TETON REALIZES A 642 PERCENT INCREASE IN OPERATING REVENUES AND A 104 PERCENT INCREASE IN PRODUCTION VOLUMES DENVER, Nov. 6
DENVER, Nov. 6 /PRNewswire-FirstCall/ -- Teton Energy Corporation ("Teton"
or "the Company") (Nasdaq: TEC) today reported operating revenues of $9.8
million for the third quarter of 2008, a 642 percent increase over the third
quarter of 2007. The Company reported net income of $19.3 million for the
third quarter of 2008, or $0.74 per fully diluted share of common stock. This
compares to a loss of $952,000, or $0.06 per fully diluted share of common
stock, on operating revenues of $1.3 million for the third quarter of 2007.
The results for the third quarter of 2008 included an unrealized commodity
derivative gain of $22.5 million, an impairment charge of $4.0 million related
to the Teton/Noble AMI in the DJ Basin, a net non-cash gain on derivative
warrant liabilities of $5.9 million due to a decrease in the fair value of the
related liability and other non-cash items totaling approximately $1.8
million. These other non-cash items included amortization of debt discount
and issuance costs of approximately $250,000 and stock-based compensation of
approximately $1.5 million. Excluding these items, the adjusted net loss for
the third quarter of 2008 would have been $3.3 million, or $0.15 per fully
diluted share.
Operating cash flow from oil and gas activities (defined as oil and gas
sales less lease operating expense, transportation expense and production
taxes) for the third quarter of 2008 increased 696 percent to $6.5 million,
compared to $817,000 for the same period in 2007. Earnings before interest,
taxes, depreciation, depletion and accretion, exploration expense, and non-
cash general and administrative expense (EBITDAX, a non-GAAP measure - refer
to last table of press release for a reconciliation to net income), increased
to $3.2 million in the third quarter of 2008 from a negative $197,000 in the
third quarter of 2007.
For the nine months ended September 30, 2008, the Company realized a net
loss of $18.9 million, or $0.93 per fully diluted share of common stock, on
operating revenues of $23.5 million. This compares to a net loss of $10.0
million or a loss of $0.62 per fully diluted share of common stock for the
same period in 2007. Excluding a $1.0 million unrealized commodity derivative
loss, the $4.0 million impairment charge and other non-cash items totaling
$9.0 million, the adjusted net loss for the nine months of 2008 would have
been $4.9 million, or $0.24 per fully diluted share.
Operating cash flow from oil and gas activities increased approximately
600 percent for the nine months ended September 30, 2008 to $17.4 million,
compared to $2.5 million for the same period of 2007. EBITDAX was $8.4
million for the first nine months of 2008 compared to a negative $570,000 in
the same period of 2007.
Operating Metrics. The Company's gross margin (oil and gas revenues, net
of the effect of commodity hedging positions, less oil and gas operating
expenses) in the third quarter of 2008 increased 211 percent to $6.62 per
thousand cubic feet equivalent ("Mcfe") compared to $2.13 per Mcfe in the
third quarter of 2007.
Oil and gas operating expenses, including lease operating expense ("LOE"),
transportation expense and production taxes, for the third quarter of 2008
collectively increased 219 percent on a per Mcfe basis to $3.92 per Mcfe. The
increase per Mcfe was primarily due to the addition of new operating areas
with higher oil production which results in higher unit LOE costs and higher
transportation costs related to oil in the Central Kansas Uplift ("CKU").
Increased production taxes on an Mcfe basis were the result of higher
commodity prices.
Operational Highlights. Operational highlights during the third quarter
of 2008 include the following:
-- Oil and gas sales volumes increased 104 percent to 9.0 million cubic
feet equivalent per day ("MMcfed"), of which 46 percent was oil and 54 percent
was natural gas.
-- The Company realized an average wellhead price of $10.54 per Mcfe after
realized hedging results in the third quarter of 2008 compared to an average
realized wellhead price of $3.36 per Mcfe after realized hedging results in
the third quarter of 2007.
-- The Company participated in the drilling of 51 gross wells in the third
quarter and holds an interest in a total of 284 gross producing wells as of
September 30, 2008.
Operating Activity by Project. Overall, the Company has interests in
eight oil and gas projects, of which five are operated by Teton.
Central Kansas Uplift ("CKU"). Since acquiring the Teton-operated CKU
assets of 50 producing wells and 48,000 gross acres in early April 2008, Teton
has since drilled 17 gross wells. Ten wells are producing and two wells are
being completed as salt water disposal wells. Additional potential producing
zones, currently behind pipe, will be opened up as the production in these new
wells stabilizes. Net production for the third quarter of 2008 averaged 3.3
million cubic feet equivalent per day ("MMcfed"). The most recent successful
well, which came online at the end of October, was producing over 100 barrels
of oil per day (600 Mcfed) and is not included in the third quarter average.
Due largely to constraints in the credit market and subsequent reductions in
capital expenditures for the remainder of 2008, Teton has reduced its drilling
plans in the Central Kansas Uplift and now expects to drill an additional
three wells for a total of 20 wells in 2008. Teton has performed 13 workovers
to date which added incremental gross production of 127 bopd (762 Mcfed).
Piceance Basin. Teton participated in the drilling of 47 gross wells in
the first nine months of 2008. The Company expects to participate in the
drilling of 52 gross wells for the full year 2008. As of September 30, 2008,
80 gross wells were producing with 28 wells waiting on completion, three wells
completing and two wells drilling. Net production averaged 3.7 MMcfed for the
third quarter of 2008. The success rate for wells drilled and completed over
the life of the project is 100 percent.
DJ Basin. In the Teton/Noble AMI, the Company participated in 69 gross
wells during the first nine months of 2008 and expects to participate in a
total of 105 gross wells in 2008. As of September 30, 2008, 164 gross wells
have been drilled in the play of which 112 wells are currently producing, 14
wells are waiting on completion or on pipeline, two wells are service wells
and 36 wells were unsuccessful, resulting in a 77 percent success rate. The
Company recorded an impairment charge of $4.0 million in the third quarter as
a result of an internal analysis of the project. Production from existing
wells is currently lower than expected, resulting in lower reserve estimates
being assigned to these wells. Additionally the carrying value of the
undeveloped acreage exceeded its fair value and the fair value was adjusted
accordingly. Teton has notified the operator that it plans to go non-consent
for the remainder of the 2008 drilling program in order to: 1) provide the
Company with time to evaluate the results of adding pumping units to existing
production to bring the production volumes up to economic levels, and 2)
retain the funds that would have been expended for additional new wells in the
area due to the credit and capital market constraints and lower commodity
prices. In the Washco area, where Teton operates, there are 27 gross and net
wells, which produced an average of 912 Mcfed.
Williston Basin. Teton holds a non-operated interest in eight wells,
including seven Bakken wells and one Red River well. The Company has received
a permit to drill a Red River well in its Goliath project in Williams County,
North Dakota. The location is built, a rig has been acquired and the well is
expected to spud in November, 2008. In addition the company has signed a
participation agreement with Red Technology Alliance LLC ("RTA), which gives
RTA the option to fund 100 percent of the drilling, completion and equipping
of up to four horizontal Bakken wells in the Williston Basin. If RTA drills
the four wells, it would earn a 40 percent interest in the Goliath project and
Teton and its partners would retain a 60 percent working interest. Teton
would retain a 15 percent working interest in the project.
Big Horn Basin. Teton is in the process of permitting two Greybull
Sandstone and two Mowry Shale wells. The Company now plans to spud a Greybull
test in the first quarter of 2009, pending receipt of a permit from the Bureau
of Land Management. The Company previously announced an agreement with Unit
Petroleum Company to fund a portion of the first two wells in return for a 50
percent working interest in approximately 33,000 gross acres.
Other Financial Highlights. Other financial highlights for the third
quarter of 2008 and subsequent to September 30, 2008 include the following:
-- On August 1, 2008, as a result of a mid-year review by the Company's
bank group, the borrowing base on the Company's senior bank facility was
increased by $2 million to $34.5 million.
-- On September 18, 2008, investors that held the Company's 10.75% Secured
Convertible Debentures ("Debentures") due June 2013 exercised their 90-day put
option to reduce their investment in the Debentures from $40 million to $30
million. The $10 million was paid from an interest bearing account which the
Company established to hold this amount in reserve pending the end of the 90-
day put option period.
-- On October 7, 2008, the Company and all investors who held warrants to
purchase 3,960,000 shares of the Company's common stock at a $5.00 strike
price, with a cashless exercise feature at the option of the holders through
May 2012 agreed to exchange the warrants for 990,000 shares of Teton Common
stock.
Capital Expenditures. In response to lower commodity prices and continued
constrained capital markets, the capital expenditure budget for the full year
2008 has been reduced by $5 to $10 million to a range of approximately $30 to
$35 million. Capital expenditures accrued or expended through September 30,
2008 totaled $23.3 million. The Company expects to fund its remaining 2008
capital expenditures and its 2009 capital budget through cash on hand,
anticipated net cash provided by operating activities, funds available under
its existing Credit Facility with a syndicate of banks led by JPMorgan Chase
and through potential asset sales of non-operated properties.
Price Risk Management. Teton manages its overall exposure to commodity
price fluctuations through the use of various hedging contracts for some of
its production. The duration of various hedging contracts depends on the
Company's view of market conditions, available contract prices and operating
strategy. The use of such contracts is intended to limit the risk of
fluctuating cash flows. As of September 30, 2008, Teton had in excess of 90
percent of then current oil production hedged at a floor price of $95.80 per
barrel WTI and in excess of 60 percent of then current natural gas production
hedged at a floor price of $9.10 per Mcf (NYMEX) and $6.40 per Mcf (CIG).
Balance Sheet. At September 30, 2008, Teton had total assets of $131.7
million, cash and cash equivalents in short-term investments of $2.7 million,
total long-term debt outstanding of $55.0 million and a long term debt to
total capitalization ratio of 51 percent. The lower debt to capitalization as
compared to June 30, 2008 is largely related to an increase in stockholders'
equity as a result of the $22.5 million unrealized gain on oil and gas
derivative contracts. In accordance with SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," these gains decreased the Company's
accumulated deficit, which is a component of stockholders' equity, at
September 30, 2008.
CEO comments. Karl Arleth, President and Chief Executive Officer,
commented, "Our excellent third quarter results were generated on steady
production growth, backstopped by Teton's strong hedge position. Going
forward, in these unprecedented times, it is most important for us to focus
very strongly on financial discipline and cost control as we move into a more
challenging industry environment."
Earnings conference call. Teton invites you to participate in its third
quarter 2008 financial and operating results conference call today November 6,
2008 at 9:30 a.m. (Mountain Time) by dialing (877) 407-9210 (Toll Free) or
(201) 689-8049 (International). Please dial in five to ten minutes before the
start of the call. A replay of the conference call will be available through
midnight, November 20, 2008 by dialing (877) 660-6853 (Toll Free) or
(201) 612-7415 (International), conference ID#298427 and account #286. Both
numbers are needed for the replay. The live conference call may also be
accessed on the Internet by logging onto Teton's Web site at
http://www.teton-energy.com. Select Investor Relations, then the Webcasts and
Presentations option on the menu. Log on at least ten minutes prior to the
start of the call to register, download and install any necessary audio
software. An audio replay of the call will also be available on the web site
for approximately 60 days following the live webcast.
Financial Results:
Three Months Ended Nine Months Ended
September 30, September 30,
2008200720082007
Operating revenues:
Oil and gas sales $9,765 $1,316 $23,526 $3,504
Operating expenses:
Lease operating expense 1,469 196 3,122 303
Transportation expense695 202 1,295 489
Production taxes1,096 101 1,723 254
Exploration expense 427 123 1,515 737
General and
administrative 3,670 1,766 12,245 5,826
Depreciation, depletion
and accretion expense 4,797 1,493 10,094 2,642
Impairment expense 4,034 - 4,034 -
Total operating
expenses 16,188 3,881 34,028 10,251
Operating loss(6,423) (2,565)(10,502) (6,747)
Other income (expense):
Realized gain (loss) on
oil and gas derivative
contracts (989)528 (2,925)782
Unrealized gain (loss) on
oil and gas derivative
contracts 22,465 126 (1,014)(71)
Gain (loss) on derivative
warrant liabilities5,928 1,935 6,804 (2,694)
Interest expense, net (1,677) (976)(11,311) (1,268)
Total other income
(expense) 25,727 1,613 (8,446) (3,251)
Net Income (loss)$19,304 $(952) $(18,948)$(9,998)
Basic earnings (loss) per
common share $0.88 $(0.06) $(0.93) $(0.62)
Fully diluted earnings
(loss) per common share(1)$0.74 $(0.06) $(0.93) $(0.62)
Basic weighted-average
common shares
outstanding 21,954,578 16,897,000 20,307,440 16,201,000
Fully diluted weighted-
average common shares
outstanding 27,076,367 16,897,000 20,307,440 16,201,000
(1) Net income for fully diluted earnings per share was adjusted by
interest paid or accrued for the three months ended September 30,
2008, of $654,000, related to the 10.75% Secured Convertible
Debentures. Under the "if-converted method" provided for is SFAS No.
128, interest charges applicable to convertible debt shall be added
back to the numerator for purposes of computing fully diluted
earnings per share.
Condensed Consolidated Balance Sheet:
(Dollars in thousands)September 30, December 31,
2008 2007
Assets:
Cash and cash equivalents $2,650$24,616
Other current assets 8,887 4,385
Total current assets 11,537 29,001
Net property and equipment 117,063 49,139
Other non-current assets 3,057159
Total assets 131,657 78,299
Liabilities and Stockholders' Equity:
Current liabilities $19,462$20,742
Long-term debt55,017 8,000
Other long-term liabilities3,681529
Total liabilities 78,160 29,271
Total stockholders' equity53,497 49,028
Total liabilities and stockholders' equity $131,657$78,299
Operating Results:
Quarter Nine Months
Ended September 30, Ended September 30,
2008 2007 2008 2007
Net production volumes (Mcfed) 9,0474,429 7,074 3,210
Realized price (pre hedging)
($/Mcfe) $11.73$3.23 $12.14 $4.00
Realized price (net of hedging)
($/Mcfe) $10.54$3.36 $10.63 $4.23
Lease operating expense ($/Mcfe)$1.76$0.48 $1.61 $0.34
Transportation expense ($/Mcfe) $0.84$0.50 $0.67 $0.56
Production taxes ($/Mcfe) $1.32$0.25 $0.89 $0.29
Gross margin ($/Mcfe)(1)$6.62$2.13 $7.46 $3.04
Exploration expense ($/Mcfe)(2) $0.51$0.30 $0.78 $0.84
(1) Gross margin is realized price (net of hedging) less lease operating
expense, transportation expense and production taxes.
(2) Includes delay rentals, and geological and geophysical costs.
Reconciliation of Net income (loss) to EBITDAX:
(Dollars in thousands) Three Months Ended Nine Months Ended
Sept 30, Sept 30,
2008 2007 2008 2007
Net income (loss) $19,304 $(952) $(18,948) $(9,998)
Add:
Interest expense, net 1,677 976 11,3111,268
Depreciation, depletion and
accretion expense 4,797 1,493 10,0942,642
Impairment of oil and gas properties4,034 - 4,034-
Exploration expense 427 123 1,515 737
Unrealized (gain) loss on oil and
gas derivative contracts (22,465) (126) 1,014 71
(Gain) loss on derivative warrant
liabilities (5,928) (1,935)(6,804) 2,694
Stock-based compensation expense1,368 224 6,1422,016
EDITDAX$3,214 $(197)$8,358$(570)
EBITDAX is not a measure determined pursuant to generally accepted
accounting principles, or GAAP, nor is it an alternative to GAAP income.
The Company is presenting this information, as it is an important measure
of financial performance used by equity analysts.
Company Description. Teton Energy Corporation is an independent oil and
gas exploration and production company focused on the acquisition, exploration
and development of North American properties. The Company's current operations
are concentrated in the prolific Rocky Mountain and Mid-continent regions of
the U.S. Teton has leasehold interests in the Central Kansas Uplift, the
eastern Denver-Julesburg Basin in Colorado, Kansas and Nebraska, the Piceance
Basin in western Colorado, the Williston Basin in North Dakota and the Big
Horn Basin in Wyoming. Teton is headquartered in Denver, Colorado and is
publicly traded on the NASDAQ under the ticker symbol "TEC". For more
information about Teton, please visit the Company's website at
http://www.teton-energy.com.
Forward-Looking Statements. This news release may contain certain
forward-looking statements, including declarations regarding Teton's and its
subsidiaries' expectations, intentions, strategies and beliefs regarding the
future within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements contained
herein are based upon information available to Teton's management as at the
date hereof and actual results may vary based upon future events, both within
and without the control of Teton's management, including risks and
uncertainties that could cause actual results to differ materially including,
among other things, the impact that additional acquisitions may have on Teton
and its capital structure, exploration results, market conditions, oil and gas
price volatility, uncertainties inherent in oil and gas production operations
and estimating reserves, unexpected future capital expenditures, competition,
governmental regulations, and other factors discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2007, filed with the
Securities and Exchange Commission. Teton's disclosure reports are on file at
the Securities and Exchange Commission and can be viewed on Teton's website at
http://www.teton-energy.com. Copies are available without charge upon request
from the Company.
SOURCE Teton Energy Corporation
