FORT WORTH, Texas--(BUSINESS WIRE)--Cano Petroleum, Inc. (NYSE Amex:CFW) today reported its operating results for its second fiscal quarter (“Second Quarter of 2011”) and the six months ended December 31, 2010 (“Current Six Months of 2011”), which are summarized as follows:
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Amounts in $Millions, |
Q2 2011 | Q2 2010 | % Change | 6 Months 2011 | 6 Months 2010 | % Change | ||||||||
| Operating Revenues | $5.7 | $5.6 | 2% | $11.9 | $10.6 | 12% | ||||||||
| Lease Operating Expense (LOE) | $2.7 | $3.8 | -29% | $6.0 | $8.2 | -27% | ||||||||
| LOE per BOE | $32.84 | $40.33 | -19% | $32.04 | $41.23 | -22% | ||||||||
| General & Administrative Expenses | $1.6 | $2.9 | -45% | $4.1 | $6.4 | -36% |
Operating Revenues
Operating revenues were $5.7 million in the Second Quarter of 2011, 2% higher than $5.6 million in the second quarter of 2010 (“Prior Year Quarter”). The $0.1 million increase is attributable to increased prices received for crude oil and natural gas sales partially offset by decreased crude oil and natural gas sales volumes. The sales volume decreases resulted from the weather-related electrical outage at the Cato Properties and lower production at the Panhandle Properties partially offset by the return to production (“RTP”) program at the Desdemona Properties. The sales decrease at the Panhandle Properties resulted from gas plant outages by a major purchaser and a reduction in the waterflood injection rate at the Cockrell Ranch Unit in order to optimize crude oil production from fewer wells.
During the Second Quarter of 2011, the average prices the Company received for its oil and natural gas were $80.23 per barrel and $8.15 per Mcf. During the Prior Year Quarter, the average prices the Company received for its oil and natural gas were $69.28 per barrel and $7.38 per Mcf.
Operating revenues were $11.9 million in the Current Six Months of 2011, 12% higher than $10.6 million in the six months ended December 31, 2009 (“Prior Year Six Months”). The $1.3 million increase is attributable to increased prices received for crude oil and natural gas sales partially offset by decreased crude oil and natural gas sales volumes, as previously discussed.
During the Current Six Months of 2011, the average prices the Company received for its oil and natural gas were $74.77 per barrel and $7.92 per Mcf. During the Prior Year Six Months, the average prices the Company received for its oil and natural gas were $65.11 per barrel and $6.19 per Mcf.
LOE
LOE was $2.7 million in the Second Quarter of 2011, 29% lower than $3.8 million for the Prior Year Quarter. On a BOE basis, LOE for the Second Quarter of 2011 was $32.84, down from $40.33, a reduction of $7.49 from the Prior Year Quarter. LOE was $6.0 million in the Current Six Months of 2011, 27% lower than $8.2 million for the Prior Year Six Months. On a BOE basis, LOE for the Current Six Months of 2011 was $32.04, down from $41.23, a reduction of $9.19 from the Prior Year Six Months. This reflects our on-going efforts to reduce LOE. The operational efficiencies which yielded our LOE reduction were primarily driven by reduced service rates, reduced workover expenses, and lower chemical costs.
General & Administrative (G&A) Expenses
G&A expenses were $1.6 million the Second Quarter of 2011, 45% lower than $2.9 million for the Prior Year Quarter. G&A expenses were $4.1 million the Current Six Months of 2011, 36% lower than $6.4 million for the Prior Year Six Months. For both the Second Quarter of 2011 and Current Six Months of 2011, our reduced G&A expenses were primarily driven by the termination of the Resaca merger, lower stock-based compensation, lower payroll and benefits expenses and lower fees paid to our board of directors as a result of director resignations during our fiscal first quarter.
Operating Results
For the Second Quarter of 2011, we had a loss applicable to common stock of $4.5 million, which was an improvement of $4.3 million as compared to the Prior Year Quarter of a $8.9 million loss applicable to common stock. The $4.3 million earnings improvement primarily related to lower operating expenses of $7.1 million and decreased loss on derivatives of $1.2 million, partially offset by increased interest expense of $0.9 million and increased preferred stock dividend of $0.5 million. Lower operating expenses of $7.1 million are primarily due to lower exploration expenses of $5.0 million, lower G&A expenses of $1.2 million and reduced LOE of $1.1 million from prior period levels.
For the Current Six Months of 2011, we had a loss applicable to common stock of $9.6 million, which was an improvement of $3.3 million as compared to the $12.9 million loss applicable to common stock incurred for the Prior Year Six Months. Items contributing to the $3.3 million earnings improvement were lower operating expenses of $9.0 million and higher operating revenues of $1.3 million. Partially offsetting these positive items were increased interest expense of $3.5 million, increased loss on derivatives of $1.0 million and increased preferred stock dividend accruals of $0.5 million. Lower operating expenses of $9.0 million are primarily due to lower exploration expenses of $5.0 million, lower G&A expenses of $2.3 million and reduced LOE of $2.2 million from prior period levels.
The increased interest expense for both the Second Quarter of 2011 and Current Six Months of 2011 is due to additional interest and fees due under the Credit Agreements with our lenders. The increased preferred stock dividend for both periods is attributed to the amortization of issuance costs pertaining to our Preferred Stock.
Liquidity and Cash flow from Operations
At December 31, 2010, we had cash and cash equivalents of $0.2 million. We currently have limited access to capital. We continue to focus on cost reduction efforts to improve profitability and cash flow from operations. For the Current Six Months of 2011, our LOE and G&A expenses are $2.2 million and 2.3 million lower, respectively, as compared to the Prior Year Six Months. We continue to work with our lenders and advisors as we consider strategic alternatives. We continue to make our interest payments timely; however, we were not compliant with our covenant ratios at December 31, 2010.
Cash flow from operations was $1.6 million in the Current Six Months of 2011 as compared to ($0.9) million for the Prior Year Six Months. The cash flow increases for the Current Six Months of 2011 resulted from increased operating revenues, lower operating expenses and the sale of certain natural gas commodity derivative contracts of $0.8 million.
Financial Data
Detailed financial data, including the income statement, balance sheet, cash flow statement and current derivative positions are included in the following pages.
Operations Update
During the Second Quarter of 2011, our primary operating activities focused on continued reduction in LOE expenses, continuing the RTP program at the Desdemona Properties and restoration of production facilities at the Cato Properties necessitated by the weather-related electrical outage which shut in production for 30 days. The continued LOE reductions are shown below. The RTP program increased natural gas sales at the Desdemona Properties by 17 MMcf and crude oil sales by 2 MBbls.
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LOE Categories |
Q2 2011 |
Q1 2011 |
Change |
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| Workover | $ | 0.6 | $ | 0.7 | ($0.1 | ) | |||
| Labor | 0.5 | 0.5 | - | ||||||
| Electricity | 0.7 | 0.8 | (0.1 | ) | |||||
| Chemicals | 0.1 | 0.2 | (0.1 | ) | |||||
| Other | 0.8 | 1.1 | (0.3 | ) | |||||
| Total | $ | 2.7 | $ | 3.3 | ($0.6 | ) | |||
James R. Latimer, III, Cano’s newly appointed CEO commented, "Our quarterly results demonstrate that we are achieving benefits from on-going cost reduction efforts, while maintaining a constant revenue levels. We are continuing to evaluate and reduce our operating expenses. We are also working diligently to accomplish our primary objective of resolving issues with our lenders and evaluating our strategic alternatives.”
No Earnings Conference Call
There will be no earnings conference call.
ABOUT CANO PETROLEUM:
Cano Petroleum, Inc. is an independent Texas-based energy producer with properties in the mid-continent region of the United States. Led by an experienced management team, Cano’s primary focus is on increasing domestic production from proven fields using enhanced recovery methods. Cano trades on the NYSE AMEX under the ticker symbol “CFW.” Additional information is available at www.canopetro.com.
Safe-Harbor Statement — Except for the historical information contained herein, the matters set forth in this news release are “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. The Company intends that all such statements be subject to the “safe-harbor” provisions of those Acts. Many important risks, factors and conditions may cause the Company’s actual results to differ materially from those discussed in any such forward-looking statement. These risks include, but are not limited to, estimates or forecasts of reserves, estimates or forecasts of production, future commodity prices, exchange rates, interest rates, geological and political risks, drilling risks, product demand, transportation restrictions, the ability of Cano Petroleum, Inc. to obtain additional capital, and other risks and uncertainties described in the Company’s filings with the Securities and Exchange Commission. The historical results achieved by the Company are not necessarily indicative of its future prospects. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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CANO PETROLEUM, INC. Operating Revenue Summary |
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The table below summarizes our operating revenues for the three- and six-month periods ended December 31, 2010 and 2009. |
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Three months ended December 31, |
Increase |
Six months ended December 31, |
Increase | ||||||||||||||||
| 2010 | 2009 | (Decrease) | 2010 | 2009 | (Decrease) | ||||||||||||||
| Operating Revenues (in thousands) | $ | 5,679 | $ | 5,634 | $ | 45 | $ | 11,923 | $ | 10,565 | $ | 1,358 | |||||||
| Sales Volumes | |||||||||||||||||||
| Crude Oil (MBbls) | 59 | 68 | (9 | ) | 135 | 140 | (5 | ) | |||||||||||
| Natural Gas (MMcf) | 112 | 127 | (15 | ) | 227 | 234 | (7 | ) | |||||||||||
| Total (MBOE) | 78 | 89 | (11 | ) | 173 | 179 | (6 | ) | |||||||||||
| Average Realized Price | |||||||||||||||||||
| Crude Oil ($/ Bbl) | $ | 80.23 | $ | 69.28 | $ | 10.95 | $ | 74.77 | $ | 65.11 | $ | 9.66 | |||||||
| Natural Gas ($/ Mcf) | $ | 8.15 | $ | 7.38 | $ | 0.77 | $ | 7.92 | $ | 6.19 | $ | 1.73 | |||||||
| Operating Revenues and Commodity Derivative Settlements (in thousands) (a) | $ | 6,095 | $ | 6,830 | $ | (735 | ) | $ | 13,248 | $ | 13,612 | $ | (364 | ) | |||||
| Average Adjusted Price (includes commodity derivative settlements) | |||||||||||||||||||
| Crude Oil ($/ Bbl) | $ | 80.66 | $ | 73.86 | $ | 6.80 | $ | 77.17 | $ | 72.59 | $ | 4.58 | |||||||
| Natural Gas ($/Mcf) | $ | 11.61 | $ | 14.35 | $ | (2.74 | ) | $ | 12.32 | $ | 14.74 | $ | (2.42 | ) | |||||
(a) As discussed in Note 5 to our Consolidated Financial Statements, on August 10, 2010, we sold certain natural gas commodity derivative contracts realizing net proceeds of $0.8 million pursuant to the Forbearance Agreement. The $0.8 million is excluded from the commodity derivative settlements listed above.
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Derivative Schedule
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As of December 31, 2010, we maintained the following commodity derivative contracts: |
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Time Period |
Floor Oil Price |
Ceiling Oil Price |
Barrels Per Day |
Floor Gas Price |
Ceiling Gas Price |
Mcf per Day |
Barrels of Equivalent Oil per Day(a) |
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| 1/1/11 - 3/31/11 | $ | 80.00 | $ | 107.30 | 333(b) | $ | — | $ | — | — | 333 | |||||||
| 1/1/11 - 3/31/11 | $ | 85.00 | $ | 100.50 | 200(b) |
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$ | 8.00 | $ | 11.05 | 967 | 361 | ||||||
(a) This column is computed by dividing the “Mcf per Day” by 6 and adding it to “Barrels per Day.”
(b) On February 8, 2011, these crude oil derivative contracts were terminated at no cost to either party.
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Time Period |
Fixed Oil Price |
Barrels Per Day |
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| 4/1/11 - 12/31/11 | $ | 75.90 | 700 | ||
| 1/1/12 - 12/31/12 | $ | 77.25 | 700 | ||
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CANO PETROLEUM, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) |
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In Thousands, Except Shares and Per Share Amounts |
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December 31, |
June 30, | |||||||
| 2010 | 2010 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 230 | $ | 300 | ||||
| Accounts receivable | 2,101 | 2,411 | ||||||
| Derivative assets | 216 | 2,968 | ||||||
| Deferred tax asset | 2,108 | 17 | ||||||
| Inventory and other current assets | 1,228 | 841 | ||||||
| Total current assets | 5,883 | 6,537 | ||||||
| Oil and gas properties, successful efforts method | 296,468 | 294,961 | ||||||
| Less accumulated depletion and depreciation | (46,660 | ) | (44,615 | ) | ||||
| Net oil and gas properties | 249,808 | 250,346 | ||||||
| Fixed assets and other, net | 1,286 | 2,404 | ||||||
| Goodwill | 101 | 101 | ||||||
| TOTAL ASSETS | $ | 257,078 | $ | 259,388 | ||||
| LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 3,644 | $ | 3,297 | ||||
| Accrued liabilities | 4,178 | 2,304 | ||||||
| Oil and gas sales payable | 937 | 804 | ||||||
| Derivative liabilities | 3,479 | 410 | ||||||
| Current maturity of debt | 66,450 | 66,450 | ||||||
| Current maturity of Series D convertible preferred stock, net of unamortized discount of $1,156 | 27,501 | — | ||||||
| Current portion of asset retirement obligations | 199 | 189 | ||||||
| Total current liabilities | 106,388 | 73,454 | ||||||
| Long-term liabilities | ||||||||
| Asset retirement obligations | 3,134 | 2,991 | ||||||
| Derivative liabilities | 3,647 | 1,368 | ||||||
| Deferred tax liabilities and other | 17,581 | 18,992 | ||||||
| Total liabilities | 130,750 | 96,805 | ||||||
| Temporary equity | ||||||||
| Series D convertible preferred stock and cumulative paid-in-kind dividends, par value $.0001 per share, stated value $1,000 per share; 49,116 shares authorized; 23,849 issued at June 30, 2010; liquidation preference at June 30, 2010 of $28,100, net of unamortized discount of $1,582 | — | 26,518 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, par value $.0001 per share; 100,000,000 authorized; 47,116,826 and 45,413,749 shares issued and outstanding, respectively, at December 31, 2010; and 47,159,706 and 45,456,629 shares issued and outstanding, respectively, at June 30, 2010 | 5 | 5 | ||||||
| Additional paid-in capital | 190,336 | 190,500 | ||||||
| Accumulated deficit | (63,316 | ) | (53,743 | ) | ||||
| Treasury stock, at cost; 1,703,077 shares held in escrow at December 31, 2010 and June 30, 2010, respectively | (697 | ) | (697 | ) | ||||
| Total stockholders’ equity | 126,328 | 136,065 | ||||||
| TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | $ | 257,078 | $ | 259,388 | ||||
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CANO PETROLEUM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
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| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| In Thousands, Except Per Share Data | 2010 | 2009 | 2010 | 2009 | ||||||||||||
| Operating Revenues: | ||||||||||||||||
| Crude oil sales | $ | 4,763 | $ | 4,701 | $ | 10,124 | $ | 9,121 | ||||||||
| Natural gas sales | 916 | 933 | 1,799 | 1,444 | ||||||||||||
| Total operating revenues | 5,679 | 5,634 | 11,923 | 10,565 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Lease operating | 2,690 | 3,840 | 5,997 | 8,187 | ||||||||||||
| Production and ad valorem taxes | 518 | 469 | 1,033 | 888 | ||||||||||||
| General and administrative | 1,629 | 2,875 | 4,148 | 6,448 | ||||||||||||
| Exploration expense | — | 5,024 | — | 5,024 | ||||||||||||
| Loss pending resolution of insurance claim | 681 | — | 681 | — | ||||||||||||
| Impairment of long-lived assets | — | 283 | — | 283 | ||||||||||||
| Depletion and depreciation | 1,067 | 1,246 | 2,410 | 2,495 | ||||||||||||
| Accretion of discount on asset retirement obligations | 76 | 68 | 156 | 135 | ||||||||||||
| Total operating expenses | 6,661 | 13,805 | 14,425 | 23,460 | ||||||||||||
| Loss from operations | (982 | ) | (8,171 | ) | (2,502 | ) | (12,895 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense and other | (1,190 | ) | (272 | ) | (3,928 | ) | (421 | ) | ||||||||
| Loss on derivatives | (3,512 | ) | (4,727 | ) | (6,230 | ) | (5,239 | ) | ||||||||
| Total other expense | (4,702 | ) | (4,999 | ) | (10,158 | ) | (5,660 | ) | ||||||||
| Loss from continuing operations before income taxes | (5,684 | ) | (13,170 | ) | (12,660 | ) | (18,555 | ) | ||||||||
| Deferred income tax benefit | 2,045 | 4,530 | 4,453 | 6,232 | ||||||||||||
| Loss from continuing operations | (3,639 | ) | (8,640 | ) | (8,207 | ) | (12,323 | ) | ||||||||
| Income from discontinued operations, net of related taxes | — | 206 | — | 328 | ||||||||||||
| Net loss | (3,639 | ) | (8,434 | ) | (8,207 | ) | (11,995 | ) | ||||||||
| Preferred stock dividend | (896 | ) | (420 | ) | (1,366 | ) | (890 | ) | ||||||||
| Net loss applicable to common stock | $ | (4,535 | ) | $ | (8,854 | ) | $ | (9,573 | ) | $ | (12,885 | ) | ||||
| Net loss per share - basic and diluted | ||||||||||||||||
| Continuing operations | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.21 | ) | $ | (0.29 | ) | ||||
| Discontinued operations | — | — | — | 0.01 | ||||||||||||
| Net loss per share - basic and diluted | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.21 | ) | $ | (0.28 | ) | ||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic and Diluted | 45,436 | 45,570 | 45,440 | 45,570 | ||||||||||||
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CANO PETROLEUM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
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| Six Months Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | (8,207 | ) | $ | (11,995 | ) | ||
| Adjustments needed to reconcile net loss to net cash provided by (used in) operations: | ||||||||
| Unrealized loss on derivatives | 8,220 | 8,160 | ||||||
| Loss on sale of oil and gas properties and other | 59 | — | ||||||
| Accretion of discount on asset retirement obligations | 156 | 136 | ||||||
| Depletion and depreciation | 2,410 | 2,522 | ||||||
| Exploration expense | — | 5,024 | ||||||
| Impairment of long-lived assets | — | 283 | ||||||
| Stock-based compensation expense | (157 | ) | 713 | |||||
| Deferred income tax benefit | (4,453 | ) | (6,044 | ) | ||||
| Amortization of debt issuance costs and prepaid expenses | 1,333 | 863 | ||||||
| Changes in assets and liabilities relating to operations: | ||||||||
| Accounts receivable | 302 | 782 | ||||||
| Derivative assets | (113 | ) | (277 | ) | ||||
| Inventory and other current assets and liabilities | (401 | ) | (1,233 | ) | ||||
| Accounts payable | (176 | ) | 316 | |||||
| Accrued liabilities | 2,606 | (141 | ) | |||||
| Net cash provided by (used in) operations | 1,579 | (891 | ) | |||||
| Cash flow from investing activities: | ||||||||
| Additions to oil and gas properties, fixed assets and other | (1,651 | ) | (9,607 | ) | ||||
| Net cash used in investing activities | (1,651 | ) | (9,607 | ) | ||||
| Cash flow from financing activities: | ||||||||
| Repayments of long-term debt | (550 | ) | — | |||||
| Borrowings of long-term debt | 550 | 11,000 | ||||||
| Proceeds from issuance of common stock, net | 2 | — | ||||||
| Payment of preferred stock dividend | — | (383 | ) | |||||
| Net cash provided by financing activities | 2 | 10,617 | ||||||
| Net decrease in cash and cash equivalents | (70 | ) | 119 | |||||
| Cash and cash equivalents at beginning of period | 300 | 392 | ||||||
| Cash and cash equivalents at end of period | $ | 230 | $ | 511 | ||||
| Supplemental disclosure of noncash transactions: | ||||||||
| Payments of preferred stock dividend in kind | $ | 557 | $ | 557 | ||||
| Amortization of Preferred Stock Discount | 427 | — | ||||||
| Supplemental disclosure of cash transactions: | ||||||||
| Cash paid during the period for interest | $ | 1,391 | $ | 1,445 | ||||