Second QUARTER 2009 HIGHLIGHTS
- Reported record six month production of 4,875,423 Mcfe, a 37% increase compared to the corresponding 2008 period
- Produced 2,380,124 Mcfe during the second quarter of 2009, a 38% increase from the corresponding 2008 period
- Maintained a strong balance sheet with low debt levels
- Cash provided by operating activities increased 52% in the 2009 six months
- Continued to leverage Panhandle’s mineral rights ownership interests into producing well interests
FINANCIAL UPDATE
For the quarter ending March 31, 2009, the Company recorded a net loss of $945,256 or $0.11 per share as compared to net income of $2,831,281, or $.33 per share, for the 2008 second quarter. Capital expenditures for drilling and equipping wells totaled $11,829,136, an increase of 39% over the corresponding 2008 period. The 2009 capital expenditure amount includes significant payments for wells which the Company committed to drill in fiscal 2008. Production for the 2009 second quarter increased 38% to 2,380,124 Mcfe as compared to 1,727,757 Mcfe for the 2008 quarter. Total revenues for the 2009 quarter amounted to $8,874,015, as compared to $12,747,222 for the 2008 comparable quarter. For the 2009 quarter the average sales price per Mcfe declined to $3.55 from $8.64 per Mcfe in the 2008 quarter.
During the second quarter, the Company executed natural gas fixed swap contracts covering the remainder of calendar 2009 and all of 2010. Based on current monthly natural gas production levels, approximately 28% of 2009 natural gas production and 21% of 2010 natural gas production is subject to the swap contracts at weighted average prices of $3.77 per Mcf for 2009 and $5.03 per Mcf for 2010. In the first and second quarters of fiscal 2009, the Company received total payments of $1,122,000 on its natural gas derivative contracts. Natural gas hedging contracts continue to reduce the Company’s exposure to short-term fluctuations in the price of natural gas.
For the fiscal six months ended March 31, 2009 the Company recorded a net loss of $1,819,885 or $0.22 per share as compared to net income for the 2008 six months of $6,311,588 or $.74 per share. Net cash provided by operating activities for the 2009 period increased 52% to $24,911,686 as compared to $16,357,801 for the 2008 six months. Total revenues for the 2009 six months were $20,193,717 as compared to $26,451,025 for the 2008 six months. Capital expenditures for drilling and equipping wells totaled $30,271,588 in the 2009 period, an increase of 88% over the 2008 amount. For the 2009 six months, the average sales price per Mcfe declined to $3.91from $7.91 per Mcfe in the 2008 quarter.
OPERATIONS UPDATE
Mid-year proved reserves at March 31, 2009 calculated by Pinnacle Energy Services, LLC, the Company’s petroleum engineering consulting firm, totaled 53.1 Bcfe. This was a decrease of 2% compared to the 54.1 Bcfe of proved reserves at September 30, 2008. Prices used to calculate reserves in the March 31, 2009 report, based on current Securities and Exchange Commission rules, were $2.47 per Mcf for natural gas and $46.93 per barrel for oil, as compared to $4.51 per Mcf and $97.74 per barrel for the September 30, 2008 report. The price reductions for oil and natural gas from the September 30, 2008 reserve report to the March 31, 2009 reserve report resulted in downward revisions of proved reserves of approximately 7.9 Bcfe. By way of comparison, based on Panhandle’s in-house normalized prices of $6.00 per Mcf and $45.00 per barrel, calculated proved reserves at March 31, 2009 were 62.4 Bcfe and 54.8 Bcfe at September 30, 2008, an increase of 14%.
The Company’s cash flow from operations remains strong. Two driving factors in the recorded losses were significantly increased non-cash charges to depreciation, depletion and amortization expense (DD&A) and impairment expense, which do not restrict cash flow. DD&A charges were increased by the lower reserve volumes calculated based on the low SEC pricing of oil and natural gas at March 31, 2009. Although revenues are down, they have not declined in correlation to the decline in oil and natural gas prices. The significant increase in production has buffered the effect of price declines on revenues.
Comparing fiscal year-end 2008 proved reserves to mid-year 2009 proved reserves at a price deck of $6.00 per Mcf for gas and $45.00 per barrel for oil, the Company’s proved reserves increased 14%. However, the natural gas price used for the SEC reserve report was $2.47 per Mcf, which reduced calculated reserve levels as the economic limit of producing wells was reached earlier, thus reducing estimated ultimate reserves and several PUD wells and their associated reserves were considered uneconomic at $2.47 per Mcf, thus no reserves were calculated. Panhandle is not immune to the reduction in oil and natural gas prices nor the negative impact that they have on reserve calculations and valuations. That said, we are pleased that production continued at increased levels during these challenging market conditions. We have been able to reduce our accounts payable from $15.9 million at September 30, 2008 to $4.4 million at March 31, 2009 and concurrently reduce our bank debt level to $12.3 million at May 7, which reflects a particular strength of Panhandle in that we have a very manageable debt level consistent with our long-standing fiscal conservatism. Prudence and market conditions dictate that we reduce our capital expenditures for the remainder of fiscal 2009. The Company is well positioned, both financially and operationally to take advantage of opportunities as the industry and the economy in general recover. We have been through down cycles before and remain confident in the Company’s ability to deliver positive results for you, our shareholders.
Robert O. Lorenz
Lead Independent Director
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Michael C. Coffman
President, CEO |
View Second quarter 2009 Financial Report