Operating expenses for the 2012 third quarter were $51.7 million (including $22 million in impairment charges and $8 million in stock compensation expense), as compared to $6.9 million in the 2011 third quarter, resulting in operating income of $155.5 million, as compared to an operating loss of $2.5 million in the comparable period last year. Net income available to common shareholders for the three months ended September 30, 2012, was $133.8 million, or $1.02 per diluted share, as compared to a net loss of $2.6 million, or a loss per diluted share of $0.03, for the three months ended September 30, 2011.
Third Quarter Milestones and Operational Updates
- Hess Joint Venture: The Company successfully negotiated the exit of its Joint Venture with Hess Corporation, when the two companies entered into agreements where ZaZa Energy France sold its 50% interest in certain Paris Basin exploration permits to Hess Oil France while retaining a 5% overriding royalty interest capped at $130 million, and divided the Texas assets held by ZaZa Energy, LLC and Hess Corporation in the Eagle Ford area. The division of assets in Texas resulted in ZaZa receiving approximately 60,500 additional net acres in the Eagle Ford core located in Southern Frio, Gonzalez, Fayette, DeWitt, Colorado and Lavaca Counties, increasing ZaZa’s net acreage position from 11,500 to 72,000 net acres. Additionally, and subject to a threshold sales amount and a time limitation, a portion of net proceeds will be paid to ZaZa for any sales of Hess’ retained working interests in the Cotulla Prospect Area. The companies also mutually agreed to terminate their Agreements in both France and Texas. At the closing of this transaction, ZaZa received approximately $69 million in cash in addition to the previously received $15 million dollars related to an amendment of the companies’ Texas joint venture agreements in the second quarter of 2012.
- Private Offering of Convertible Senior Notes: As announced in the third quarter, but consummated in the first week of the fourth quarter, ZaZa successfully completed the sale and issuance of $40.0 million in aggregate principal amount of 9% Convertible Senior Notes. The Notes will be senior, unsecured obligations and will bear interest at a fixed rate of 9.0% per annum, and will mature in August, 2017, unless earlier converted, redeemed or repurchased. The Company intends to use the net proceeds from the offering to fund drilling capital expenditures and leasehold transactions, as well as for general corporate purposes.
- Filing of Financial Statements: During the third quarter, ZaZa filed its Form 10-K for the period ended December 31, 2011, and both its first and second quarter Form 10-Qs for the periods ending March 31, 2012, and June 30, 2012, respectively. As announced on September 13, 2012, ZaZa was informed by NASDAQ that it regained full compliance with NASDAQ’s continued listing standards.
- Management Enhancements: The Company announced the appointments of Todd Brooks as Chief Executive Officer, Ian Fay as Chief Financial Officer and John Hearn, Jr. as Chief Operating Officer. All three senior executives have significant experience in the oil & gas sector, in negotiating and executing financial transactions and in asset development. ZaZa also continued to enhance its operating team across its Eaglebine and Eagle Ford properties.
- Eaglebine/Woodbine Stingray Well: During the third quarter, ZaZa completed the initial pilot hole drilling on its Eaglebine Stingray A-1H well in Walker County, TX. The Company officially commenced hydraulic fracturing operations today, with initial production planned for late November. Additionally, and as previously announced, ZaZa has entered into a multi-well rig contract with Nabors Drilling USA and has entered into a multi-year lease for a field office and yard near its Eaglebine acreage in Walker County, as it further appraises and delineates its Eaglebine acreage position. Additionally, during the fourth quarter, the Company will begin drilling operations at its Eagle Ford Boening Well.
Mr. Brooks added, “The decision to exit our Joint Venture and divide assets with Hess was mutual and in the best interest of our Company and our shareholders. It provided us financial resources, a significantly larger resource base and Working Interest in the Eagle Ford, and the opportunity to develop these resources at a more aggressive pace. Additionally, the large, strategic 90,000 net acre block we have begun to develop in the Eaglebine play is located in the thickest part of one of the most prolific emerging oil and gas resource plays in North America.”