Depreciation, depletion and amortization (DD&A) expense increased by $4.0 million, or nine percent, to $49.3 million, or $5.47 per Mcfe produced, in the third quarter of 2012 from $45.3 million, or $3.80 per Mcfe produced, in the prior year quarter, due primarily to higher DD&A costs attributable to our Eagle Ford Shale oil wells and reserve revisions associated with our gas assets.

Capital Expenditures

During the third quarter of 2012, capital expenditures were approximately $85 million, compared to $114 million in the prior year quarter, consisting of:
  • $73 million for drilling and completion activities
  • $5 million for pipeline, gathering, facilities and seismic
  • $6 million for leasehold acquisitions and other

Comparison of Third Quarter of 2012 to Second Quarter of 2012

As shown in the table above, production in the third quarter of 2012 of approximately 9.0 Bcfe, or 98.1 MMcfe per day, was 1.7 Bcfe, or 19.0 MMcfe per day, less than in the second quarter of 2012 due primarily to a 1.5 Bcfe decline in natural gas production as a result of the Appalachian sale and natural declines, as well as lower NGL production in the Mid-Continent associated with ethane rejection and reduced natural gas production. Crude oil production was essentially flat on a sequential basis as a result of the reduction in the rig count in the Eagle Ford Shale from three rigs to two rigs earlier in the year. We expect crude oil production to decrease slightly for the fourth quarter, after which we expect oil production to begin increasing in the first quarter of 2013 due to contributions associated with the third rig. During the third quarter of 2012, total product revenues were flat at approximately $76 million compared to the prior quarter as the decline in total production was offset by higher realized oil and gas prices. Due to flat sequential direct operating expenses of approximately $24 million in both quarters, increased cash settlements of derivatives in the third quarter and despite the sale of Appalachia at the end of July, third quarter Adjusted EBITDAX of approximately $61 million was slightly higher than the approximately $60 million in the prior quarter.

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