarter of 2008.
- FX Energy is Reading Szymanowice-1 Well for Production (Dec 31)
- FX Energy Tests Poland Tuchola-3K Well (Apr 29)
- FX Energy 'Disappointed' over Polish Mieczewo Well (Apr 08)