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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Resaca | LSE:RSOX | London | Ordinary Share | COM SHS USD0.01 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 4.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMRSOX
RNS Number : 4153A
Resaca Exploitation Inc
30 March 2012
for IMMEDIATE release 30 march 2012
Resaca Exploitation, Inc.
("Resaca" or "the Company")
Interim results for the six months ended 31 December 2011
Resaca (AIM:RSOX), the oil and natural gas production, exploitation, and development company focused on the Permian Basin in the USA, is pleased to announce its interim results for the six months ended 31 December 2011.
Highlights
Operational Highlights
-- Proved developed producing reserves of 3.7 million barrels of oil equivalents ("MMboe") as of 31 December 2011 (40.8% increase over prior year); PV10 value of $81.0 MM (80.1% increase over prior year)
-- Proved reserves of 15.8 MMboe as of 31 December 2011 (10.5% increase over prior year); PV10 value of $366.5 MM (42.4% increase over prior year)
-- Proved and probable reserves of 30.6 MMboe as of 31 December 2011 (3.4% increase over prior year); PV10 value of $572.4 MM (43.8% increase over prior year)
-- Production averaged 707 boepd (net) for six months ended 31 December 2011 (8.6% increase over production for six months ended 31 December 2010)
-- Production averaged 778 boepd (net) for March 2012 to date (17.0% increase over production for March 2011)
-- Sold Grand Clearfork Unit and purchased Langlie Jal Unit
Financial Highlights
-- Oil and gas revenues of $10.54 million (24.0% increase over revenue for six months ended 31 December 2010); hedging settlements of $(0.7) million
-- Unrealized gain from hedging activities of $3.4 million
-- Net income of $3.4 million versus net loss of $5.6 million for six months ended 31 December 2010
-- EBITDA of $4.9 million (36.1% increase over EBITDA for six months ended 31 December 2010)
J.P. Bryan, Resaca Chairman and CEO commented
"We are pleased with our increases in proved producing reserves, total proved reserves, 2P reserves, production, revenues, income and EBITDA. All of these improvements are measures of our success over the last year. We are excited about the upgrade in our property portfolio with the addition of the Langlie Jal Unit. We look forward to further implementing our development plans throughout 2012, which should continue to increase our production and enhance the value of our properties."
For further information please contact:
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Resaca Exploitation, Inc.
J.P. Bryan, Chairman and Chief Executive
Officer +1 713-753-1300
John J. ("Jay") Lendrum, III, Vice Chairman +1 713-753-1400
Dennis Hammond, President and Chief
Operating Officer +1 713-753-1281
Chris Work, Chief Financial Officer +1 713-753-1406
Buchanan (Investor Relations) +44 (0)20 7466 5000
Tim Thompson
Helen Chan
Ben Romney
finnCap Limited (Nomad and Broker) + 44 (0) 20 7600 1658
Sarah Wharry, Corporate Finance
Victoria Bates, Corporate Broking
About Resaca
Resaca is an independent oil and gas development and production company based in Houston, Texas. Resaca is focused on the acquisition and exploitation of long-life oil and gas properties, utilizing a variety of primary, secondary and tertiary recovery techniques. Resaca's current properties are located in the Permian Basin of West Texas and Southeast New Mexico. Additional information is available at www.resacaexploitation.com.
Report and accounts
The interim report and accounts of Resaca for the six months ended 31 December 2011 will be available on the company's website www.resacaexploitation.com.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to present the Interim Report and Accounts for Resaca Exploitation for the six months ended 31 December 2011.
During this period, we continued our development plans at our Cooper Jal, Jordan San Andres, and Edwards Grayburg properties. Following the sale of our Grand Clearfork property in July 2011, we closed on the purchase of our Langlie Jal property in August 2011. We immediately returned a number of Langlie Jal wells to production and began the first phases of re-starting the waterflood on that property. On all of our waterflood projects across the property portfolio, we see signs of response from increased injection, including higher fluid production rates and improved bottom hole pressure levels. Our investments in infrastructure and equipment are paying off through greater run times at both the well and field levels and enhanced waterflood optimization, resulting in increased production. In addition to these projects, we recently returned a number of wells to production at our Kermit property. In summary, our recent efforts and the capital expenditure program during the first half of calendar year 2011 directly resulted in increases in our proved producing reserves, total proved reserves, 2P reserves, production, revenues, income and EBITDA over the last twelve months.
For the quarter ended 31 December 2011, we were not in compliance with two of our financial covenants under our subordinated credit facility. We were in compliance with all of the covenants under our senior credit facility but for the covenant breaches under our subordinated credit facility. Since these two facilities could be called within the next twelve months as a result of the covenant breaches, we were required to classify these liabilities are current liabilities on our balance sheet at 31 December 2011. Given our solid asset base and cash flow position, we believe we have a number of alternatives at our disposal to bring our subordinated facility into compliance and continue to operate and grow our business effectively.
We remain confident about our portfolio of properties. In addition to our booked 3P reserves, we have identified additional resource potential at Cooper Jal, Jordan San Andres, Langlie Jal and our Kermit properties that we continue to evaluate. We believe our stock is significantly undervalued in the market place and is significantly disconnected from our true enterprise value given our current production profile and the value of our reserves.
We are optimistic about the opportunities we see in our business and look forward to finishing our current fiscal year on a strong note.
J.P. Bryan Chairman and Chief Executive Officer
Resaca Exploitation, Inc.
Consolidated Balance Sheets
December 31,
2011 June 30, 2011
------------------ -----------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 69,238 $ 1,005,863
Accounts receivable 3,050,219 3,169,637
Other receivable, net 1,480,986 1,480,986
Due from affiliates, net 22,374 186,917
Prepaids and other current assets 745,692 556,957
Deferred tax assets 617,782 490,433
--- ------------- -------------
Total current assets 5,986,291 6,890,793
Property and equipment, at cost
Oil and gas properties - full
cost method 156,085,309 146,934,137
Fixed assets 2,060,201 1,929,998
--- ------------- -------------
158,145,510 148,864,135
Accumulated, depreciation, depletion
and amortization (19,562,578) (17,551,787)
--- ------------- -------------
138,582,932 131,312,348
Other property 270,783 270,783
--- ------------- -------------
Total property and equipment 138,853,715 131,583,131
Deferred finance costs, net 776,722 949,835
--- ------------- -------------
Total assets $ 145,616,728 $ 139,423,759
=== ============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 5,447,799 $ 5,076,906
Capital lease obligations, current 33,092 65,839
Senior credit facility 30,927,198 -
Unsecured debt 20,026,268 -
Derivative liabilities 1,714,458 1,912,550
--- ------------- -------------
Total current liabilities 58,148,815 7,055,295
Senior credit facility, net of
current portion - 28,500,000
Unsecured debt - 18,600,262
Notes payable, affiliates 2,171,259 2,043,973
Capital lease obligations, net
of current portion 94,080 56,165
Deferred tax liabilities 617,782 490,433
Derivative liabilities 2,753,737 5,982,504
Asset retirement obligations 4,134,152 4,138,677
Commitments and contingencies
Stockholders' equity
Common stock 207,474 196,632
Additional paid-in capital 99,174,523 97,408,857
Accumulated deficit (21,685,094) (25,049,039)
--- ------------- -------------
Total stockholders' equity 77,696,903 72,556,450
--- ------------- -------------
Total liabilities and stockholders'
equity $ 145,616,728 $ 139,423,759
=== ============= =============
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Consolidated Statements of Operations
Six Months Ended December
31,
----------------------------------------------------------
2011 2010
---------------------------- ----------------------------
(unaudited) (unaudited)
Income
Oil and gas revenues $ 9,876,226 $ 8,046,222
Unrealized gain (loss) from
price risk
management activities 3,426,859 (3,177,273)
Interest and other income - 444
Gain on sale of assets 17,242 -
--- ----------------------- --- -----------------------
Total income 13,320,327 4,869,393
Costs and expenses
Lease operating 3,464,457 2,720,075
Production and ad valorem taxes 745,392 606,919
Depreciation, depletion and
amortization 2,065,292 2,045,918
Accretion 93,137 95,907
General and administrative 803,775 1,135,019
Share based compensation 396,763 2,186,228
Interest 2,387,566 1,718,366
--- ---
Total costs and expenses 9,956,382 10,508,432
--- ----------------------- --- -----------------------
Income (loss) before income taxes 3,363,945 (5,639,039)
Income tax benefit - 18,424
--- ----------------------- --- -----------------------
Net income (loss) $ 3,363,945 $ (5,620,615)
=== ======================= === =======================
Income (loss) per share:
Basic income (loss) per share $ 0.16 $ (0.29)
Diluted income (loss) per share $ 0.16 $ (0.29)
Basic weighted-average shares
outstanding 20,566,253 19,639,357
Diluted weighted-average shares
outstanding 20,647,988 19,639,357
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Consolidated Statements of Stockholders' Equity
Six Months Ended December 31, 2011
(unaudited)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
--------------------------------
Par
Shares value Capital Deficit Equity
------------------- ----------- --- ---------------- --- -------------- --- ---------------------
Balance at
July 1, 2011 19,663,157 $ 196,632 $ 97,408,857 $ (25,049,039) $ 72,556,450
Stock issued
upon vesting
of
restricted
stock 242,945 2,429 (2,429) -
Stock issued
for the
acquisition
of assets 841,308 8,413 1,371,332 1,379,745
Share based
compensation 396,763 396,763
Net income 3,363,945 3,363,945
-------------- --- ----------- --- ---------------- --- -------------- --- ---------------------
Balance at
December 31,
2011 20,747,410 $ 207,474 $ 99,174,523 $ (21,685,094) $ 77,696,903
============== === =========== === ================ === ============== === =====================
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Consolidated Statements of Cash Flows
Six Months Ended December
31,
-----------------------------------------------------------
2011 2010
----------------------------- ----------------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income (loss) $ 3,363,945 $ (5,620,615)
Adjustments to reconcile net income (loss)
to net cash
provided by operating activities
Depreciation, depletion and amortization 2,065,292 2,045,918
Accretion 93,137 95,907
Amortization of deferred finance costs 173,113 169,174
Payment of interest in kind 1,333,659 -
Amortization of debt discount 92,347 -
Gain on sale of assets (17,242) -
Unrealized (gain) loss on price risk management
activities (3,426,859) 3,177,273
Share based compensation costs 396,763 2,186,228
Settlement of asset retirement obligations - (59,634)
Changes in operating assets and liabilities:
Accounts receivable 119,418 (344,057)
Prepaids and other current assets 291,829 (65,670)
Accounts payable and accrued liabilities 370,893 (241,169)
Due to affiliates, net (188,735) 1,231,949
--- ------------------------ ------------------------
Net cash provided by operating activities 4,667,560 2,575,304
Cash flows from investing activities
Restricted cash - 25,000
Proceeds from sale of oil and gas properties 4,099,526 -
Proceeds from sale of fixed assets 17,242 -
Investment in oil and gas properties (11,968,615) (2,358,760)
Investment in fixed assets (72,920) (9,744)
--- ------------------------ ------------------------
Net cash used in investing activities (7,924,767) (2,343,504)
Cash flows from financing activities
Proceeds from notes payable 6,500,000 143,600
Payments on notes payable (4,072,802) (107,700)
Payments on capital lease obligations (106,616) -
Deferred finance costs - (389,314)
--- ------------------------ ------------------------
Net cash provided by (used in) financing
activities 2,320,582 (353,414)
--- ------------------------ ------------------------
Net decrease in cash and cash equivalents (936,625) (121,614)
Cash and cash equivalents, beginning of period 1,005,863 481,853
------------------------ ------------------------
Cash and cash equivalents, end of period $ 69,238 $ 360,239
=== ======================== ========================
Supplemental cash flow information
Cash paid during the period for interest $ 643,441 $ 1,470,947
=== ======================== ========================
Non cash investing and financing activities
Establishment of asset retirement obligations $ 234,548 $ 1,972
=== ======================== ========================
Decrease in asset retirement obligations
due to sale of properties $ (332,210) $ -
=== ======================== ========================
Acquisition of assets under capital lease
obligations $ 111,783 $ -
=== ======================== ========================
Assets acquired for issuance of stock $ 1,379,745 $ -
=== ======================== ========================
See accompanying notes to consolidated financial statements
Resaca Exploitation, Inc.
Notes to Consolidated Financial Statements
Six Months Ended December 31, 2011 and 2010
Note A - Organization and Nature of Business
Resaca Exploitation, L.P. (the "Partnership") was formed on March 1, 2006 for the purpose of acquiring and exploiting interests in oil and gas properties located in New Mexico and Texas and to conduct, directly and indirectly through third parties, operations on the properties. The Partnership was funded and began operations on May 1, 2006. Resaca Exploitation, G.P. served as the sole general partner (.667%) and various limited partners owned the remaining 99.333%. Under the terms of the Limited Partnership Agreement, profits and losses were allocated to the general partner and limited partners based upon their ownership percentages.
On July 10, 2008, the Partnership converted from a Delaware partnership to a Texas corporation and became Resaca Exploitation, Inc. ("Resaca"). Following conversion, Resaca became subject to federal and certain state income taxes and adopted a June 30 year end for federal income tax and financial reporting purposes. On July 17, 2008, Resaca completed an initial public offering (the "Offering") on the Alternative Investment Market of the London Stock Exchange. In the initial public offering, Resaca raised $83.4 million before expenses.
Resaca Operating Company ("ROC"), a wholly-owned subsidiary, was formed on October 16, 2008 for the purpose of operating Resaca's oil and gas properties. Resaca and ROC are referred to collectively as the "Company". Activities for ROC are consolidated in the Company's financial statements.
Note B - Going Concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. These principles assume that the Company will be able to realize its assets and discharge its obligations in the normal course of operations for the foreseeable future.
As of December 31, 2011, the Company had an accumulated deficit of approximately $22 million and a working capital deficit of approximately $52 million due to the classification of the Chambers Facility and Regions Facility balances as current liabilities due to the Company being in default of such credit agreements. See Note F. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain sustained profitability.
Management believes that cash on hand and anticipated cash flows from operations will be sufficient to satisfy its currently expected working capital requirements (other than the Chambers Facility and the Regions Facility) and limited capital expenditure requirements through December 31, 2012. The Company anticipates amending the Chambers Facility, which would rectify the events of default under that facility and the Regions facility. However, there is no assurance that the Company will be able to rectify this event of default. If the Company is unsuccessful, the Company may be required to sell one or more of its oil and gas properties, issue additional equity or refinance its debt to progress with its business plan. There can be no assurance that such capital will be available at terms acceptable to the Company, or at all.
Management believes the going concern assumption to be appropriate for these financial statements. If the going concern assumption was not appropriate, adjustments would be necessary to the carrying values of assets and liabilities, reported revenues and expenses and in the balance sheet classifications used in these consolidated financial statements.
Note C - Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation: The consolidated financial statements include the accounts of Resaca and ROC. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents: Cash in excess of the Company's daily requirements is generally invested in short-term, highly liquid investments with original maturities of three months or less. Such investments are carried at cost, which approximates fair value and, for the purposes of reporting cash flows, are considered to be cash equivalents. The Company maintains its cash in bank deposits with various major financial institutions. These accounts, at times, exceed federally insured limits. The Company monitors the financial condition of the financial institutions and has not experienced any losses on such accounts.
Note C - Summary of Significant Accounting Policies and Basis of Presentation (Continued)
Accounts Receivable: Accounts receivable primarily consists of accrued revenues for oil and gas sales. The Company routinely assesses the recoverability of all material receivables to determine their collectability. The Company records a reserve on a receivable when, based on the judgment of management, it is likely that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of December 31, 2011 and June 30, 2011, the Company had an allowance for doubtful accounts of $650,000.
Inventory: Inventory totaling $462,386 and $485,807 at December 31, 2011 and June 30, 2011, respectively, consists of piping and tubulars valued at the lower of cost or market and is included within prepaids and other current assets in the accompanying consolidated balance sheets.
Oil and Gas Properties: Oil and gas properties are accounted for using the full-cost method of accounting. Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. This includes any internal costs that are directly related to acquisition, exploration and development activities, including salaries and benefits, but does not include any costs related to production, general corporate overhead or similar activities. During the six months ended December 31, 2011 and 2010, the Company capitalized $218,042 and $127,384, respectively, relating to these internal costs.
No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves.
Under the full cost method, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the "Ceiling Limitation"). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related and ad valorem taxes are deducted. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes that are fixed and determinable by existing contracts. The excess, if any, of the net book value above the Ceiling Limitation is charged to expense in the period in which it occurs and is not subsequently reinstated. The Company prepared its ceiling test at December 31, 2011 and June 30, 2011, and no impairment was deemed necessary.
The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. The Company currently has no material capitalized costs related to unevaluated properties. All capitalized costs are included in the amortization base as of December 31, 2011 and June 30, 2011.
Depreciation and Amortization: All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves. Depreciation of fixed assets is computed on the straight line method over the estimated useful lives of the assets, typically three to five years.
General and Administrative Expenses: General and administrative expenses are reported net of recoveries from owners in properties operated by the Company.
Revenue Recognition: The Company recognizes oil and gas revenues from its interests in oil and natural gas producing activities as the hydrocarbons are produced and sold.
Accounting for Price Risk Management Activities: The Company periodically enters into certain financial derivative contracts utilized for non-trading purposes to hedge the impact of market price fluctuations on its forecasted oil and gas sales. The Company follows the provisions of ASC 815, Accounting for Derivative Instruments and Hedging Activities ("ASC 815"), for the accounting of its hedge transactions. ASC 815 establishes accounting and reporting standards requiring that all derivative instruments be recorded in the consolidated balance sheet as either an asset or liability measured at fair value and requires that the changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company has certain over-the-counter collar contracts to hedge the cash flow of the forecasted sale of oil and gas sales. The Company did not elect to document and designate these contracts as hedges. Thus, the changes in the fair value of these over-the-counter collars are reflected in earnings for the six months ended December 31, 2011 and 2010.
Note C - Summary of Significant Accounting Policies and Basis of Presentation (Continued)
Income Taxes: The Company is subject to federal income tax, Texas state margin tax, and New Mexico state income tax. The Company follows the guidance in ASC 740, Accounting for Income Taxes, which requires the use of the asset and liability method of accounting for deferred income taxes and provides deferred income taxes for all significant temporary differences.
The Company follows ASC 740-10, Accounting for Uncertainty in Income Taxes. The Interpretation prescribes guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. To recognize a tax position, the enterprise determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based solely on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
Deferred Finance Costs: The Company capitalizes all costs directly related to obtaining financing and such costs are amortized to interest expense over the life of the related facility. For the six months ended December 31, 2011 and 2010, the Company incurred and capitalized finance costs of $0 and $389,314, respectively. At December 31, 2011 and June 30, 2011, the deferred finance costs balance is presented net of accumulated amortization of $346,226 and $173,113 respectively.
Use of Estimates: Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Independent petroleum engineers have prepared estimates of the Company's oil and natural gas reserves at June 30, 2011 and 2010. Proved reserves, estimated future net revenues and the present value of our reserves are estimated based upon a combination of historical data and estimates of future activity. In accordance with the current authoritative guidance, effective December 31, 2009, the Company calculated its estimate of proved reserves using a twelve month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each period within the twelve month period prior to the end of the reporting period. The reserve estimates are used in calculating depreciation, depletion and amortization and in the assessment of the Company's ceiling limitation. Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil and natural gas properties are recorded. Actual results could differ materially from these estimates.
Asset Retirement Obligations: The Company follows ASC 410 ("ASC 410"), Asset Retirement and Environmental Obligations. ASC 410 requires that an asset retirement obligation ("ARO") associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which a legal obligation is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depreciated such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash outflows discounted at the company's credit-adjusted risk-free interest rate.
Inherent in the fair value calculation of ARO are numerous assumptions and judgments, including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance.
Note C - Summary of Significant Accounting Policies and Basis of Presentation (Continued)
The following table is a reconciliation of the asset retirement obligation:
Six Months Ended December
31,
-----------------------------------------------------
2011 2010
--- -------------------- --- ---------------------
Asset retirement obligations, beginning
of the period $ 4,138,677 $ 4,114,974
Liabilities incurred 234,548 1,972
Liabilities settled (332,210) (59,634)
Accretion 93,137 95,907
-------------------- ---------------------
Asset retirement obligations, end
of the period $ 4,134,152 $ 4,153,219
=== ==================== === =====================
Share-Based Compensation: The Company follows ASC 718 ("ASC 718"), Compensation-Stock Compensation, for all equity awards granted to employees. ASC 718 requires all companies to expense the fair value of employee stock options and other forms of share-based compensation over the requisite service period. The Company's share-based awards consist of stock options and restricted stock.
Earnings per Share: Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Except when the effect would be anti-dilutive, the diluted earnings per share include the dilutive effect of restricted stock awards and the assumed exercise of stock options using the treasury stock method. The following table sets forth the calculation of basic and diluted earnings per share ("EPS"):
Six Months Ended December
31,
-------------------------------------------------
2011 2010
----------------------- ------------------------
Net income (loss) $ 3,363,945 $ (5,620,615)
======================================= === ================== ====================
Weighted average shares outstanding
for basic EPS 20,566,253 19,639,357
Add dilutive securities 81,735 -
--------------------------------------- --- ------------------ --------------------
Weighted average shares outstanding
for diluted EPS 20,647,988 19,639,357
============================================ ================== ====================
Net income (loss) per share
Basic $ 0.16 $ (0.29)
Diluted 0.16 (0.29)
For the periods ended December 31, 2011 and 2010, 1,008,680 and 676,625, respectively, common stock equivalents were excluded from the diluted average shares due to an anti-dilutive effect.
Subsequent Events: The Company evaluates events and transactions that occur after the balance sheet date but before the financial statements are available for issuance. The Company evaluated such events and transactions through March 28, 2012, the date the financial statements were available to be issued. See Note N.
Recently Adopted Accounting Principles:
ASU 2010-06: In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). ASU 2010-06 Subtopic 820-10 provides new guidance on improving disclosures about fair value measurements. The new standard requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. Specifically, the new standard will now require: (a) a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value
Note C - Summary of Significant Accounting Policies and Basis of Presentation (Continued)
measurements and describe the reasons for transfers and (b) in the reconciliation for fair value measurements using significant unoberservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, the new standard clarifies the requirements of the following existing disclosures: (a) for purposes of reporting fair value measurements for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities and (b) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The new standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. We adopted the provisions of this standard required for interim and annual reporting periods beginning after December 15, 2009, for the six months ended June 30, 2010 and we adopted the provisions of this standard required for fiscal years beginning after December 15, 2010, the six months ended June 30, 2011. The adoption of the statement did not have a material impact on our financial position, results of operations or cash flows.
Note D - Other Receivable
In September 2009, the Company entered into a merger agreement with Cano Petroleum, Inc. (the "Cano merger agreement"), subsequently terminated in July 2010. The Cano merger agreement provided for Resaca and Cano to, among other things, share equally certain expenses related to the printing, filing and mailing of the registration statement, the proxies/prospectuses, and the solicitation of stockholder approvals. Following the termination of the Cano merger agreement, Resaca requested that Cano reimburse Resaca for Cano's share of such expenses. Resaca has recorded a receivable of approximately $1.5 million, net of a $650,000 provision for credit losses, related to this reimbursement request. On September 2, 2010, Cano filed an action against Resaca in the Tarrant County District Court seeking a declaratory judgment to clarify the scope and determine the amount of any expenses that are reimbursable by Cano under the Cano Merger Agreement. Resaca disputes the allegations made by Cano and management believes the amount recorded on Resaca's balance sheet will ultimately be collected from Cano. See Note N.
Note E - Related Party Transactions
The Company receives support services from Torch Energy Advisors Incorporated ("TEAI") and its subsidiaries, which include office administration, risk management, corporate secretary, legal services, corporate and litigation legal services, graphic services, tax department services, financial planning and analysis, information management, financial reporting and accounting services, and engineering and technical services. The Company was charged by TEAI and a subsidiary of TEAI $455,749 and $590,801 during the six months ended December 31, 2011 and 2010, respectively, for such services. The majority of such fees are included in general and administrative expenses.
In the ordinary course of business, the Company incurs payable balances with TEAI resulting from the payment of costs and expenses of the Company and from the payment of support services fees. Such amounts had been settled on a regular basis, generally monthly. However, a subordinated unsecured note was issued on June 30, 2010 for the outstanding balance payable to TEAI of $1,854,722 as of June 30, 2010. The principal balance payable to TEAI was amended on December 15, 2010 to be $1,915,800. See Note F.
Note F - Notes Payable
On June 26, 2009, the Company entered into a $50 million, three-year Senior Secured Revolving Credit Facility ("CIT Facility") with CIT Capital USA Inc. ("CIT") with a maturity date of July 1, 2012, which replaced a credit facility entered into in 2006. The initial borrowing base of the CIT Facility was $35 million and CIT served as administrative agent. Interest on the CIT Facility was set at LIBOR plus 5.5% subject to a 2.5% LIBOR floor. Recourse for the CIT Facility was limited to the Company, as borrower, and the note was secured by all of the Company's oil and gas properties. Throughout the term of the CIT Facility, the interest rate was 8.0%. As a condition of closing the CIT Facility, the Company entered into additional natural gas hedges for January 2011 through June 2012 and additional oil hedges for June 2011 through June 2012. Additionally, upon closing of the CIT facility, the Company wrote off $536,579 in deferred financing costs associated with a previous facility with third parties and paid debt extinguishment fee of $250,000. The CIT Facility contained, among other terms, provisions for the maintenance of
Note F - Notes Payable (Continued)
certain financial ratios and restrictions on additional debt. On December 22, 2009, the Company executed an amendment to the CIT Facility which amended some of the financial ratio requirements. On January 6, 2011, the CIT Facility was paid in full from proceeds received from the debt issuances described below.
On May 18, 2010, the Company, TEAI, and CIT entered into an agreement, which provided that, if the CIT Facility was not repaid in full by June 30, 2010, the outstanding payable by the Company to TEAI as of June 30, 2010 would be contractually subordinated to amounts payable under the CIT Facility. On June 30, 2010, the Company entered into a Subordinated Unsecured Note ("Torch Note") with TEAI for $1,854,722. The Torch Note had a maturity date of October 1, 2012 and bore interest at Amegy Bank N. A.'s prime rate plus two percent. At June 30, 2010 the interest rate was 7.0%. On December 15, 2010 the Torch Note was amended to increase the outstanding balance to $1,915,800, the interest provisions, provide for subordination to the Chambers Facility in addition to the Company's secured credit facility and extend the maturity date to January 31, 2014. At December 31, 2011 the interest rate was 12.0%. The maturity date shall be accelerated in the event the senior debt issuance described below is repaid in full. Interest shall only be payable in kind.
On January 7, 2011, the Company entered into a $20 million, four-year unsecured credit facility (the "Chambers Facility") which bears interest at 9.5% per year. Resaca also has the option to pay interest under the Chambers Facility in kind for the first two years at an interest rate of 12% per year. The Chambers Facility contains certain financial ratio restrictions and other customary covenants. This credit facility matures December 31, 2014. Proceeds from the Chambers Facility were used to repay a portion of the CIT Facility, to fund future acquisitions and for general corporate purposes. In conjunction with the funding, Resaca issued warrants to the lenders under the Chambers Facility to purchase approximately 4.8 million shares of Resaca common stock at $1.93 per share. The purchase price for the Resaca common shares under the warrants is subject to customary weighted average dilution protections if Resaca issues stock at a price below the purchase price under the warrants. In addition, the exercise price and the number of shares the lenders are able to purchase under the warrants will be adjusted in the case of certain Company distributions, dilutive equity issuances, share subdivisions, or share combinations. The warrants were recorded and are adjusted every reporting period to fair value. See Note J. As a result of the issuance of stock as part of the purchase price for the Langlie Jal Unit as described in Note M, the warrant price was adjusted to $1.92 per share in August 2011. The Company has elected to pay interest in kind through December 1, 2012. As of December 31, 2011 the Company was not in compliance with all of the covenants under the Chambers Facility, which resulted in an event of default. On March 6, 2012, the Company received notice that default interest (an additional 2% over the applicable cash or paid in kind interest rate) would be charged under the Chambers Facility until the Company is no longer in default. The Company is in discussions with the administrative agent under the Chambers Facility regarding an amendment and waiver in order to resolve the event of default. The Company has classified the balance of the Chambers Facility at December 31, 2011 to current due to the default status of the loan.
On January 7, 2011, the Company entered into a $75 million senior secured revolving credit facility (the "Regions Facility") with Regions Bank ("Regions"). The Regions Facility contains certain financial ratio restrictions and other customary covenants, including a requirement to hedge at least 75% of proved developed producing reserves through December 31, 2014. This credit facility matures January 7, 2014. Proceeds from the Regions Facility were used to repay a portion of the CIT Facility, to fund future acquisitions and for general corporate purposes. The Regions Facility is governed by semi-annual borrowing base redeterminations assigned to the Company's proved crude oil and natural gas reserves. An initial borrowing base of $33 million was established based on the Company's reserves and the borrowing base has not been redetermined. Under the Regions, Facility, $30.9 million was outstanding at December 31, 2011. The interest rate on outstanding borrowings was 4% at December 31, 2011. At December 31, 2011, due to the noncompliance with the covenants under the Chambers Facility, the Company was not in compliance with the covenants related to this facility. Accordingly, The Company has classified the balance of the Regions Facility at December 31, 2011 to current due to the default status of the loan.
Note G - Price Risk Management and Financial Instruments
The Company enters into hedging transactions with a major counterparty to reduce exposure to fluctuations in the price of crude oil and natural gas. We use financially settled crude oil and natural gas zero-cost collars and swaps. Any gains or losses resulting from the change in fair value are recorded to unrealized gain (loss) from price risk management activities, whereas gains and losses from the settlement of hedging contracts are recorded in oil and gas revenues.
Note G - Price Risk Management and Financial Instruments (Continued)
With a zero-cost collar, the counterparty is required to make a payment to us if the settlement price for any settlement period is below the floor price of the collar, and we are required to make a payment to the counterparty if the settlement price for any settlement period is above the cap price for the collar.
Cash settlements for the six months ended December 31, 2011 and 2010 resulted in a decrease in crude oil and natural gas sales in the amount of $665,925 and $445,252, respectively.
As of December 31, 2011, we had the following contracts outstanding:
Crude Oil Natural Gas
--------------------------------------------------------- -----------------------------------------------------
Total Total Total
Volume Contract Asset Volume Contract Asset Asset
Price Price
Period (Bbls) (1) (Liability) (MMBtus) (1) (Liability) (Liability)
--------------- ----------- -------------- -------------- ------- ------------- --------- --- ------------ ------- --------------
Collars
1/12
- 6/12 6,000 60.00/77.00 (714,736) (714,736)
Swaps
1/12
- 5/12 1,300 102.05 14,472 14,472
1/12
- 6/12 3,900 84.05 (334,173) 7,500 6.30 143,239 (190,934)
7/12
- 3/13 1,100 100.00 16,243 16,243
7/12
- 12/12 10,000 84.05 (831,668) (831,668)
1/13
- 12/13 9,200 84.95 (1,161,073) (1,161,073)
4/13
- 12/13 500 98.50 11,710 11,710
1/14
- 12/14 8,600 85.80 (692,609) (692,609)
Total $ (3,691,834) $ 143,239 $ (3,548,595)
(1) The contract price is weighted-averaged by contract volume.
Note G - Price Risk Management and Financial Instruments (Continued)
The following table quantifies the fair values, on a gross basis, of all our derivative contracts and identifies its balance sheet location as of December 31, 2011:
Total
Asset Derivatives (Liability) Derivatives Asset
------------------------------------------ ------------------------------------
Balance Balance
Sheet Fair Sheet Fair
Location Value Location Value (Liability)
------------- --------------------- ------------- -------------- ------------
Derivatives not
designated as
hedging instruments
under
ASC 815
Derivative Derivative
Commodity financial financial
Contracts instruments instruments
Current Current
Liability $ 166,118 Liability $ (1,880,576) $ (1,714,458)
Non-current Non-current
Liability 19,546 Liability (1,853,683) (1,834,137)
Non-current Non-current
Warrants Liability - Liability (919,600) (919,600)
----------------- --------------- -----------------
Total
derivatives
not designated
as hedging
instruments
under
ASC 815 185,664 (4,653,859) (4,468,195)
---- ----------------- --------------- -----------------
Total derivatives $ 185,664 $ (4,653,859) $ (4,468,195)
==== ================= =============== =================
While notional amounts are used to express the volume of puts and over-the-counter options, the amounts potentially subject to credit risk, in the event of nonperformance by the third parties, are substantially smaller. The Company does not anticipate any material impact to its financial position or results of operations as a result of nonperformance by third parties on financial instruments related to its option contracts.
Note H - Commitments and Contingencies
The Company, from time to time, is involved in certain litigation arising out of the normal course of business, none currently outstanding of which, in the opinion of management, will have any material adverse effect on the financial position, results of operations or cash flows of the Company as a whole.
On September 2, 2010, Cano filed an action against Resaca in the Tarrant County District Court seeking a declaratory judgment to clarify the scope and determine the amount of any expenses that are reimbursable by Cano under the Cano merger agreement. Resaca disputes the allegations by Cano and management believes the amount recorded on Resaca's balance sheet will ultimately be collected from Cano. See Note N.
Note I - Share-Based Compensation
The Company has adopted a Share Incentive Plan ("The Plan") to foster and promote the long-term financial success of the Company and to increase shareholder value by attracting, motivating and retaining key personnel. The Plan is considered an important component of total compensation offered to key employees and outside directors. The Plan consists of stock option and restricted stock awards. The Company expenses the fair-value of the share-based payments over the requisite service period of the awards. At December 31, 2011, there was $540,170 in unrecognized compensation expense related to non-vested restricted stock grants and non-vested stock option grants. The restricted stock vests over a three-year period while the stock options vest over a three-year or one-year period. At December 31, 2011 there were 833,680 stock options and 175,000 shares of restricted stock outstanding. Additionally, the Board of Directors has the ability to authorize the issuance of another 46,145 stock options and restricted stock to key personnel.
Note I - Share-Based Compensation (Continued)
The following summary represents restricted stock awards outstanding at December 31, 2011:
Grant Date
Shares Fair Value
---------------------- ------------------------
Awards outstanding at
June 30, 2011 242,948 $ 3,260,062
Restricted Shares
granted 175,000 253,750
Restricted Shares
vested (242,948) (3,260,062)
Restricted Shares
forfeited - -
---------------------- ------------------------
Awards outstanding at December
31, 2011 175,000 $ 253,750
====================== ========================
For stock options, the Company determines the fair value of each stock option at the grant date using a Black-Scholes model, with the following assumptions used for the grants made on the date indicated:
9/25/2009 11/16/2009 1/18/2011 8/1/2011 8/8/2011
---------- ----------- ---------- --------- ---------
Risk-free interest rate 2.37% 2.18% 1.97% 1.32% 1.11%
Volatility factor 81% 88% 74% 71% 71%
Expected dividend
yield percentage 0% 0% 0% 0% 0%
Weighted average expected
life in years 3.5 3.5 4.5 3.5 3.5
All stock option awards have a three-year or one-year vesting period and expire five years or seven years after the vesting date. A summary of stock options awarded during the six months ended December 31, 2011 is as follows:
Grant
Average Date
Exercise Fair
Shares Price Value
----------------- --- ----------------------- --- -----------------
Options outstanding at June
30, 2011 433,680 $ 2.08 $ 537,799
Grants 400,000 1.46 263,692
Exercised or
forfeited - - -
----------------- --- -----------------
Options outstanding at December
31, 2011 * 833,680 $ 1.78 $ 801,491
Note I - Share-Based Compensation (Continued)
A summary of stock options outstanding at December 31, 2011 is as follows:
Option Option
Converted Awards Remaining Awards
Grant Exercise Exercise Option
Date Price Price Outstanding Life Exercisable
---------- ---------- ------------------- ------------------- -------------- ------------------------
09/25/09 GBP 2.50 $ 3.86 * 79,000 5.74 52,666
11/16/09 GBP 2.35 3.63 * 13,333 0.14 13,333
01/18/11 $1.61 1.61 341,347 7.05 -
08/01/11 $1.52 1.52 40,000 7.58 -
08/08/11 $1.45 1.45 360,000 7.60 -
------------------- ------------------- -------------- ------------------------
$ 1.78 833,680 7.08 65,999
*Exercise prices are denominated in British pounds and have been converted at a rate of $1.5453 USD/GBP.
Note J - Fair Value Measurements
ASC 820 requires enhanced disclosures regarding the assets and liabilities carried at fair value. The pronouncement establishes a fair value hierarchy such that "Level 1" measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, "Level 2" measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but observable through corroboration with observable market data, including quoted market prices for similar assets, and "Level 3" measurements include those that are unobservable and of a highly subjective measure.
The fair value of the warrants was determined using a Monte Carlo valuation model. At December 31, 2011 the assumptions used in the model to determine the fair value of the outstanding warrants included the warrant exercise price of $1.93 per share, the Company's stock price at December 31, 2011 of $0.90 per share, volatility of 55% and a risk free discount rate of 0.4%.
The Company utilizes the market approach for recurring fair value measurements of its oil and gas hedges. The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 2011. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
Market Significant
Prices Other Significant
for Identical Observable Unobservable
Items Inputs Inputs
(Level (Level (Level
1) 2) 3) Total
---------------------- ------------------------ ---------------------- ----------------
Assets:
Oil and Gas
Hedges - - - $ -
Total Assets - - - $ -
---------------------- ------------------------ ---------------------- ----------------
Liabilities:
Oil and Gas
Hedges - 3,548,595 - $ 3,548,595
Derivative
Warrants - 919,600 919,600
Total Liabilities - 3,548,595 919,600 $ 4,468,195
---------------------- ------------------------ ---------------------- ----------------
Total Net
Liabilities - 3,548,595 919,600 $ 4,468,195
====================== ======================== ====================== ================
Note J - Fair Value Measurements (Continued)
The carrying amounts of the Company's cash and cash equivalents, receivables and payables approximate the fair value at December 31, 2011 and June 30, 2011 due to their short-term nature. The carrying amounts of the Company's debt instruments at December 31, 2011 and June 30, 2011 approximate their fair values due to the interest rates being at market.
Note K - Stockholders' Equity
As described in Note A, the Company converted from a partnership to a corporation on July 10, 2008. As such, partners' capital was converted to stockholders' equity. On June 23, 2010, the Board of Directors approved a one for five reverse stock split effective June 24, 2010. At December 31, 2011, the Company had 230,000,000 common shares authorized and 20,747,410 shares issued and outstanding.
Note L - Employee Benefit Plans
Under the Resaca Exploitation, Inc 401(k) Plan (the "Plan") established in fiscal year 2009, contributions are made to the Plan by qualified employees at their election and our matching contributions to the Plan are made at specified rates. Our contribution to the Plan for the six months ended December 31, 2011 and 2010 was $18,744 and $15,137, respectively.
Note M - Acquisitions and Dispositions of Assets
On July 15, 2011 the Company sold the Grand Clearfork Field located in Pecos County, Texas for $4.1 million. On August 3, 2011 the Company purchased the Langlie Jal Unit located in Lea County, New Mexico for $8.3 million, comprised of $6.9 million in cash and the issuance of 845,254 shares of its common stock. The following table presents the preliminary purchase price allocation to the assets acquired and liabilities assumed, based on their fair values on August 3, 2011:
Oil and gas properties $ 8,485,841
Asset retirement
obligations (234,548)
-----------
$ 8,251,293
============================ ===========
Note N - Subsequent Events
On February 27, 2012, the Company entered into commodity swap transactions with a major counterparty effective from March 1, 2012 through March 31, 2015.
On March 6, 2012, the Company received notice that default interest would be charged under the Chambers Facility until the Company is no longer in default.
On March 8, 2012, Cano Petroleum, Inc. and various of its affiliates filed a chapter 11 case in the bankruptcy court for the northern district of Texas.
On March 19 2012, the Company changed the trading denomination of its common stock from United States dollars to British pounds.
Note O - Director Compensation
During the six months ended December 31, 2011, Resaca directors J.P. Bryan, Judy Ley Allen, Richard Kelly Plato, John William Sharp Bentley, and John J. Lendrum, III each received director's fees in the amount of $25,000. Stock option awards of 100,000 were made to J. P. Bryan and stock option awards of 30,000 were made to each of the remaining directors during the six months ended December 31, 2011. No salaries, bonuses or pension contributions
Note O - Director Compensation (Continued)
were paid to or for the benefit of any Resaca directors during the six months ended December 31, 2011. During the
six months ended December 31, 2010, Resaca directors J.P. Bryan, Judy Ley Allen, Richard Kelly Plato, and John William Sharp Bentley each received director's fees in the amount of $25,000 and director John J. Lendrum, III received $19,780. No equity grants were made and no salaries, bonuses or pension contributions were paid to or for the benefit of any Resaca directors during the six months ended December 31, 2010.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UKUURURAOUUR
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