Saratoga Resources, Inc. Reports Result Of Operations And Third Quarter 2012 Financials

Saratoga Resources, Inc. (NYSE MKT: SARA; the “Company” or “Saratoga”) today announced financial and operating results for the quarter ended September 30, 2012, including the estimated impact of Hurricane Isaac.

Key Financial Results
  • Oil and gas revenues of $16.5 million for the third quarter 2012 compared to $18.9 million for the third quarter 2011;
  • Lease operating expenses (“LOE”) of $4.6 million ($20.06 per BOE) for third quarter 2012 compared to $4.6 million ($18.64 per BOE) for third quarter 2011;
  • General and administrative expenses (“G&A”) of $2.0 million ($8.56 per BOE) for third quarter 2012 compared to $2.6 million ($10.62 per BOE) for third quarter 2011;
  • Net loss of $0.5 million, or $0.02 per fully diluted share, for third quarter 2012 compared to net income of $6.2 million, or $0.24 per fully diluted share, for the third quarter 2011;
  • EBITDAX of $8.5 million ($37.00 per BOE) for the third quarter 2012 compared to $11.5 million ($46.60 per BOE) for the third quarter 2011; and
  • Discretionary cash flow of $4.4 million, or $0.14 per fully diluted share, for the third quarter 2012 compared to discretionary cash flow of $7.5 million, or $0.29 per fully diluted share, for the third quarter 2011.

Discretionary cash flow and EBITDAX are non-GAAP financial measures and are defined and reconciled to the most directly comparable GAAP measure under “Non-GAAP Financial Measures” below.

The 12.9% decrease in oil and gas revenues for the third quarter 2012 reflects the effects of Hurricane Isaac, which resulted in production being shut-in for 17 days during the quarter and a resulting decrease in oil production volume (down 15.3% compared to the third quarter 2011), and decreased prices realized from gas sales (down 7.7%). Those decreases were partially offset by an increase in gas production (up 10.8% compared to third quarter 2011) and a slight increase in prices realized from oil sales (up 0.6%).

While LOE was flat from the 2011 quarter, there was a 7.6% increase in LOE on a per BOE basis, reflecting the fixed component of LOE.

G&A decreased by 24.6% over the corresponding quarter in 2011, and was 19% lower on a per LOE basis, based on decreases in head count and lower stock based compensation.

While the 2012 third quarter reflected a net loss compared to net income in the corresponding quarter in 2011, the 2012 quarter reflected increased workover activity and expense (up $0.3 million) and a substantial decline in dry hole costs (down $3.7 million) while the 2011 quarter reflected a one-time gain from the extinguishment of debt of $7.7 million.

Operational Highlights

Operational highlights for third quarter 2012 included:
  • Completed development drilling operations on the Jupiter, North Tiger and Mesa Verde wells; Jupiter well brought onto production during the quarter and North Tiger and Mesa Verde wells brought onto production post-quarter end;
  • 101 gross (100 net) wells in production at September 30, 2012; and
  • 32,119 gross (32,119 net) acres in 12 fields under lease at September 30, 2012.

During the third quarter 2012, Saratoga completed development drilling operations on the Mesa Verde, Jupiter and North Tiger wells, with the Jupiter well brought onto production during the quarter. As a result of delays arising in connection with Hurricane Isaac, the Mesa Verde and North Tiger wells were not brought onto production until shortly after quarter end. Saratoga’s investment during the quarter with respect to the Mesa Verde, Jupiter and North Tiger wells totaled $23.1 million. Saratoga also invested $1.9 million on recompletions and an additional $0.3 million on workovers. As with Saratoga’s development drilling program, delays were experienced in the recompletion and workover program as a result of Hurricane Isaac.

The Mesa Verde SL 3763 #14 well in Vermilion 16 field was spud on May 14, 2012 and reached a total depth of 16,258 feet measured depth (“MD”)/true vertical depth (“TVD”) on July 23, 2012. The well encountered up to 15 potentially productive intervals, including the Marg A, LF, Rob 54 and Amph B sands between 11,333 and 15,890 feet and was completed in the LF-H sand in October 2012. The well tested on October 12, 2012 at a gross rate of 190 barrels of oil per day (“BOPD”), 4,066 thousand cubic feet of gas per day (“MCFPD”), or net 685 barrels of oil equivalent (“BOEPD”), on a 14/64” choke with flowing tubing pressure (“FTP”) of 4,300 psi.

In July 2012, the Jupiter SL 185QQ #202 well in the Grand Bay field was spud and reached total depth of 9,688 feet MD/TVD. The well encountered 104 feet of net pay in 15 sands between 5,516 and 9,042 feet and was completed in the 15 sand in early August 2012. The well tested on August 14, 2012 at a gross rate of 245 BOPD and 650 MCFPD, or net 254 BOEPD, on 15/64” choke with FTP of 860 psi.

In July 2012, the North Tiger SL 20433 #1 well in Breton Sound Block 19 was spud and reached total depth of 9,532 feet MD/9,300 feet TVD. The well encountered 59 feet of net pay in 6 sands and was completed as a dual producer in October 2012. The well tested on October 15, 2012 at a gross rate of 517 BOPD and 1,457 MCFPD on a 14/64” choke with FTP of 1,900 psi from the 7,100’ sand in the short string and 258 BOPD and 351 MCFPD on a 17/64” choke with FTP of 580 psi from the Cib Carst sand in the long string, or combined net 840 BOEPD.

Together, the Jupiter and North Tiger wells encountered 15 previously unbooked, new pool discoveries.

The lingering effects of Hurricane Isaac resulted in deferrals and delays in restart of facilities, completion operations, maintenance operations and equipment installations and pushed back testing and completion of the North Tiger and Mesa Verde wells and the commencement of production from those wells and are expected to result in various development drilling operations being pushed back. Similarly, going forward, we anticipate delays and deferrals of various projects in our recompletion and workover program, as well as our maintenance program, as a result of the lingering effects of the hurricane as well as the previously announced temporary shortage of workover rigs.

Production Highlights
  • Oil and gas production of 137.9 thousand barrels of oil (“MBO”) and 555.1 thousand cubic feet of gas (“MCFG”), or 230.4 MBOE (59.9% oil) for the third quarter 2012, down 6.5% from 246.4 MBOE for the third quarter 2011;
  • Average daily production of 2,505 net barrels of oil equivalent per day (“BOEPD”) for the third quarter, 28% lower than during the second quarter 2012; and
  • Average oil prices down 6% and average gas price up 32% for the third quarter relative to the second quarter 2012.

The decreases in oil production and total production year-over-year and compared to the 2012 second quarter reflect the total shut-in of production for 17 days during the quarter in the wake of Hurricane Isaac, partially offset by production increases attributable to investments in infrastructure de-bottlenecking and recompletions during the second half of 2011 and the first half of 2012 and the commencement of production from the Jupiter well mid-third quarter. The North Tiger and Mesa Verde wells both came onto production in October.

Development Plans
  • Capital spending for the 4 th quarter has been reduced to minimum amounts, primarily focused on low risk recompletions, thru-tubing plugbacks and workovers from our inventory of 62 proved developed non-producing (“PDNP”) opportunities in 8 fields as the company will focus on strengthening cash positions which were negatively impacted by Hurricane Isaac;
  • Continue exploring possible strategic partnerships and joint ventures for risk-sharing on exploratory ultra-deep prospects at Grand Bay and Vermilion 16; and
  • Focus the remainder of the year on recovery of cash flow and rebuilding cash reserves enabling us to enter next year in a strong position.

Our near term development plans are focused on the Company’s inventory of 87 proved undeveloped opportunities in 24 proposed wellbores across 4 fields and conversion of PDNP opportunities. At September 30, 2012, permitting had been completed and was underway on several proved undeveloped wells.

As a result of the delays arising from Hurricane Isaac we have pushed back a development well previously planned for the fourth quarter of 2012. We expect to drill up to seven development wells per year beginning in 2013.

Financial Position and CAPEX Highlights
  • $8.3 million of cash on hand at September 30, 2012;
  • $6.5 million temporary working capital deficit at September 30, 2012 due primarily to estimated $7 million in deferred revenue due to Hurricane Isaac;
  • $25.9 million of CAPEX for third quarter 2012, including $23.1 million on drilling and $2.2 million on recompletions and workovers. Due to numerous technical difficulties encountered in both new drills and recompletions, the total amount spent was approximately 20% over the budgeted amount;
  • 2012 CAPEX budget fully funded by cash on hand and projected operating cash flow; and
  • Commenced implementation of hedging program.

Saratoga fully funded its CAPEX budget during the third quarter of 2012, as it has done for more than three years, from its cash on hand and operating cash flows.

During the 2012 third quarter, Saratoga began implementation of a hedging program to manage commodity price risk. At quarter end, Saratoga had hedges in place covering 92,000 barrels of oil between October 1, 2012 and December 30, 2012 at prices ranging from $108.00 to $110.05 per barrel. Subsequent to the end of the third quarter we entered into an additional crude oil swap contract for the period November 1, 2012 to December 30, 2012 covering 300 barrels of oil per day at $110.85.

Management Comments

Michael O. Aldridge, Chief Financial Officer, commented "Hurricane Isaac made the third quarter of 2012 a challenging quarter. We lost production, revenues and cash flow as a result of our being shut-in for fully 1/6 of the quarter and experienced, and will continue to experience, lingering challenges in getting back to full speed in the hurricane’s aftermath. Despite the challenges, we continued to make progress on several fronts, most notably the successful completion and testing of our Jupiter, North Tiger and Mesa Verde wells. Those wells are expected to both add new reserves and enhance our production going forward while also serving to protect our deep rights in the Vermilion 16 field following our successful Mesa Verde well."

Mr. Aldridge added "We also made substantial progress in our risk management strategy with the commencement of our hedging strategy to guard against short-term adverse commodity price moves and the resulting impact on our second half of 2012 business plan. During the quarter, we layered in hedges over the balance of 2012 and we will continue to layer in hedges to protect our short-, mid- and longer-term strategies."

Conference Call Information

The company will host a conference call on Tuesday, November 13, 2012 to discuss its third quarter 2012 results and to provide a current update on operations.

The call will begin at 10:30 AM EDT (9:30 AM CDT, 7:30 AM PDT) and interested parties in the U.S. can participate in the call by dialing (866) 501-1535. Interested international parties can participate in the call by dialing (216)672-5582. The participant passcode for both the U.S. and international call is 64426784. Alternatively, the audio content of the call can be accessed on the Company’s web site at www.saratogaresources.com. The call will be archived on the Company web site for parties who are unable to participate in the live call. Also, a written transcript of the call will be available on the Company’s website beginning 72 hours after the call.

Further details, including a slide presentation accompanying the call, will be accessible on the Company’s website at www.saratogaresources.com in advance of the call.

About Saratoga Resources

Saratoga Resources is an independent exploration and production company with offices in Houston, Texas and Covington, Louisiana. Principal holdings cover 32,119 gross/net acres, mostly held-by-production (all depths), currently located in the transitional coastline and protected in-bay environment on parish and state leases of south Louisiana. Most of the company's large drilling inventory has multiple pay objectives that range from as shallow as 1,000 feet to the ultra-deep prospects below 20,000 feet in water depths of less than 10 feet. For more information, go to Saratoga's website at www.saratogaresources.com and sign up for regular updates by clicking on the Updates button.

Forward-Looking Statements

This press release includes certain estimates and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including statements regarding future ability to complete wells, fund the company’s development program and grow reserves, production, revenues and profitability, ability to reach and sustain target production levels, ability to secure commitments to participate in exploration of deep shelf prospects, and the ultimate outcome of such efforts. Words such as "expects”, "anticipates", "intends", "plans", "believes", "assumes", "seeks", "estimates", "should", and variations of these words and similar expressions, are intended to identify these forward-looking statements. While we believe these statements are accurate, forward-looking statements are inherently uncertain and we cannot assure you that these expectations will occur and our actual results may be significantly different. These statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. Important factors that could cause actual results to differ from those in the forward-looking statements include the factors described in the "Risk Factors" section of the Company's filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.
 
SARATOGA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
     
For the Three Months Ended

September 30,
For the Nine Months Ended

September 30,
2012   2011   2012   2011  
Revenues:
Oil and gas revenues $ 16,454,125 $ 18,885,950 $ 59,588,443 $ 53,459,141
Oil and gas hedging (6,490 ) - (6,490 ) -
Other revenues   269,810     938,385     1,467,403     4,368,436  
Total revenues 16,717,445 19,824,335 61,049,356 57,827,577
 
Operating Expense:
Lease operating expense 4,622,010 4,590,675 13,860,709 12,683,787
Workover expense 306,745 32,549 3,846,046 458,286
Exploration expense 213,733 166,688 369,419 573,077
Loss on plugging and abandonment - - 2,468,969 -
Dry hole costs - 3,787,911 93,353 3,787,911
Depreciation, depletion and amortization 3,658,002 4,009,462 14,170,532 12,377,089
Impairment expense 44,276 - 44,276 -
Accretion expense 555,504 399,634 1,666,512 1,248,478
General and administrative 1,971,634 2,616,072 7,042,299 6,516,360
Severance taxes   1,502,134     1,431,567     5,375,259     4,096,641  
Total operating expenses   12,874,038     17,034,558     48,937,374     41,741,629  
 
Operating income 3,843,407 2,789,777 12,111,982 16,085,948
 
Other income (expense):
Interest income 11,204 37,492 20,046 237,078
Interest expense (4,334,389 ) (4,384,499 ) (13,058,178 ) (13,620,011 )
Gain on extinguishment of debt   -     7,708,486     -     7,708,486  
Total other expense   (4,323,185 )   3,361,479     (13,058,178 )   (5,674,447 )
 
Net income (loss) before reorganization expense and income taxes (479,778 ) 6,151,256 (926,150 ) 10,411,501
Reorganization expense   43,287     125,420     121,528     374,414  
Net income (loss) before income taxes (523,065 ) 6,025,836 (1,047,678 ) 10,037,087
Income tax expense (benefit)   (48,062 )   (146,082 )   (213,896 )   (91,368 )
Net income (loss) $ (475,003 ) $ 6,171,918   $ (833,782 ) $ 10,128,455  
 
Other comprehensive income(loss)
Unrealized loss on derivative instruments   (182,569 )   -     (182,569 )   -  
Total comprehensive income(loss) $ (657,572 ) $ 6,171,918   $ (1,016,351 ) $ 10,128,455  
 
Net income (loss) per share:
Basic $ (0.02 ) $ 0.25   $ (0.03 ) $ 0.49  
Diluted $ (0.02 ) $ 0.24   $ (0.03 ) $ 0.48  
 
Weighted average number of common shares outstanding:
Basic   30,808,775     24,852,001     28,867,424     20,467,500  
Diluted   30,808,775     25,796,280     28,867,424     21,152,120  
 

SARATOGA RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)
 
September 30, December 31,
2012   2011  
ASSETS
 
Current assets:
Cash and cash equivalents $ 8,288,106 $ 15,874,680
Accounts receivable 6,304,451 10,539,757
Prepaid expenses and other 1,980,173 1,189,406
Deferred tax asset, net - 1,400,000
Other current asset   150,000     150,000  
Total current assets 16,722,730 29,153,843
 
Property and equipment:
Oil and gas properties - proved (successful efforts method) 249,984,720 196,101,827
Other   713,251     658,113  
250,697,971 196,759,940
Less: Accumulated depreciation, depletion and amortization   (68,045,627 )   (53,830,820 )
Total property and equipment, net 182,652,344 142,929,120
 
Deferred tax asset, net 6,948,628 5,147,962
Other assets, net   18,923,094     20,531,218  
Total assets $ 225,246,796   $ 197,762,143  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 8,867,682 $ 4,598,534
Revenue and severance tax payable 4,167,429 5,709,773
Accrued liabilities 7,908,539 8,451,655
Derivative liabilities – short term 189,060 -
Short-term notes payable 933,403 344,256
Asset retirement obligation – current   1,158,532     1,548,945  
Total current liabilities 23,224,645 20,653,163
 
Long-term liabilities:
Asset retirement obligation 11,323,077 9,852,920
Long-term debt, net of unamortized discount of $1,849,867 and $2,115,195, respectively   125,650,133     125,384,805  
Total long-term liabilities 136,973,210 135,237,725
 
Commitment and contingencies (see notes)
 
Stockholders' equity:
Common stock, $0.001 par value; 100,000,000 shares authorized 30,867,513 and 26,714,815 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively 30,867 26,714
Additional paid-in capital 76,864,136 52,674,252
Accumulated other comprehensive income(loss) (182,569 ) -
Retained deficit   (11,663,493 )   (10,829,711 )
 
Total stockholders' equity   65,048,941     41,871,255  
 
Total liabilities and stockholders' equity $ 225,246,796   $ 197,762,143  
 
SARATOGA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
For the Nine Months Ended
September 30,
2012     2011  
Cash flows from operating activities:
Net income (loss) $ (833,782 ) $ 10,128,455
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, depletion and amortization 14,170,532 12,377,089
Impairment expense 44,276 -
Accretion expense 1,666,512 1,248,478
Amortization of debt issuance costs 675,649 313,983
Amortization of debt discount 265,328 1,618,929
Dry hole costs 93,353 3,787,911
Stock-based compensation 1,040,127 793,295
Loss on plugging and abandonment 2,468,969 -
Deferred tax benefit (400,666 ) -
Unrealized loss on hedges 6,490 -
Gain on extinguishment of debt - (7,708,486 )
Changes in operating assets and liabilities:
Accounts receivable 4,235,306 (404,976 )
Prepaids and other (790,767 ) (676,418 )
Accounts payable (1,806,687 ) (768,985 )
Revenue and severance tax payable (1,542,344 ) (818,723 )
Payments to settle asset retirement obligations (586,769 ) (750,840 )
Accrued liabilities   (4,720,786 )   3,748,868  
Net cash provided by operating activities 13,984,741 22,888,580
 
Cash flows from investing activities:
Additions to oil and gas property

46,191,709

 
(21,920,216 )
Additions to other property and equipment (55,138 ) (83,703 )
Proceeds from cash collateral 2,021,628 -
Other assets   (1,089,153 )   (556,769 )
Net cash used by investing activities (45,314,372 ) (22,560,688 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock 23,153,910 14,804,718
Proceeds from short-term notes payable 1,685,226 1,649,066
Repayment of short-term notes payable (1,096,079 ) (1,062,625 )
Debt issuance costs of long-term debt - (6,517,796 )
Repayment of debt borrowing   -     (268,224 )
Net cash provided by financing activities   23,743,057     8,605,139  
 
Net increase (decrease) in cash and cash equivalents (7,586,574 ) 8,933,031
Cash and cash equivalents - beginning of period   15,874,680     4,409,984  
Cash and cash equivalents - end of period $ 8,288,106   $ 13,343,015  
 
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 186,770 $ 97,500
Cash paid for interest 7,987,234 8,144,276
 
Non-cash investing and financing activities:
Accounts payable for oil and gas additions $ 6,075,835 $ 4,981,325
Accrued liabilities for oil and gas additions 1,708,702 556,264
Accrued interest converted to long-term debt – related party $ - $ 131,205
Non-cash refinance of long-term debt:
Repayment of debt borrowing $ - $ 145,231,776
Proceeds from refinance of long-term debt - 125,231,776
Proceeds from issuance of common stock $ - $ 20,000,000
 

Non-GAAP Financial Measures

Discretionary Cash Flow is a non-GAAP financial measure.

Discretionary Cash Flow is a supplemental financial measure used by the company’s management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company’s ability to internally fund exploration and development activities. Discretionary cash flow should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (“GAAP”). Discretionary cash flow excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company’s Discretionary Cash Flow may not be comparable to similarly titled measures used by other companies.

The table below reconciles the most directly comparable GAAP financial measure to Discretionary Cash Flow.
 
Reconciliation of Net Income (Loss) to Discretionary Cash Flow
     
For the Three Months Ended

September 30,
For the Nine Months Ended

September 30,
2012   2011   2012   2011  
Net income (loss) as reported $ (475,003 ) $ 6,171,918 $ (833,782 ) $ 10,128,455
Depreciation, depletion and amortization 3,658,002 4,009,462 14,170,532 12,377,089
Income tax provision (benefit) (169,832 ) - (400,666 ) -
Exploration expense 213,733 166,688 369,419 573,077
Loss on plugging and abandonment - - 2,468,969 -
Dry hole costs - 3,787,911 93,353 3,787,911
Impairment expense 44,276 - 44,276 -
Accretion expense 555,504 399,634 1,666,512 1,248,478
Stock-based compensation 204,933 327,497 1,040,127 793,295
Debt issuance and discount 325,423 357,486 940,977 1,932,912
Unrealized derivative (income) expense 6,490 - 6,490 -
Gain on extinguishment of debt   -     (7,708,486 )   -     (7,708,486 )
Discretionary Cash Flow $ 4,363,526   $ 7,512,110   $ 19,566,207   $ 23,132,731  
 

EBITDAX is a non-GAAP financial measure.

EBITDAX is a supplemental financial measure used by the company’s management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company’s ability to internally fund exploration and development activities and to service or incur additional debt. The company also uses this measure because EBITDAX allows the company to compare its operating performance and return on capital with those of other companies without regard to financing methods and capital structure. EBITDAX should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (“GAAP”). EBITDAX excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company’s EBITDAX may not be comparable to similarly titled measures used by other companies.

The table below reconciles the most directly comparable GAAP financial measure to EBITDAX.
 
Reconciliation of Net Income (Loss) to EBITDAX
     
For the Three Months Ended

September 30,
For the Nine Months Ended

September 30,
2012   2011   2012   2011  
Net income (loss) as reported $ (475,003 ) $ 6,171,918 $ (833,782 ) $ 10,128,455
Depreciation, depletion and amortization 3,658,002 4,009,462 14,170,532 12,377,089
Income tax provision (benefit) (48,062 ) (146,082 ) (213,896 ) (91,368 )
Exploration expense 213,733 166,688 369,419 573,077
Loss on plugging and abandonment - - 2,468,969 -
Dry hole costs - 3,787,911 93,353 3,787,911
Impairment expense 44,276 - 44,276 -
Accretion expense 555,504 399,634 1,666,512 1,248,478
Stock-based compensation 204,933 327,497 1,040,127 793,295
Interest expense, net 4,323,185 4,347,007 13,038,132 13,382,933
Unrealized hedging (gain) loss 6,490 - 6,490 -
Reorganization expenses 43,287 125,420 121,528 573,077
Gain on extinguishment of debt   -     (7,708,486 )   -     (7,708,486 )
EBITDAX $ 8,526,345   $ 11,480,969   $ 31,971,660   $ 35,064,461  

Copyright Business Wire 2010

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