TIDMRSOX
RNS Number : 2114B
Resaca Exploitation Inc
28 March 2013
28 march 2013
Resaca Exploitation, Inc.
("Resaca" or "the Company")
Interim results for the six months ended 31 December 2012
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 2012.
Highlights
Operational Highlights
-- Proved developed producing reserves of 3.1million barrels of
oil equivalents ("MMboe") as of 31 December 2012; PV10 value of
$64.5 million
-- Proved reserves of 14.2 MMboe as of 31 December 2012; PV10 value of $331.2 million
-- Proved and probable reserves of 29.8 MMboe as of 31 December
2012; PV10 value of $557.3 million
-- Production averaged 728 boepd (net) for six months ended 31 December 2012
Financial Highlights
-- Oil and gas revenues of $9.9 million (0.2% decrease over
revenue for six months ended 31 December 2011)
-- Unrealized loss from hedging activities of $1.4 million
-- EBITDA of $2.5 million (67.7% decrease over EBITDA for six months ended 31 December 2011)
-- Net loss of $3.1 million versus net gain of $3.4 million for
six months ended 31 December 2011
-- Net indebtedness of $58.1 million ($56.2 million as at June 30, 2012)
J.P. Bryan, Resaca Chairman and CEO commented
"As previously disclosed, the Company remains in breach of
certain of its financial covenants in relation to its credit
facilities, being the senior Regions Facility and the subordinated
Chambers Facility. Management has therefore enacted cost cutting
measures and is selectively pursuing the sale of equipment that is
not critical to the Company's operations. Management expects that,
with the success of these initiatives, cash on hand and anticipated
cash flows from operations will be sufficient to satisfy its
current expected working capital requirements (other than the
Chambers Facility and the Regions Facility) and limited capital
expenditure requirements through the end of 2013. Furthermore, the
Company is pursuing the sale of a significant portion of its
properties to partially or completely satisfy its obligations under
the Chambers Facility and the Regions Facility to either bring
these facilities into compliance with their respective financial
covenants or extinguish the facilities completely."
For further information please contact:
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
Phillip R. Smith, Chief Financial Officer +1 713-753-1335
David Love, Vice President and Treasurer +1 713-756-1755
Buchanan (Investor Relations) +44 (0) 20 7466 5000
Tim Thompson
Ben Romney
finnCap Limited (Nomad and Broker) + 44 (0) 20 7220 0500
Matt Goode, Corporate Finance
Christopher Raggett, 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 2012 will be available on the company's website
at 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 2012.
During this period, we continued to focus on our waterflood
projects at both the Cooper Jal Unit and Langlie Jal Unit.
Increased water injection levels have been maintained and
significant reservoir pressure increases have been noted. At our
Cooper Jal Unit, recent pressure measurements have exceeded 1000
psi compared to a starting point of 400 psi when we purchased the
property. Production levels have been consistent over this time
frame and we expect to continue to advance the project in order to
be ready to initiate CO2 injection at a later date. Our Edwards
Grayburg waterflood also exhibits very stable production rates as
we continue to advance the waterflood restoration effort in this
property.
Significant cost cutting measures have been implemented across
the portfolio of properties aimed at reducing operating expenses,
while minimizing any effect on the associated production volumes.
Our average production for the period was 728 boepd, a modest
increase over the six months ending 31 December 2011, in light of
the limited capital available to the Company.
In our Cotton Draw field, our first horizontal Bone Spring well
has been completed and initial production rates appear very
favorable. Additional development opportunities exist in this
area.
The Company remains in breach of financial covenants under its
senior credit facility and subordinated credit facility (the
"Facilities"). Our lenders under the Facilities have enforcement
rights available to them which could include insolvency or
liquidation proceedings. The Company to date has not received any
notice of the lenders intent to exercise those rights. The Company
is in regular contact with our lenders. The lenders have been in
support of our efforts to reduce indebtedness to date.
We continue to work diligently and expeditiously on strategic
alternatives, which include the sale of assets with the goal of
generating sufficient proceeds to pay off our debt obligations. Our
continued goal is to provide the most value to the
shareholders.
J.P. Bryan
Chairman and Chief Executive Officer
Resaca Exploitation, INC. and subsidiary
CONSOLIDATED Financial Statements
six months ENDED dEcember 31, 2012 AND 2011
Resaca Exploitation, Inc.
C O N T E N T S
Page
Consolidated Financial Statements
Consolidated Balance Sheets
................................................................................................................
............................ 1
Consolidated Statements of Operations
................................................................................................................
.......... 2
Consolidated Statements of Stockholders' Equity
..........................................................................................................
3
Consolidated Statements of Cash Flows
................................................................................................................
......... 4
Notes to Consolidated Financial Statements
................................................................................................................
.. 5
Resaca Exploitation, Inc.
Consolidated Balance Sheets
December
31, June 30,
2012 2012
-------------- --------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 411,840 $ 416,458
Accounts receivable 1,892,528 2,130,128
Other receivable, net - 100,000
Due from affiliates, net 259,084 3,804
Derivative assets - 363,110
Prepaids and other current assets 909,608 562,495
-------------- --------------
Total current assets 3,473,060 3,575,995
Property and equipment, at cost
Oil and gas properties - full cost
method 164,698,815 162,172,967
Fixed assets 1,731,875 2,071,389
-------------- --------------
166,430,690 164,244,356
Accumulated, depreciation, depletion
and amortization (24,336,356) (22,350,120)
-------------- --------------
142,094,334 141,894,236
Other property 186,283 270,783
-------------- --------------
Total property and equipment 142,280,617 142,165,019
Derivative assets - 118,570
Deferred finance costs, net 432,496 603,609
-------------- --------------
Total assets $ 146,186,173 $ 146,463,193
============== ==============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 4,364,738 $ 4,265,585
Capital lease obligations, current 25,972 34,264
Senior credit facility 33,000,000 33,000,000
Unsecured debt 23,049,499 21,315,766
Derivative liabilities 479,926 -
-------------- --------------
Total current liabilities 60,920,135 58,615,615
Notes payable, affiliates 2,448,520 2,304,980
Capital lease obligations, net of current
portion 44,503 75,896
Deferred tax liabilities 25,722 25,722
Derivative liabilities 448,523 242,000
Asset retirement obligations 4,291,417 4,231,087
Commitments and contingencies
Stockholders' equity:
Common stock 208,058 207,474
Additional paid-in capital 99,385,794 99,281,688
Accumulated deficit (21,586,499) (18,521,269)
-------------- --------------
Total stockholders' equity 78,007,353 80,967,893
-------------- --------------
Total liabilities and stockholders'
equity $ 146,186,173 $ 146,463,193
============== ==============
Resaca Exploitation, Inc.
Consolidated Statements of Operations
Six Months Ended December
31,
----------------------------
2012 2011
-------------- ------------
(unaudited) (unaudited)
Income
Oil and gas revenues $ 9,860,122 $ 9,876,226
Unrealized gain (loss) from price risk
management activities (1,410,129) 2,265,259
Unrealized gain from change in fair
value
of warrant derivative liabilities 242,000 1,161,600
Gain on sale of assets 247,838 17,242
-------------- ------------
Total income 8,939,831 13,320,327
Costs and expenses
Lease operating 4,356,650 3,464,457
Production and ad valorem taxes 770,500 745,392
Depreciation, depletion and amortization 2,336,832 2,065,292
Accretion 104,078 93,137
General and administrative 977,246 803,775
Share based compensation 104,690 396,763
Provision for credit losses 100,000 -
Interest 3,255,065 2,387,566
Total costs and expenses 12,005,061 9,956,382
-------------- ------------
Income (loss) before income taxes (3,065,230) 3,363,945
Income tax expense - -
-------------- ------------
Net income (loss) $ (3,065,230) $ 3,363,945
============== ============
Income (loss) per share:
Basic income (loss) per share $ (0.15) $ 0.16
Diluted income (loss) per share $ (0.15) $ 0.16
Basic weighted-average shares outstanding 20,793,696 20,566,253
Diluted weighted-average shares outstanding 20,793,696 20,647,988
Resaca Exploitation, Inc.
Consolidated Statements of Stockholders' Equity
Six Months Ended December 31, 2012
(unaudited)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
--------------------------------
Shares Par value Capital Deficit Equity
---------------- -------------- --------------------- ------------------ ------------------------
Balance at
June 30, 2012 20,747,410 $ 207,474 $ 99,281,688 $ (18,521,269) $ 80,967,893
Stock issued
upon vesting
of restricted
stock 58,333 584 (584) -
Share based
compensation 104,690 104,690
Share b Net
loss (3,065,230) (3,065,230)
---------------- -------------- --------------------- ------------------ ------------------------
Balance at
December 31,
2012 20,805,743 $ 208,058 $ 99,385,794 $ (21,586,499) $ 78,007,353
================ ============== ===================== ================== ========================
Resaca Exploitation, Inc.
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2013
Six Months Ended December
31,
--------------------------------------------------
2012 2011
------------------------ ------------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income (loss) $ (3,065,230) $ 3,363,945
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities
Depreciation, depletion and amortization 2,336,832 2,065,292
Accretion 104,078 93,137
Amortization of deferred finance costs 171,113 173,113
Provision for credit losses 100,000 -
Gain on sale of assets (247,838) (17,242)
Payment of interest in kind 1,776,022 1,333,659
Amortization of debt (premium) discount (42,289) 92,347
Unrealized (gain) loss from price
risk management activities 1,410,129 (2,265,259)
Unrealized gain from change in fair
value of warrant
derivative liabilities (242,000) (1,161,600)
Share based compensation costs 104,690 396,763
Changes in operating assets and liabilities:
Accounts receivable 237,600 119,418
Prepaids and other current assets (347,113) 291,829
Accounts payable and accrued liabilities 99,153 370,893
Due to affiliates, net (111,740) (188,735)
Settlement of asset retirement obligations (43,748) -
------------------------ ------------------------
Net cash provided by operating
activities 2,239,659 4,667,560
Cash flows from investing activities
Proceeds from sale of oil and gas
properties - 4,099,526
Proceeds from sale of fixed assets 291,560 17,242
Investment in oil and gas properties (2,441,348) (11,968,615)
Investment in fixed assets (54,804) (72,920)
------------------------ ------------------------
Net cash used in investing activities (2,204,592) (7,924,767)
Cash flows from financing activities
Proceeds from notes payable - 6,500,000
Payments on notes payable - (4,072,802)
Payments on capital lease obligations (39,685) (106,616)
Net cash provided by (used in)
financing activities (39,685) 2,320,582
------------------------ ------------------------
Net decrease in cash and cash equivalents (4,618) (936,625)
Cash and cash equivalents, beginning
of period 416,458 1,005,863
------------------------ ------------------------
Cash and cash equivalents, end of period $ 411,840 $ 69,238
======================== ========================
Supplemental cash flow information
Cash paid during the year for interest $ 1,125,622 $ 643,441
======================== ========================
Non cash investing and financing activities:
Non cash interest expense $ 1,733,733 $ 1,426,006
======================== ========================
Establishment of asset retirement
obligations $ - $ 234,548
======================== ========================
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
======================== ========================
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 primarily in New Mexico and
Texas. 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.
As of December 31, 2012, the Company had an accumulated deficit
of approximately $21.6 million and a working capital deficit of
approximately $57.4 million primarily 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 has enacted cost cutting measures and is selectively
pursuing the sale of equipment that is not critical to the
Company's operations (see Note O). Management expects that, with
the success of these initiatives, cash on hand and anticipated cash
flows from operations will be sufficient to satisfy its current
expected working capital requirements (other than the Chambers
Facility and the Regions Facility) and limited capital expenditure
requirements through December 31, 2013. The Company is additionally
pursuing the sale of a significant portion of its properties to
partially or completely satisfy its obligations under the Chambers
Facility and the Regions Facility to either bring these facilities
into compliance with their respective financial covenants or
extinguish the facilities completely. There can be no assurance
that the Company will be able to raise sufficient funds through
asset sales to meet these objectives.
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 and the balance sheet
classifications presented in these consolidated financial
statements.
Note C - Summary of Significant Accounting Policies
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
(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.
Allowance for Doubtful Accounts: 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, 2012
and June 30, 2012, the Company had an allowance for doubtful
accounts of $0 and $1,930,986, respectively.
Inventory: Inventory totaling $505,398 and $477,166 at December
31, 2012 and June 30, 2012, 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
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, 2012
and 2011, the Company capitalized $359,006, and $218,042,
respectively, in overhead 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, 2012 and June 30, 2012, and no impairment was deemed
necessary. Reserve estimates used in determining estimated future
net revenues were prepared in house at December 31, 2012 using
methodologies consistent with the reserve estimates prepared by an
independent petroleum engineer at June 30, 2012.
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, 2012 and June 30, 2012.
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 and Other
Derivative Instruments: 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
Accounting Standards Codification ("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
Note C- Summary of Significant Accounting Policies
(Continued)
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, 2012 and 2011.
The Company has common stock warrants outstanding in connection
with the unsecured credit facility agreement (the "Chambers
Facility") (see Note F), which contains price protection provisions
(or down-round provisions) which reduces the strike price of the
warrants in the event the Company issues additional shares at a
more favorable price than the strike price. The warrants are
measured and carried at fair value as a derivative liability on the
Company's consolidated balance sheet. The fair value of the
warrants on the date of issuance of $2,662,000 was recognized as a
discount to the unsecured credit facility at the time the Company
received the proceeds from the credit facility. The discount will
be accreted to the credit facility, over the period from the
funding date through the maturity date, using the effective
interest rate method. At December 31, 2012 the fair value of the
warrants was zero.
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. During the six months ended December 31, 2012 and 2011,
the Company did not incur or capitalize any finance costs. At
December 31, 2012 and June 30, 2012, the deferred finance costs
balance is presented net of accumulated amortization of $690,452
and $519,339, 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 and geological engineers have prepared
estimates of the Company's oil and natural gas reserves at June 30,
2012 and 2011. 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
Note C - Summary of Significant Accounting Policies
(Continued)
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.
The following table is a reconciliation of the asset retirement
obligation:
Six Months Ended December
31,
---------------------------------------------
2012 2011
----------------------- --------------------
Asset retirement obligation,
beginning of the period $ 4,231,087 $ 4,138,677
Liabilities incurred - 234,548
Liabilities settled (43,748) (332,210)
Accretion 104,078 93,137
----------------------- --------------------
Asset retirement obligation,
end of the period $ 4,291,417 $ 4,134,152
======================= ====================
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,
-------------------------------------------
2012 2011
---------------------- -------------------
Net income (loss) $ (3,065,230) $ 3,363,945
======================================= === ================= ===============
Weighted average shares outstanding
for basic EPS 20,793,696 20,566,253
Add dilutive securities - 81,735
-------------------------------------------- ----------------- ---------------
Weighted average shares outstanding
for diluted EPS 20,793,696 20,647,988
============================================ ================= ===============
Net income (loss) per share
Basic $ (0.15) $ 0.16
Diluted (0.15) 0.16
For the six months ended December 31, 2012, 91,285 share
equivalents were excluded from the diluted average shares due to
their 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, 2013, the date the
financial statements were available to be issued (see Note O).
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 in the amount $2.1
million. 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. In March
2012, Cano Petroleum, Inc. and various of its affiliates filed a
chapter 11 case in the bankruptcy court for the northern district
of Texas. In August 2012, Cano sold all of its oil and gas
properties and used the proceeds in bankruptcy primarily to satisfy
its secured lenders, leaving a modest amount of residual proceeds
for expenses and the unsecured creditors. The receivable from Cano
has been written off at December 31, 2012.
Note E - Related Party Transactions
The Company receives support services from Torch Energy Advisors
Incorporated ("TEAI") and its subsidiaries, which includes office
administration, risk management, corporate secretary, legal and
litigation services, tax department services, financial planning
and analysis, information technology management, financial
reporting and accounting services, and engineering and technical
services. The Company was charged by TEAI and a subsidiary of TEAI
$583,628 and $455,749 during the six months ended December 31, 2012
and 2011, 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). Subsequent to the
issuance of this note, the Company resumed settling on a monthly
basis with TEAI.
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 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, modify the interest provisions,
provide for subordination to the Chambers Facility in addition to
the Company's secured credit facility and extend the
Note F - Notes Payable (Continued)
maturity date to January 31, 2014. At June 30, 2012, 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 the Company's development program 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 a property
acquisition, the warrant price was adjusted to $1.92 per share in
August 2011. The Company has elected to pay interest in kind. With
accrued paid-in kind interest, the balance payable on the Chambers
Facility as of December 31, 2012 was $25.9 million. The Chambers
Facility includes a make-whole provision in the event that the
total interest, principal and value of the warrants granted under
the Chambers Facility do not generate a targeted return to the
lenders upon repayment of the facility. The amount of the make
whole obligation is fixed through January 7, 2013, after which time
the make whole obligation increases. If the Chambers Facility had
been repaid at December 31, 2012, the make whole obligation would
have been approximately $5.3 million. As of December 31, 2012 the
Company was not compliant 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. Under the terms of the agreement,
if a condition of default occurs and is continuing, the lenders may
demand that the default interest be payable in cash rather than in
kind. The lenders under the Chambers Facility demanded that the
interest accrued for the period from June 1, 2012 through June 30,
2012 be paid in cash. The Company has not paid this amount and the
unpaid amount continues to accrue interest at the default interest
rate. The lenders under the Chambers Facility have not demanded any
other cash interest payments. The Company has classified the
balance of the Chambers Facility at December 31, 2012 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 the Company's
development program, 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, $33
million was outstanding at December 31, 2012. The interest rate on
outstanding borrowings was 7.5% at December 31, 2012. At December
31, 2012, due to the noncompliance with the covenants under the
Chambers Facility, the Company was not in compliance with the
covenants related to this facility. In addition, the Company was
not in compliance with the current asset to current liability ratio
under the Regions Facility. Accordingly, the Company has classified
the balance of the Regions Facility at December 31, 2012 to current
due to the default status of the loan. As a result of the covenant
failure and effective on July 9, 2012, Regions exercised its rights
under the Regions Facility to disallow LIBOR-based borrowings,
effectively increasing the Company's cash interest rate from 4.00%
to 5.50%. Further, beginning August 7, 2012, Regions began charging
default interest at a rate of 2.00%, effectively increasing the
Company's borrowing rate to 7.50%. Both conditions are in effect
until the Company is again in compliance with the covenants related
to this facility. The Company is pursuing property sales to provide
funds to either repay its obligations under both the Regions
Facility and the Chambers Facility in full or to reduce its overall
debt to bring its credit facilities into compliance with their
financial covenants. In the event the Company is not able to pay
the sums
Note F - Notes Payable (Continued)
currently due, the lenders may be able to pursue their options
of foreclosure at the Company as granted under the Regions Facility
and the Chambers Facility.
Note G - Price Risk Management and Other Derivative 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.
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, 2012 and
2011 resulted in a decrease in crude oil and natural gas sales in
the amount of $101,806 and $665,925, respectively.
As of December 31, 2012, we had the following contracts
outstanding:
Crude Oil
---------------------------------------------------------
Total
Volume Contract Asset
Period (Bbls) Price (1) (Liability)
-------------- ------------------- ------------------ ----------------
Swaps
1/13 - 3/13 1,100 100.00 26,753
1/13-12/13 9,200 84.95 (797,611)
1/13-12/13 2,000 105.20 270,182
4/13 - 12/13 500 98.50 20,750
1/14 - 12/14 8,600 85.80 (614,816)
1/14 - 12/14 2,300 99.00 166,293
Total $ (928,449)
================
(1) The contract price is weighted-averaged by contract
volume.
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, 2012:
Asset Derivatives (Liability) Derivatives
------------------------- ---------------------------
Total
Balance Sheet Fair Balance Sheet Fair Asset
Location Value Location Value (Liability)
--------------- -------- --------------- ---------- -------------
Derivatives
not designated
as
hedging
instruments
under
ASC 815
Commodity Derivative Derivative
Contracts financial financial
instruments instruments
Current Asset $ - Current Liability $ 479,926 $ 479,926
Non-current Non-current
Asset - Liability 448,523 448,523
--------
Total
derivatives
not
designated as
hedging
instruments
under ASC 815 $ - $ 928,449 $ 928,449
========================= ========== =============
Note G - Price Risk Management and Other Derivative Financial
Instruments (Continued)
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 Petroleum 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 disputed the allegations by Cano (see Note D). On
March 7, 2012 Cano filed bankruptcy and the bankruptcy plan was
approved on July 16, 2012. The Company has filed a proof of
claim.
On October 18, 2012, Resaca filed an action against Wind River
Petroleum, LP ("Wind River") and Richard A. Counts ("Counts") for
breach of the terms of the August 3, 2011 Purchase and Sale
Agreement ("PSA") relating to the purchase of the Langlie Jal Unit
seeking to enforce the obligations of Wind River and Counts under
the PSA. On October 19, 2012 Wind River filed an action against
Resaca alleging a breach of the same PSA relating to the
post-closing purchase price adjustment.
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 to
directors. The Plan consists of stock option and restricted stock
awards. The restricted stock vests over a three-year period while
the stock options vest over a three or one-year period. The Company
expenses the fair-value of the share-based payments over the
requisite service period of the awards. At December 31, 2012, there
was $288,201 in unrecognized compensation expense related to
non-vested restricted stock grants and non-vested stock option
grants that will be recognized over the next 20 months.
In conjunction with the initial public offering in 2008 (the
"IPO"), certain officers and directors were granted restricted
stock awards for an aggregate 821,103 shares of the Company's
stock. 790,350 such shares vested over a three year period ended
July 17, 2011; 30,753 of such shares were forfeited and returned to
the Plan when an employee recipient resigned prior to the end of
the vesting period. The Company also awarded 341,357 stock options
at the time of the IPO, each option to purchase one share of our
common stock at an exercise price of 6.70 British pounds per share.
The options were cancelled and new options for 341,357 shares were
issued on January 18, 2011 with an exercise price of $1.61, a
vesting period of one year and an expiration date on January 8,
2019. On August 1, 2011, 40,000 stock options were issued to an
officer with an exercise price of $1.52 per share, vesting period
of three years and an expiration date of August 1, 2019. On August
8, 2011, certain officers and directors were granted 175,000 shares
of restricted stock and 360,000 stock options. These shares vest
over a three year period. The stock options have an exercise price
of $1.45 per share and expire on August 8, 2019.
At December 31, 2012, there were 820,347 stock options and
116,667 shares of restricted stock outstanding. On April 28, 2012,
the Plan was amended to allow the issuance of an additional
1,019,916 shares. As of December 31, 2012, the Board of Directors
and the CEO had the ability to authorize the issuance of another
1,079,394 stock options and restricted stock.
Note I - Share-Based Compensation (Continued)
The following summary represents restricted stock awards
outstanding at December 31, 2012 and June 30, 2012:
Grant Date
Shares Fair Value
---------------------- --------------------------
Awards outstanding at
June 30, 2012 175,000 $ 245,000
Restricted Shares
vested (58,333) (81,667)
Restricted Shares
awarded - -
---------------------- --------------------------
Awards outstanding at December
31, 2012 116,667 $ 163,333
====================== ==========================
For stock options, the Company determines the fair value of each
stock option at the grant date using a Black-Scholes pricing model,
with the following assumptions used for the grants made on the date
indicated:
7/17/2008 1/21/2009 9/25/2009 11/16/2009 1/18/2011 8/1/2011 8/8/2011
--------------------- --------------------- --------------------- ---------------------- --------------------- -------------------- --------------------
Risk-free
interest
rate 3.35% 3.35% 2.37% 2.18% 1.97% 1.32% 1.11%
Volatility
factor 50% 50% 81% 88% 74% 71% 71%
Expected
dividend
yield
percentage 0% 0% 0% 0% 0% 0% 0%
Weighted
average
expected
life in
years 3.5 3.5 3.5 3.5 4.5 3.5 3.5
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, 2012 is as follows:
Grant
Average Date
Exercise
Shares Price Fair Value
------------- ------------------- --------------
Options outstanding at June
30, 2012 820,347 $ 1.75 $ 800,952
Grants 100,000 0.31 31,051
Exercised or forfeited (100,000) (0.64) (31,051)
------------- --------------
Options outstanding at December
31, 2012 820,347 $ 1.77 $ 800,952
============= ==============
A summary of stock options outstanding at December 31, 2012 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 $ 4.04 * 79,000 4.74 79,000
01/18/11 $ 1.61 1.61 341,347 6.05 341,347
08/01/11 $1.52 1.52 40,000 6.50 -
08/08/11 $1.45 1.45 360,000 6.60 -
---------------- -------------- ---------------- -------------------
$ 1.77 820,347 6.38 420,347
================ ============== ================ ===================
*Exercise price is denominated in British pounds and has been
converted at a rate of $1.6153 USD/GBP.
On July 3, 2012, the Company issued 100,000 stock options at an
exercise price of GBP0.395 to a Resaca executive. The executive
resigned on December 14, 2012 and the shares were forfeited.
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.
At December 31, 2012, the fair value of the Chambers Facility
outstanding warrants was zero.
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, 2012. 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
Inputs
Items (Level Inputs (Level (Level
1) 2) 3) Total
---------------------- ------------------------ ---------------------- ----------------------
Assets:
Oil and Gas
Hedges $ - $ - $ - $ -
Total Assets $ - $ - $ - $ -
====================== ======================== ====================== ======================
Liabilities:
Oil and Gas
Hedges $ 928,449
Derivative
Warrants - - - -
Total
Liabilities $ - $ 928,449 $ - $ -
---------------------- ------------------------ ---------------------- ----------------------
Total Net
Liabilities $ - $ 928,449 $ - $ -
====================== ======================== ====================== ======================
The carrying amounts of the Company's cash and cash equivalents,
receivables and payables approximate the fair value at December 31,
2012 and June 30, 2012 due to their short-term nature. The carrying
amounts of the Company's debt instruments at December 31, 2012 and
June 30, 2012 approximate their fair values due to either the
interest rates being at market or minimal change during the period
for the interest rates related to debt with fixed interest
rates.
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, 2012, the Company had 230,000,000
common shares authorized and 20,805,743 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, 2012
and 2011 was $20,648 and $18,744, 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 8,487,298
Asset retirement
obligations (234,548)
---------------
8,252,750
===============
Note N - Director Compensation
During the six months ended December 31, 2012, Resaca directors
J.P. Bryan, Judy Ley Allen, John William Sharp Bentley, and John J.
Lendrum, III each received director's fees in the amount of $25,000
and Richard Kelly Plato received director's fees in the amount of
$12,500. 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, 2012. 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 were paid to or for
the benefit of any Resaca directors during the six months ended
December 31, 2011.
Note O - Subsequent Events
The Company sold three workover rigs and associated tools in an
auction on March 6 and March 7, 2013. Net proceeds in the amount of
$680,664 were received on March 26, 2013. The Company's senior
credit facility limits the amount of proceeds which can be retained
by the Company on a rolling six month basis. The Company expects to
exceed the cumulative proceeds during the six month period by
$50,664. The Company's obligation is to apply all exceeded amounts
to reduce the outstanding principal under the senior credit
facility. We expect to receive a net $630,000 which will increase
our available cash position.
On March 6, 2013 Richard Kelly Plato resigned as a director of
the Company's board.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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