Teton Announces 1st Q 2009 Financial and Operating Results

Source: www.gulfoilandgas.com 5/7/2009, Location: North America

Teton Energy Corporation announced that for the quarter ended March 31, 2009, operating revenues from oil and gas sales increased 37 percent from the first quarter of 2008 to $1.8 million and operating cash flow from oil and gas activities (defined as oil and gas sales less lease operating expense, workover expense, transportation expense and production taxes) decreased 47 percent to $529,000. EBITDAX (a non-GAAP measure - refer to last table of press release for a reconciliation to net income), increased to $1,875,000 from ($916,000) for first quarter of 2008.

For the first quarter of 2009, Teton realized a net loss of $5.4 million from continuing operations, or a fully diluted loss of $0.23 per share of common stock, compared to a loss for the first quarter of 2008 of $8.5 million, or a fully diluted loss of $0.48 per share of common stock. Net loss for the first quarter of 2009, including discontinued operations related to the sale of the Company's interest in its Teton Noble AMI properties and the potential sale of its Piceance Basin assets, was $35.5 million, or a fully diluted net loss of $1.49 per share of common stock, compared to a net loss for the first quarter of 2008 of $8.2 million, or a fully diluted net loss of $0.46 per share of common stock.

Prices and volumes. Oil and gas sales volumes increased 203 percent to 315 million cubic feet equivalent ("MMcfe") at an average realized wellhead price of $5.69 per thousand cubic feet equivalent ("Mcfe") in the first quarter of 2009 compared to oil and gas sales volumes of 104 MMcfe at an average realized wellhead price of $12.55 per Mcfe in the first quarter of 2008 or $11.43 and $11.46, respectively, after hedging. Sales volumes and prices exclude production from the Teton Noble AMI and Piceance Basin which are reported in discontinued operations. Sales volumes from continuing operations in the first quarter of 2009 were 14 percent natural gas and 86 percent crude oil.

Going Concern. At March 31, 2009, there is substantial doubt as to the ability of the Company to continue as a going concern. Effective May 1, 2009, the group of banks which participate in the Amended Credit Facility will redetermine the Company's borrowing base. The redetermination process is underway, with communication of the new borrowing base expected from the bank group around mid-May. The redetermination is expected to result in a borrowing base deficiency, which, by contract, is due in equal monthly payments over three months. The Company does not currently have sufficient resources to fund its current working capital requirements and service the borrowing base deficiency. Our ability to continue as a going concern is dependent upon the success of our financial and strategic alternatives process, which may include the sale of some or all of our assets, a merger or other business combination involving the Company, or the restructuring and recapitalization of the Company. The Company has hired Barrier Advisors, Inc. from Dallas, TX, to further assist in the evaluation of its strategic and financial alternatives.

Price Risk Management. Teton manages its overall exposure to commodity price fluctuations through the use of various hedging contracts for some of its production. The duration of various hedging contracts depends on the Company's view of market conditions, available contract prices and operating strategy. The use of such contracts is intended to stabilize cash flows by limiting the risk of fluctuating commodity prices. As of March 31, 2009, Teton had hedging contracts in effect, through September 2011, for approximately 86 percent of its then-current net PDP oil production.

Balance Sheet. At March 31, 2009, Teton had total assets of $89.6 million, cash and cash equivalents in short-term investments of $360,000, $30.7 million outstanding on its line of credit and $25.5 million outstanding related to its 10.75% Secured Convertible Debentures, presented net of the discount of $2.0 million related to the embedded conversion features.

Operating Expense Details. Oil and gas operating expenses, including lease operating expense ("LOE"), workover, transportation expense and production taxes, for the first quarter of 2009 collectively increased 317 percent to $1.3 million due to a significant increase in oil volumes related to the new producing area of the Central Kansas Uplift acquired during the second quarter of 2008 and increased 37 percent on a per Mcfe basis to $4.01 per Mcfe.

The Company's cash margin (oil and gas sales, excluding realized gain (loss) on oil and gas derivative contracts, less oil and gas operating expenses) in the first quarter of 2009 decreased 13 percent on a per Mcfe basis to $7.42 from $8.54 in the first quarter of 2008.

Operating expenses and the Company's cash margin exclude production from the Teton Noble AMI and Piceance Basin which are reported in discontinued operations.

General and administrative expense in the first quarter of 2009 decreased $1.9 million due largely to a decrease in non-cash compensation expense of $1.6 million, a decrease in professional fees of $252,000 related to the use of financial consultants in the prior year and a decrease in corporate communications costs of $165,000. The Company has made reductions in its staffing levels since the end of the first quarter, reducing its total staff by 50 percent and the related payroll expense by 44 percent, or $1.5 million. Additionally, all remaining staff have taken a 10 percent reduction in salaries and the Company contributions to the benefit programs have been reduced to 50 percent of the benefit costs, compared to 90 percent before.

Depreciation, depletion and accretion ("DD&A") expense related to oil and gas producing activities in the first quarter of 2009, on a per Mcfe basis, decreased 50 percent, largely due to the new production volumes from the Central Kansas Uplift. DD&A for the three months ended March 31, 2009 was $4.49 per Mcfe compared to $9.00 per Mcfe for the three months ended March 31, 2008.

Interest expense in the first quarter decreased from $4.2 million to $1.3 million. Interest incurred during the three months ended March 31, 2009 includes actual interest expense on the Amended Credit Facility and the 10.75% Secured Convertible Notes of $996,000, and $184,000 and $121,000, respectively, related to the amortization of deferred debt issuance costs and debt discount. Interest expense recognized in 2008, net of interest income of $128,000 related to the amortization of deferred debt discount and issuance costs of $4.2 million related to the 8% senior subordinated convertible notes which were repaid or converted in May of 2008 and to interest incurred on the Company's Senior Bank Facility of $247,000.

On May 5, 2009, Karl F. Arleth, the Company's President and Chief Executive Officer resigned, effective immediately, in order to pursue other interests. The Board has appointed Mr. James Woodcock, the current Chairman of the Board of Directors, as interim CEO. As part of his responsibilities, Mr. Woodcock, on behalf of the Board, will coordinate company activities with management. "On behalf of the Board of Directors and Management, we would like to thank Karl for his significant efforts and contributions towards the growth and success of Teton," stated Mr. Woodcock.

CFO comments. Lonnie Brock, Executive Vice President and Chief Financial Officer, commented, "The first quarter of 2009 has presented unique challenges. We continue to re-examine all aspects of the Company's business and to look for areas of improvement. Our net production volumes during the first quarter of 2009 have exceeded management's forecasted volumes despite a significant decrease in our capital budget. We have taken steps to improve our balance sheet and liquidity, including the sale of non-operated assets, and we will continue to explore various alternatives with our debt and equity holders to further strengthen the balance sheet."


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Related Categories: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

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