Arena Resources Announces Record Third Quarter and Nine Month 2008 Financial and Operating Results
Arena Resources, Inc. (NYSE: ARD) (“Arena”) (“Company”) announced today financial results for the three months and nine months ended September 30, 2008. For the three month period ended September 30, 2008, Arena had oil and gas revenues of $68,412,686, compared to $26,731,699 for the quarter ended September 30, 2007, a 156% increase and net income of $26,922,966 or $0.69 per fully diluted share, compared to net income of $11,403,777, or $0.32 per fully diluted share, for the same period in 2007, a 136% increase. For the nine month period ended September 30, 2008, the Company reported oil and gas revenues of $175,884,359, compared to oil and gas revenues of $65,003,299 for the nine month period ended September 30, 2007, a 171% increase. Net income for the nine month period ended September 30, 2008 was $70,035,710, or $1.87 per fully diluted share, compared to net income of $25,011,045, or $0.76 per fully diluted share, for the same period in 2007, a 180% increase.
The revenue increase was due to increases in production volumes, primarily due to development activity, and increases in commodity prices. Arena’s total sales production for the quarter ended September 30, 2008 was 618,835 BOEs (Barrel of Oil Equivalents). This represents a 54% increase over the same three month period in 2007 and an 11% increase over the second quarter of 2008. For the three months ended September 30, 2008, oil sales volume increased to 528,044 barrels, compared to 344,399 barrels for the same period in 2007, a 53% increase, and gas sales volume increased to 544,746 MCF (thousand cubic feet), compared to 351,498 MCF for the same period in 2007, a 55% increase. For the nine months ended September 30, 2008, oil sales volume increased to 1,458,530 barrels, compared to 954,228 barrels for the same period in 2007, a 53% increase, and gas sales volume increased to 1,414,987 MCF, compared to 1,024,602 MCF for the same period in 2007, a 38% increase. The average commodity prices received by Arena were $115.41 per barrel of oil and $13.71 per MCF of natural gas for the quarter ended September 30, 2008, compared to $69.78 per barrel of oil and $7.68 per MCF of natural gas for the quarter ended September 30, 2007. The average prices received for the nine months ended September 30, 2008 were $109.42 per barrel of oil and $11.51 per MCF of natural gas, compared to $60.14 per barrel of oil and $7.43 per MCF of natural gas for the nine month period ended September 30, 2007.
Lease operating expenses for the three months ended September 30, 2008 were $9.36 per BOE, a 27% increase from the prior year primarily due to increased chemical and utility costs. Production taxes increased 53% to $5.86 per BOE due to higher commodity prices. Depreciation, depletion and amortization costs increased 110% to $15.81 per BOE. General and administrative costs, which included a $1,845,863 charge for stock based compensation, were $5.53 per BOE, a 51% increase. Interest income was $0.88 per BOE, a 23% decrease.
For the nine months ended September 30, 2008, lease operating expenses were $7.66 per BOE, an 8% increase over the same period in 2007. Production taxes were $5.28 per BOE, a 60% increase. Depreciation, depletion and amortization costs were $13.81 per BOE, an 86% increase, and general and administrative costs, which included a $5,095,580 charge for stock based compensation, were $5.72 per BOE, a 43% increase. Net interest expense was $0.18 per BOE, a 67% decrease.
There was no outstanding debt on the Company’s $150 million bank credit facility at September 30, 2008. Commencing August 1, 2008, the Company put in place a “costless collar” on 518,000 barrels of oil with a $100.00 floor and $197.00 ceiling expiring December 31, 2009.
Net cash flow from operations for the three and nine months ended September 30, 2008 was $54,502,204, or $1.40 per fully diluted share, and $140,042,188, or $3.73 per fully diluted share, compared to net cash flow of $22,164,986, or $0.62, and $50,690,604, or $1.54 per fully diluted share for the same periods in 2007 (1). This represents increases of 146% and 176% respectively.
Mr. Phil Terry, Arena’s President and Chief Executive Officer, stated, “We drilled 69 new development wells and re-fraced ten more existing wells on our Fuhrman Mascho properties during the quarter. We had four drilling rigs operating at the Fuhrman Mascho during the third quarter and as a result experienced our sixteenth consecutive quarter of record production. Based on current economic conditions and lower commodity prices, we have decided to reduce our current 2008 capital expenditure budget from $248 million to $189 million. This will allow us, based on current commodity prices, to continue to grow our annual production and proven reserve base while operating within current cash flow. If we experience a meaningful reduction in well drill costs or an increase in commodity prices we can re-evaluate our development program. We will continue to prepare for the arrival of the new Yates gas pipeline, expected in the second quarter of 2009, and have budgeted the drilling of four new Yates gas wells in the fourth quarter of 2008. We continue to look at acquisition opportunities, concentrating on those that complement our existing Permian Basin properties. We maintain a strong cash position and the full availability of our $150 million credit facility for acquisition opportunities.”
Non-GAAP Financial Measures:
Earnings for the three months and nine months ended September 30, 2008 include non-cash charges for stock based compensation of $1,845,863 and $5,095,580, respectively. Excluding such items, the Company’s earnings would have been $0.72 per diluted share for the three months ended September 30, 2008, and $1.95 for the nine months ended September 30, 2008. 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 September 30, ————————- 2008 2007 ———— ———— (Unaudited) (Unaudited) ———— ———— Oil and Gas Revenues $68,412,686 $26,731,699 ————————- Costs and Operating Expenses Oil and gas production costs 5,790,236 2,969,674 Oil and gas production taxes 3,629,326 1,541,612 Realized loss on oil derivatives 3,462,283 – Depreciation, depletion and amortization 9,841,972 3,039,529 Accretion expense 79,502 46,414 General and administrative expense 1,574,726 516,783 Stock based compensation expense 1,845,863 956,072 ————————- Total Costs and Operating Expenses 26,223,908 9,070,084 ————————- Other Income (Expense) Interest income 546,089 481,387 Interest expense – (20,032) ————————- Net Other Income (Expense) 546,089 461,355 ————————- Income Before Provision for Income Taxes 42,734,867 18,122,970 Provision for Deferred Income Taxes (15,811,901) (6,719,193) ————————- Net Income $26,922,966 $11,403,777 ————————- Basic Net Income Per Common Share $0.71 $0.33 Diluted Net Income Per Common Share $0.69 $0.32 ————————- Other Comprehensive Gain Unrealized gain on oil derivatives, net of tax 7,804,513 – ————————- Total Other Comprehensive Income $34,727,479 $11,403,777 Basic Weighted-Average Common Shares Outstanding 37,976,326 34,068,128 Diluted Weighted-Average Common Shares Outstanding 38,978,001 35,584,238 Nine Months Ended September 30, ————————– 2008 2007 ————- ———— (Unaudited) (Unaudited) ————- ———— Oil and Gas Revenues $175,884,359 $65,003,299 ————————– Costs and Operating Expenses Oil and gas production costs 12,979,837 7,946,155 Oil and gas production taxes 8,942,914 3,717,095 Realized loss on oil derivatives 9,008,822 – Depreciation, depletion and amortization 23,556,695 8,356,796 Accretion expense 222,119 135,177 General and administrative expense 4,600,897 2,030,397 Stock based compensation expense 5,095,580 2,476,823 ————————– Total Costs and Operating Expenses 64,406,864 24,662,443 ————————– Other Income (Expense) Interest income 835,755 633,451 Interest expense (1,145,456) (1,252,499) ————————– Net Other Income (Expense) (309,701) (619,048) ————————– Income Before Provision for Income Taxes 111,167,794 39,721,808 Provision for Deferred Income Taxes (41,132,084) (14,710,763) ————————– Net Income $70,035,710 $25,011,045 ————————– Basic Net Income Per Common Share $1.93 $0.80 Diluted Net Income Per Common Share $1.87 $0.76 ————————– Other Comprehensive Gain Unrealized gain on oil derivatives, net of tax 4,970,784 – ————————– Total Other Comprehensive Income $75,006,494 $25,011,045 Basic Weighted-Average Common Shares Outstanding 36,251,182 31,368,107 Diluted Weighted-Average Common Shares Outstanding 37,499,289 32,968,114
COMPARATIVE OPERATING STATISTICS Three Months Ended September 30, 2008 2007 Change ——- —— —— Net Production – BOE per day 6,726 4,380 54% Per BOE: Average Sales Price $110.55 $66.33 67% Lease Operating Expenses 9.36 7.37 27% Production Taxes 5.86 3.82 53% DD&A 15.81 7.54 110% General & Administrative Expenses 2.55 1.28 98% Stock Based Compensation 2.98 2.37 26% Interest Expense (Income) (0.88) (1.14) -23% Nine Months Ended September 30, 2008 2007 Change ——- —— —— Net Production – BOE per day 6,184 4,121 50% Per BOE: Average Sales price $103.81 $57.78 80% Lease Operating Expenses 7.66 7.06 8% Production Taxes 5.28 3.31 60% DD&A 13.81 7.43 86% General & Administrative Expenses 2.71 1.81 50% Stock Based Compensation 3.01 2.20 37% Interest Expense (Income) 0.18 0.55 -67%
ARENA RESOURCES, INC. CONSOLIDATED BALANCE SHEET September 30, December 31, 2008 2007 ————- ————- ASSETS Current Assets Cash $79,243,230 $5,213,459 Accounts receivable 20,492,982 20,462,160 Joint interest billing receivable 2,936,612 3,355,537 Prepaid expenses 866,230 133,393 ————- ————- Total Current Assets 103,539,054 29,164,549 ————- ————- Property and Equipment, Using Full Cost accounting Oil and gas properties subject to amortization 492,914,565 339,887,859 Inventory for property development 1,392,728 – Drilling rigs 6,423,897 6,254,737 Land, buildings, equipment and leasehold improvements 5,693,301 4,512,224 ————- ————- Total Property and Equipment 506,424,491 350,654,820 Less: Accumulated depreciation and amortization (54,534,446) (30,497,371) ————- ————- Net Property and Equipment 451,890,045 320,157,449 ————- ————- Other Assets Fair value of oil derivative 4,541,253 – ————- ————- Total Assets $559,970,352 $349,321,998 ————- ————- LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable $15,637,893 $12,525,202 Income taxes payable – $539,793 Fair value of oil derivative 1,097,942 4,446,822 Accrued liabilities 2,066,197 1,704,658 ————- ————- Total Current Liabilities 18,802,032 19,216,475 ————- ————- Long-Term Liabilities Notes Payable – 35,000,000 Asset retirement liability 4,596,179 3,397,830 Deferred income taxes 77,875,474 33,896,728 ————- ————- Total Long-Term Liabilities 82,471,653 72,294,558 ————- ————- 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; 38,149,407 shares and 34,278,779 shares outstanding, respectively 38,149 34,279 Additional paid-in capital 316,727,456 190,852,118 Retained earnings 139,761,776 69,726,066 Accumulated other comprehensive income (loss) 2,169,286 (2,801,498) ————- ————- Total Stockholders’ Equity 458,696,667 257,810,965 ————- ————- Total Liabilities and Stockholders’ Equity $559,970,352 $349,321,998 ————- ————-
ARENA RESOURCES, INC. STATEMENTS OF CASH FLOW Nine Months Ended September 30, 2008 2007 ————- ———— Cash Flows From Operating Activities Net income $70,035,710 $25,011,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 23,556,695 8,356,796 Provision for income taxes 41,132,084 14,710,763 Stock based compensation 5,095,580 2,476,823 Accretion of asset retirement obligation 222,119 135,177 Changes in assets and liabilities: Accounts and joint interest receivable 388,103 (7,765,214) Income taxes payable (612,480) – Prepaid expenses (732,837) (150,505) Excess tax benefits from shared-based payment arrangements – (3,807,266) Accounts payable and accrued liabilities 3,373,813 (4,646,518) ————————– Net Cash Provided by Operating Activities 142,458,787 34,321,101 ————————– Cash Flows from Investing Activities Purchase and development of oil and gas properties (151,469,679) (83,235,525) Purchase of inventory for property development (1,392,728) – Purchase of buildings, drilling rigs & equipment (1,350,237) (6,383,851) Proceeds from sale of oil and gas properties – 1,915,640 ————————– Net Cash Used in Investing Activities (154,212,644) (87,703,736) ————————– Cash Flows From Financing Activities Proceeds from issuance of common stock, net of offering costs 116,130,189 95,099,298 Proceeds from exercise of warrants 236,179 270,003 Proceeds from exercise of options 4,417,260 1,287,000 Excess tax benefits from share-based payment arrangements – 3,807,266 Proceeds from issuance of notes payable 11,000,000 30,700,000 Payment of notes payable (46,000,000) (50,400,000) ————————– Net Cash Provided by Financing Activities 85,783,628 80,763,567 ————————– Net Increase in Cash 74,029,771 27,380,932 Cash at Beginning of Period 5,213,459 4,919,984 ————————– Cash at End of Period $79,243,230 $32,300,916 ————————– Supplemental Cash Flow Information Cash paid for income taxes $612,480 – Cash paid for interest 1,280,122 1,438,973 ————————– Non-Cash Investing and Financing Activities Asset retirement obligation incurred in property development 1,076,648 270,357 Depreciation on drilling rigs capitalized as oil and gas properties 480,380 149,766 RECONCILIATION OF CASH FLOW FROM OPERATIONS Net cash provided by operating activities $142,458,787 $34,321,101 Change in operating assets and liabilities (2,416,599) 16,369,503 ————————– Cash flow from operations $140,042,188 $50,690,604 ========================== 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, 2008 2007 ————- ————- NET INCOME $70,035,710 $25,011,045 Interest expense 309,701 619,048 Income tax expense 41,132,084 14,710,763 Depreciation, depletion and amortization 23,556,695 8,356,796 Accretion of discounted liabilities 222,119 135,177 Stock based compensation 5,095,580 2,476,823 ————- ————- ADJUSTED EBITDA $140,351,889 $51,309,652 ————- ————-