TIDMRSOX
RNS Number : 2775Q
Resaca Exploitation Inc
05 November 2012
for IMMEDIATE release 5 november 2012
Resaca Exploitation, Inc.
("Resaca" or "the Company")
Results for the fiscal year ended 30 June 2012
Resaca (AIM:RSOX), the oil and natural gas production,
exploitation, and development company focused on the Permian Basin
in the USA, is pleased to announce its results for the fiscal year
ended 30 June 2012.
Highlights
Operational Highlights
-- Proved developed producing reserves of 3.3 million barrels of
oil equivalents ("MMboe") as of 30 June 2012 (3% increase over
prior year); PV10 value of $69.7 MM (2% increase over prior
year)
-- Proved reserves of 14.4 MMboe as of 30 June 2012 (2% decrease
from prior year); PV10 value of $316.5 MM (2% increase over prior
year)
-- Proved and probable reserves of 30.0 MMboe as of 30 June 2012
(0.3% increase over prior year); PV10 value of $535.1 MM (8%
increase over prior year)
-- Production averaged 716 boepd (net) for the twelve months
ended 30 June 2012 (10% increase over production for twelve months
ended 30 June 2011)
-- Sold Grand Clearfork Unit and purchased Langlie Jal Unit
Financial Highlights
-- Oil and gas revenues of $22.0 million (19% increase over
revenue for the twelve months ended 30 June 2011) before hedging
settlements of $(1.1) million
-- Unrealized gain from hedging activities of $8.1 million
-- Net income of $6.5 million versus net loss of $7.3 million
for the twelve months ended 30 June 2011
-- EBITDA of $10.3 million (27% increase over EBITDA for the twelve months ended 30 June 2011)
-- As announced on 13 September 2012, Resaca continues to be in
non-compliance with financial covenants leading to a planned asset
disposal.
J.P. Bryan, Resaca Chairman and CEO commented
"We are pleased with our increases in proved producing reserves,
total proved reserves, 2P reserves, production, revenues, income
and EBITDA, which were the result of our continued waterflood
development. We look forward to the successful completion of our
asset dispositions and the reduction of our debt that will follow.
Upon the conclusion of those efforts, we believe Resaca will be
well positioned to increase, including the exploitation of its
remaining assets and the pursuit of other growth
opportunities."
For further information please contact:
Resaca Exploitation, Inc.
J.P. Bryan, Chairman and Chief Executive
Officer +1 713-753-1300
John J. ("Jay") Lendrum, III, Vice Chairman +1 713-753-1400
Dennis Hammond, President and Chief
Operating Officer +1 713-753-1281
Will Gray, Executive Vice President +1 713-753-1273
Buchanan (Investor Relations) +44 (0)20 7466 5000
Tim Thompson
Helen Chan
Ben Romney
finnCap Limited (Nomad and Broker) + 44 (0) 20 7220 0500
Matt Goode, Corporate Finance
Christopher Raggett, Corporate Finance
Victoria Bates, Corporate Broking
About Resaca
Resaca is an independent oil and gas development and production
company based in Houston, Texas. Resaca is focused on the
acquisition and exploitation of long-life oil and gas properties,
utilizing a variety of primary, secondary and tertiary recovery
techniques. Resaca's current properties are located in the Permian
Basin of West Texas and Southeast New Mexico. Additional
information is available at www.resacaexploitation.com.
Report and accounts
The report and accounts of Resaca for the year ended 30 June
2012 are being posted to shareholders and will be available on the
company's website www.resacaexploitation.com.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to present the Report and Accounts for Resaca
Exploitation for the year ended 30 June 2012.
During this period, we primarily focused on the further
development of our waterfloods at our Cooper Jal, Jordan San
Andres, and Edwards Grayburg properties and the restoration of the
waterflood at our Langlie Jal property, which we acquired during
the fiscal year. On all of our waterflood projects, we see
continued response from increased injection, including higher fluid
production rates and improved bottom hole pressure levels. The
increased fluid production from the waterfloods required additional
investments in production equipment and field infrastructure, which
we believe is largely complete given our current level of water
injection. Additional pumping capacity is still needed at Cooper
Jal and Langlie Jal due to the performance of these waterfloods.
Our efforts during the fiscal year directly resulted in increases
in our proved producing reserves, total 2P and 3P reserves,
production, revenues, income and EBITDA over the last twelve
months.
Despite these accomplishments, we have been unable to comply
with the financial covenants under our credit facilities and
consequently there is substantial doubt about the Company's ability
to continue as a going concern if we are unsuccessful in our
efforts to reduce our corporate debt. Over the prior fiscal year,
we have pursued numerous alternative opportunities for Resaca and
its shareholders and concluded that a sale of the Company's Cooper
Jal and Langlie Jal Units is the best course of action at this
time. The proceeds from a sale of these properties will allow
Resaca to reduce its corporate debt while continuing to pursue
strategies to increase shareholder value. The marketing of these
properties is well underway and we anticipate completing the
divestures and debt reduction by 31 December 2012.
We remain optimistic about the opportunities we see in our
business and look forward to further communications with our
shareholders regarding our strategy as we move forward in 2013.
J.P. Bryan
Chairman and Chief Executive Officer
Resaca Exploitation, Inc.
Consolidated Balance Sheets
June 30,
2012 2011
Assets
Current assets
Cash and cash equivalents $ 416,458 $ 1,005,863
Accounts receivable 2,130,128 3,169,637
Other receivable, net 100,000 1,480,986
Due from affiliates, net 3,804 186,917
Derivative assets 363,110 -
Prepaids and other current assets 536,773 556,957
Deferred tax assets 25,722 490,433
Total current assets 3,575,995 6,890,793
Property and equipment, at cost
Oil and gas properties - full cost
method 162,172,967 146,934,137
Fixed assets 2,071,389 1,929,998
164,244,356 148,864,135
Accumulated, depreciation, depletion
and amortization (22,350,120) (17,551,787)
141,894,236 131,312,348
Other property 270,783 270,783
Total property and equipment 142,165,019 131,583,131
Derivative assets 118,570 -
Deferred finance costs, net 603,609 949,835
Total assets $ 146,463,193 $ 139,423,759
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 4,265,585 $ 5,076,906
Capital lease obligations, current 34,264 65,839
Senior credit facility 33,000,000 -
Unsecured debt 21,315,766 -
Derivative liabilities - 1,912,550
Total current liabilities 58,615,615 7,055,295
Senior credit facility - 28,500,000
Unsecured debt - 18,600,262
Notes payable, affiliates 2,304,980 2,043,973
Capital lease obligations, net of current
portion 75,896 56,165
Deferred tax liabilities 25,722 490,433
Derivative liabilities 242,000 5,982,504
Asset retirement obligations 4,231,087 4,138,677
Commitments and contingencies
Stockholders' equity:
Common stock 207,474 196,632
Additional paid-in capital 99,281,688 97,408,857
Accumulated deficit (18,521,269) (25,049,039)
Total stockholders' equity 80,967,893 72,556,450
Total liabilities and stockholders'
equity $ 146,463,193 $ 139,423,759
Resaca Exploitation, Inc.
Consolidated Statements of Operations
Years Ended June 30,
2012 2011 2010
Income
Oil and gas revenues $ 20,938,368 $ 16,534,071 $ 15,053,740
Unrealized gain (loss) from
price risk
management activities 6,295,534 (4,169,839) 642,254
Unrealized gain from change
in fair value
of warrant derivative liabilities 1,839,200 580,800 -
Interest and other income 33,394 463 7,676
Total income 29,106,496 12,945,495 15,703,670
Costs and expenses
Lease operating 7,707,035 5,323,058 6,104,811
Production and ad valorem
taxes 1,572,448 1,201,119 1,110,664
Depreciation, depletion and
amortization 4,852,833 4,154,973 3,816,752
Accretion 187,069 191,892 173,830
General and administrative 1,440,718 1,925,046 4,811,823
Share based compensation 503,928 2,306,514 4,345,282
Provision for credit losses 1,380,986 400,000 250,000
Interest 4,932,103 3,924,218 3,274,160
Loss on extinguishment of - 772,443 -
debt
Total costs and expenses 22,577,120 20,199,263 23,887,322
Income (loss) before income
taxes 6,529,376 (7,253,768) (8,183,652)
Income tax expense (1,606) (375) (2,458)
Net income (loss) $ 6,527,770 $ (7,254,143) $ (8,186,110)
Income (loss) per share:
Basic income (loss) per share $ 0.32 $ (0.37) $ (0.42)
Diluted income (loss) per
share $ 0.32 $ (0.37) $ (0.42)
Basic weighted-average shares
outstanding 20,656,337 19,651,159 19,363,865
Diluted weighted-average shares
outstanding 20,696,359 19,651,159 19,363,865
Resaca Exploitation, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2012, 2011 and 2010
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Par value Capital Deficit Equity
Balance at
June 30,
2009 18,451,705 $ 184,517 $ 89,175,456 $ (9,608,786) $ 79,751,187
Stock issued
upon vesting
of
restricted
stock 273,701 2,737 (2,737) -
Stock issued
for the
acquisition
of assets 664,050 6,641 1,587,079 1,593,720
Share based
compensation 4,345,282 4,345,282
Net loss (8,186,110) (8,186,110)
Balance at
June 30,
2010 19,389,456 193,895 95,105,080 (17,794,896) 77,504,079
Stock issued
upon vesting
of
restricted
stock 273,701 2,737 (2,737) -
Share based
compensation 2,306,514 2,306,514
Net loss (7,254,143) (7,254,143)
Balance at
June 30,
2011 19,663,157 196,632 97,408,857 (25,049,039) 72,556,450
Stock issued
upon vesting
of
restricted
stock 242,945 2,429 (2,429) -
Stock issued
for the
acquisition
of assets 841,308 8,413 1,371,332 1,379,745
Share based
compensation 503,928 503,928
Net income 6,527,770 6,527,770
Balance at
June 30,
2012 20,747,410 $ 207,474 $ 99,281,688 $ (18,521,269) $ 80,967,893
Resaca Exploitation, Inc.
Consolidated Statements of Cash Flows
Years Ended June 30,
2012 2011 2010
Cash flows from operating activities
Net income (loss) $ 6,527,770 $ (7,254,143) $ (8,186,110)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities
Depreciation, depletion and amortization 4,852,833 4,154,973 3,816,752
Accretion 187,069 191,892 173,830
Amortization of deferred finance
costs (including accelerated
amortization due to extinguishment
of debt) 346,226 865,545 327,505
Provision for credit losses 1,380,986 400,000 250,000
Gain on sale of assets (17,242) - -
Payment of interest in kind 2,617,266 1,195,362 -
Amortization of debt discount 98,238 66,900 -
Unrealized (gain) loss from price
risk management activities (6,295,534) 4,169,839 (642,254)
Unrealized gain from change in
fair value of warrant
derivative liabilities (1,839,200) (580,800) -
Share based compensation costs 503,928 2,306,514 4,345,282
Changes in operating assets and
liabilities:
Accounts receivable 1,039,509 (1,380,945) (2,251,671)
Prepaids and other current assets 20,184 106,958 113,603
Accounts payable and accrued
liabilities (811,321) (520,396) 2,571,516
Due to affiliates, net 444,120 2,334 831,517
Settlement of asset retirement - (165,237) -
obligations
Net cash provided by operating
activities 9,054,832 3,558,796 1,349,970
Cash flows from investing activities
Restricted cash - 25,000 342,184
Proceeds from sale of assets 4,666,738 - -
Investment in oil and gas properties (18,603,240) (15,474,077) (4,381,933)
Investment in other property - - (4,500)
Investment in fixed assets (84,108) (93,094) (133,721)
Net cash used in investing activities (14,020,610) (15,542,171) (4,177,970)
Cash flows from financing activities
Proceeds from notes payable 8,572,802 48,643,600 3,153,889
Payments on notes payable (4,072,802) (35,143,600) -
Payments on capital lease obligations (123,627) - -
Deferred finance costs - (992,615) (174,317)
Net cash provided by financing
activities 4,376,373 12,507,385 2,979,572
Net increase (decrease) in cash and
cash equivalents (589,405) 524,010 151,572
Cash and cash equivalents, beginning
of year 1,005,863 481,853 330,281
Cash and cash equivalents, end of
year $ 416,458 $ 1,005,863 $ 481,853
Supplemental cash flow information
Cash paid during the year for interest $ 1,317,885 $ 1,975,547 $ 2,938,877
Non cash investing and financing
activities:
Establishment of asset retirement
obligations $ 247,661 $ 1,972 $ 1,898
Decrease in asset retirement
obligations
due to
sale of properties $ (342,320) $ - $ -
Acquisition of assets under capital
lease obligations $ 111,783 $ 122,004 $ -
Assets acquired for issuance of
stock $ 1,379,745 $ - $ 1,593,720
Note A - Organization and Nature of Business
Resaca Exploitation, L.P. (the "Partnership") was formed on
March 1, 2006 for the purpose of acquiring and exploiting interests
in oil and gas properties located primarily in New Mexico and
Texas. The Partnership was funded and began operations on May 1,
2006. Resaca Exploitation, G.P. served as the sole general partner
(.667%) and various limited partners owned the remaining 99.333%.
Under the terms of the Limited Partnership Agreement, profits and
losses were allocated to the general partner and limited partners
based upon their ownership percentages.
On July 10, 2008, the Partnership converted from a Delaware
partnership to a Texas corporation and became Resaca Exploitation,
Inc. ("Resaca"). Following conversion, Resaca became subject to
federal and certain state income taxes and adopted a June 30 year
end for federal income tax and financial reporting purposes. On
July 17, 2008, Resaca completed an initial public offering (the
"Offering") on the AIM Market of the London Stock Exchange. In the
initial public offering, Resaca raised $83.4 million before
expenses.
Resaca Operating Company ("ROC"), a wholly-owned subsidiary, was
formed on October 16, 2008 for the purpose of operating Resaca's
oil and gas properties. Resaca and ROC are referred to collectively
as the "Company". Activities for ROC are consolidated in the
Company's financial statements.
Note B - Going Concern
These consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going concern.
These principles assume that the Company will be able to realize
its assets and discharge its obligations in the normal course of
operations for the foreseeable future.
As of June 30, 2012, the Company had an accumulated deficit of
approximately $18.5 million and a working capital deficit of
approximately $55 million due to the classification of the Chambers
Facility and Regions Facility balances as current liabilities due
to the Company being in default of such credit agreements (see Note
F). These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company's continuation
as a going concern is dependent on its ability to meet its
obligations, to obtain additional financing as may be required and
ultimately to attain sustained profitability.
Management is enacting cost cutting measures and is selectively
pursuing the sale of equipment that is not critical to the
Company's operations. Management expects that, with the success of
these initiatives, cash on hand and anticipated cash flows from
operations will be sufficient to satisfy its currently expected
working capital requirements (other than the Chambers Facility and
the Regions Facility) and limited capital expenditure requirements
through June 30, 2013. The Company is additionally pursuing the
sale of a significant portion of its properties to partially or
completely satisfy its obligations under the Chambers Facility and
the Regions Facility to either bring these facilities into
compliance with their respective financial covenants or extinguish
the facilities completely. There can be no assurance that the
Company will be able to raise sufficient funds through asset sales
to meet these objectives.
Management believes the going concern assumption to be
appropriate for these financial statements. If the going concern
assumption were not appropriate, adjustments would be necessary to
the carrying values of assets and liabilities, reported revenues
and expenses and in the balance sheet classifications used in these
consolidated financial statements.
Note C - Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial
statements include the accounts of Resaca and ROC. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents: Cash in excess of the Company's daily
requirements is generally invested in short-term, highly liquid
investments with original maturities of three months or less. Such
investments are carried at cost, which approximates fair value and,
for the purposes of reporting cash flows, are considered to be cash
equivalents. The Company maintains its cash in bank deposits with
various major financial institutions. These accounts, at times,
exceed federally insured limits. The Company monitors the financial
condition of the financial institutions and has not experienced any
losses on such accounts.
Accounts Receivable: Accounts receivable primarily consists of
accrued revenues for oil and gas sales. The Company routinely
assesses the recoverability of all material receivables to
determine their collectability.
Allowance for Doubtful Accounts: The Company records a reserve
on a receivable when, based on the judgment of management, it is
likely that a receivable will not be collected and the amount of
any reserve may be reasonably estimated. As of June 30, 2012 and
2011, the Company had an allowance for doubtful accounts of
$1,930,986 and $650,000, respectively.
Note C - Summary of Significant Accounting Policies
(Continued)
Inventory: Inventory totaling $477,166 and $485,807 at June 30,
2012 and 2011, respectively, consists of piping and tubulars valued
at the lower of cost or market and is included within prepaids and
other current assets in the accompanying balance sheets.
Oil and Gas Properties: Oil and gas properties are accounted for
using the full-cost method of accounting. Under this method, all
productive and nonproductive costs incurred in connection with the
acquisition, exploration, and development of oil and natural gas
reserves are capitalized. This includes any internal costs that are
directly related to acquisition, exploration and development
activities, including salaries and benefits, but does not include
any costs related to production, general corporate overhead or
similar activities. During the years ended June 30, 2012, 2011 and
2010, the Company capitalized $623,972, $306,111 and $373,360,
respectively, in overhead relating to these internal costs.
No gains or losses are recognized upon the sale or other
disposition of oil and natural gas properties except in
transactions that would significantly alter the relationship
between capitalized costs and proved reserves.
Under the full cost method, the net book value of oil and
natural gas properties, less related deferred income taxes, may not
exceed the estimated after-tax future net revenues from proved oil
and natural gas properties, discounted at 10% (the "Ceiling
Limitation"). In arriving at estimated future net revenues,
estimated lease operating expenses, development costs, and certain
production-related and ad valorem taxes are deducted. In
calculating future net revenues, prices and costs in effect at the
time of the calculation are held constant indefinitely, except for
changes that are fixed and determinable by existing contracts. The
excess, if any, of the net book value above the Ceiling Limitation
is charged to expense in the period in which it occurs and is not
subsequently reinstated. The Company prepared its ceiling test at
June 30, 2012 and 2011, and no impairment was deemed necessary.
Reserve estimates used in determining estimated future net revenues
have been prepared by an independent petroleum engineer at year
end.
The costs of unevaluated oil and natural gas properties are
excluded from the amortizable base until the time that either
proven reserves are found or it has been determined that such
properties are impaired. The Company currently has no material
capitalized costs related to unevaluated properties. All
capitalized costs are included in the amortization base as of June
30, 2012 and 2011.
Depreciation and Amortization: All capitalized costs of oil and
natural gas properties and equipment, including the estimated
future costs to develop proved reserves, are amortized using the
unit-of-production method based on total proved reserves.
Depreciation of fixed assets is computed on the straight-line
method over the estimated useful lives of the assets, typically
three to five years.
General and Administrative Expenses: General and administrative
expenses are reported net of recoveries from owners in properties
operated by the Company.
Revenue Recognition: The Company recognizes oil and gas revenues
from its interests in oil and natural gas producing activities as
the hydrocarbons are produced and sold.
Accounting for Price Risk Management Activities and Other
Derivative Instruments: The Company periodically enters into
certain financial derivative contracts utilized for non-trading
purposes to hedge the impact of market price fluctuations on its
forecasted oil and gas sales. The Company follows the provisions of
Accounting Standards Codification ("ASC") 815, Accounting for
Derivative Instruments and Hedging Activities ("ASC 815"), for the
accounting of its hedge transactions. ASC 815 establishes
accounting and reporting standards requiring that all derivative
instruments be recorded in the consolidated balance sheet as either
an asset or liability measured at fair value and requires that the
changes in the fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Company has
certain over-the-counter collar contracts to hedge the cash flow of
the forecasted sale of oil and gas sales. The Company did not elect
to document and designate these contracts as hedges. Thus, the
changes in the fair value of these over-the-counter collars are
reflected in earnings for the years ended June 30, 2012, 2011 and
2010.
The Company has common stock warrants outstanding in connection
with the unsecured credit facility agreement (the "Chambers
Facility") (see Note F), which contains price protection provisions
(or down-round provisions) which reduces the strike price of the
warrants in the event the Company issues additional shares at a
more favorable price than the strike price. The warrants are
measured and carried at fair value as a derivative liability on the
Company's consolidated balance sheet. The fair value of the
warrants on the date of issuance of $2,662,000 was recognized as a
discount to the unsecured credit facility at the time the Company
received the proceeds from the credit facility. The discount will
be accreted to the credit facility, over the period from the
funding date through the maturity date, using the effective
interest rate method.
Income Taxes: The Company is subject to federal income tax,
Texas state margin tax, and New Mexico state income tax. The
Company follows the guidance in ASC 740, Accounting for Income
Taxes, which requires the use of the asset and liability method of
accounting for deferred income taxes and provides deferred income
taxes for all significant temporary differences.
Note C- Summary of Significant Accounting Policies
(Continued)
The Company follows ASC 740-10, Accounting for Uncertainty in
Income Taxes. The Interpretation prescribes guidance for the
financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. To recognize a tax
position, the enterprise determines whether it is more likely than
not that the tax position will be sustained upon examination,
including resolution of any related appeals or litigation, based
solely on the technical merits of the position. A tax position that
meets the more likely than not threshold is measured to determine
the amount of benefit to be recognized in the financial statements.
The amount of tax benefit recognized with respect to any tax
position is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon
settlement.
Deferred Finance Costs: The Company capitalizes all costs
directly related to obtaining financing and such costs are
amortized to interest expense over the life of the related
facility. During the years ended June 30, 2012 and 2011, the
Company incurred and capitalized finance costs of $0 and $992,615,
respectively. At June 30, 2012 and 2011, the deferred finance costs
balance is presented net of accumulated amortization of $519,339
and $173,113, respectively.
Use of Estimates: Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
Independent petroleum and geological engineers have prepared
estimates of the Company's oil and natural gas reserves at June 30,
2012 and 2011. Proved reserves, estimated future net revenues and
the present value of our reserves are estimated based upon a
combination of historical data and estimates of future activity. In
accordance with the current authoritative guidance, effective
December 31, 2009, the Company calculated its estimate of proved
reserves using a twelve-month average price, calculated as the
unweighted arithmetic average of the first-day-of-the-month price
for each period within the twelve-month period prior to the end of
the reporting period. The reserve estimates are used in calculating
depreciation, depletion and amortization and in the assessment of
the Company's ceiling limitation. Significant assumptions are
required in the valuation of proved oil and natural gas reserves
which, as described herein, may affect the amount at which oil and
natural gas properties are recorded. Actual results could differ
materially from these estimates.
Asset Retirement Obligations: The Company follows ASC 410 ("ASC
410"), Asset Retirement and Environmental Obligations. ASC 410
requires that an asset retirement obligation ("ARO") associated
with the retirement of a tangible long-lived asset be recognized as
a liability in the period in which a legal obligation is incurred
and becomes determinable, with an offsetting increase in the
carrying amount of the associated asset. The cost of the tangible
asset, including the initially recognized ARO, is depreciated such
that the cost of the ARO is recognized over the useful life of the
asset. The ARO is recorded at fair value, and accretion expense
will be recognized over time as the discounted liability is
accreted to its expected settlement value. The fair value of the
ARO is measured using expected future cash outflows discounted at
the company's credit-adjusted risk-free interest rate.
Inherent in the fair value calculation of ARO are numerous
assumptions and judgments, including the ultimate settlement
amounts, inflation factors, credit adjusted discount rates, timing
of settlement, and changes in the legal, regulatory, environmental
and political environments. To the extent future revisions to these
assumptions impact the fair value of the existing ARO liability, a
corresponding adjustment is made to the oil and gas property
balance.
The following table is a reconciliation of the asset retirement
obligation:
Years Ended June 30,
-----------------------------------------
2012 2011
-------------------- -------------------
Asset retirement obligation, beginning
of the year $ 4,138,677 $ 4,114,974
Liabilities incurred 247,661 1,972
Liabilities settled (342,320) (165,237)
Accretion 187,069 191,892
Revisions in estimated liabilities - (4,924)
-------------------- -------------------
Asset retirement obligation, end
of the year $ 4,231,087 $ 4,138,677
==================== ===================
Share-Based Compensation: The Company follows ASC 718 ("ASC
718"), Compensation-Stock Compensation, for all equity awards
granted to employees. ASC 718 requires all companies to expense the
fair value of employee stock options and other forms of share-based
compensation over the requisite service period. The Company's
share-based awards consist of stock options and restricted
stock.
Common Stock: On June 23, 2010, the Board of Directors approved
a one for five reverse stock split effective June 24, 2010.
Accordingly, all common shares, incentive plans and related amounts
for all periods presented reflect the reverse stock split.
Note C - Summary of Significant Accounting Policies
(Continued)
Earnings per Share: Basic earnings per share is computed by
dividing net income (loss) by the weighted-average number of shares
of common stock outstanding during the period. Except when the
effect would be anti-dilutive, the diluted earnings per share
include the dilutive effect of restricted stock awards and the
assumed exercise of stock options using the treasury stock method.
The following table sets forth the calculation of basic and diluted
earnings per share ("EPS"):
Years Ended June 30,
------------------------------------------------------------------
2012 2011 2010
---------------------- -------------------- --------------------
Net income (loss) $ 6,527,770 $ (7,254,143) $ (8,186,110)
====================================== === ================= ================ ================
Weighted average shares outstanding
for basic EPS 20,656,337 19,651,159 19,363,865
Add dilutive securities 40,022 - -
-------------------------------------- --- ----------------- ---------------- ----------------
Weighted average shares outstanding
for diluted EPS 20,696,359 19,651,159 19,363,865
=========================================== ================= ================ ================
Net income (loss) per share
Basic $ 0.32 $ (0.37) $ (0.42)
Diluted 0.32 (0.37) (0.42)
Subsequent Events: The Company evaluates events and transactions
that occur after the balance sheet date but before the financial
statements are available for issuance. The Company evaluated such
events and transactions through October 30, 2012, the date the
financial statements were available to be issued (see Note P).
Recently Adopted Accounting Principles:
ASU 2010-06: In January 2010, the FASB issued ASU 2010-06, Fair
Value Measurements and Disclosures (Topic 820). ASU 2010-06
Subtopic 820-10 provides new guidance on improving disclosures
about fair value measurements. The new standard requires some new
disclosures and clarifies some existing disclosure requirements
about fair value measurement. Specifically, the new standard will
now require: (a) a reporting entity should disclose separately the
amounts of significant transfers in and out of Level 1 and Level 2
fair value measurements and describe the reasons for transfers, and
(b) in the reconciliation for fair value measurements using
significant unoberservable inputs, a reporting entity should
present separately information about purchases, sales, issuances,
and settlements. In addition, the new standard clarifies the
requirements of the following existing disclosures: (a) for
purposes of reporting fair value measurements for each class of
assets and liabilities, a reporting entity needs to use judgment in
determining the appropriate classes of assets and liabilities, and
(b) a reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. The new
standard is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and
for interim periods within those fiscal years. Early application is
permitted. We adopted the provisions of this standard required for
interim and annual reporting periods beginning after December 15,
2009, for the quarter ended March 31, 2010 and we adopted the
provisions of this standard for fiscal years beginning after
December 15, 2010, the year ended June 30, 2011. The adoption of
this statement did not have a material impact on our financial
position, results of operations or cash flows.
Note D - Other Receivable
In September 2009, the Company entered into a merger agreement
with Cano Petroleum, Inc. (the "Cano merger agreement"),
subsequently terminated in July 2010. The Cano merger agreement
provided for Resaca and Cano to, among other things, share equally
certain expenses related to the printing, filing and mailing of the
registration statement, the proxies/prospectuses, and the
solicitation of stockholder approvals. Following the termination of
the Cano merger agreement, Resaca requested that Cano reimburse
Resaca for Cano's share of such expenses in the amount of $2.1
million. On September 2, 2010, Cano filed an action against Resaca
in the Tarrant County District Court seeking a declaratory judgment
to clarify the scope and determine the amount of any expenses that
are reimbursable by Cano under the Cano merger agreement. In March
2012, Cano Petroleum, Inc. and various of its affiliates filed a
chapter 11 case in the bankruptcy court for the northern district
of Texas. In August 2012, Cano sold all of its oil and gas
properties and used the proceeds in bankruptcy primarily to satisfy
its secured lenders, leaving a modest amount of residual proceeds
for expenses and the unsecured creditors. The receivable from Cano
has been written down to $100,000 at June 30, 2012.
Note E - Related Party Transactions
The Company receives support services from Torch Energy Advisors
Incorporated ("TEAI") and its subsidiaries, which includes office
administration, risk management, corporate secretary, legal and
litigation services, tax department services, financial
planning
Note E - Related Party Transactions (Continued)
and analysis, information technology management, financial
reporting and accounting services, and engineering and technical
services. The Company was charged by TEAI and a subsidiary of TEAI
$980,560, $960,904 and $1,440,241 during the years ended June 30,
2012, 2011 and 2010, respectively, for such services. The majority
of such fees are included in general and administrative
expenses.
In the ordinary course of business, the Company incurs payable
balances with TEAI resulting from the payment of costs and expenses
of the Company and from the payment of support services fees. Such
amounts had been settled on a regular basis, generally monthly.
However, a Subordinated Unsecured Note was issued on June 30, 2010
for the outstanding balance payable to TEAI of $1,854,722 as of
June 30, 2010. The principal balance payable to TEAI was amended on
December 15, 2010 to be $1,915,800 (see Note F). Subsequent to the
issuance of this note, the Company resumed settling on a monthly
basis with TEAI.
Note F - Notes Payable
On June 26, 2009, the Company entered into a $50 million,
three-year Senior Secured Revolving Credit Facility ("CIT
Facility") with CIT Capital USA Inc. ("CIT") with a maturity date
of July 1, 2012, which replaced a credit facility entered into in
2006. The initial borrowing base of the CIT Facility was $35
million and CIT served as administrative agent. Interest on the CIT
Facility was set at LIBOR plus 5.5% subject to a 2.5% LIBOR floor.
Recourse for the CIT Facility was limited to the Company, as
borrower, and the note was secured by all of the Company's oil and
gas properties. Throughout the term of the CIT Facility, the
interest rate was 8.0%. As a condition of closing the CIT Facility,
the Company entered into additional natural gas hedges for January
2011 through June 2012 and additional oil hedges for June 2011
through June 2012. Additionally, upon closing of the CIT facility,
the Company wrote off $536,579 in deferred financing costs
associated with a previous facility with third parties and paid
debt extinguishment fee of $250,000. The CIT Facility contained,
among other terms, provisions for the maintenance of certain
financial ratios and restrictions on additional debt. On December
22, 2009, the Company executed an amendment to the CIT Facility
which amended some of the financial ratio requirements. On January
6, 2011, the CIT Facility was paid in full from proceeds received
from the debt issuances described below.
On May 18, 2010, the Company, TEAI, and CIT entered into an
agreement, which provided that, if the CIT Facility was not repaid
in full by June 30, 2010, the outstanding payable by the Company to
TEAI as of June 30, 2010 would be contractually subordinated to
amounts payable under the CIT Facility. On June 30, 2010, the
Company entered into a Subordinated Unsecured Note ("Torch Note")
with TEAI for $1,854,722. The Torch Note had a maturity date of
October 1, 2012 and bore interest at Amegy Bank N. A.'s prime rate
plus two percent. At June 30, 2010, the interest rate was 7.0%. On
December 15, 2010, the Torch Note was amended to increase the
outstanding balance to $1,915,800, modify the interest provisions,
provide for subordination to the Chambers Facility in addition to
the Company's secured credit facility and extend the maturity date
to January 31, 2014. At June 30, 2012, the interest rate was 12.0%.
The maturity date shall be accelerated in the event the senior debt
issuance described below is repaid in full. Interest shall only be
payable in kind.
On January 7, 2011, the Company entered into a $20 million,
four-year unsecured credit facility (the "Chambers Facility") which
bears interest at 9.5% per year. Resaca also has the option to pay
interest under the Chambers Facility in kind for the first two
years at an interest rate of 12% per year. The Chambers Facility
contains certain financial ratio restrictions and other customary
covenants. This credit facility matures December 31, 2014. Proceeds
from the Chambers Facility were used to repay a portion of the CIT
Facility, to fund the Company's development program and for general
corporate purposes. In conjunction with the funding, Resaca issued
warrants to the lenders under the Chambers Facility to purchase
approximately 4.8 million shares of Resaca common stock at $1.93
per share. The purchase price for the Resaca common shares under
the warrants is subject to customary weighted average dilution
protections if Resaca issues stock at a price below the purchase
price under the warrants. In addition, the exercise price and the
number of shares the lenders are able to purchase under the
warrants will be adjusted in the case of certain Company
distributions, dilutive equity issuances, share subdivisions, or
share combinations. The warrants were recorded and are adjusted
every reporting period to fair value (see Note J). As a result of
the issuance of stock as part of the purchase price for a property
acquisition, the warrant price was adjusted to $1.92 per share in
August 2011. The Company has elected to pay interest in kind
through December 1, 2012. With accrued paid-in kind interest, the
balance payable on the Chambers Facility as of June 30, 2012 was
$24.1 million. The Chambers Facility includes a make-whole
provision in the event that the total interest, principal and value
of the warrants granted under the Chambers Facility do not generate
a targeted return to the lenders upon repayment of the facility.
The amount of the make whole obligation is fixed through January 7,
2013, after which time the make whole obligation increases. If the
Chambers Facility had been repaid at June 30, 2012, the make whole
obligation would have been approximately $7.2 million. As of June
30, 2012 the Company was not compliant with all of the covenants
under the Chambers Facility, which resulted in an event of default.
On March 6, 2012, the Company received notice that default interest
(an additional 2% over the applicable cash or paid in kind interest
rate) would be charged under the Chambers Facility until the
Company is no longer in default. Under the terms of the agreement,
if a condition of default occurs and is continuing, the lenders may
demand that the default interest be payable in cash rather than in
kind. The lenders under the Chambers Facility demanded that the
interest accrued for the period from June 1, 2012 through June
30, 2012 be paid in cash. The Company has not paid this amount and
the
Note F - Notes Payable (Continued)
unpaid amount continues to accrue interest at the default
interest rate. The lenders under the Chambers Facility have not
demanded any other cash interest payments. The Company is pursuing
property sales to provide funds to either repay its obligations
under the Chambers Facility in full or to reduce its overall debt
to bring its credit facilities into compliance with their financial
covenants. The Company has classified the balance of the Chambers
Facility at June 30, 2012 to current due to the default status of
the loan.
On January 7, 2011, the Company entered into a $75 million
senior secured revolving credit facility (the "Regions Facility")
with Regions Bank ("Regions"). The Regions Facility contains
certain financial ratio restrictions and other customary covenants,
including a requirement to hedge at least 75% of proved developed
producing reserves through December 31, 2014. This credit facility
matures January 7, 2014. Proceeds from the Regions Facility were
used to repay a portion of the CIT Facility, to fund the Company's
development program, future acquisitions and for general corporate
purposes. The Regions Facility is governed by semi-annual borrowing
base redeterminations assigned to the Company's proved crude oil
and natural gas reserves. An initial borrowing base of $33 million
was established based on the Company's reserves and the borrowing
base has not been redetermined. Under the Regions Facility, $33
million was outstanding at June 30, 2012. The interest rate on
outstanding borrowings was 4% at June 30, 2012. At June 30, 2012,
due to the noncompliance with the covenants under the Chambers
Facility, the Company was not in compliance with the covenants
related to this facility. In addition, the Company was not in
compliance with the current asset to current liability ration under
the Regions Facility. Accordingly, the Company has classified the
balance of the Regions Facility at June 30, 2012 to current due to
the default status of the loan. As a result of the covenant failure
and effective on July 9, 2012, Regions exercised its rights under
the Regions Facility to disallow LIBOR-based borrowings,
effectively increasing the Company's cash interest rate from 4.00%
to 5.50%. Further, beginning August 7, 2012, Regions began charging
default interest at a rate of 2.00%, effectively increasing the
Company's borrowing rate to 7.50%. Both conditions are in effect
until the Company is again in compliance with the covenants related
to this facility.
Scheduled maturities as of June 30, 2012 are as follows:
Year Ending June
30,
-------------------
2013 54,315,766
2014 2,304,980
---------------
$ 56,620,746
===============
Note G - Price Risk Management and Other Derivative Financial
Instruments
The Company enters into hedging transactions with a major
counterparty to reduce exposure to fluctuations in the price of
crude oil and natural gas. We use financially settled crude oil and
natural gas zero-cost collars and swaps. Any gains or losses
resulting from the change in fair value are recorded to unrealized
gain (loss) from price risk management activities, whereas gains
and losses from the settlement of hedging contracts are recorded in
oil and gas revenues.
With a zero-cost collar, the counterparty is required to make a
payment to us if the settlement price for any settlement period is
below the floor price of the collar, and we are required to make a
payment to the counterparty if the settlement price for any
settlement period is above the cap price for the collar.
Cash settlements for the years ended June 30, 2012, 2011 and
2010 resulted in a decrease in crude oil and natural gas sales in
the amount of $1,602,155, $1,970,796 and $383,995,
respectively.
Note G - Price Risk Management and Other Derivative Financial
Instruments (Continued)
As of June 30, 2012, we had the following contracts
outstanding:
Crude Oil
------------------------------------------------
Total
Volume Contract Asset
Price
Period (Bbls) (1) (Liability)
------------ ---------------- --------------- -------------
Swaps
7/12-12/12 10,000 84.05 (60,907)
7/12-12/12 1,800 108.95 242,422
7/12 -
3/13 1,100 100.00 131,137
1/13-12/13 9,200 84.95 (346,025)
1/13-12/13 2,000 105.20 380,671
4/13 -
12/13 500 98.50 42,014
1/14 -
12/14 8,600 85.80 (194,650)
1/14 -
12/14 2,300 99.00 287,018
-------------
Total $ 481,680
=============
(1) The contract price is weighted-averaged by contract
volume.
The following table quantifies the fair values, on a gross
basis, of all our derivative contracts and identifies its balance
sheet location as of June 30, 2012:
Total
Asset Derivatives (Liability) Derivatives Asset
-------------------------------------- -----------------------------------------
Balance Sheet Balance Sheet
Location Fair Value Location Fair Value (Liability)
--------------- --------------------- --------------- ------------------------ ---------------
Derivatives not
designated as
hedging
instruments
under
ASC 815
Derivative Derivative
Commodity financial financial
Contracts instruments instruments
Current
Current Asset $ 363,110 Liability $ - $ 363,110
Non-current Non-current
Asset 118,570 Liability - 118,570
Non-current Non-current
Warrants Liability - Liability (242,000) (242,000)
Total
derivatives
not designated
as hedging
instruments
under
ASC 815 481,680 (242,000) 239,680
--------------------- ------------------------ ---------------
Total
derivatives $ 481,680 $ (242,000) $ 239,680
===================== ======================== ===============
While notional amounts are used to express the volume of puts
and over-the-counter options, the amounts potentially subject to
credit risk, in the event of nonperformance by the third parties,
are substantially smaller. The Company does not anticipate any
material impact to its financial position or results of operations
as a result of nonperformance by third parties on financial
instruments related to its option contracts.
Note H - Commitments and Contingencies
The Company, from time to time, is involved in certain
litigation arising out of the normal course of business, none
currently outstanding of which, in the opinion of management, will
have any material adverse effect on the financial position, results
of operations or cash flows of the Company as a whole.
On September 2, 2010, Cano filed an action against Resaca in the
Tarrant County District Court seeking a declaratory judgment to
clarify the scope and determine the amount of any expenses that are
reimbursable by Cano under the Cano merger agreement. Resaca
disputes the allegations by Cano. On March 8, 2012, Cano Petroleum,
Inc. and various of its affiliates filed a chapter 11 case in the
bankruptcy court for the northern district of Texas.
Note I - Share-Based Compensation
The Company has adopted a Share Incentive Plan ("The Plan") to
foster and promote the long-term financial success of the Company
and to increase shareholder value by attracting, motivating and
retaining key personnel. The Plan is considered an important
component of total compensation offered to key employees and to
directors. The Plan consists of stock option and restricted stock
awards. The restricted stock vests over a three-year period while
the stock options vest over a three or one-year period. The Company
expenses the fair-value of the share-based payments over the
requisite service period of the awards. At June 30, 2012, there was
$401,641 in unrecognized compensation expense related to non-vested
restricted stock grants and non-vested stock option grants. We
expect approximately $197,123, $182,756 and $21,762 to be
recognized during the fiscal years 2013, 2014 and 2015,
respectively.
In conjunction with the initial public offering in 2008 (the
"IPO"), certain officers and directors were granted restricted
stock awards for an aggregate 821,103 shares of the Company's
stock. 790,350 such shares vested over a three year period ended
July 17, 2011; 30,753 of such shares were forfeited and returned to
the Plan when an employee recipient resigned prior to the end of
the vesting period. The Company also awarded 341,357 stock options
at the time of the IPO, each option to purchase one share of our
common stock at an exercise price of 6.70 British pounds per share.
The options were cancelled and new options for 341,357 shares were
issued on January 18, 2011 with an exercise price of $1.61, a
vesting period of one year and an expiration date on January 8,
2019. On August 1, 2011, 40,000 stock options were issued to an
officer with an exercise price of $1.52 per share, vesting period
of three years and an expiration date of August 1, 2019. On August
8, 2011, certain officers and directors were granted 175,000 shares
of restricted stock and 360,000 stock options. These shares vest
over a three year period. The stock options have an exercise price
of $1.45 per share and expire on August 8, 2019.
At June 30, 2012, there were 820,347 stock options and 175,000
shares of restricted stock outstanding. On April 28, 2012, the Plan
was amended to allow the issuance of an additional 1,019,916
shares. As of June 30, 2012, the Board of Directors and the CEO had
the ability to authorize the issuance of another 1,079,394 stock
options and restricted stock.
The following summary represents restricted stock awards
outstanding at June 30, 2012, 2011 and 2010:
Grant Date
Shares Fair Value
------------- ---------------
Awards outstanding at
June 30, 2010 547,402 $ 7,345,456
Restricted Shares
vested (273,701) (3,672,728)
Restricted Shares
forfeited (30,753) (412,666)
------------- ---------------
Awards outstanding at
June 30, 2011 242,948 $ 3,260,062
Restricted Shares
vested (242,948) (3,260,062)
Restricted Shares
awarded 175,000 253,750
------------- ---------------
Awards outstanding at
June 30, 2012 175,000 $ 253,750
============= ===============
For stock options, the Company determines the fair value of each
stock option at the grant date using a Black-Scholes pricing model,
with the following assumptions used for the grants made on the date
indicated:
7/17/2008 1/21/2009 9/25/2009 11/16/2009 1/18/2011 8/1/2011 8/8/2011
---------- ---------- ---------- ----------- ---------- --------- ---------
Risk-free interest rate 3.35% 3.35% 2.37% 2.18% 1.97% 1.32% 1.11%
Volatility factor 50% 50% 81% 88% 74% 71% 71%
Expected dividend
yield percentage 0% 0% 0% 0% 0% 0% 0%
Weighted average expected
life in years 3.5 3.5 3.5 3.5 4.5 3.5 3.5
Note I - Share-Based Compensation (Continued)
Stock option awards have a three year or one year vesting period
and expire five years or seven years after the vesting date. A
summary of stock options awarded during the 12 months ended June
30, 2012, 2011 and 2010 is as follows:
Grant
Average Date
Exercise
Shares Price Fair Value
-------------- -------------------- -------------
Options outstanding at June
30, 2010 460,357 $ 8.66 $ 2,099,184
Grants 341,347 1.61 323,883
Exercised or
forfeited (368,024) (9.87) (1,885,268)
-------------- -------------
Options outstanding at June
30, 2011 433,680 $ 2.08 $ 537,799
Grants 400,000 1.46 294,518
Exercised or
forfeited (13,333) (3.63) (31,365)
-------------- -------------
Options outstanding at June
30, 2012 820,347 $ 1.75 $ 800,952
============== =============
A summary of stock options outstanding at June 30, 2012 is as
follows:
Option Option
Converted Awards Remaining Awards
Grant Exercise Exercise Option
Date Price Price Outstanding Life Exercisable
---------- ---------- ----------------- ---------------- -------------- --------------------
09/25/09 GBP 2.50 $ 4.00 * 79,000 5.24 52,667
01/18/11 $ 1.61 1.61 341,347 6.55 341,347
08/01/11 $1.52 1.52 40,000 7.08 -
08/08/11 $1.45 1.45 360,000 7.10 -
----------------- ---------------- -------------- --------------------
$ 1.77 820,347 6.38 394,014
================= ================ ============== ====================
*Exercise price is denominated in British pounds and has been
converted at a rate of $1.5453 USD/GBP.
On July 3, 2012, the Company issued 100,000 stock options at an
exercise price of GBP0.395 to a Resaca executive.
Note J - Fair Value Measurements
ASC 820 requires enhanced disclosures regarding the assets and
liabilities carried at fair value. The pronouncement establishes a
fair value hierarchy such that "Level 1" measurements include
unadjusted quoted market prices for identical assets or liabilities
in an active market, "Level 2" measurements include quoted market
prices for identical assets or liabilities in an active market
which have been adjusted for items such as effects of restrictions
for transferability and those that are not quoted but observable
through corroboration with observable market data, including quoted
market prices for similar assets, and "Level 3" measurements
include those that are unobservable and of a highly subjective
measure.
The fair value of the warrants was determined using a Monte
Carlo valuation model. At June 30, 2012, the assumptions used in
the model to determine the fair value of the outstanding warrants
included the warrant exercise price of $1.93 per share, the
Company's stock price at June 30, 2012 of $.62 per share,
volatility of 60% and a risk free discount rate of 0.4%.
Note J - Fair Value Measurements (Continued)
The Company utilizes the market approach for recurring fair
value measurements of its oil and gas hedges. The following table
sets forth, by level within the fair value hierarchy, the Company's
financial assets and liabilities that are accounted for at fair
value on a recurring basis as of June 30, 2012. As required by ASC
820, financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to
the fair value measurement:
Market Significant
Prices Other Significant
for Identical Observable Unobservable
Inputs
Items (Level Inputs (Level (Level
1) 2) 3) Total
---------------------- ------------------------ ------------- ---------------
Assets:
Oil and Gas Hedges $ - $ 481,680 $ - $ 481,680
Total Assets $ - $ 481,680 $ - $ 481,680
====================== ======================== ============= ===============
Liabilities:
Derivative Warrants - - 242,000 242,000
Total Liabilities $ - $ - $ 242,000 $ 242,000
---------------------- ------------------------ ------------- ---------------
Total Net Assets $ - $ 481,680 $ (242,000) $ 239,680
====================== ======================== ============= ===============
The carrying amounts of the Company's cash and cash equivalents,
receivables and payables approximate the fair value at June 30,
2012 and 2011 due to their short-term nature. The carrying amounts
of the Company's debt instruments at June 30, 2012 and 2011
approximate their fair values due to either the interest rates
being at market or minimal change during the period for the
interest rates related to debt with fixed interest rates.
Note K - Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax provisions. The Company's income tax expense is composed of the
following:
Years Ended June 30,
-----------------------------------------------------------
2012 2011 2010
------------------ ------------------- ------------------
Current income tax expense
Federal $ - $ - $ -
State 1,606 375 2,458
------------------ ------------------- ------------------
Total current tax expense 1,606 375 2,458
Deferred income tax expense
Federal - - -
State - - -
------------------ ------------------- ------------------
Total deferred tax expense - - -
------------------ ------------------- ------------------
Total income tax expense $ 1,606 $ 375 $ 2,458
================== =================== ==================
Note K - Income Taxes (Continued)
The significant components of the Company's deferred tax assets
and liabilities are as follows:
Years Ended June 30,
--------------------------------------------
2012 2011
------------------- -----------------------
Current
Deferred tax assets:
Unrealized loss on commodity
derivatives $ - $ 707,644
Allowance for doubtful
accounts 92,500 240,500
Inventory impairment 117,812 117,812
------------------- -----------------------
Total current deferred
tax assets 210,312 1,065,956
Less: valuation allowance (50,239) (575,523)
Net current deferred
tax assets $ 160,073 $ 490,433
------------------- -----------------------
Deferred tax liabilities:
Unrealized gain on commodity $ (134,351) $ -
derivatives
Net current deferred tax $ (134,351) $ -
liabilities
------------------- -----------------------
Net current deferred tax
assets $ 25,722 $ 490,433
=================== =======================
Long-Term
Deferred tax assets:
Deferred compensation
expense $ 106,796 $ 808,842
Net operating loss
carryovers 13,120,803 8,792,827
Unrealized loss on commodity
derivatives 45,669 2,213,527
Amortization of loan 126,951 -
costs
------------------- -----------------------
Total long-term deferred
tax assets 13,400,219 11,815,196
Less: valuation allowance (3,201,050) (5,847,397)
------------------- -----------------------
Net long-term deferred
tax assets 10,199,169 5,967,799
Deferred tax liabilities:
Subordinated note (984,940) (984,940)
Depreciation, depletion and
amortization (9,239,951) (5,473,292)
Total long-term deferred
tax liabilities (10,224,891) (6,458,232)
------------------- -----------------------
Net long-term deferred
tax liabilities $ (25,722) $ (490,433)
=================== =======================
The following reconciles our income tax expense to the amount
calculated at the statutory federal income tax rate:
Years Ended June 30,
------------------------------------------------------------------
2012 2011 2010
-------------------- --------------------- ---------------------
Income tax expense (benefit)
at statutory rate $ 2,284,720 $ (2,538,819) $ (2,864,279)
State taxes, less federal benefit 130,692 (144,910) (163,279)
Deferred tax benefit recorded on
conversion to corporation - - -
Income attributable to period
as a partnership - - -
Reversal of benefit recorded on
deferred compensation 753,663 1,358,909 1,358,909
Change in valuation allowance (3,171,631) 1,327,504 1,661,982
Permanent and other 4,162 (2,309) 9,125
Income tax expense $ 1,606 $ 375 $ 2,458
==================== ===================== =====================
At June 30, 2012, 2011 and 2010, the Company had net operating
loss ("NOL") carryforwards for federal income tax purposes of
approximately $35.5 million, $24.1 million and $18.3 million,
respectively. The NOLs will expire between 2029 and 2032. A
valuation allowance has been established with respect to the excess
of the Company's deferred tax assets over its deferred tax
liabilities at June 30, 2012 and June 30, 2011 because such net
deferred tax assets do not meet the deferred tax asset realization
criteria set forth in ASC 740 that it is more likely than not that
the Company will realize a benefit of these net deferred tax assets
in future periods.
There were no changes in unrecognized tax benefits during the 12
months ended June 30, 2012 or June 30, 2011. All tax benefits
recognized relate to tax positions for which the ultimate
deductibility is highly certain but for which there is uncertainty
about the timing of such deductions.
Note K - Income Taxes (Continued)
The Company files income tax returns in the U.S. (federal and
state jurisdictions). Tax years 2009 to 2011 remain open for all
jurisdictions. However, for the 2007 tax year, and the tax period
from January 1, 2008 to July 10, 2008, the Company was a
partnership for federal and New Mexico income tax purposes.
Therefore, for those tax periods, any adjustments to the Company's
taxable income would flow through to Resaca's partners in those
jurisdictions. The Company's accounting policy is to recognize
interest and penalties, if any, related to unrecognized tax
benefits as income tax expense. The Company does not have an
accrued liability for interest and penalties at June 30, 2012.
Note L - Stockholders' Equity
As described in Note A, the Company converted from a partnership
to a corporation on July 10, 2008. As such, partners' capital was
converted to stockholders' equity. On June 23, 2010, the Board of
Directors approved a one for five reverse stock split effective
June 24, 2010. At June 30, 2012, the Company had 230,000,000 common
shares authorized and 20,747,410 shares issued and outstanding.
Note M - Employee Benefit Plans
Under the Resaca Exploitation, Inc 401(k) Plan (the "Plan")
established in fiscal year 2009, contributions are made to the Plan
by qualified employees at their election and our matching
contributions to the Plan are made at specified rates. Our
contribution to the Plan for the years ended June 30, 2012, 2011
and 2010 was $21,645, $30,078 and $34,094, respectively.
Note N - Acquisitions and Dispositions of Assets
On July 15, 2011 the Company sold the Grand Clearfork Field
located in Pecos County, Texas for $4.1 million. On August 3, 2011
the Company purchased the Langlie Jal Unit located in Lea County,
New Mexico for $8.3 million, comprised of $6.9 million in cash and
the issuance of 845,254 shares of its common stock. The following
table presents the preliminary purchase price allocation to the
assets acquired and liabilities assumed, based on their fair values
on August 3, 2011:
Oil and gas
properties 8,487,298
Asset retirement
obligations (234,548)
---------------
8,252,750
===============
Note O - Director Compensation
During the year ended June 30, 2012, Resaca directors J.P.
Bryan, Judy Ley Allen, Richard Kelly Plato, John William Sharp
Bentley, and John J. Lendrum, III each received director's fees in
the amount of $50,000. Stock option awards of 100,000 were made to
J. P. Bryan and stock option awards of 30,000 were made to each of
the remaining directors during the six months ended June 30, 2012.
No salaries, bonuses or pension contributions were paid to or for
the benefit of any Resaca directors during the year ended June 30,
2012. During the year ended June 30, 2011, Resaca directors J.P.
Bryan, Judy Ley Allen, Richard Kelly Plato, and John William Sharp
Bentley each received director's fees in the amount of $50,000 and
director John J. Lendrum, III received $44,780. No equity grants
were made and no salaries, bonuses or pension contributions were
paid to or for the benefit of any Resaca directors during the year
ended June 30, 2011.
Note P - Subsequent Events
Beginning August 7, 2012, Regions began charging default
interest at a rate of 2.00%, effectively increasing the Company's
borrowing rate to 7.50%. This is in effect until the Company is
again in compliance with the covenants related to this facility.
The Company is seeking relief from cash payment of the default
interest rate under the Regions Facility.
On October 18, 2012, Resaca filed an action against Wind River
Petroleum, LP ("Wind River") and Richard A. Counts ("Counts") for
breach of the terms of the August 3, 2011 Purchase and Sale
Agreement ("PSA") relating to the purchase of the Langlie Jal Unit
seeking to enforce the obligations of Wind River and Counts under
the PSA. On October 19, 2012 Wind River filed an action against
Resaca alleging a breach of the same PSA relating to the
post-closing purchase price adjustment.
Note Q - Supplementary Financial Information for Oil and Gas
Producing Activities (unaudited)
The Company has interests in oil and natural gas properties that
are principally located in Texas and New Mexico. The Company does
not own or lease any oil and natural gas properties outside the
United States.
The Company retains independent engineering firms to provide
year-end estimates of the Company's future net recoverable oil and
natural gas reserves. Estimated proved net recoverable reserves as
shown below include only those quantities that can be expected to
be commercially recoverable. Estimated reserves for the years ended
June 30, 2012, 2011 and 2010 were computed using benchmark prices
based on the unweighted arithmetic average of the
first-day-of-the-month prices for oil and natural gas during each
month of the fiscal years ended June 30, 2012, 2011 and 2010, as
required by SEC Release No. 33-8995, Modernization of Oil and Gas
Reporting, effective for fiscal years ending on or after December
31, 2009. Costs were estimated using costs in effect at the balance
sheet dates under existing regulatory practices and with
conventional equipment and operating methods.
Proved oil and gas reserves are those quantities of oil and gas,
which, by analysis of geoscience and engineering data, can be
estimated with reasonable certainty to be economically producible -
from a given date forward, from known reservoirs, and under
existing economic conditions, operating methods, and government
regulations - prior to the time at which contracts providing the
right to operate expire, unless evidence indicates that renewal is
reasonably certain, regardless of whether deterministic or
probabilistic methods are used for the estimation. The project to
extract the hydrocarbons must have commenced or the operator must
be reasonably certain that it will commence the project within a
reasonable time.
Proved developed reserves represent only those reserves expected
to be recovered through existing wells. Proved undeveloped reserves
include those reserves expected to be recovered from new wells on
undrilled acreage or from existing wells on which a relatively
major expenditure is required for re-completion.
Costs Incurred in oil and natural gas producing activities are
as follows:
Years ended June 30,
-------------------------------------------------
2012 2011 2010
---------------- --------------- --------------
Acquisition of proved
properties $ 5,706,113 $ - $ -
Acquisition of unproved
properties - - -
Development costs 12,897,127 15,474,077 4,381,933
Exploration costs - - -
Total costs incurred $ 18,603,240 $ 15,474,077 $ 4,381,933
=== =========== =========== ==========
Note Q - Supplementary Financial Information for Oil and Gas
Producing Activities (unaudited) (Continued)
The following reserves data only represent estimates and should
not be construed as being exact.
Natural Total Reserves
Proved Reserves Oil (bbl) Gas (mcf) BOE
----------------------------- ------------------------ ------------------------ -----------------------
June 30,
2009 11,967,830 13,298,851 14,184,305
Revision of prior estimates 556,830 (360,093) 496,815
Extensions, discoveries
and other additions - - -
Improved
recovery - - -
Production (194,070) (243,168) (234,598)
Purchases - - -
Sales - - -
------------------------ ------------------------ -----------------------
June 30,
2010 12,330,590 12,695,590 14,446,522
Revision of prior estimates 453,724 (78,371) 440,662
Extensions, discoveries
and other additions - - -
Improved
recovery - - -
Production (198,244) (235,349) (237,469)
Purchases - - -
Sales - - -
------------------------ ------------------------ -----------------------
June 30,
2011 12,586,070 12,381,870 14,649,715
Revision of prior estimates (284,800) (2,308,616) (669,569)
Extensions, discoveries
and other additions - - -
Improved
recovery - - -
Production (223,452) (232,546) (262,210)
Purchases 1,017,012 1,110,372 1,202,074
Sales (505,900) - (505,900)
------------------------ ------------------------ -----------------------
June 30,
2012 12,588,930 10,951,080 14,414,110
======================== ======================== =======================
Proved developed reserves,
June 30, 2010 6,978,160 6,855,640 8,120,767
Proved developed reserves,
June 30, 2011 7,226,270 6,737,960 8,349,263
Proved developed reserves,
June 30, 2012 6,814,520 5,559,020 7,741,023
Resaca Reserve Explanation:
For the reserves at June 30, 2010, revisions of prior estimates
provided an increase of 496 MBOE to total proved reserves. Forecast
changes provided an overall increase of 383 MBOE, while extended
economic limits provided an increase of 113 MBOE.
The specific field forecast changes are as follows:
-- At the Cooper Jal Complex, total proved reserves increased by
196 MBOE. This was comprised of a PDP increase of 534 MBOE due to
commodity related price effects and production performance. This
was offset by a decrease of 416 MBOE in the PDNP category due to
forecast revisions and well activity, while PUD reserves increased
78 MBOE due to forecast revisions.
-- At the Penwell Complex, total proved reserves increased 117
MBOE due to forecast revisions. PDP reserves decreased 82 MBOE,
PDNP reserves increased 177 MBOE due to the addition of six wells,
and PUD reserves increased 22 MBOE due to forecast revisions.
-- At the McElroy Field, PDP reserves increased 59 MBOE based on forecast revisions.
-- At the Kermit Field, proved reserves decreased by 26 MBOE.
PDP reserves decreased 42 MBOE based on forecast revisions, while
PDNP reserves increase by 16 MBOE due to wells requiring
workovers.
-- At Resaca's remaining minor fields, proved reserves increased
by 37 MBOE based on forecast revisions.
Note Q - Supplementary Financial Information for Oil and Gas
Producing Activities (unaudited) (Continued)
For the reserves at June 30, 2011, revisions of prior estimates
provided an increase of 441 MBOE to total proved reserves. Forecast
changes provided an overall increase of 263 MBOE, while extended
economic limits provided an increase of 178 MBOE.
The specific field forecast changes are as follows:
-- At the Cooper Jal Complex, total proved reserves decreased by
12 MBOE. This was comprised of a PDP increase of 347 MBOE due to
performance revisions, offset by a decrease of 320 MBOE in the PDNP
category as a result of project work performed, while PUD reserves
decreased 39 MBOE due to forecast revisions
-- At the Edwards Grayburg Field, total proved reserves
increased 135 MBOE in the PDP category due to a shift of reserves
from the possible reserve category due to the reactivation of a
waterflood in the field.
-- At the Jordan San Andres Field, total proved reserves
increased 143 MBOE due to performance related to the expansion of
the waterflood in the field and some contribution from the deeper
San Andres formation.
-- At the McElroy Field, PDP reserves increased 76 MBOE based on forecast revisions.
-- At the Kermit Field, total proved reserves increased by 69
MBOE. The increase was in PDP reserves due to forecast revisions
and reactivation of additional wells.
-- At Resaca's remaining minor fields, proved reserves increased
by 30 MBOE based on forecast revisions.
For the reserves at June 30, 2012, revisions of prior estimates
resulted in a decrease of 670 MBOE to total proved reserves.
Acquisitions provided an increase of 1,180 MBOE, while divestitures
resulted in a decrease of 506 MBOE.
The specific field forecast changes are as follows:
-- At the Cooper Jal Complex, total proved reserves decreased by
538 MBOE primarily due to the continued reduction of the producing
gas-oil ratio ("GOR"). The declining GOR is indicative of
successful repressurization of the reservoir which is a key
objective of revitalizing the waterflood and preparing the field
ultimately for CO2 tertiary recovery operations.
-- At the Jordan San Andres Field, total proved reserves
decreased 75 MBOE due to forecast changes
-- The Grand Clearfork Field was divested in July 2012 resulting
in a decrease of total proved reserves of 506 MBOE.
-- The Langlie Jal Complex was acquired in August 2012 resulting
in an increase of total proved reserves of 1,202 MBOE.
Standardized Measure of Discounted Future Net Cash Flows:
The following table sets forth unaudited information concerning
future net cash flows for oil and gas reserves, net of income tax
expense. Income tax expense has been computed using expected future
tax rates and giving effect to tax deductions and credits
available, under current laws, and which relate to oil and gas
producing activities.
June 30,
------------------- ------------------ ----------------
2012 2011 2010
------------------- ------------------ ----------------
Future cash inflows $ 1,235,948,690 $ 1,161,768,240 $ 969,357,000
Future production costs 319,338,660 247,396,380 248,093,970
Future development
costs 124,894,310 105,330,690 97,930,260
Future income tax expenses 254,582,283 260,767,366 193,329,417
-------------- -------------- ------------
Future net cash flows 537,133,437 548,273,804 430,003,353
10% annual discount
for estimating
timing of cash flows 322,422,992 337,516,680 262,692,278
-------------- -------------- ------------
Standarized measure
of discounted
future net cash flows $ 214,710,445 $ 210,757,124 $ 167,311,075
=== ============== ============== ============
Note Q - Supplementary Financial Information for Oil and Gas
Producing Activities (unaudited) (Continued)
Changes in Standardized Measure of Discounted Future Net Cash
Flows:
Years ended June 30,
-----------------------------------------------------------------------------
2012 2011 2010
--------------------- -------------------------- --------------------------
Balance, beginning
of year $ 210,757,124 $ 167,311,075 $ 136,162,302
Net changes in prices
and production
costs 5,298,557 68,839,214 31,397,849
Net changes in future
development
costs (20,417,407) (18,353,529) (4,669,565)
Sales of oil and gas
produced, net (13,231,333) (11,211,013) (8,948,939)
Purchases of reserves 5,784,950 - -
Sales of reserves (9,425,330) - -
Extensions and discoveries - - -
Revisions of previous
quantity
estimates 650,338 10,701,688 9,157,783
Previously estimated
development
costs incurred 12,897,127 15,474,077 4,381,934
Net change in income
taxes (1,877,083) (29,853,095) (17,108,769)
Accretion of discount 31,099,642 24,253,410 19,320,691
Timing differences
and other (6,826,140) (16,404,703) (2,382,211)
---------------- ---------------------- ----------------------
Balance, end of year $ 214,710,445 $ 210,757,124 $ 167,311,075
=== ================ ====================== ======================
This information is provided by RNS
The company news service from the London Stock Exchange
END
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