Teton Energy Corporation Announces Financial and Operating Results for Second Quarter and Six Months Ended June 30, 2008
TETON REALIZES A 922 PERCENT INCREASE IN OPERATING REVENUES AND A 157 PERCENT INCREASE IN PRODUCTION VOLUMES DENVER, Aug. 7 /EMWNews/ -- Teton Energy Corporation ("Teton" or "the Company") (Amex: TEC) today reported operating revenues of $10.1 million for the second quarter of 2008, a 922 percent increase over the second quarter of 2007. The Company reported a net loss of $30.0 million for the second quarter of 2008, or $1.40 per fully diluted share of common stock. The results included a $22.2 million unrealized commodity derivative loss and other non-cash items totaling $8.0 million. These other non-cash items included amortization of debt discount and issuance costs of $4.6 million, stock-based compensation of $3.5 million and a net gain on derivative warrant liabilities of $51,000. Excluding these items, the adjusted net income for the second quarter would have been $229,000, or $0.01 per fully diluted share. For the second quarter of 2007, the Company realized a loss of $7.2 million, or $0.45 per fully diluted share of common stock, on operating revenues of $990,000. Excluding non-cash items, the adjusted net loss would have been $1.4 million, or $(0.09) 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 second quarter of 2008 increased 1,066 percent to $7.9 million. 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 $4.9 million in the second quarter of 2008 from $(0.4) million in the second quarter of 2007. For the six months ended June 30, 2008, the Company realized a net loss of $38.3 million, or $1.95 per fully diluted share of common stock, on operating revenues of $13.8 million. This compares to a net loss of $9.0 million, or $0.57 per fully diluted share of common stock for the same period in 2007. Excluding a $23.5 million unrealized commodity derivative loss and other non-cash items totaling $13.2 million, the adjusted net loss for the six months of 2008 would have been $1.6 million, or $(0.08) per fully diluted share. Operating cash flow from oil and gas activities increased 563 percent for the six months ended June 30, 2008 to $10.9 million, compared to $1.6 million for the same period of 2007. EBITDAX was $5.6 million for the first six months of 2008 compared to $(0.4) million 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 second quarter of 2008 increased 137 percent to $9.15 per thousand cubic feet equivalent ("Mcfe") compared to $3.86 per Mcfe in the second quarter of 2007. Oil and gas operating expenses, including lease operating expense ("LOE"), transportation expense and production taxes, for the second quarter of 2008 collectively increased 175 percent on a per Mcfe basis to $3.22 per Mcfe. The increase per Mcfe was primarily due to the addition of new operating areas with higher oil production which results in higher 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 second quarter of 2008 include the following:
-- Oil and gas sales volumes increased 157 percent to 684 million cubic feet equivalent ("MMcfe"), or 7.5 million cubic feet equivalent per day ("MMcfed"), of which 51 percent was oil and 49 percent was natural gas. -- The Company realized an average wellhead price of $12.37 per Mcfe after realized hedging results ($14.79 per Mcfe pre-hedging) in the second quarter of 2008 compared to an average realized wellhead price of $5.03 per Mcfe after realized hedging results ($4.48 per Mcfe pre-hedging) in the second quarter of 2007. -- The Company participated in the drilling of 96 gross wells in the second quarter. -- Total gross producing wells increased to 247 (108 net) at June 30, 2008 as compared to 38 gross producing wells (9 net) at June 30, 2007. -- The Company acquired reserves, production and certain oil and gas properties in the Central Kansas Uplift ("CKU") for $53.6 million. 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. Since acquiring the Teton-operated CKU assets in early April 2008, Teton has drilled nine gross wells. Five wells are producing, two wells are awaiting completion and two wells were unsuccessful, resulting in a 78 percent success rate to date. An additional well is currently drilling, one well is recompleting and a new well location is under construction. Current cumulative gross production from the five wells is averaging 208 barrels of oil per day ("bopd") or 1.25 MMcfed. Additional potential producing zones, currently behind pipe, will be opened up as the production in these wells stabilizes. After beginning operations with one drilling rig, Teton added a second rig in June and is adding a third drilling rig this week. Teton is also operating a completion/workover rig in the area. Teton has performed seven workovers to date which have added incremental gross production of 114 bopd (684 Mcfed). At mid-year, the Company increased its capital expenditure program in the CKU from $7 million to up to $13.5 million and now plans to drill a total of up to 40 new wells in 2008 and perform 12 workovers as compared to 29 wells and 12 workovers previously planned. Piceance Basin. Teton participated in the drilling of 27 gross wells in the first six months of 2008. As of July 31, 2008, 72 gross wells were producing with 17 wells waiting on completion, eight wells completing and three wells drilling. 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 59 gross wells during the first six months of 2008. As of July 31, 2008, 164 gross wells have been drilled in the play of which 109 wells are currently producing, six wells are completing, 13 wells are waiting on completion, two wells are drilling, two wells are service wells and 32 wells were unsuccessful, resulting in an 81 percent success rate. In the Washco area, where Teton has 27 wells, Teton has performed two workovers to return two shut-in wells to production. Williston Basin. Teton has participated in the drilling of four gross wells to date in 2008. Teton holds a non-operated interest in seven wells, including six Bakken wells and one Red River well. Five wells are producing, one well is drilling and one well is in a workover mode. Three additional wells, including two Bakken wells and one Red River well are approved waiting on equipment and/or permits to begin drilling. Big Horn Basin. Teton is in the process of permitting two Greybull and two Mowry Shale wells and plans to spud a Greybull test during the fourth quarter of 2008. The Company recently 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 26,000 gross acres. Other Financial Highlights. Other financial highlights for the second quarter of 2008 include the following:
-- On April 2, 2008, Teton amended and increased its revolving credit facility with JPMorgan Chase Bank from $50 million to $150 million and increased its available borrowing base from $10 million to $50 million. The current borrowing base following the June 18, 2008 private debt placement is $32.5 million. -- On May 16, 2008, the Company completed the repayment of its $9.0 million of 8% Senior Subordinated Convertible Notes issued on May 16, 2007: $6.6 million was repaid in cash and $2.4 million was converted into 480,000 shares of common stock at a conversion price of $5.00 per share. -- On June 18, 2008, the Company closed the private placement of $40 million of 10.75% Secured Convertible Debentures. The holders have a 90-day put option to call up to 25 percent of the face amount, or $10 million. The funds were used to pay down the Company's outstanding indebtedness on its revolving credit facility, which will be available for future capital expenditures. -- On June 30, 2008, the Company completed the syndication of its revolving credit facility with a group of four banks, including JPMorgan Chase Bank as administrative agent. Capital Expenditures. The capital expenditure budget for the full year 2008 has been increased 14 percent to up to $49.2 million, largely to accelerate development of the Kansas properties through the drilling of up to 11 additional wells. Capital expenditures for the second quarter and six months ended June 30 totaled $7.3 million and $16.0 million, respectively. 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 June 30, 2008, Teton had hedging contracts in effect for approximately 80 percent of its then-current daily net production. Balance Sheet. At June 30, 2008, Teton had total assets of $139.1 million, cash and cash equivalents in short-term investments of $14.0 million, total long-term debt outstanding of $51.9 million and a long term debt to total capitalization ratio of 61 percent. The higher level debt to capitalization is largely related to a decrease in stockholders' equity as a result of the $23.5 million charge to income for unrealized losses on oil and gas derivatives. In accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", these losses increased the Company's accumulated deficit, which is a component of stockholders equity, at June 30, 2008. CEO comments. Karl Arleth, President and Chief Executive Officer, commented, "The Central Kansas acquisition contributed substantially to our results in the second quarter, as we realized a 922 percent increase in our operating revenue over the second quarter of 2007. We now have three drilling rigs on location and will accelerate our drilling program in the second half of 2008. We are very focused on executing our business plan to optimize operating results and develop the group of assets we have assembled as we enter the next phase of our company's evolution, whereby we are generating growing discretionary cash flow from operations." Earnings conference call. Teton invites you to participate in its second quarter 2008 financial and operating results conference call today August 7, 2008 at 9:30 a.m. (Mountain Time) by dialing (877) 407-0782 (Toll Free) or (201) 689-8567 (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, August 21, 2008 by dialing (877) 660-6853 (Toll Free) or (201) 612-7415 (International), conference ID#292669 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: (In thousands except per share) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Operating revenues: Oil and gas sales $10,121 $990 $13,761 $2,188 Operating expenses: Lease operating expense 1,302 64 1,651 107 Transportation expense 477 158 600 287 Production taxes 425 89 627 153 Exploration expense 762 309 1,088 615 General and administrative 4,756 2,180 8,575 4,060 Depreciation, depletion and accretion expense 3,099 594 5,298 1,149 Total operating expenses 10,821 3,394 17,839 6,371 Operating income (loss) (700) (2,404) (4,078) (4,183) Other income (expense): Realized gain (loss) on oil and gas derivative contracts (1,715) 201 (1,936) 256 Unrealized loss on oil and gas derivative contracts (22,246) (105) (23,479) (198) Gain (loss) on derivative warrant liabilities 51 (4,629) 876 (4,629) Interest expense, net (5,418) (308) (9,634) (292) Total other expense (29,328) (4,841) (34,173) (4,863) Net loss $(30,028) $(7,245) $(38,251) $(9,046) Basic loss per common share $(1.40) $(0.45) $(1.95) $(0.57) Fully diluted loss per common share $(1.40) $(0.45) $(1.95) $(0.57) Basic weighted-average common shares outstanding 21,477,811 16,125,492 19,625,383 15,846,748 Fully diluted weighted- average common shares outstanding 21,477,811 16,125,492 19,625,383 15,846,748 Condensed Consolidated Balance Sheet: (Dollars in thousands) June 30, December 31, 2008 2007 Assets: Cash and cash equivalents $13,977 $24,616 Other current assets 9,353 4,385 Total current assets 23,330 29,001 Net property and equipment 113,859 49,139 Other non-current assets 1,941 159 Total assets 139,130 78,299 Liabilities and Stockholders' Equity: Current liabilities $39,038 $20,742 Long-term debt 51,867 8,000 Other long-term liabilities 15,503 529 Total liabilities 106,408 29,271 Total stockholders' equity 32,722 49,028 Total liabilities and stockholders' equity $139,130 $78,299 Operating Results: Quarter Six Months Ended June 30, Ended June 30, 2008 2007 2008 2007 Net production volumes (Mcfed) 7,520 2,942 6,080 2,591 Realized price (pre hedging) ($/Mcfe) $14.79 $4.48 $12.44 $4.67 Realized price (net of hedging) ($/Mcfe) $12.37 $5.03 $10.74 $5.09 Lease operating expense ($/Mcfe) $1.90 $0.24 $1.49 $0.23 Transportation expense ($/Mcfe) $0.70 $0.59 $0.54 $0.61 Production taxes ($/Mcfe) $0.62 $0.34 $0.57 $0.33 Gross margin ($/Mcfe)(1) $9.15 $3.86 $8.13 $3.92 Exploration expense ($/Mcfe)(2) $1.11 $1.16 $0.98 $1.31 (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 Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income (loss) $(30,028) $(7,245) $(38,251) $(9,046) Add: Interest expense, net 5,418 308 9,634 292 Depreciation, depletion and accretion expense 3,099 594 5,298 1,149 Exploration expense 762 309 1,088 615 Unrealized loss on oil and gas derivative contracts 22,246 105 23,479 198 (Gain) loss on derivative warrant liabilities (51) 4,629 (876) 4,629 Stock-based compensation expense 3,457 898 5,236 1,792 EDITDAX $4,903 $(402) $5,608 $(371) 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 American Stock Exchange 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.
Investor contact: Ron Wirth Director of Investor Relations & Administration 303-565-4600 X124 email@example.com
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