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Infinity Reports Record Quarterly Revenue, Gross Profit and EBITDA

Posted on: Monday, 7 November 2005, 09:01 CST

DENVER, Nov. 7 /PRNewswire-FirstCall/ -- Infinity Energy Resources, Inc. today announced its financial and operational results for the three and nine months ended September 30, 2005. Financial and operational tables follow this commentary.

Third Quarter Financial Results

Infinity reported record quarterly revenue of $8.8 million in the third quarter of 2005, a 33% increase over the $6.6 million in the prior year period. Gross profit for the third quarter of 2005 was a quarterly record of $4.4 million, a 25% increase over the $3.5 million in the prior year period.

EBITDA for the third quarter of 2005 was a quarterly record $2.8 million, a 27% increase over the EBITDA of $2.2 million in the prior year period. A reconciliation of net loss to EBITDA, a non-GAAP financial measure, is provided in the financial tables following this commentary.

The net loss for the third quarter of 2005 was $0.6 million (or $0.05 per share), and included amortization of loan discount and costs of $0.5 million. For the prior year period, the net income was $3.1 million (or $0.29 per diluted share), and included amortization of loan discount and costs of $0.4 million and a gain on the sale of assets of $2.8 million.

Nine Month Financial Results

Infinity reported nine month revenue of $22.0 million in the 2005 period, a 44% increase over the $15.2 million in the prior year period. Gross profit for the first nine months of 2005 was $11.3 million, a 47% increase over the $7.7 million in the prior year period.

EBITDA for the first nine months of 2005 was $7.1 million, a 97% increase over the EBITDA of $3.6 million in the prior year period. A reconciliation of net loss to EBITDA, a non-GAAP financial measure, is provided in the financial tables following this commentary.

The net loss for the first nine months of 2005 was $3.1 million (or $0.24 per share), and included amortization of loan discount and costs of $1.2 million, early extinguishment of debt costs of $1.3 million, impairment of note receivable of $0.4 million and loss on sale of assets of $0.1 million. For the prior year period, the net income was $0.3 million (or $0.03 per diluted share), and included amortization of loan discount and costs of $1.5 million, early extinguishment of debt costs of $0.2 million and a gain on the sale of assets of $2.7 million.

Accounting Restatement

The Company also announced today that it has restated its results for the first and second quarters of 2005 to correct the accounting for the debt discount resulting from a beneficial conversion feature associated with the Company's senior secured notes issued in January 2005. The restatement resulted in a decrease of $8.0 million to the net loss reported by the Company for the three months ended March 31, 2005, an increase of $0.1 million to the net loss reported by the Company for the three months ended June 30, 2005 and a decrease of $7.9 million to the net loss reported by the Company for the six months ended June 30, 2005. Infinity's Form 8-K to be filed today in conjunction with this release includes additional information on this restatement.

Balance Sheet Data

At September 30, 2005, Infinity had cash and equivalents of $9.7 million, a net working capital surplus of $8.0 million, long-term indebtedness of $25.4 million (net of a $16.2 million debt discount) and stockholders' equity of $63.2 million, as compared to cash and equivalents of $3.1 million, a net working capital surplus of $0.3 million, long-term indebtedness of $25.3 million and stockholders' equity of $28.8 million at December 31, 2004.

The Company issued $9.5 million of senior secured notes during the third quarter of 2005.

Statements of Cash Flows, Liquidity and Capital Resources Data

Net cash provided by operating activities increased by 23% from $1.6 million in the first nine months of 2004 to $2.0 million in the first nine months of 2005. Net cash used in investing activities increased by 641% from $3.8 million in the first nine months of 2004 to $27.9 million in the first nine months of 2005, including (i) a $20.4 million, or 350%, increase in exploration and production capital expenditures from $5.8 million in the first nine months of 2004 to $26.3 million in the first nine months of 2005 and (ii) a $2.3 million, or 368%, increase in oilfield services capital expenditures from $0.6 million in the first nine months of 2004 to $3.0 million in the first nine months of 2005. Proceeds from the sale of fixed assets declined by $4.3 million in the first nine months of 2005 as compared to the prior year period. Net cash provided by financing activities increased by 748% from $3.8 million in the first nine months of 2004 to $32.6 million in the first nine months of 2005.

Approximately $31 million of the Company's capital budget for 2005 was incurred in the first nine months of 2005. The Company now estimates capital expenditures for 2005 will be between $45 million and $48 million. The Company expects to finance the remaining balance of approximately $14 million to $17 million of estimated capital expenditures for the fourth quarter of 2005 through: (i) $8.0 million of working capital on hand at September 30, 2005; (ii) cash flow from operations, prior to changes in working capital; and (iii) planned borrowings under the Company's senior secured notes facility of up to $5.5 million.

Third Quarter Operational Results

Exploration and production generated revenue of approximately $2.9 million during the third quarter of 2005, a 65% increase from the approximate $1.8 million in the prior year period and a 32% increase from the approximate $2.2 million in the second quarter of 2005. Exploration and production operations produced approximately 364 million cubic feet of natural gas equivalent ("MMcfe") during the third quarter of 2005 (4.0 MMcfe per day, net), an increase of 15% from the 317 MMcfe produced in the prior year period and an increase of 8% from the 336 MMcfe produced in the second quarter of 2005.

Larger contributions of natural gas production during the third quarter from wells in the Fort Worth Basin, offset by declining production from the Wamsutter Arch Pipeline Field ("Pipeline Field") in Wyoming, contributed to a 14% increase in natural gas volumes over the second quarter. Oil production from one Sand Wash Basin fractured Niobrara well was essentially flat from the second quarter to the third quarter while oil production declined slightly at the Pipeline Field from the second quarter to third quarter. The Company expects increases in production in the fourth quarter due to contributions from wells to be drilled and completed in the fourth quarter of 2005, partially offset by natural declines of producing wells.

Oilfield services, provided by Consolidated Oil Well Services, Inc. ("Consolidated"), generated record quarterly revenue of $5.9 million in 2005, a 22% increase over the $4.8 million in the prior year period and an 8% increase over the previous quarterly record of $5.4 million set in the second quarter. Consolidated performed 1,808 cementing, acidizing and fracturing jobs during the third quarter of 2005, a 3% increase over the 1,759 jobs in the prior year period and a 9% increase over the 1,653 jobs during the second quarter.

Nine Month Operational Results

Exploration and production generated revenue of approximately $6.6 million during the first nine months of 2005, a 36% increase from the approximate $4.8 million in the prior year period. Exploration and production operations produced approximately 967 MMcfe during the first nine months of 2005 (3.5 MMcfe per day, net), an increase of 8% from the 892 MMcfe produced in the prior year.

Oil production from one Sand Wash Basin fractured Niobrara well brought on line in the first quarter of 2005 and natural gas production from wells in the Fort Worth Basin brought on line during the second and third quarters of 2005, more than offset declining production from the Pipeline Field in the first nine months of 2005 as compared to the prior year.

Oilfield services generated record nine month revenue of $15.4 million in 2005, a 48% increase over the $10.4 million in the prior year period. Consolidated performed 4,836 cementing, acidizing and fracturing jobs during the first nine months of 2005, a 31% increase over the 3,705 jobs in the prior year period.

Management's Comments

James A. Tuell, Infinity's President and Chief Executive Officer, said: "We are very pleased with our financial and operational results for the third quarter and first nine months of 2005. We are also pleased to see the continuation of production increases and expect that to continue into 2006 as we continue to exploit and develop our various resource bases. We believe our financial condition is sound and that we are well positioned to execute on our business plan of drilling, primarily in Texas, as well as the Rockies."

Tuell continued, "Consolidated continued to deliver outstanding operating and financial results in the third quarter. The continued trend of drilling and completing in the Mid-Continent and in the Powder River Basin is expected to continue into 2006 and Consolidated is well positioned to be a primary beneficiary of that trend. Once again, we have increased our oilfield services revenue guidance for 2005 to approximately $20.5 million."

Tuell concluded, "Again, we believe we had a solid third quarter and that we are well positioned for a continuation of that trend into the fourth quarter. Beyond that, we believe 2006 will be a time of unprecedented drilling and completion activity for Infinity and, assuming success in those efforts and a scaling up of efforts in Texas and also the Rockies, we expect strong increases in production and reserves during 2006."

Webcast / Conference Call Reminder

The Company will host a conference call tomorrow morning, Tuesday, November 8, 2005, at 11:00 a.m. Eastern time to discuss the reported financial results and operational update in greater detail. The dial-in number for the call is 877-407-8031 (international participants should dial 201-689-8031). Parties interested in participating in the conference call should dial in approximately ten minutes prior to the start time. The call will also be broadcast live on the Internet at http://www.investorcalendar.com/IC/CEPage.asp?ID=97363.

A replay of the conference call will be available approximately two hours after the completion of the call until November 29, 2005, by dialing 877-660-6853 (international callers should dial 201-612-7415) and entering the conference call ID: 286 and access code ID: 175966. The call will also be archived for until November 29, 2005 at http://www.investorcalendar.com/IC/CEPage.asp?ID=97363.

About Infinity Energy Resources, Inc.

Infinity Energy Resources, Inc., through its wholly-owned subsidiaries Infinity Oil and Gas of Texas, Inc. and Infinity Oil & Gas of Wyoming, Inc., is an independent energy company engaged in the exploration, development and production of natural gas and oil and the operation and acquisition of natural gas and oil properties. The operations of Infinity Oil and Gas of Texas are focused on its drilling program in the Fort Worth Basin of Texas. The operations of Infinity Oil & Gas of Wyoming are focused on the Wamsutter Arch Pipeline Field in southwest Wyoming and the Sand Wash Basin in northwest Colorado. Infinity Energy Resources, Inc. provides oilfield services through its wholly-owned subsidiary, Consolidated Oil Well Services, Inc., with operations principally focused in the Mid-Continent region and the Powder River Basin in northeast Wyoming. The Company's common stock is listed on the NASDAQ National Market under the symbol "IFNY."

Forward-looking Statements

This press release includes statements that may constitute "forward-looking" statements, usually containing the words "believe,""estimate,""project,""expect,""plan,""should" or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Forward-looking statements in this press release include expectations of capital expenditures, cash flow from operations and oilfield service revenue during the fourth quarter of 2005, expectations of increased oil and gas production and proved reserves during the fourth quarter of 2005 and into 2006, the expectation of unprecedented drilling and completion activity in 2006 and the expectation that our oilfield service customers will see a continued trend of heightened operational activity into 2006. Factors that could cause or contribute to such differences include, but are not limited to, operating risks, delays and problems, the availability of drilling rigs and services on acceptable terms, the results of drilling and completions, decreases in the prices of oil and gas, an increase in competition for oilfield services, a decrease in demand for oilfield services, unexpected negative geological variances, increases in interest rates, liquidity and capital requirements, and other risks described under "Risk Factors" in the Company's Annual Report on Form 10-K and in the Company's periodic reports filed with the Securities and Exchange Commission.

You can find the Company's filings with the Securities and Exchange Commission at http://www.infinity-res.com/ or at http://www.sec.gov/. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets ASSETS September 30, December 31, 2005 2004 (in thousands, except share and per share data) Current assets Cash and cash equivalents $ 9,736 $ 3,052 Accounts receivable, less allowance for doubtful accounts of $85 (2005 and 2004) 4,744 3,494 Note receivable -- 1,581 Inventories 524 286 Prepaid expenses and other 759 654 Total current assets 15,763 9,067 Property and equipment, at cost, net of accumulated depreciation 10,658 8,764 Oil and gas properties, using full cost accounting net of accumulated depreciation, depletion and amortization Proved 47,470 28,792 Unproved 21,099 15,595 Intangible assets, at cost, less accumulated amortization 2,474 1,497 Other assets, net 272 333 Total assets $ 97,736 $ 64,048 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Note payable and current portion of long-term debt $ 457 $ 284 Accounts payable 2,558 4,001 Accrued liabilities 3,589 4,274 Accrued interest 888 223 Current portion of asset retirement obligations 279 -- Total current liabilities 7,771 8,782 Long-term liabilities Production taxes payable 323 469 Asset retirement obligations, less current portion 1,069 635 Long-term debt, less current portion 25,386 11,330 Subordinated convertible notes payable -- 14,010 Total liabilities 34,549 35,226 Commitments and contingencies Stockholders' equity Common stock, par value $.0001, authorized 75,000,000 shares, issued and outstanding 13,501,988 (2005) and 10,628,196 (2004) shares 1 1 Additional paid-in-capital 80,829 43,363 Accumulated deficit (17,643) (14,542) Total stockholders' equity 63,187 28,822 Total liabilities and stockholders' equity $ 97,736 $ 64,048 INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Operations For the Three Months For the Nine Months Ended Ended September 30, September 30, 2005 2004 2005 2004 (in thousands, except per share data) Revenue Oilfield services 5,899 4,843 15,416 10,382 Oil and gas 2,906 1,763 6,554 4,836 Total revenue 8,805 6,606 21,970 15,218 Cost of revenue Oilfield services 3,029 2,359 7,548 5,636 Oil and gas production expenses 1,053 498 2,503 1,336 Oil and gas production taxes 284 207 653 558 Total cost of revenue 4,366 3,064 10,704 7,530 Gross profit 4,439 3,542 11,266 7,688 General and administrative expenses 1,496 1,352 4,132 4,178 Depreciation, depletion, amortization and accretion 2,184 1,161 5,567 3,523 Operating income (loss) 759 1,029 1,567 (13) Other income (expense) Financing costs: Interest expense (790) (328) (1,725) (917) Amortization of loan discount and costs (489) (397) (1,195) (1,467) Early extinguishment of debt -- (4) (1,276) (208) Impairment of note receivable -- -- (396) -- Loss on sales of assets 2 2,787 (89) 2,748 Other (119) 34 13 111 Total other expense (1,396) 2,092 (4,668) 267 Net income (loss) before income taxes (637) 3,121 (3,101) 254 Income taxes -- -- -- -- Net income (loss) $ (637) $ 3,121 $ (3,101) $ 254 Net income (loss) per share: Basic $(0.05) $ 0.33 $ (0.24) $0.03 Diluted $(0.05) $ 0.29 $ (0.24) $0.03 Weighted average shares outstanding: Basic 13,453,246 9,399,290 12,745,252 9,330,546 Diluted 13,453,246 11,600,675 12,745,252 9,514,622 INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2005 2004 Cash flows from operating activities Net income (loss) $(3,101) $254 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion, amortization and accretion 5,567 3,523 Amortization of loan discount and costs 1,195 1,467 Non-cash expense related to early extinguishment of debt 1,052 208 Impairment of note receivable 396 --- (Gain) loss on sales of assets 89 (2,748) Change in operating assets and liabilities: Increase in accounts receivable (1,271) (1,835) (Increase) decrease in inventories (238) 101 Increase in prepaid expenses and other (105) (81) Decrease in accounts payable (1,443) (708) Increase (decrease) in accrued liabilities (154) 1,429 Net cash provided by operating activities 1,987 1,610 Cash flows from investing activities Capital expenditures - exploration and production (26,256) (5,832) Capital expenditures - oilfield services (2,960) (632) Acquisitions - exploration and production --- (516) Acquisitions - oilfield services, net of cash acquired --- (1,188) Proceeds from sale of fixed assets - exploration and production 133 156 Proceeds from sale of fixed assets - oilfield services 20 4,334 Increase in other assets --- (93) Receipts on note receivable 1,204 12 Net cash used in investing activities (27,859) (3,759) Cash flows from financing activities Proceeds from notes payable 434 295 Proceeds from borrowings on long-term debt 39,500 5,845 Proceeds from issuance of common stock 4,707 4,095 Debt and equity issuance costs (2,540) (30) Repayment of notes payable (255) (486) Repayment of long-term debt (9,290) (5,882) Net cash provided by financing activities 32,556 3,837 Net increase in cash and cash equivalents 6,684 1,688 Cash and cash equivalents, beginning of period 3,052 727 Cash and cash equivalents, end of period $9,736 $2,415 INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES Non-GAAP Disclosures: Reconciliation of Net Income (Loss) to EBITDA (1) For the Three Months For the Nine Months Ended Ended September 30, September 30, 2005 2004 2005 2004 (in thousands) Net income (loss) $(637) $3,121 $(3,101) $254 Adjustments: Depreciation, depletion, amortization and accretion 2,673 1,558 6,762 4,990 Expense related to the early extinguishment of debt --- 4 1,276 208 Interest expense 790 328 1,725 917 Impairment of note receivable --- --- 396 --- (Gain) loss on sale of assets (2) (2,787) 89 (2,748) Income taxes --- --- --- --- EBITDA $2,824 $2,224 $7,147 $3,621 (1) In this press release, the term "EBITDA" is used. EBITDA is equivalent to earnings before interest, income taxes, depreciation, depletion, amortization and accretion expenses, gains and losses on the sale of assets, expense related to the early extinguishment of debt and impairment of note receivable. Infinity's management believes EBITDA is an important financial measurement tool that provides information about the Company's ability to service or incur indebtedness, and pay for its capital expenditures. This information differs from measures of performance determined in accordance with generally accepted accounting principles (GAAP) and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. This measure is not necessarily indicative of operating profit or cash flow from operations as determined under GAAP and may not be equivalent to similarly titled measures of other companies. INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES Selected Unaudited Operating and Financial Data by Operating Division For the Three Months For the Nine Months Ended Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2005 2005 2004 2005 2004 Oilfield Service Statistics (Dollars in thousands) Job type: Cementing 983 799 1,084 2,503 2,269 Acidizing 487 471 447 1,414 905 Fracturing 338 383 228 919 531 Total jobs 1,808 1,653 1,759 4,836 3,705 Job revenue: Cementing $2,958 $2,234 $2,812 $7,078 $5,867 Acidizing 513 482 461 1,396 978 Fracturing 2,406 2,730 1,809 6,875 4,073 Other 220 217 32 632 64 Discounts (198) (216) (271) (565) (600) Total revenue $5,899 $5,447 $4,843 $15,416 $10,382 Exploration and Production Statistics (Dollars in thousands) Production Volumes: Natural gas (MMcf) 249.3 219.4 265.5 680.2 735.4 Oil and condensate (MBbls) 19.1 19.5 8.5 47.7 26.1 Natural gas equivalents (MMcfe; 6:1) 364.1 336.4 316.7 966.6 891.7 Financial Results: Total revenue $2,906 $2,204 $1,763 $6,554 $4,836 Production expenses (1) 1,053 1,010 498 2,503 1,336 Production taxes 284 201 207 653 558 Financial Results, per Mcfe: Total revenue $7.98 $6.55 $5.57 $6.78 $5.42 Production expenses (1) 2.89 3.00 1.57 2.59 1.50 Production taxes 0.78 0.60 0.65 0.68 0.63 (1) Production expenses in the three and nine months ended September 30, 2005 include initial production expenses in the Sand Wash Basin and Fort Worth Basin resulting from the hauling of fluids that are anticipated to be reduced or eliminated in future periods. Contact for Infinity Energy Resources, Inc.: James W. Dean, VP, Strategic and Corporate Development (720) 932-7800 http://www.infinity-res.com/

Infinity Energy Resources, Inc.

CONTACT: James W. Dean, VP, Strategic and Corporate Development,+1-720-932-7800, for Infinity Energy Resources, Inc.

Web site: http://www.infinity-res.com/

Source: PRNewswire-FirstCall

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