The Meridian Resource Corporation (NYSE:TMR) today announced
year-end oil and gas reserves of 74.7 billion cubic feet of natural
gas equivalent of which approximately 70% was natural gas and 30%
was oil. The following table provides a reconciliation of the
Company's proved reserve quantities as of December 31, 2009:
|
Oil
(MBbls)
|
Gas
(MMcf)
|
Equiv.
(MMcfe)
|
Balance, December 31, 2008
|
4,903
|
50,896
|
80,314
|
Production
|
(834)
|
(7,549)
|
(12,553)
|
Discoveries and extensions
|
516
|
3,666
|
6,762
|
Revisions of previous estimates
|
(820)
|
5,076
|
156
|
Balance, December 31, 2009
|
3,765
|
52,089
|
74,679
|
At December 31, 2009, proved developed producing reserves
accounted for 35%, proved developed non-producing accounted for 29%
and proved undeveloped reserves accounted for 36% of the Company's
total proved reserves. The estimated proved reserves are based on
the twelve-month un-weighted first-day-of-the-month average West
Texas Intermediate oil price of $61.18 per barrel and the
twelve-month un-weighted first-day-of-the-month average Henry Hub
natural gas price of $3.87 per million British thermal units. The
estimated future net cash flows, before income taxes, discounted at
10% ("NPV 10%") totaled approximately $135.4 million (NPV 15%
totaled $118.9 million and NPV 20% totaled $105.9 million).
During 2009, Meridian's exploration and production activities
were substantially curtailed due to the borrowing deficiency
associated with its senior secured credit facility. Drilling
activities were limited to the completion of two drilling
operations in the East Texas Austin Chalk area which had begun
drilling during 2008. In addition, the Company participated in
several small workover and recompletion operations to help mitigate
the inherent production decline associated with its Gulf Coast
producing assets. Because of the Company's substantial financial
obligations, some of which are summarized below, for the
foreseeable future, the Company does not anticipate having
sufficient capital available to convert a significant portion of
its non-producing and undeveloped reserves to producing
reserves.
FINANCIAL OBLIGATIONS:
As of December 31, 2009, the Company's balance sheet will
reflect secured and unsecured financial obligations totaling
approximately $104 million, before adjustments for working capital
and including the required payments related to settlement of the
Shell and Parson's lawsuits described below. These obligations are
described in more detail below.
Senior Credit Facility. Meridian has a
credit facility with a group of banks with a maturity date of
February 21, 2012 (the "Credit Facility"). Outstanding
obligations under the Credit Facility are secured by a pledge of
the outstanding capital stock of the Company's subsidiaries and by
a first priority lien on not less than 95% of its present value of
proved oil and natural gas properties. As of December 31, 2008, and
continuing to the present time, the Company was not in compliance
with certain financial covenants contained in the Credit Facility,
resulting in an event of default.
Availability of borrowings under the Credit Facility are
governed by periodic borrowing base redeterminations determined on
criteria established by the lenders, based on the value of proved
reserves (primarily proved developed producing reserves). Effective
April 30, 2009, Meridian was notified that the redetermined
borrowing base under the Credit Facility was $60 million. As of the
April 30, 2009 redetermination, the Company had outstanding
borrowings of $95 million, resulting in a borrowing base deficiency
of $35 million. At the time of the redetermination and continuing
to the present time, the Company does not have sufficient liquidity
to allow for the repayment of the deficiency, resulting in an
additional event of default under the Credit Facility. During 2009,
Meridian entered into a series of forbearance agreements whereby
the lenders agreed to forbear from exercising the remedies
available to them under the loan documents as a result of the
events of default. As of December 31, 2009, the Company's
outstanding obligations under the Credit Facility are $87.5
million, resulting in a deficiency of $27.5 million.
Equipment Finance Note. On May 2,
2008, the Company, through a wholly owned subsidiary, entered into
a financing agreement ("rig note") with The CIT Group / Equipment
Financing, Inc. ("CIT"). Under the terms of the agreement, the
Company borrowed $10.0 million, at a fixed interest rate of
6.625%, which increases to 10.625% in an event of default. The loan
is collateralized by a drilling rig owned by the Company, as well
as general corporate credit. The maturity date of the rig note is
May 2, 2013.
Effective as of December 31, 2008 and continuing to the
present time, the Company is in default under the rig note as a
result of cross-defaults under the Credit Facility. The remedies
available to CIT in the event of default include acceleration of
all principal and interest payments. Concurrent with the
forbearance agreements under the Credit Facility, the Company
entered into a series of forbearance agreements with CIT whereby
CIT agreed to forbear from exercising the remedies available to
them under the rig note as a result of the default. As of December
31, 2009, the outstanding obligations under the rig note are
approximately $6.2 million.
Agreement with Shell Oil
Company. During the late 1990's the Company
acquired certain oil and gas operations from Shell Oil Company and
SWEPI LP (collectively, "Shell"). Over the years various landowners
and/or regulators have alleged claims against the Company and Shell
for environmental damages and breaches of mineral leases. In some
of the lawsuits, Shell has demanded contractual indemnity and
defense from Meridian based upon the terms of the two acquisition
agreements related to the acquired oil and gas operations; Meridian
has challenged such demands. The amounts claimed by Shell are
substantial in nature and if adversely determined, would have a
material adverse effect on the Company. On December 9, 2008 Shell
sent the Company a letter reiterating its demand for indemnity and
alleged claimed damages of substantial amounts. Following informal
discussions between the parties, Shell initiated formal arbitration
proceedings on May 11, 2009.
On January 11, 2010, the Company and Shell entered into a
Compromise and Settlement Agreement (the "Settlement Agreement")
regarding the Shell indemnity claims under the two acquisition
agreements related to the fields. Under the terms of the Settlement
Agreement, the Company will (a) make a cash payment to Shell
of $5 million in five payments of $1 million each, the
first $1 million payment being payable upon the earlier of
April 1, 2010 or the closing of a sale of the assets or equity
interest in the Company to a third party, with subsequent annual
installments of $1 million to be made on January 4 of each of the
following four years; (b) convey to Shell certain acreage in
Terrebonne Parish, Louisiana, which acreage is nonproducing and
which has no Company oil or gas reserves associated with it;
(c) plug and abandon certain wells and remediate certain
acreage located in Louisiana in due course; and (d) release
Shell from indemnity claims under the two acquisition agreements
related to the fields. In consideration for the foregoing, Shell
agreed to release the Company from any indemnity claim arising from
any current or historical claim against Shell, and to release
Meridian's indemnity obligation with respect to any future claim on
all but a small subset of the properties acquired pursuant to the
acquisition agreements related to the fields.
The releases of claims, including the release of the stay of
arbitration, are subject to the closing of the Company's pending
merger transaction with Alta Mesa Holdings, LP and become effective
upon the initial $1 million cash payment to Shell and the
conveyance to Shell of the Terrebonne Parish acreage. The Company's
December 31, 2009 balance sheet will reflect the present value of
the $5 million cash payment obligation, or a total of $4.2 million.
Should a transaction not be closed by April 1, 2010, Shell has the
right to re-open arbitration proceedings.
Drilling Rig Contract
Obligations. Meridian has a long-term dayrate
contract to utilize a drilling rig from an unaffiliated service
company, Orion Drilling Company LLC ("Orion"). Although Meridian's
capital expenditure plans no longer accommodate use of this rig,
Meridian is obligated for the dayrate regardless of whether the rig
is working or idle. When the contracted rig is not in use on
Meridian-operated wells, Orion may contract it to third parties, or
the rig may be idled. Meridian is obligated for the difference
between the contracted dayrate and the lesser dayrate if the rig is
utilized by a third party. The contracted rig was utilized drilling
a Meridian-operated well through the end of the first quarter of
2009, and contracted to a third party during the second and third
quarters at a lower dayrate than Meridian's contracted dayrate.
In addition, we own a rig that was also intended primarily to
drill wells operated by us. In April 2008, Orion began leasing the
rig from us, and operating it under a dayrate contract with the
Company. The Company is obligated for the difference between the
contracted dayrate and the lesser dayrate if the rig is utilized by
a third party. Beginning January 2009, the rig has been contracted
to a third party operator at a rate which is less than the dayrate
contract for which Meridian is obligated.
During 2009, the Company entered into a forbearance agreement
with Orion whereby Orion agreed not to enforce its remedies related
to the outstanding obligations under the dayrate contracts as long
as the forbearance agreement with CIT was effective. The Company's
December 31, 2009 balance sheet will reflect a $4.2 million
obligation under the dayrate contracts. Obligations under the
dayrate contracts will continue to accrue over the life of the
dayrate contracts which terminate in March 2010 and February 2011.
These future obligations can range from $10.4 million to $19.4
million depending on whether or not the rigs are fully utilized or
not utilized at all.
Parsons Exploration
Litigation. During 2007,
Parsons Exploration Company, LLC ("Parsons") filed a claim against
Meridian for damages and specific performance requiring Meridian to
assign Parsons an overriding royalty interest in certain wells the
Company has drilled in east Texas. The complaint alleged that the
Company breached its contractual and fiduciary obligations to
Parsons under an Exploration and Prospect Origination Agreement
between the parties dated April 22, 2003. The complaint also
alleged that the Company engaged in a civil conspiracy to breach
its contractual and fiduciary obligations to Parsons and tortiously
interfered with existing and prospective business
relationships/contracts of Parsons. The parties reached a final
settlement agreement in the second quarter of 2009. The Company's
December 31, 2009 balance sheet will reflect a $0.8 million
settlement, payable monthly at a rate of approximately $0.1 million
per month.
Forbearance Fees and
Expenses. As previously
discussed, the Company entered into a series of forbearance
agreements with the lenders under the Credit Facility during 2009
and was required to pay a forbearance fee to the lenders in
exchange for their agreement to forbear from exercising their
remedies related to the events of default. In addition, the Company
utilized the services of its advisor, Rivington Capital Advisors
LLC, in its discussions and negotiations with the lenders. The
Company's December 31, 2009 balance sheet will reflect a $1.1
million payable associated with these agreements.
Conclusion
Meridian's reserves at year end 2009 were 74.7 billion cubic
feet of natural gas equivalent with approximately 70% being natural
gas. Based on SEC pricing the estimated future net cash flows
before income taxes and discounted at 10% totaled approximately
$135.4 million (NPV 15% totaled approximately $118.9 million &
NPV 20% totaled approximately $105.9 million). At year end
2009 the Company's balance sheet will reflect secured and unsecured
financial obligations totaling approximately $104 million before
any adjustments for working capital and including required payments
related to the settlements with Shell and the Parson's lawsuits as
described earlier. Should the Company not complete the Alta
Mesa merger transaction, the unsecured obligations with regards to
Shell and Orion could be substantially higher than those presented.
In addition, the Company's forbearance agreements with the lenders
under the Credit Facility, CIT and Orion all terminate on the
earlier of (a) May 31, 2010, (b) the consummation of the Alta Mesa
Merger Agreement, or (c) the termination of the Alta Mesa Merger
Agreement.
Forward-Looking Statements
Statements identified by the words "expects," "plans," and
certain of the other foregoing statements may be deemed
"forward-looking statements." Although Meridian believes that the
expectations reflected in such forward-looking statements are
reasonable, these statements involve risks and uncertainties
regarding the transactions described that may cause actual future
activities and results to be materially different from those
suggested or described in this press release. Risks and
uncertainties regarding the proposed merger with Alta Mesa
Holdings, LP and the other transactions described include, but are
not limited to, the possibility that the closing of the merger does
not occur, either due to the failure of closing conditions,
including the approval of the shareholders of Meridian, rights of
the parties to terminate the merger agreement, or other reasons,
risks that the merger disrupts current plans and operations and the
potential difficulties in employee retention as a result of the
merger, the outcome of legal proceedings that have been, or may be,
initiated against Meridian related to the merger and the amount of
the costs, fees, expenses and charges related to the merger. Other
risks relating to Meridian are described in Meridian's documents
and reports, available from the U.S. Securities and Exchange
Commission, including the report filed on Form 10-K, as amended,
for the year ended December 31, 2008 and any updates to those
factors set forth in our subsequent Quarterly Reports on Form 10-Q,
including risks associated with our default under our credit
facility and other lending arrangements.
About Meridian
The Meridian Resource Corporation is an independent oil and
natural gas company that explores for, acquires and develops oil
and natural gas properties. Through its wholly owned subsidiaries,
Meridian holds interests primarily in the onshore oil and natural
gas regions of south Louisiana and Texas and offshore in the Gulf
of Mexico.
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CONTACT: The Meridian Resource Corporation
Lance L. Weaver
(281) 597-7125
lweaver@tmrx.com
www.tmrc.com
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