GMX RESOURCES INC. Announces Financial and Operational Results for the Three and Six Months Ended June 30, 2012 ($GMXR)
Here are the highlights from the financial results released yesterday.
In the second quarter of 2012, the Company achieved an average oil production of 705 barrels/day (Bbls/d). For the month of June 2012, oil production was 720 Bbls/d, representing a 111% increase over the 2012 first quarter average.Wow, 700 barrels/day is a joke. If you assume that their production is worth an extravagant $100k per flowing barrel, then the production would be worth $70 million - which is probably about what they have spent drilling the Bakken wells. That's consistent with my past estimates that the Bakken wells have been ranging from breakeven to money losing.
Total production for the second quarter 2012 was 536,000 barrels of oil equivalent (Boe), which includes 64,115 Bbls of oil and 50,000 Bbls of NGLs.The company gave second quarter guidance in June, which was "expected to be in a range of 539,000 to 543,000 BOE, which includes 60,000 to 65,000 Bbls of oil." And that was lowered from the May 2 guidance, which was for "591,000 BOE, which includes 80,000 Bbls of oil and 94,000 Bbls of NGLs." Looks like the disappointing BOE number was driven by falling natural gas production.
Natural gas production for the three months ended June 30, 2012 decreased to 2.5 billion cubic feet (Bcf) compared to 5.9 Bcf for the three months ended June 30, 2011, a decrease of 57%. Including the VPP volumes of 1.0 Bcfe, natural gas production decreased by 2.4 Bcfe, or 41%. The decrease in natural gas production resulted primarily from the natural decline in the Company's Haynesville/Bossier (H/B) wells as a result of the Company's suspension of its H/B horizontal drilling program in mid-2011.That's great because it's bearish for GMXR but ultra-bullish for our other natural gas investments that the decline rates are this high. The Haynesville wells have a 41% decline rate! No wonder the natural gas injection numbers keep doing well.
No real news on their asset sale plan.
The Company engaged Global Hunter Securities on July 17, 2012 as the financial advisor in connection with a proposed sale of a portion of the Company's Cotton Valley Sand liquids rich natural gas properties located in East Texas. The Proved Developed and Producing wells are in the mature stage of production with shallow decline rates. The assets being sold have additional upside through infill horizontal development on acreage that is all held by production. The Company currently expects the sale of these properties to occur during the third quarter of 2012, with the proceeds to be used for our Bakken drilling program.Scary that the proceeds are going to be spent in the Bakken. How are people letting them get away without discussing the rate of return on those wells? It's just whistling past the graveyard.
We have made progress on reducing the face value of the 2013 note by doing debt-for-equity exchanges at discounts to par. We used slightly more than 11 million shares to retire almost $21 million of debt. That implies a trade value of about $1.85 per share. The remaining outstanding balance of $52 million in notes will continue to be in focus until a final resolution is achieved ahead of the maturity date.Well, we found out that the "focus" is going to be an exchange offer. Note that their opening offer is not very generous and won't work unless the other holders are pretty optimistic about the value of the company's resources. Maybe they aren't doing any well models?
As of June 30, 2012, we had cash, cash equivalents and short-term investments of $42.5 million, including $4.3 million in restricted cash and $6.0 million in short-term investment[...]If you had debt trading at 40 percent yields, would you use your cash to buy it back or to drill wells at negative or breakeven rates of return? If GMX has drilled a well in the Bakken that is positive all-in IRR, I haven't heard about it.