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Results of Operations
WARNING CONCERNING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
This Report on Form 10-Q may contain forward-looking statements within the
meaning of the federal securities laws, principally, but not only, under the
caption “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” We caution investors that any forward-looking statements in this
report, or which management may make orally or in writing from time to time, are
based on management’s beliefs and on assumptions made by, and information
currently available to, management. When used, the words “anticipate,”
“believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,”
“should,” “will,” “result” and similar expressions which do not relate solely to
historical matters are intended to identify forward-looking statements. These
statements are subject to risks, uncertainties, and assumptions and are not
guarantees of future performance, which may be affected by known and unknown
risks, trends, uncertainties, and factors, that are beyond our control. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, or projected. We caution you that while forward-looking
statements reflect our good faith beliefs when we make them, they are not
guarantees of future performance and are impacted by actual events when they
occur after we make such statements. We expressly disclaim any responsibility to
update our forward-looking statements, whether as a result of new information,
future events or otherwise. Accordingly, investors should use caution in relying
on past forward-looking statements, which are based on results and trends at the
time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results,
performance or achievements to differ materially from those expressed or implied
by forward-looking statements include, among others, the factors listed and
described at Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K,
which investors should review. There have been changes to the risk factors
previously described in the Company’s Form 10-K. for the fiscal year ended
pandemic factors occurring during the nine months of 2022 and continuing into
the fourth quarter of 2022 which are described in the following two paragraphs.
The effects of COVID-19 mitigation efforts, including the wide availability of
vaccines, combined with the waning intensity of the pandemic, and other world
events, have resulted in increased demand and prices for crude oil and
condensate. During 2021, and continuing through the first three quarters of
2022, the demand and prices for crude oil and condensate returned to
pre-pandemic levels, but uncertainty related to COVID-19 and other world events,
may continue to cause a fluctuation in demand and prices for crude oil and
condensate. The continuing COVID-19 pandemic related economic repercussions, and
any future outbreak of any other highly infectious or contagious diseases may
negatively affect the Company, our financial condition, results of operations,
and cash flows. However, the duration and extent of the impact of the COVID-19
pandemic on the Company and our operational and financial performance, including
our ability to execute our business strategies and initiatives in the expected
time frame, is uncertain and depends on various factors that we cannot predict
or quantify, including: the severity and duration of the pandemic; governmental,
business and other actions in response to the pandemic; the impact of the
pandemic on economic activity; the response of the overall economy and the
financial markets; the demand for oil and natural gas, which may be reduced on a
prolonged or permanent basis due to a structural shift in the global economy or
in connection with a global recession or depression; any impairment in the value
of the Company’s assets which could be recorded as a result of a weaker economic
conditions or commodity prices. There are no comparable recent events that
provide guidance as to the effect the COVID-19 pandemic may have, and as a
result, the ultimate long-term impact of the pandemic is highly uncertain and
subject to change.
Continuing inflation and other uncertainties regarding the global economy,
financial environment, and global conflict could lead to an extended national or
global economic recession. A slowdown in economic activity caused by a recession
would likely reduce national and worldwide demand for oil and natural gas and
result in lower commodity prices. Prolonged, substantial decreases in oil and
natural gas prices would likely have a material adverse effect on the Company’s
business, financial condition, and results of operations, and could further
limit the Company’s access to liquidity and credit and could hinder its ability
to satisfy its capital requirements.
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In the past several years, capital and credit markets have experienced
volatility and disruption. Given the levels of market volatility and disruption,
the availability of funds from those markets may diminish substantially.
Further, arising from concerns about the stability of financial markets
generally and the solvency of borrowers specifically, the cost of accessing the
credit markets has increased as many lenders have raised interest rates, enacted
tighter lending standards, or altogether ceased to provide funding to borrowers.
Due to these potential capital and credit market conditions, the Company cannot
be certain that funding will be available in amounts or on terms acceptable to
the Company. The Company is evaluating whether current cash balances and cash
flow from operations alone would be sufficient to provide working capital to
fully fund the Company’s operations. Accordingly, the Company is evaluating
alternatives, such as joint ventures with third parties, or sales of interests
in one or more of its properties. Such transactions, if undertaken, could result
in a reduction in the Company’s operating interests or require the Company to
relinquish the right to operate the property. There can be no assurance that any
such transactions can be completed or that such transactions will satisfy the
Company’s operating capital requirements. If the Company is not successful in
obtaining sufficient funding or completing an alternative transaction on a
timely basis on terms acceptable to the Company, the Company would be required
to curtail its expenditures or restructure its operations, and the Company would
be unable to continue its exploration, drilling, and recompletion program, any
of which would have a material adverse effect on its business, financial
condition, and results of operations.
A negative shift in some of the public’s attitudes toward the oil and natural
gas industry could adversely affect the Company’s ability to raise debt and
equity capital. Certain segments of the investment community have developed
negative sentiments about investing in the oil and natural gas industry. Equity
returns in the sector versus other industry sectors from 2020 and continuing
through the first three quarters of 2022 led to lower oil and natural gas
representation in certain key equity market indices. In addition, some
investors, including investment advisors and certain wealth funds, pension
funds, university endowments and family foundations, have stated policies to
disinvest in the oil and natural gas sector based on their social and
environmental considerations. Certain other stakeholders have also pressured
commercial and investment banks to halt financing oil and natural gas production
and related infrastructure projects. Such developments, including environmental,
social and governance (“ESG”) activism and initiatives aimed at limiting climate
change and reducing air pollution, could result in downward pressure on the
stock prices of oil and natural gas companies. The Company’s stock price could
be adversely affected by these developments. This may also potentially result in
a reduction of available capital funding for potential development projects,
impacting on the Company’s future financial results.
The Company faces various risks associated with increased negative attitudes
toward oil and natural gas exploration and development activities. Opposition to
oil and natural gas drilling and development activities has been growing
globally and is expanding in
gas industry are often the target of efforts from both individuals and
nongovernmental organizations regarding safety, human rights, climate change,
environmental matters, sustainability, and business practices. Anti-development
groups are working to reduce access to federal and state government lands and
delay or cancel certain operations such as drilling and development along with
other activities. Opposition to oil and natural gas activities could materially
and adversely impact the Company’s ability to operate our business and raise
capital.
There could be adverse legislation which if passed, would significantly curtail
our ability to attract investors and raise capital. Proposed changes in the
Federal income tax laws which would eliminate or reduce the percentage depletion
deduction and the deduction for intangible drilling and development costs for
small independent producers, will significantly reduce the investment capital
available to those in the industry as well as our Company. Lengthening the time
to expense seismic costs will also have an adverse effect on our ability to
explore and find new reserves.
Other factors that may affect the demand for oil and natural gas, and therefore
impact our results, include technological improvements in energy efficiency;
seasonal weather patterns; increased competitiveness of, or government policy
support for, alternative energy sources; changes in technology that alter fuel
choices, such as technological advances in energy storage that make wind and
solar more competitive for power generation; changes in consumer preferences for
our products, including consumer demand for alternative fueled or electric
transportation or alternatives to plastic products; and broad-based changes in
personal income levels.
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Commodity prices and margins also vary depending on a number of factors
affecting supply. For example, increased supply from the development of new oil
and gas supply sources and technologies to enhance recovery from existing
sources tend to reduce commodity prices to the extent such supply increases are
not offset by commensurate growth in demand.
Other sections of this report may also include suggested factors that could
adversely affect our business and financial performance. Moreover, we operate in
a very competitive and rapidly changing environment. New risks may emerge from
time to time, and it is not possible for management to predict all such matters;
nor can we assess the impact of all such matters on our business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements. Given
these uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. Investors should
also refer to our quarterly reports on Form 10-Q for future periods and current
reports on Form 8-K as we file them with the
furnish to the public from time to time through Forms 8-K or otherwise.
Results of Operations
Nine months ended
30, 2021
Oil and gas revenues for the first nine months of 2022 were
compared to
production.
Oil sales for the first nine months of 2022 were approximately
compared to approximately
increase of approximately
nine months of 2021 were approximately 26,856 bbls, compared to approximately
24,098 bbls during the same period in 2021, an increase of approximately 2,758
bbls, or 11.4%,
Average oil prices received were
compared to
approximately
Natural gas revenue for the first nine months of 2022 was
or 47.92%. Natural gas sales volumes for the first nine months of 2022 were
approximately 473,000 mcf compared to approximately 589,000 mcf during the first
nine months of 2021, a decrease of approximately 116,000 mcf or 19.7%.
Average gross natural gas prices received were
months of 2022 as compared to
increase of approximately
In general, revenues from oil and gas producing operations experienced a
significant increase for the first nine months of 2022 compared to the same
period in 2021. In addition, the third quarter results from operations also
experienced a significant increase over the same period in 2021. These increases
result in part from increased oil and gas prices. A significant number of both
operated wells and non-operated wells were shut-in due to historic low oil and
gas prices and most of these wells were returned to production and producing as
of
Revenues from lease operations were
compared to
approximately
field supervision charged to operated leases along with operator overhead
charged to operated leases.
Revenues from gas gathering, compression and equipment rental for the first nine
months of 2022 were
These revenues are derived from gas volumes produced and transported through the
Company owned gas gathering systems.
Real estate revenue was approximately
2022 compared to
approximately
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Interest income was
35.6%. Interest income is due to the Company investing its funds in both
long-term and short-term certificates of depository accounts paying higher rates
of interest than those received in money market accounts.
Other revenues for the first nine months of 2022 were
50%.
Lease operating expenses in the first nine months of 2022 were
compared to
to net decreases in operating expenses billed by third-party operators on
non-operated properties that were shut in during the first nine months of 2021.
The remaining net increase of approximately
increases and decreases in well expenditures on various operated properties. A
number of both operated wells and non-operated wells were shut-in during the
first nine months of 2021 due to low oil and gas prices.
Production taxes, gathering and marketing expenses in the first nine months of
2022 were approximately
months of 2021, an increase of approximately
relates directly to the increase in oil and gas revenues as described in the
above paragraphs.
Pipeline and rental expenses for the first nine months of 2022 were
compared to
approximately
Real estate expenses in the first nine months of 2022 were approximately
approximately
.
Depreciation, depletion, and amortization expenses for the first nine months of
2022 were
increase of
for the first nine months of 2022 was
period of 2021. The Company re-evaluated its proved oil and natural gas reserve
quantities as of
for oil and gas reserves that were produced or sold during the first nine months
of 2022 and adjusted for newly acquired reserves or for changes in estimated
production curves and future price assumptions. A year-to-date depletion rate of
9.136% and applied to the Company’s full cost pool of un-depleted capitalized
oil and natural gas properties compared to a year-to-date rate of 19.403% for
the nine-month periods of 2021 and 2022 respectively.
Asset Retirement Obligation (“ARO”) expense for the first nine months of 2022
was approximately
period in 2021, an increase of approximately
is calculated to be the discounted present value of the estimated future cost to
plug and abandon the Company’s producing wells.
General and administrative expenses for the first nine months of 2022 were
approximately
period of 2021, an increase of approximately
Gain on sale of property, During the third quarter of 2022, the Company sold its
interest in an operated oil well and associated leasehold acreage for
Company’s capitalized costs in the full cost pool, at the time of the sale. The
Company determined that an adjustment to capitalized costs for this sale would
significantly alter the relationship between capitalized costs and proved oil
and gas reserves. As a result, the Company recorded a gain on the sale of the
property in the amount of
gain on the sale of the property, the Company considered that the Company’s most
recent reserve report contained no reserves associated with the property sold,
and therefore, no adjustment to capitalized costs was necessary.
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Three months ended
30, 2021
Oil and natural gas revenues for the three months ended
Oil sales for the third quarter of 2022 were approximately
approximately
approximately 7,962 bbls compared to approximately 10,763 bbls during the same
period of 2021, a decrease of approximately 2,801 bbl or 26.0%.
Average oil prices received were approximately
quarter of 2022 compared to
increase of approximately
Natural gas revenues for the third quarter of 2022 were
6.5%. Natural gas volumes sold for the third quarter of 2022 were approximately
180,000 mcf compared to approximately 222,000 mcf during the same period of
2021, a decrease of approximately 42,000 mcf, or 18.9%,
Average gross natural gas prices received were approximately
the third quarter of 2022 as compared to approximately
same period in 2021 an increase of approximately
In general, revenues from oil and gas producing operations experienced a
significant increase for the first nine months of 2022 compared to the same
period in 2021. In addition, the third quarter results from operations also
experienced a significant increase over the same period in 2021. These increases
result in part from increased oil and gas prices. In 2021, a significant number
of both operated wells and non-operated wells were shut-in due to historic low
oil and gas prices and most of these wells were returned to production and
producing as of
Revenues from lease operations for the third quarter of 2022 were approximately
increase of approximately
derived from field supervision charged to operated leases along with operator
overhead charged to operated leases.
Revenues from gas gathering, compression and equipment rental for the third
quarter of 2022 were approximately
for the same period in 2021, a decrease of approximately
revenues are derived from gas volumes produced and transported through our gas
gathering systems.
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Real estate revenue was approximately
compared to
Interest income for the third quarter of 2022 was approximately
compared with approximately
approximately
both short-term and long-term certificates of deposit as well as money market
accounts at banks.
Other revenues for the third quarter of 2021 were approximately
compared with approximately
Lease operating expenses for both operated and non-operated wells in the third
quarter of 2022 were approximately
quarter of 2021, an increase of approximately
Production taxes, gathering, transportation and marketing expenses for the third
quarter of 2021 were approximately
third quarter of 2021, a net decrease of approximately
Pipeline and rental expenses for the third quarter of 2022 were
to
Real estate expenses during the third quarter 2022 were approximately
compared to approximately
approximately
Depreciation, depletion, and amortization expenses for the third quarter of 2022
were
of
the third quarter of 2022 was
of 2021. The Company re-evaluated its proved oil and natural gas reserve
quantities as of
for oil and gas reserves that were produced or sold during the first nine months
of 2022 and adjusted for newly acquired reserves or for changes in estimated
production curves and future price assumptions. A third-quarter depletion rate
of 1.796% was applied to the Company’s full cost pool of un-depleted capitalized
oil and natural gas properties. The provision for depletion for the first three
quarters ended
six-month period ended
sold six operated gas wells located in
and the full cost pool of capitalized costs was reduced by this amount. The
decrease in the full cost pool resulted in the depreciable base of the full cost
pool being reduced to approximately
depletion. This reduction includes depletion provision amounts taken in the
first two quarters of 2021, which were calculated using a significantly larger
depletable base. The third quarter of 2021 include a credit in the depletion
amortization amount of approximately
related reduction of the full cost pool of capitalized cost.
Asset Retirement Obligation (“ARO”) expense for the third quarter of 2022 was
not charged as compared to approximately
decrease of approximately
discounted present value of the estimated future cost to plug and abandon the
Company’s producing wells.
General and administrative expenses for the third quarter of 2022 were
compared to
During the third quarter of 2022, the Company sold its interest in an operated
oil well and associated leasehold acreage for
related to this sale significantly exceeded the Company’s capitalized costs in
the full cost pool, at the time of the sale. The Company determined that an
adjustment to capitalized costs for this sale would significantly alter the
relationship between capitalized costs and proved oil and gas reserves. As a
result, the Company recorded a gain on the sale of the property in the amount of
property, the Company considered that the Company’s most recent reserve report
contained no reserves associated with the property sold, and therefore, no
adjustment to capitalized costs was necessary.
Financial Condition and Liquidity
The Company’s operating capital needs, as well as its capital spending program
are generally funded from cash flow generated by operations. Because future cash
flow is subject to several variables, such as the level of production and the
sales price of oil and natural gas, the Company can provide no assurance that
its operations will provide cash sufficient to maintain current levels of
capital spending. Accordingly, the Company may be required to seek additional
financing from third parties to fund its exploration and development programs.
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