Increased Oil Production Continues to Drive Significant Improvement in Financial Results
Second Quarter Oil Production Increased 67% and Exceeded 1,000 BOE Per Day
Second Quarter Adjusted Net Income Increased 36% and EBITDA Increased 62%
DENVER, June 12, 2012 (GLOBE NEWSWIRE) -- Credo Petroleum Corporation (Nasdaq:CRED), an oil and gas exploration and production company with significant assets in the North Dakota Bakken and Three Forks, Kansas, Nebraska, the Texas Panhandle and Oklahoma, today reported financial results for the quarter and six months ended April 30, 2012.
Significantly higher oil production volumes continued to drive improved financial performance in the second quarter and six months ended April 30, 2012. The following table shows the changes in certain financial and operational categories for the second quarter and six months ended April 30, 2012 compared to the same periods last year.
| 2nd Quarter | Six Months | |
| Revenue | + 44% | + 60% |
| Operating Income | + 60% | + 83% |
| EBITDA | + 62% | + 76% |
| Net Income | + 342% | + 393% |
| Adjusted Net Income | + 36% | + 54% |
| Total Production (BOE) | + 30% | + 33% |
| Oil Production (BO) | + 67% | + 82% |
Operating income increased to $1,993,000 compared to $1,243,000 in the second quarter last year on revenue of $5,860,000 compared to $4,068,000 second quarter last year. Increased production volumes accounted for 116% of the revenue increase while the decrease in price accounted for a 16% decline in revenue.
For the first half, operating income increased to $3,931,000 compared to $2,147,000 last year on revenue of $11,681,000 compared to $7,318,000 last year. Increased production volumes accounted for 103% of the revenue increase while the decrease in price accounted for a 3% decline in revenue.
EBITDA (a non-GAAP measure; see reconciliation below) for the second quarter of 2012 increased to $3,736,000 compared to $2,309,000 second quarter last year. Net income was $1,128,000, or $.11 per diluted share, compared to $255,000, or $.03 per diluted share second quarter last year. Adjusted net income (a non-GAAP measure; see reconciliation below) increased to $1,237,000, or $.12 per share, compared to $907,000, or $.09 per share second quarter last year.
For the first half, EBITDA increased to $7,528,000 compared to $4,269,000 last year. Net income was $2,090,000, or $.21 per diluted share, compared to $424,000, or $.04 per diluted share, last year. Adjusted net income increased to $2,528,000, or $.25 per share, compared to $1,638,000, or $.16 per share last year.
DRILLING SUCCESS DRIVES SIGNIFICANT INCREASES IN
BOTH OIL PRODUCTION AND TOTAL PRODUCTION
The Company's oil-focused drilling success yielded a 67% increase in second quarter oil production compared to last year, and an 82% increase for the first half of fiscal 2012. Natural gas drilling was suspended in 2009 because of low natural gas prices. As a result, mostly normal declines reduced gas production about 7% in the first half of fiscal 2012. The following table shows that the Company's comparative production mix shifted solidly in favor of oil.
| Three Months Ended | Six Months Ended | |||
| April 30 | April 30 | |||
| Production Mix | 2012 | 2011 | 2012 | 2011 |
| Crude Oil | 61% | 47% | 61% | 45% |
| Natural Gas | 39% | 53% | 39% | 55% |
Total production volumes increased 30% in the second quarter to 90,800 BOE, or 1,009 BOE per day, (barrels of oil equivalent based on six Mcf of gas to one barrel of oil) compared to last year. This represents the first time that the Company's total quarterly production has exceeded 1,000 BOE per day. For the six months, total production increased 33% to 181,900 BOE, or 1,000 BOE per day.
The following table shows comparative production volume percentages by region and highlights the shift occurring in the Company's production mix to crude oil in North Dakota, Kansas and Nebraska and away from natural gas in Oklahoma.
| Three Months Ended | Six Months Ended | |||
| April 30 | April 30 | |||
| Production by Region | 2012 | 2011 | 2012 | 2011 |
| North Dakota Bakken and Three Forks | 20% | 14% | 20% | 12% |
| Kansas and Nebraska Lansing Kansas City | 20% | 17% | 21% | 17% |
| Texas Panhandle Tonkawa and Cleveland | 11% | 11% | 10% | 10% |
| Other (primarily Oklahoma natural gas) | 49% | 58% | 49% | 61% |
Michael D. Davis, interim Chief Executive Officer, stated, "We achieved the important 1,000 BOE per day milestone in the second quarter as we continued to aggressively drill in the Bakken and Three Forks, Kansas and Nebraska, and the Texas Panhandle. Our second quarter production would have been even greater except for some completion delays in the Bakken because one of our operators is now drilling several wells from one pad prior to moving in completion equipment for multiple well completions. This is a cost saving measure which we believe justifies the correlated production delays."
The following table shows comparative revenue percentages by region and highlights the Company's shift away from natural gas production in Oklahoma in favor of oil production primarily in North Dakota, Kansas and Nebraska.
| Three Months Ended | Six Months Ended | |||
| April 30 | April 30 | |||
| Revenue by Region | 2012 | 2011 | 2012 | 2011 |
| North Dakota Bakken and Three Forks | 27% | 21% | 27% | 19% |
| Kansas and Nebraska Lansing Kansas City | 30% | 27% | 31% | 26% |
| Texas Panhandle Tonkawa and Cleveland | 8% | 9% | 8% | 7% |
| Other (primarily Oklahoma natural gas) | 35% | 43% | 34% | 48% |
WELLHEAD PRICES MIXED
Second quarter wellhead oil prices increased slightly to $94.29 compared to $93.07 last year. Natural gas prices fell 33% to $2.96 compared to $4.44 last year. For the quarter ended April 30, 2012, the Company had realized crude oil hedging losses of $200,000 compared to $114,000 last year. Second quarter oil hedges had the effect of reducing oil price realizations by $3.60 per barrel to $90.69. Last year, oil hedges reduced second quarter price realizations by $3.47 per barrel to $89.60.
Wellhead oil prices for the six months ended April 30, 2012 increased 6% to $92.30 compared to $86.97 last year. Natural gas prices fell 24% to $3.35 compared to $4.39 last year. For the six months, the Company had realized crude oil hedging losses of $244,000 compared to $78,000 last year. The six month oil hedges had the effect of reducing oil price realizations by $2.19 per barrel to $90.11. Last year, oil hedges decreased the six month price realizations by $1.28 per barrel to $85.69.
At April 30, 2012, the Company held short swap hedge positions on 6,000 barrels of oil per month for the production months of May 2012 through December 2012, at prices ranging from $91.95 to $92.56. The hedge is expected to cover approximately 15% to 25% of estimated production for the hedged period. Unrealized hedging losses declined significantly for both reporting periods to $158,000 for the three months ended April 30, 2012 and $639,000 for the six months then ended, compared to $836,000 and $1,577,000, respectively, last year. The unrealized losses are a non-cash charge calculated at a point in time by applying oil prices as of period end to open hedging contract volumes. Actual realized gains or losses on the hedges are determined based on oil prices at the time each month's hedge contract expires.
RECORD CAPITAL EXPENDITURES
TO BE PARTIALLY FINANCED BY BANK BORROWING
Capital expenditures are expected to almost double in fiscal 2012 to a record $35.0 million, of which approximately 95% is earmarked for new drilling. Ninety five (95) gross (39.7 net) oil wells are currently scheduled to be drilled in fiscal 2012, representing a 99% increase in net wells over last year. Costs incurred through second quarter-end totaled approximately $17.8 million. Financing is required to fund a portion of fiscal 2012 capital expenditures. The current borrowing base under the Company's $25 million credit facility is $9.3 million. To date, $6.0 million has been drawn-down with an interest rate of about 3%. Subject to lender approval, the credit facility provides for increases in the borrowing base as the Company pledges additional collateral. Due to Bakken completion delays as discussed above, the Company expects its 2012 borrowing needs to be toward the upper end of the previously announced $7 million to $12 million range.
MANAGEMENT COMMENT
Davis continued, "We are continuing to achieve our transitional goals and milestones which is generating a significant positive bottom line impact. New completion procedures by a Bakken operator have delayed the start of production on some wells. However, those wells are expected to come on line in the third quarter and, together with our recently announced new field discoveries in Kansas and Nebraska, are expected to significantly boost second half production."
About Credo Petroleum
Credo Petroleum Corporation is an independent oil and gas exploration and production company based in Denver, Colorado. The Company has significant operations in the Williston Basin of North Dakota, Kansas, Nebraska, the Anadarko Basin of the Texas Panhandle and northwest Oklahoma, and in southern Oklahoma. Credo uses advanced technologies to systematically explore for oil and gas and, through its patented Calliope Gas Recovery System, to recover stranded reserves from depleted gas reservoirs. For more information, please visit our website at www.credopetroleum.com or contact us at 303-297-2200.
* * * * *
Supplemental Non-GAAP Financial Measures
EBITDA
The Company uses this non‑GAAP operating performance measure primarily to compare its performance with other companies in the industry that make a similar disclosure. The Company believes that this performance measure may also be useful to investors for the same purpose. Investors should not consider this measure in isolation or as a substitute for operating income or any other measure for determining the Company's operating performance that is calculated in accordance with GAAP. In addition, because EBITDA is not a GAAP measure, it may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of Net Income to EBITDA (as used by the Company) is set forth below.
| Three Months Ended | Six Months Ended | |||
| April 30, | April 30, | |||
| 2012 | 2011 | 2012 | 2011 | |
| Net Income as reported | $ 1,128,000 | $ 255,000 | $ 2,090,000 | $ 424,000 |
| Add Back: | ||||
| Income Tax Expense | 508,000 | 71,000 | 961,000 | 127,000 |
| Depreciation, Depletion and Amortization Expense | 1,942,000 | 1,147,000 | 3,838,000 | 2,141,000 |
| Unrealized Derivative Losses | 158,000 | 836,000 | 639,000 | 1,577,000 |
| EBITDA | $ 3,736,000 | $ 2,309,000 | $ 7,528,000 | $ 4,269,000 |
Adjusted Net Income
The following table provides information that the Company believes may be useful to investors that follow the practice of some industry analysts who adjust reported company earnings to match realizations to production settlement months and make other adjustments to exclude certain non-cash items. The following table provides a reconciliation of Net Income to non-GAAP Adjusted Net Income (as used by the Company).
| Three Months Ended | Six Months Ended | |||
| April 30, | April 30, | |||
| 2012 | 2011 | 2012 | 2011 | |
| Net Income as reported | $ 1,128,000 | $ 255,000 | $ 2,090,000 | $ 424,000 |
| Adjustments for certain non-cash items: | ||||
| Unrealized mark-to-market loss on commodity derivatives | $ 158,000 | $ 836,000 | $ 639,000 | $ 1,577,000 |
| Tax impact | $ (49,000) | $ (184,000) | $ (201,000) | $ (363,000) |
| Adjusted Net Income | $ 1,237,000 | $ 907,000 | $ 2,528,000 | $ 1,638,000 |
| Adjusted Diluted Earnings per Share | $ .12 | $ .09 | $ .25 | $ .16 |
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This press release includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this press release, other than statements of historical facts, address matters that the Company reasonably expects, believes or anticipates will or may occur in the future. Such statements are subject to various assumptions, risks and uncertainties, many of which are beyond the control of the Company. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those described in the forward-looking statements. Investors are encouraged to read the "Forward-Looking Statements" and "Risk Factors" sections included in the Company's Annual Report on Form 10-K/A for more information. Although the Company may from time to time voluntarily update its prior forward looking statements, it disclaims any commitment to do so except as required by securities laws.
| CREDO PETROLEUM CORPORATION | ||||
| FINANCIAL HIGHLIGHTS | ||||
| Condensed Operating Information | ||||
| Six Months Ended | Three Months Ended | |||
| April 30, | April 30, | |||
| 2012 | 2011 | 2012 | 2011 | |
| REVENUES: | ||||
| Oil sales | $ 10,261,000 | $ 5,320,000 | $ 5,230,000 | $ 3,085,000 |
| Natural gas sales | 1,420,000 | 1,998,000 | 630,000 | 983,000 |
| 11,681,000 | 7,318,000 | 5,860,000 | 4,068,000 | |
| COSTS AND EXPENSES: | ||||
| Oil and natural gas production | 2,227,000 | 1,834,000 | 1,005,000 | 967,000 |
| Depreciation, depletion and amortization | 3,838,000 | 2,141,000 | 1,942,000 | 1,147,000 |
| General and administrative | 1,685,000 | 1,196,000 | 920,000 | 711,000 |
| 7,750,000 | 5,171,000 | 3,867,000 | 2,825,000 | |
| Income from Operations | 3,931,000 | 2,147,000 | 1,993,000 | 1,243,000 |
| Other Income and (Expense) | ||||
| Realized and unrealized (losses) from derivative contracts | (883,000) | (1,655,000) | (358,000) | (950,000) |
| Investment and other income | 3,000 | 59,000 | 1,000 | 33,000 |
| (880,000) | (1,596,000) | (357,000) | (917,000) | |
| INCOME BEFORE INCOME TAXES | 3,051,000 | 551,000 | 1,636,000 | 326,000 |
| INCOME TAXES | (961,000) | (127,000) | (508,000) | (71,000) |
| NET INCOME | $ 2,090,000 | $ 424,000 | $ 1,128,000 | $ 255,000 |
| Earnings per share - basic | $ .21 | $ .04 | $ .11 | $.03 |
| Earnings per share - diluted | $ .21 | $ .04 | $ .11 | $.03 |
| Weighted average number of shares of | ||||
| Common Stock and dilutive securities: | ||||
| Basic | 10,041,000 | 10,042,000 | 10,041,000 | 10,041,000 |
| Diluted | 10,085,000 | 10,078,000 | 10,087,000 | 10,089,000 |
| CREDO PETROLEUM CORPORATION | ||
| FINANCIAL HIGHLIGHTS | ||
| Condensed Balance Sheet Information | April 30, 2012 | October 31, 2011 |
| Cash and Short-Term Investments | $ 5,051,000 | $ 4,800,000 |
| Other Current Assets | 6,314,000 | 4,271,000 |
| Oil and Natural Gas Properties, Net | 63,645,000 | 49,851,000 |
| Intangible Assets, Net | 2,924,000 | 3,142,000 |
| Other Assets | 1,474,000 | 1,857,000 |
| $ 79,408,000 | $ 63,921,000 | |
| Current Liabilities | $ 18,754,000 | $ 8,248,000 |
| Long-term Debt | 2,000,000 | -- |
| Deferred Income Taxes | 5,485,000 | 4,524,000 |
| Asset Retirement Obligations | 1,159,000 | 1,213,000 |
| Stockholders' Equity | 52,010,000 | 49,936,000 |
| $ 79,408,000 | $ 63,921,000 | |