GMX Resources Reserve Report ($GMXR)

GMXR published its reserve report in its most recent 8-K filing, showing estimated future revenue and expenditures attributable to the production and sale of net proved reserves as of December 31, 2012.

The PV-10 of proved developed producing (PDP) reserves is only $77.984 million. That is quite simply astonishing. The company spent $272 million on capex in 2011 and probably about $100 million in 2012, and has very little to show for it. Of course, the company had negative retained earnings of $856 million as of Q3 last year.

The PV-10 of the proved undeveloped reserves (PUD) is only $2.1 million according to the reserve report, and it would require $356 million in additional capital expenditure even to realize those. 

Granted, the value of the reserves is levered to natural gas price increases - the company gives an estimate of the total proves reserves using futures prices for gas instead of the 12 month average (SEC guidelines). That gives a PV-10 of $195 million, which would still mean that only the secured debt is in the money.

P.S. If there is a "Change of Ownership or Control" of GMXR by a person or entity other than a "Qualifying Public Company," they will be required to redeem the Series B Preferred Stock ($79 million outstanding), in whole but not in part, within 90 days after the date on which the Change of Ownership or Control has occurred, for cash.

A "Change of Ownership or Control" shall be deemed to have occurred on the date (i) that a "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of voting stock that such person or group has the right to acquire regardless of when such right is first exercisable), directly or indirectly, of voting stock representing more than 50% of the total voting power of the total voting stock of our company; (ii) that we sell, transfer or otherwise dispose of all or substantially all of our assets; (iii) that we permit or suffer a change in our key management, meaning the continued active full time employment of each of Ken Kenworthy, Jr. (as Chief Executive Officer) and Ken Kenworthy, Sr. (as Chief Financial Officer); provided, however, that the cessation of active employment of one such officer due to death or disability, or the retirement of Ken Kenworthy, Sr. (as Chief Financial Officer), shall not be considered a “Change of Ownership or Control” so long as we hire or promote a replacement officer within four months; or (iv) of the consummation of a merger or share exchange of our company with another entity where our shareholders immediately prior to the merger or share exchange would not beneficially own, immediately after the merger or share exchange, shares representing 50% or more of the outstanding voting stock of the corporation issuing cash or securities in the merger or share exchange (without consideration of the rights of any class of stock to elect directors by a separate group vote), or where members of our board of directors immediately prior to the merger or share exchange would not immediately after the merger or share exchange constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or share exchange. “Voting stock” shall mean stock of any class or kind having the power to vote generally for the election of directors.

A “Qualifying Public Company” is defined as a company with common stock that is subject to a national market listing, which, on a pro-forma combined basis with us, had an EBITDA(X)-to-Interest Expense Plus Preferred Dividends ratio of at least 2.0-to-1.0 for the 12-month period ending as of the end of the Qualifying Public Company’s fiscal quarter immediately preceding the Change of Ownership or Control.