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Arena Resources Announces Record Third Quarter Financial and Operating Results

Posted on: Friday, 9 November 2007, 09:00 CST

Arena Resources, Inc. (NYSE: ARD) ("Arena")("Company") announced today financial results for the three months and nine months ended September 30, 2007. For the three month period ended September 30, 2007, Arena had oil and gas revenues of $26,731,699, compared to $18,192,860 for the quarter ended September 30, 2006, a 47% increase, and net income of $11,403,777 (a 42% increase), or $0.32 per fully diluted share, compared to net income of $8,006,824, or $0.26 per fully diluted share, for the same period in 2006. For the nine month period ended September 30, 2007, the Company reported oil and gas revenues of $65,003,299, compared to oil and gas revenues of $43,263,323 for the nine month period ended September 30, 2006, a 50% increase. Net income for the nine month period ended September 30, 2007 was $25,011,045 (a 39% increase), or $0.76 per fully diluted share, compared to net income of $18,034,724, or $0.61 per fully diluted share, for the same period in 2006.

The revenue increase for the third quarter was a result of increases in production volumes due to increased development activity and increased commodity prices. For the three months ended September 30, 2007, oil sales volume increased to 344,399 barrels, compared to 256,366 barrels for the same period in 2006, a 34% increase, and gas sales volume increased to 351,498 MCF (thousand cubic feet), compared to 276,881 MCF for the same period in 2006, a 27% increase. For the nine months ended September 30, 2007, oil sales volume increased to 954,228 barrels, compared to 631,455 barrels for the same period in 2006, a 51% increase, and gas sales volume increased to 1,024,602 MCF, compared to 617,745 MCF for the same period in 2006, a 66% increase. The average commodity prices received by Arena were $69.78 per barrel of oil and $7.68 per MCF of natural gas for the quarter ended September 30, 2007, compared to $63.91 per barrel of oil and $6.53 per MCF of natural gas for the quarter ended September 30, 2006. The average prices received for the nine months ended September 30, 2007 were $60.16 per barrel of oil and $7.43 per MCF of natural gas, compared to $61.91 per barrel of oil and $6.75 per MCF of natural gas for the nine month period ended September 30, 2006.

Lease operating expenses, including production taxes, for the three months ended September 30, 2007 were $11.19 per barrel of oil equivalent ("BOE"), a 34% increase from the prior year. Depreciation, depletion and amortization costs increased 27% to $7.54 per BOE. General and administrative costs, which included a $956,072 charge for stock based compensation, were $3.65 per BOE, a 4% decrease. Net interest income was $461,355, or $1.14 per BOE, a 153% increase. For the nine months ended September 30, 2007, lease operating expenses, including production taxes, were $10.37 per BOE, a 12% increase. Depreciation, depletion and amortization costs were $7.43 per BOE, a 28% increase, and general and administrative costs, which included a $2,476,823 charge for stock based compensation, were $4.01 per BOE, a 12% increase. Net interest expense was $0.55 per BOE, a 1200% increase.

There was no outstanding debt on the Company's $150 million bank credit facility at September 30, 2007.

Net cash flow from operations for the three and nine months ended September 30, 2007 was $22,164,986, or $0.62 per fully diluted share, and $50,690,604 or $1.54 per fully diluted share, compared to net cash flow of $14,914,941, or $0.48, and $34,535,543, or $1.16 per fully diluted share for the same periods in 2006 (1).

During the third quarter, Arena drilled 28 new development wells, completing and placing in production 22. The remaining six wells were completed and placed in production in the fourth quarter. Additionally, four development wells drilled in the second quarter of 2007 were successfully completed and placed in production. The Company also re-stimulated ten existing wells, all on its Fuhrman Mascho property in Andrews County, Texas. The Company continues to have a 100% success rate on wells drilled and completed on this asset. Sales as a result of production for the quarter ended September 30, 2007 rose to 402,982 barrels of oil equivalent (BOE), as compared to production of 302,513 BOE for the same quarter in 2006, a 33% increase, and a 5% increase over the 385,318 BOE produced in the second quarter of 2007. Average net daily production increased from 3,288 barrels of oil equivalent per day (BOEPD) in the third quarter of 2006 to approximately 4,380 BOEPD. Production continued to be adversely affected by pipeline issues in New Mexico and Kansas.

Arena's Chief Executive Officer, Mr. Tim Rochford, stated, "We maintained our overall development program in the third quarter, with particular emphasis on our Permian Basin properties. We drilled 28 new development wells and re-fraced ten existing wells on our Fuhrman Mascho properties, despite having only one drilling rig working for over 30 days due to delays in the assembly and delivery of our second company-owned rig. We continued infrastructure improvements and injector well reactivations on our Seven Rivers, North Benson and East Hobbs, New Mexico assets, but continued to have pipeline compression issues on both our East Hobbs asset and Auntie Em property in Kansas. Our third quarter sales of approximately 403,000 BOEs was a 33% increase over the same period in 2006 and an approximate 5% increase over the second quarter. We have now taken delivery of our second company-owned rig and brought back a contract drilling rig we have used in the past, making three active drilling rigs at the Fuhrman Mascho. With the personnel additions we have made we will continue with three rigs into 2008 and are postured to accelerate our development activities moving forward. We have a preliminary CAPEX budget for 2008 of approximately $200 million and project drilling over 200 wells at the Fuhrman Mascho alone. We are continuing to look at acquisition opportunities, primarily concentrating on those that complement our existing properties as evidenced by our recent acquisitions."

Non-GAAP Financial Measures:

Earnings for the three months ended September 30, 2007 include a non-cash charge for stock based compensation of $956,072. Earnings for the nine months ended September 30, 2007 include a non-cash charge for stock based compensation of $2,476,823. Excluding such items, the Company's earnings would have been $0.34 per diluted share for the three months ended September 30, 2007, and $0.81 for the nine months ended September 30, 2007. The Company believes results excluding these items are more comparable to estimates provided by security analysts and, therefore, are useful in evaluating operational trends of the Company and its performance, compared to other similarly situated oil and gas producing companies.

(1) Cash Flow from Operations is a non-GAAP financial measure that represents "Net Cash Provided By Operating Activities" adjusted for the change in operating assets and liabilities. See below for a reconciliation of the related amounts.

About Arena Resources, Inc.

Arena Resources, Inc. is an oil and gas exploration, development and production company with current operations in Texas, Oklahoma, Kansas and New Mexico.

This release contains forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995 that involve a wide variety of risks and uncertainties, including, without limitations, statements with respect to the Company's strategy and prospects. Readers and investors are cautioned that the Company's actual results may differ materially from those described in the forward-looking statements due to a number of factors, including, but not limited to, the Company's ability to acquire productive oil and/or gas properties or to successfully drill and complete oil and/or gas wells on such properties, general economic conditions both domestically and abroad, and the conduct of business by the Company, and other factors that may be more fully described in additional documents set forth by the Company.

ARENA RESOURCES, INC.

STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

September 30,

September 30,

2007

2006

2007

2006

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Oil and Gas Revenues

$26,731,699

$18,192,860

$65,003,299

$43,263,323

Costs and Operating Expenses

Oil and gas production costs

2,969,674

1,455,453

7,946,155

4,124,281

Oil and gas production taxes

1,541,612

1,067,114

3,717,095

2,673,768

Depreciation, depletion and amortization

3,039,529

1,791,681

8,356,796

4,253,142

Accretion expense

46,414

41,755

135,177

104,697

General and administrative expense

1,472,855

1,154,243

4,507,220

2,626,659

Total Costs and Operating Expenses

9,070,084

5,510,246

24,662,443

13,782,547

Other Income (Expense)

Other financing expense

-

-

-

(785,598

)

Interest income (expense)

481,387

154,977

633,451

240,415

Interest expense

(20,032

)

(19,705

)

(1,252,499

)

(200,406

)

Net Other Income (Expense)

461,355

135,272

(619,048

)

(745,589

)

Income Before Provision for Income Taxes

18,122,970

12,817,886

39,721,808

28,735,187

Provision for Deferred Income Taxes

(6,719,193

)

(4,811,062

)

(14,710,763

)

(10,700,463

)

Net Income

$11,403,777

$8,006,824

$25,011,045

$18,034,724

Basic Net Income Per Common Share

$0.33

$0.27

$0.80

$0.65

Diluted Net Income Per Common Share

$0.32

$0.26

$0.76

$0.61

Basic Weighted-Average Common Shares Outstanding

34,068,128

29,251,578

31,368,107

27,731,056

Diluted Weighted-Average Common Shares Outstanding

35,584,238

31,159,484

32,968,114

29,655,078

Other Comprehensive Income

Unrealized loss on oil derivatives, net of tax

(22,098

)

-

(22,098

)

-

Total Other Comprehensive Income

11,381,679

8,006,824

24,988,947

18,034,724

COMPARATIVE OPERATING STATISTICS

Three Months Ended September 30,

2007

2006

Change

Net Production - BOE per day

4,380

3,288

33

%

Per BOE:

Average Sales Price

$66.33

$60.14

10

%

Operating Costs

11.19

8.34

34

%

DD&A

7.54

5.92

27

%

General & Administrative Expenses

3.65

3.82

-4

%

Interest Expense (Income)

(1.14

)

(0.45

)

153

%

Nine Months Ended September 30,

2007

2006

Change

Net Production - BOE per day

4,121

2,690

53

%

Per BOE:

Average Sales Price

$57.78

$58.91

-2

%

Operating Costs

10.37

9.26

12

%

DD&A

7.43

5.79

28

%

General & Administrative Expenses

4.01

3.58

12

%

Interest Expense (Income)

0.55

(0.05

)

-1200

%

ARENA RESOURCES, INC.

CONSOLIDATED BALANCE SHEET

September 30,

December 31,

2007

2006

ASSETS

Current Assets

Cash

$32,300,916

$4,919,984

Accounts receivable

14,262,988

6,702,677

Joint interest billing receivable

3,154,002

2,949,099

Prepaid expenses

253,090

102,585

Total Current Assets

49,970,996

14,674,345

Property and Equipment, Using Full Cost Accounting

Oil and gas properties subject to amortization

253,421,876

171,708,200

Equipment

60,051

59,332

Drilling rigs

5,422,313

1,996,899

Office buildings and land

2,868,180

-

Office equipment

210,466

120,929

Total Property and Equipment

261,982,886

173,885,360

Less: Accumulated depreciation and amortization

(20,749,318

)

(12,246,727

)

Net Property and Equipment

241,233,568

161,638,633

Total Assets

$291,204,564

$176,312,978

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

$9,491,288

$14,367,252

Accrued liabilities

903,083

628,618

Total Current Liabilities

10,394,371

14,995,870

Long-Term Liabilities

Notes Payable

-

19,300,000

Notes payable to related parties

-

400,000

Fair value of oil derivatives

35,076

-

Asset retirement liability

2,584,515

2,250,332

Deferred income taxes

30,213,243

19,322,724

Total Long-Term Liabilities

32,832,834

41,273,056

Stockholders' Equity

Preferred stock - $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding

-

-

Common stock - $0.001 par value; 100,000,000 shares authorized; 34,136,646 shares and 29,337,574 shares outstanding, respectively

34,137

29,338

Additional paid-in capital

182,920,821

81,857,599

Options and warrants outstanding

4,749,327

2,872,988

Retained earnings

60,295,172

35,284,127

Accumulated other comprehensive loss

(22,098

)

-

Total Stockholders' Equity

247,977,359

120,044,052

Total Liabilities and Stockholders' Equity

$291,204,564

$176,312,978

ARENA RESOURCES, INC.

STATEMENTS OF CASH FLOW

Nine Months Ended

September 30,

2007

2006

Cash Flows From Operating Activities

Net income

$25,011,045

$18,034,724

Adjustments to reconcile net income to net cash provided by operating activities:

Warrants issued for financing expense

-

785,598

Depreciation, depletion and amortization

8,356,796

4,253,142

Provision for income taxes

14,710,763

10,700,463

Stock based compensation

2,476,823

656,919

Accretion of discounted liabilities

135,177

104,697

Changes in assets and liabilities:

Accounts and joint interest receivable

(7,765,214

)

(4,357,303

)

Other changes in deferred income taxes

-

(320,058

)

Prepaid expenses

(150,505

)

(156,476

)

Excess tax benefits from shared-based payment arrangements

(3,807,266

)

(1,851,813

)

Accounts payable and accrued liabilities

(4,646,518

)

2,410,618

Net Cash Provided by Operating Activities

34,321,101

30,260,511

Cash Flows from Investing Activities

Purchase and development of oil and gas properties

(83,235,525

)

(61,556,302

)

Proceeds from sale of oil and gas properties

1,915,640

-

Purchase of buildings, land & equipment

(6,383,851

)

(717,818

)

Net Cash Used in Investing Activities

(87,703,736

)

(62,274,120

)

Cash Flows From Financing Activities

Proceeds from issuance of common stock, net of offering costs

95,099,298

29,788,881

Proceeds from exercise of warrants

270,003

150,000

Proceeds from exercise of options

1,287,000

640,000

Excess tax benefits from share-based payment arrangements

3,807,266

1,851,813

Funds received and held for call options

-

1,272,093

Funds paid from funds held for call options

-

(1,265,912

)

Proceeds from issuance of notes payable

30,700,000

11,000,000

Payment of notes payable

(50,400,000

)

(11,000,000

)

Net Cash Provided by Financing Activities

80,763,567

32,436,875

Net Increase in Cash

27,380,932

423,266

Cash at Beginning of Period

4,919,984

4,317,114

Cash at End of Period

$32,300,916

$4,740,380

Supplemental Cash Flow Information

Cash paid for income taxes

-

$329,986

Cash paid for interest

1,438,973

180,702

Non-Cash Investing and Financing Activities

Common stock issued for properties and equipment

-

$3,507,872

Asset retirement obligation incurred in property development

270,357

189,326

Depreciation on drilling rig capitalized as part of oil and gas properties

149,766

-

RECONCILIATION OF CASH FLOW FROM OPERATIONS

Net cash provided by operating activities

$34,321,101

$30,260,511

Change in operating assets and liabilities

16,369,503

4,275,032

Cash flow from operations

$50,690,604

$34,535,543

Management believes that the non-GAAP measure of cash flow from operations is useful information for investors because it is used internally and is accepted by the investment community as a means of measuring the Company's ability to fund its capital program. It is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.

ARENA RESOURCES, INC.

NON-GAAP DISCLOSURE RECONCILIATION

ADJUSTED EBITDA

Nine Months Ended

September 30,

September 30,

2007

2006

NET INCOME

$25,011,045

$18,034,724

Warrants issued for financing expense

-

785,598

Interest expense

619,048

(40,009

)

Income tax expense

14,710,763

10,700,463

Depreciation, depletion and amortization

8,356,796

4,253,142

Accretion of discounted liabilities

135,177

104,697

Stock based compensation

2,476,823

656,919

ADJUSTED EBITDA

$51,309,652

$34,495,534

Source: Business Wire

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