Recovery Energy Reports First Quarter Financial Results And Provides Operations Update

Recovery Energy, Inc. (OTCBB: RECV), an independent oil and gas exploration and production company with operations and assets in the Denver-Julesburg (DJ) Basin, reported its financial results for the quarter ended March 31, 2011 and provided an operations update.

“At the outset of 2011 we began what we expect to be continuous drilling activities both in the vertical J sand and horizontal Niobrara. In the first quarter we drilled two Company-operated J sand wells, one non-operated J sand well and, in March, we began drilling our first horizontal Niobrara well,” said Roger A. Parker, Chairman and CEO of Recovery Energy. “We expect to begin completion operations on our first horizontal Niobrara well within the next week, and to have well results by the end of the quarter. Additionally, we are currently drilling our second horizontal Niobrara well. We have continued our geologic, geophysical and geochemical review which has identified numerous drilling locations in multiple horizons throughout the company’s 134,000 net acres. We are currently in the process of filing more than 25 additional well permits for the drilling of both vertical J sand and horizontal Niobrara wells.”

First Quarter Operations Highlights

In February, Recovery Energy closed on the acquisition of oil and gas leases from various private individuals for $1.9 million, paid in a combination of cash and stock, on approximately 1,700 leasehold acres in the Grover Field and surrounding area in Weld County, Colorado, and approximately 6,600 net acres in Goshen County, Wyoming.

In March, the Company acquired oil and gas leases on 8,060 net acres primarily located northwest of the Silo field in Laramie County, Wyoming from Wapiti Oil & Gas, LLC. The $12.3-million purchase price was paid in a combination of cash and stock. The acquisition increased Recovery Energy’s Chugwater acreage to approximately 14,400 contiguous gross acres, 12,200 net after accounting for a 2,200-net acre effect to its joint-venture drilling partnership.

1Q11 Financial Results

For the three months ended March 31, 2011 the Company reported oil and gas revenues of $1,911,000 compared to $623,000 for the first quarter of 2010. EBITDAX for the quarter ended March 31, 2011 was $175,837. Net loss for the period was $3,743,000 compared to a net loss of $2,821,000 for the same period in 2010. This included non-cash charges of depreciation, depletion, amortization and accretion of $1,075,930, stock issued for services of $126,483, stock based compensation of $546,530, amortization of deferred financing costs of $837,376, cash interest expense of $854,862, and an unrealized loss on commodity hedges of $477,912. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations, or cash flow provided by (used in) operating activities prepared in accordance with GAAP. A more detailed description of EBITDAX is below.

The Company’s production volume on a BOE basis increased 285% from 8,897 BOE during the first quarter of 2010 to 25,328 BOE during the first quarter of 2011. This increase is primarily attributable to the State Line Field acquisition that was completed subsequent to March 31, 2010. In addition, the Company realized increased prices during the first quarter of 2011 versus the first quarter of 2010. Oil price realization increased by 24% to $86.49 per barrel for the first quarter of 2011, compared to $69.98 per barrel for the same period in 2010. This increase in price realization during the first quarter of 2011 was partially offset by a realized loss on hedges of approximately $167,000 and a non-cash charge of approximately $478,000 for the change in value of commodity derivatives that the Company uses to mitigate its exposure to oil price volatility. There was no realized gain or loss for such risk management activities during the first quarter of 2010, but the Company did experience a non-cash charge of approximately $133,000 for the change in value of commodity derivatives during the same period.

About Recovery Energy, Inc.

Recovery Energy, Inc. (OTCBB: RECV) is a Denver-based independent oil and gas exploration and production company focused on the Denver-Julesburg (DJ) Basin where it holds 156,000 gross, 134,000 net acres and management has more than 80 years’ experience. Recovery Energy’s primary focus is on growing revenue, cash-flow and reserves through its conventional drilling program on low-risk, low-cost, in-field targets, as well as through an unconventional drilling program targeting the various prospective oil shale horizons on its land. In addition to being prospective for the Niobrara oil shale formation, the Company’s asset base is comprised of current production and reserves from the “J” sand along with extensive leasehold prospective for other hydrocarbon-bearing formations such as the Pierre Shale, Codell, Greenhorn and Paleozoic horizons.

This press release may include “forward-looking statements” as defined by the Securities and Exchange Commission (the "SEC"), including statements, without limitation, regarding the Company’s expectations, beliefs, intentions or strategies regarding the future. Such forward-looking statements relate to, among other things the Company's: (1) proposed exploration and drilling operations, (2) expected production and revenue, and (3) estimates regarding the reserve potential of its properties. These statements are qualified by important factors that could cause the Company’s actual results to differ materially from those reflected by the forward-looking statements. Such factors include but are not limited to: (1) the Company’s ability to finance its the continued exploration and drilling operations, (2) positive confirmation of the reserves, production and operating expenses associated with the Company's properties; and (3) the general risks associated with oil and gas exploration and development, including those risks and factors described from time to time in the Company’s reports and registration statements filed with the SEC.
   
RECOVERY ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31, December 31,
2011 2010
Assets
Current Assets
Cash $ 2,111,340 $ 5,528,744
Restricted cash 1,998,821 1,150,541
Accounts receivable 1,645,985 857,554
Prepaid assets   167,682   27,772
Total current assets   5,923,828   7,564,611
 
Oil and gas properties (full cost method), at cost:
Undeveloped properties 48,530,863 33,605,594
Developed properties 27,779,396 26,307,975
Wells in progress   2,041,787   1,219,397
Total oil and gas properties 78,352,046 61,132,966
 
Less accumulated depreciation, depletion and amortization   (6,062,443 )   (5,008,606 )
Net oil and gas properties   72,289,603   56,124,360
 
Other assets
Office equipment, net 57,517 56,236
Prepaid advisory fees 878,127 979,449
Deferred financing costs, net 4,485,429 3,211,566
Restricted cash and deposits   185,776   185,707
Total other assets   5,606,849   4,432,958
 
TOTAL ASSETS $ 83,820,280 $ 68,121,929
 
   
RECOVERY ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31, December 31,
2011 2010
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 1,095,247 $ 968,295
Liabilities from price risk management 876,752 398,840
Related party payable 12,955 11,638
Accrued expenses 1,370,857 1,540,592
Short term note payable   270,410   208,881
Total current liabilities   3,626,221   3,128,246
 
Asset retirement obligation 529,506 507,280
Term note payable 19,773,173 20,229,801
Convertible notes payable, net of discount 5,712,057 -
Derivative liability   2,783,000   -
Total long term liabilities   28,797,736   20,737,081
 
Total liabilities   32,423,957   23,865,327
Commitments and Contingencies – Note 7
 
Common Stock Subject to Redemption Rights, $0.0001 par value; 0 and 42,500 shares issued and outstanding as of - 86,258
March 31, 2011 and December 31, 2010, respectively
 
Shareholders’ Equity

Common stock, $0.0001 par value: 100,000,000 shares authorized; 62,483,758 and 57,814,369 shares issued and outstanding (excluding 0 and 42,500 shares subject to redemption) as of March 31, 2011 and December 31, 2010, respectively
6,248 5,781
Additional paid in capital 101,830,226 90,861,527
Accumulated deficit   (50,440,151 )   (46,696,964 )
Total other shareholders' equity   51,396,323   44,170,344
 
TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION RIGHTS AND SHAREHOLDERS’ EQUITY $ 83,820,280 $ 68,121,929
 
 
RECOVERY ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 

Three Months EndedMarch 31,
2011   2010
 
Revenue
Oil sales $ 1,801,814 $ 622,595
Gas sales 108,829 -
Operating fees 8,228 1,125
Realized loss on hedges (167,284 ) -
Price risk management activities   (477,912 )   (133,369 )
 
Total revenues   1,273,675   490,351
 
Costs and expenses
Production costs 446,985 121,877
Production taxes 202,299 35,488
General and administrative (includes non-cash expense of $0.7 million and $1.9 million , respectively) 1,600,594 2,343,321
Depreciation, depletion, amortization and accretion   1,075,930   231,917
 
Total costs and expenses   3,325,808   2,732,603
 
Loss from operations (2,052,133 ) (2,242,252 )
 
Unrealized gain on lock-up 1,115 15,209
Interest expense and financing costs (includes non-cash expense of $0.8 million and $0.5 million, respectively)   (1,692,169 )   (593,672 )
 
Net loss $ (3,743,187 ) $ (2,820,715 )
 
Net loss per common share
Basic and diluted $ (0.06 ) $ (0.24 )
 
Weighted average shares outstanding:
Basic and diluted   59,112,825   11,711,037
 
 
RECOVERY ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Three Months Ended

March 31,
2011       2010
 
Cash flows from operating activities:
Net loss $ (3,743,187 ) $ (2,820,714 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issued for services 126,483 -
Stock based compensation 546,530 1,106,437
Changes in the fair value of derivatives 477,912 133,369
Compensation expense recognized for assignment of overrides - 826,510
Amortization of deferred financing costs 837,376 466,174
Depreciation, depletion, amortization and accretion 1,075,930 231,917
Changes in operating assets and liabilities:
Accounts receivable (788,431 ) (326,561 )
Other assets (83,072 ) 9,908
Accounts payable 117,271 208,314
Restricted cash (848,280 ) (18,561 )
Related party payable 10,998 (56,214 )
Accrued expenses   (169,735)   44,089
Net cash used in operating activities   (2,440,205)   (195,332)
 
Cash flows from investing activities:
Additions of producing properties and equipment (net of purchase price adjustments) - (48,421 )
Acquisition of undeveloped properties (8,416,874 ) (10,313,184 )
Drilling capital expenditures (2,281,487 ) -
Additions of office equipment (13,472 ) (501 )
Investment in operating bonds   (69 )   (165 )
Net cash used in investing activities   (10,711,902 )   (10,362,271 )
 
Cash flows from financing activities:
Proceeds from sale of common stock, units and exercise of warrants 2,129,801 300,000
Proceeds from debt 8,000,000 10,500,000
Repayment of debt   (395,098 )   (178,750 )
Net cash provided by financing activities   9,734,703   10,621,250
 
Change in cash and cash equivalents (3,417,404 ) 63,647
Cash and cash equivalents at beginning of period   5,528,744   108,400
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,111,340 $ 172,047
 

Non-GAAP Financial Measures

EBITDAX

EBITDAX represents net income (loss) before income tax expense (benefit), interest expense and financing costs, net, depreciation, depletion and amortization expense, stock based compensation, gain and loss on sale of oil and gas properties and other investments, net, unrealized gains and losses on derivative contracts and exploration and impairment and dry hole costs. EBITDAX is presented as a supplemental financial measurement in the evaluation of the Company's business. Recovery Energy believes that it provides additional information regarding its ability to meet future debt service, capital expenditures and working capital requirements. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations, or cash flow provided by (used in) operating activities prepared in accordance with GAAP.

The following table presents a reconciliation of the Company’s net loss from operations to its EBITDAX for each of the periods presented.

   
Three Months Ended

March 31,
2011       2010
 
Net loss $ (3,743,187 ) $ (2,820,714 )
Add back depreciation, depletion, amortization and accretion 1,075,930 231,917
Add back stock issued for services 126,483 -
Add back stock based compensation 546,530 1,106,437
Add back compensation expense for assignment of overrides - 826,510
Add back amortization of deferred financing costs 837,376 466,174
Add back cash interest expense 854,862 127,663
Less interest income (69 ) (165 )
Add back unrealized loss on commodity hedges 477,912   133,369  
 
EBITDAX 175,837   71,191  

Copyright Business Wire 2010

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