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Maximum | Maximum | Amount of | ||||||||||
Title of Each Class of | Amount to be | Offering Price per | Aggregate Offering | Registration | ||||||||
Securities to be Registered | Registered | Unit | Price | Fee(1) | ||||||||
8.625% Senior Notes due 2017 | $300,000,000 | 98.578% | $295,734,000 | $16,501.96 | ||||||||
(1) | Calculated in accordance with Rule 457(r) under the Securities Act of 1933. |
Registration Number 333-161809
(To prospectus dated September 9, 2009)
Underwriting | Proceeds, before | ||||||||
discounts and | expenses, to Concho | ||||||||
Price to public1 | commissions | Resources Inc. | |||||||
Per note | 98.578% | 2.500% | 96.078% | ||||||
Total | $ | 295,734,000 | $ | 7,500,000 | $ | 288,234,000 | |||
(1) | Plus accrued interest, if any, from September 18, 2009. |
J.P. Morgan | BofA Merrill Lynch |
BNP PARIBAS | Wells Fargo Securities |
CALYON | Scotia Capital | SunTrust Robinson Humphrey | ||
Deutsche Bank Securities | ING Wholesale | KeyBanc Capital Markets |
Mitsubishi UFJ Securities | Natixis Bleichroeder Inc. | Raymond James |
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Prospectus supplement | ||||
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Prospectus | ||||
About this prospectus | 1 | |||
The company | 1 | |||
Where you can find more information | 2 | |||
Cautionary statement regarding forward-looking statements | 3 | |||
Risk factors | 4 | |||
Ratios of earnings to fixed charges and earnings to fixed charges and preferred stock dividends | 4 | |||
Use of proceeds | 5 | |||
Description of debt securities | 6 | |||
Description of capital stock | 18 | |||
Description of warrants | 22 | |||
Plan of distribution | 23 | |||
Legal matters | 24 | |||
Experts | 24 |
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• | our Annual Report onForm 10-K for the year ended December 31, 2008; |
• | our Quarterly Report onForm 10-Q for the quarter ended March 31, 2009; |
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• | our Quarterly Report onForm 10-Q for the quarter ended June 30, 2009; and |
• | our Current Reports onForm 8-K and8-K/A filed on each of August 6, 2008, October 7, 2008, January 28, 2009, March 4, 2009, April 9, 2009, June 12, 2009, August 12, 2009 and September 9, 2009 (excluding any information furnished pursuant to Item 2.02 or Item 7.01 of any such Current Report onForm 8-K). |
550 West Texas Avenue, Suite 100
Midland, Texas 79701
Attention: General Counsel
(432) 683-7443
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• | our business and financial strategy; |
• | the estimated quantities of oil and natural gas reserves; |
• | our use of industry technology; |
• | our realized oil and natural gas prices; |
• | the timing and amount of the future production of our oil and natural gas; |
• | the amount, nature and timing of our capital expenditures; |
• | the drilling of our wells; |
• | our competition and government regulations; |
• | the marketing of our oil and natural gas; |
• | our exploitation activities or property acquisitions; |
• | the costs of exploiting and developing our properties and conducting other operations; |
• | general economic and business conditions; |
• | our cash flow and anticipated liquidity; |
• | hedging results; |
• | uncertainty regarding our future operating results; |
• | our plans, objectives, expectations and intentions contained in this prospectus supplement that are not historical; and |
• | our ability to integrate acquisitions. |
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Quarter | ||||||||||||||||||||||||||||||||
ended June 30, | ||||||||||||||||||||||||||||||||
December 31, 2008 | 2009 | June 30, 2009 | ||||||||||||||||||||||||||||||
Average net | ||||||||||||||||||||||||||||||||
Total | daily | |||||||||||||||||||||||||||||||
proved | production | Identified | Total | Total | ||||||||||||||||||||||||||||
reserves | PV-10 | % Proved | (Boe per | drilling | gross | net | ||||||||||||||||||||||||||
Areas | (MBoe) | ($ in millions) | % Oil | developed | day) | locations | acreage | acreage | ||||||||||||||||||||||||
Core Operating Areas: | ||||||||||||||||||||||||||||||||
New Mexico Permian | 95,055 | $ | 1,242.8 | 59.3% | 52.9% | 18,847 | 1,654 | 151,766 | 70,868 | |||||||||||||||||||||||
Texas Permian | 39,392 | 378.0 | 71.9% | 62.9% | 8,709 | 1,558 | 283,043 | 77,784 | ||||||||||||||||||||||||
Emerging Plays: | ||||||||||||||||||||||||||||||||
Lower Abo | 2,127 | 34.4 | 67.8% | 39.3% | 1,939 | 152 | 31,978 | 27,805 | ||||||||||||||||||||||||
Bakken/Three Forks | 206 | 3.8 | 83.2% | 100.0% | 376 | 150 | 44,221 | 11,661 | ||||||||||||||||||||||||
Other | 495 | 4.2 | 6.2% | 87.1% | 166 | 8 | 147,715 | 68,645 | ||||||||||||||||||||||||
Total | 137,275 | $ | 1,663.2 | 62.9% | 55.7% | 30,037 | 3,522 | 658,723 | 256,763 | |||||||||||||||||||||||
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• | Exploit our multi-year project inventory. We believe our multi-year drilling and exploitation inventory of 3,522 drilling locations on our existing properties at June 30, 2009 should allow us to grow our proved reserves and production for the next several years. |
• | Continue to focus on the Permian Basin. The Permian Basin is one of the largest and most prolific oil and gas basins in the United States. Members of our management have spent significant portions of their careers in the Permian Basin. We believe our presence and relationships in the Permian Basin are an advantage for the acquisition and development of new opportunities. |
• | Make opportunistic acquisitions that meet our strategic and financial objectives. We seek to acquire oil and natural gas properties that we believe complement our existing properties in our core areas of operation, as well as other properties that provide opportunities for the addition of reserves and production through a combination of exploitation, development, high-potential exploration and control of operations. |
• | Pursue the exploration and development of opportunities in emerging plays. Our team has the necessary experience and expertise to allow us to take advantage of the growth |
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opportunities in emerging plays. We apply current geologic, drilling and completion practices to increase the predictability and reproducibility of finding and recovering resources in emerging plays. |
• | High operational success rate. As a result of our experience and knowledge, we have been successful in our drilling operations. For the three and one-half years ended June 30, 2009, we drilled and completed 625 (414.5 net) wells, including 266 (186.6 net) exploratory wells, with over a 98% rate of success. |
• | Large inventory of drilling locations and recompletion opportunities. We have identified multiple undrilled well locations and recompletion opportunities in our core operating areas, with proved reserves attributed to a portion of such locations and opportunities. This large inventory provides us with a solid operational and financial foundation from which to pursue additional growth opportunities. |
• | Favorable operating cash margins and low cost structure. During the first half of 2009, we had favorable operating cash margins relative to our peer group of companies, with the sale of oil and natural gas liquids contributing over 80 percent of our revenue. We maintain a favorable cost structure through our concentration of assets in our core operating areas. |
• | Significant economies of scale and highly focused asset base. The geographic concentration of our current operations in the Permian Basin allows us to establish economies of scale with respect to drilling, production, operating and administrative costs, in addition to further leveraging our base of technical expertise in this region. Our high percentage of operated properties enables us to exercise a significant level of control over the amount and timing of expenses, capital allocation and other aspects of exploration and development. |
• | Experienced management team. Our executive officers average over 20 years of experience in the oil and gas industry, having led both public and private oil and natural gas exploration and production companies, all of which have had substantial operations in our core operating areas in the Permian Basin. |
• | Financial flexibility. We are committed to maintaining a conservative financial position, ample liquidity and a strong balance sheet. Our ratio of total debt to EBITDAX has been less than 2.0x since December 31, 2007. At June 30, 2009, we had $660 million borrowed under our credit facility, which has a current borrowing base of $960 million, and expect to have $582.8 million of liquidity available following the application of the proceeds of this offering and giving effect to the reduction to our borrowing base as a result of the issuance of the notes. For further discussion, see “Description of other indebtedness—Senior secured credit facility.” Furthermore, we have prudently raised equity throughout industry cycles to keep our balance sheet strong, as demonstrated most recently with our acquisition of the Henry Petroleum entities. We believe that our cash flow, expected proceeds from this offering and our borrowing capacity under our credit facility will provide us with the financial flexibility to pursue our longer-term capital expenditure plans. |
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• | Manage risk exposure through an active hedging program. We have hedged approximately 62 percent and 43 percent of our anticipated oil and natural gas production for the second half of 2009 and 2010, respectively. |
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Issuer | Concho Resources Inc. | |
The notes | $300,000,000 aggregate principal amount of 8.625% Senior Notes due 2017. | |
Maturity | October 1, 2017. | |
Interest payment dates | Interest is payable on the notes on April 1 and October 1 of each year, beginning on April 1, 2010. | |
Optional redemption | We may, at our option, redeem all or part of the notes at any time prior to October 1, 2013 at a make-whole price, and at any time on or after October 1, 2013 at fixed redemption prices, plus accrued and unpaid interest, if any, to the date of redemption, as described under “Description of notes—Optional redemption.” In addition, prior to October 1, 2012, we may, at our option, redeem up to 35% of the notes with the proceeds of certain equity offerings. | |
Guarantees | The payment of the principal, premium and interest on the notes will be fully and unconditionally guaranteed on a senior unsecured basis by all of our existing subsidiaries and by certain of our future restricted subsidiaries. In the future, the guarantees may be released or terminated under certain circumstances. See “Description of notes—Subsidiary guarantees.” | |
Ranking | The notes and the guarantees will be our and the guarantors’ senior unsecured obligations and will: | |
• rank equally in right of payment with all our and the guarantors’ existing and future senior indebtedness; | ||
• rank senior in right of payment to all our and the guarantors’ future subordinated indebtedness; | ||
• be structurally subordinated in right of payment to all our and the guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness (including all of our borrowings and the guarantors’ guarantees under our credit facility); and | ||
• be structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any of our subsidiaries that is not also a guarantor of the notes. | ||
As of June 30, 2009, after giving effect to the issuance and sale of the notes and the application of the net proceeds therefrom as set forth |
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under “Use of proceeds” to repay a portion of the borrowings outstanding under our credit facility, we would have had total consolidated indebtedness of $668.7 million (net of discount), consisting of $373.0 million of secured indebtedness outstanding under our credit facility and $295.7 million (net of discount) of the notes offered hereby, the subsidiary guarantors would have had total indebtedness of $668.7 million (net of discount) consisting of $373.0 million of secured guarantees under our credit facility and $295.7 million (net of discount) of guarantees of the notes offered hereby, excluding intercompany indebtedness, and we would have been able to incur an additional $582.8 million of secured indebtedness under our credit facility (after giving effect to the reduction in our borrowing base as a result of the issuance of the notes). For further discussion, see “Description of other indebtedness—Senior secured credit facility.” | ||
Covenants | The indenture governing the notes will contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: | |
• incur additional debt; | ||
• make certain investments or pay dividends or distributions on our capital stock or purchase, redeem or retire capital stock; | ||
• sell assets, including capital stock of our restricted subsidiaries; | ||
• restrict dividends or other payments by restricted subsidiaries; | ||
• create liens that secure debt; | ||
• enter into transactions with affiliates; and | ||
• merge or consolidate with another company. | ||
These covenants are subject to a number of important limitations and exceptions. See “Description of notes—Certain covenants.” However, most of the covenants will terminate if both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. assign the notes an investing grade rating and no default exists with respect to the notes. | ||
Change of control offer | If we experience certain kinds of changes of control, we must give the holders of the notes the opportunity to sell us their notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. | |
No public market | The notes are a series of securities for which there is currently no established trading market. The underwriters have advised us that they presently intend to make a market in the notes. However, you should be aware that they are not obligated to make a market in the notes and may discontinue their market-making activities at any time without notice. As a result, a liquid market for the notes may not be available if you try to sell your notes. We do not intend to apply for |
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a listing of the notes on any securities exchange or any automated dealer quotation system. | ||
Use of proceeds | We will use the net proceeds from this offering of approximately $287.0 million to repay a portion of the outstanding borrowings under our credit facility. See “Use of proceeds.” | |
Form | The notes will be represented by one or more registered global securities registered in the name of Cede & Co., the nominee of the depositary, The Depository Trust Company. Beneficial interests in the notes will be shown on, and transfers of beneficial interests will be effected through, records maintained by The Depository Trust Company and its participants. | |
Conflicts of interest | Affiliates of certain of the underwriters are lenders under our credit facility and will receive a portion of the net proceeds from this offering. For more information, see “Conflicts of interest.” |
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Six months | ||||||||||||||||||||
ended June 30, | Year ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
(in thousands) | (unaudited) | |||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||
Oil sales | $ | 166,485 | $ | 171,226 | $ | 390,945 | $ | 195,596 | $ | 131,773 | ||||||||||
Natural gas sales | 46,849 | 72,868 | 142,844 | 98,737 | 66,517 | |||||||||||||||
Total operating revenues | 213,334 | 244,094 | 533,789 | 294,333 | 198,290 | |||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||
Oil and gas production | 50,583 | 38,874 | 91,234 | 54,267 | 37,822 | |||||||||||||||
Exploration and abandonments | 7,419 | 3,464 | 38,468 | 29,098 | 5,612 | |||||||||||||||
Depreciation, depletion and amortization | 103,150 | 43,294 | 123,912 | 76,779 | 60,722 | |||||||||||||||
Accretion of discount on asset retirement obligations | 579 | 301 | 889 | 444 | 287 | |||||||||||||||
Impairments of long-lived assets | 8,555 | 69 | 18,417 | 7,267 | 9,891 | |||||||||||||||
General and administrative (including non-cash stock-based compensation of $4,113 and $3,029 for the six months ended June 30, 2009 and 2008, respectively, and $5,223, $3,841 and $9,144 for the years ended December 31, 2008, 2007 and 2006, respectively) | 25,918 | 16,266 | 40,776 | 25,177 | 21,721 | |||||||||||||||
Bad debt expense | – | 1,799 | 2,905 | – | – | |||||||||||||||
Contract drilling fees—stacked rigs | – | – | – | 4,269 | – | |||||||||||||||
Ineffective portion of cash flow hedges | – | (920 | ) | (1,336 | ) | 821 | (1,193 | ) | ||||||||||||
(Gain) loss on derivatives not designated as hedges | 86,652 | 119,634 | (249,870 | ) | 20,274 | – | ||||||||||||||
Total operating costs and expenses | 282,856 | 222,781 | 65,395 | 218,396 | 134,862 | |||||||||||||||
Income (loss) from operations | (69,522 | ) | 21,313 | 468,394 | 75,937 | 63,428 | ||||||||||||||
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Six months | ||||||||||||||||||||
ended June 30, | Year ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
(in thousands) | (unaudited) | |||||||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (10,570 | ) | (9,500 | ) | (29,039 | ) | (36,042 | ) | (30,567 | ) | ||||||||||
Other, net | (148 | ) | 1,331 | 1,432 | 1,484 | 1,186 | ||||||||||||||
Total other expense | (10,718 | ) | (8,169 | ) | (27,607 | ) | (34,558 | ) | (29,381 | ) | ||||||||||
Income (loss) before income taxes | (80,240 | ) | 13,144 | 440,787 | 41,379 | 34,047 | ||||||||||||||
Income tax (expense) benefit | 33,797 | (5,199 | ) | (162,085 | ) | (16,019 | ) | (14,379 | ) | |||||||||||
Net income (loss) | (46,443 | ) | 7,945 | 278,702 | 25,360 | 19,668 | ||||||||||||||
Preferred stock dividends | – | – | – | (45 | ) | (1,244 | ) | |||||||||||||
Effect of induced conversion of preferred stock | – | – | – | – | 11,601 | |||||||||||||||
Net income (loss) applicable to common shareholders | $ | (46,443 | ) | $ | 7,945 | $ | 278,702 | $ | 25,315 | $ | 30,025 | |||||||||
Other financial data: | ||||||||||||||||||||
Net cash provided by operating activities | $ | 118,232 | $ | 162,948 | $ | 391,397 | $ | 169,769 | $ | 112,181 | ||||||||||
Net cash used in investing activities | (162,828 | ) | (142,127 | ) | (946,050 | ) | (160,353 | ) | (596,852 | ) | ||||||||||
Net cash provided by (used in) financing activities | 29,925 | (19,529 | ) | 541,981 | 19,886 | 476,611 | ||||||||||||||
Capital expenditures on oil and natural gas properties | 223,283 | 122,757 | 347,702 | 162,378 | 182,389 | |||||||||||||||
June 30, | December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
(in thousands) | (unaudited) | |||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 3,081 | $ | 31,716 | $ | 17,752 | $ | 30,424 | $ | 1,122 | ||||||||||
Property and equipment, net | 2,487,166 | 1,475,521 | 2,401,404 | 1,394,994 | 1,320,655 | |||||||||||||||
Total assets | 2,764,799 | 1,634,233 | 2,815,203 | 1,508,229 | 1,390,072 | |||||||||||||||
Long-term debt, including current maturities | 660,000 | 300,953 | 630,000 | 327,404 | 495,500 | |||||||||||||||
Stockholders’ equity | 1,289,555 | 783,959 | 1,325,154 | 775,398 | 575,156 | |||||||||||||||
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Twelve | ||||||||||||||||||||||||
months | Six months ended | Year ended | ||||||||||||||||||||||
ended | June 30, | December 31, | ||||||||||||||||||||||
(dollars in thousands) | June 30, 2009 | 2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||||
Key statistics (unaudited): | ||||||||||||||||||||||||
EBITDAXa | $ | 427,416 | $ | 202,263 | $ | 176,927 | $ | 402,080 | $ | 217,760 | $ | 149,077 | ||||||||||||
Total interest | 30,109 | 10,570 | 9,500 | 29,039 | 36,042 | 30,567 | ||||||||||||||||||
Ratio of total debt to EBITDAXa | 1.5x | 1.6x | 1.5x | 3.3x | ||||||||||||||||||||
Ratio of EBITDAXa to total interest | 14.2x | 13.8x | 6.0x | 4.9x | ||||||||||||||||||||
(a) | EBITDAX is defined as net income (loss), plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) ineffective portion of cash flow hedges and unrealized (gain) loss on derivatives not designated as hedges, (7) interest expense, (8) bad debt expense and (9) federal and state income taxes. See “—Non-GAAP financial measures and reconciliations.” |
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Proved reserves: | ||||||||||||
Oil (MBbl) | 86,285 | 53,361 | 44,322 | |||||||||
Natural gas (MMcf) | 305,948 | 225,837 | 200,818 | |||||||||
Oil equivalent (MBoe) | 137,275 | 91,000 | 77,791 | |||||||||
Proved developed reserves percentage | 55.7% | 54.0% | 54.2% | |||||||||
Standardized measure of discounted future cash flows (in millions) | $ | 1,199.0 | $ | 1,431.8 | $ | 710.3 | ||||||
PV-10 (in millions)a | $ | 1,663.2 | $ | 2,138.5 | $ | 954.0 | ||||||
Estimated reserve life (in years)b | 19.4 | 18.1 | 20.0 | |||||||||
(a) | PV-10 is a non-GAAP financial measure and generally differs from standardized measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. See “—Non-GAAP financial measures and reconciliations.” Prices used in the computation of future net cash flows were adjusted for location and quality by field, and were $41.00 per Bbl and $5.71 per MMBtu for 2008, $92.50 per Bbl and $6.80 per MMBtu for 2007 and $57.75 per Bbl and $5.64 per MMBtu for 2006. |
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(b) | Calculated by dividing historical proved reserves by historical production volumes for the years indicated. The historical production does not include the production from assets that we acquired in 2008 and 2006 before the time we acquired them. Pro forma for a full year of production from the acquired assets, the estimated reserve life in 2008 and 2006 would have been 16.8 years and 18.2 years, respectively. |
Six months | ||||||||||||||||||||
ended June 30, | Years ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Production and operating data: | ||||||||||||||||||||
Net production volumes: | ||||||||||||||||||||
Oil (MBbl) | 3,518 | 1,786 | 4,586 | 3,014 | 2,295 | |||||||||||||||
Natural gas (MMcf) | 10,369 | 6,451 | 14,968 | 12,064 | 9,507 | |||||||||||||||
Total (MBoe) | 5,246 | 2,861 | 7,081 | 5,025 | 3,880 | |||||||||||||||
Average daily production volumes: | ||||||||||||||||||||
Oil (Bbl) | 19,436 | 9,813 | 12,530 | 8,258 | 6,288 | |||||||||||||||
Natural gas (Mcf) | 57,287 | 35,445 | 40,896 | 33,052 | 26,047 | |||||||||||||||
Total (Boe) | 28,984 | 15,721 | 19,347 | 13,767 | 10,630 | |||||||||||||||
Average prices: | ||||||||||||||||||||
Oil, without hedges (Bbl) | $ | 47.32 | $ | 107.39 | $ | 91.92 | $ | 68.58 | $ | 60.47 | ||||||||||
Oil, with hedges (Bbl)a | $ | 63.36 | $ | 86.93 | $ | 83.55 | $ | 64.90 | $ | 57.42 | ||||||||||
Natural gas, without hedges (Mcf) | $ | 4.52 | $ | 11.33 | $ | 9.59 | $ | 8.08 | $ | 6.87 | ||||||||||
Natural gas, with hedges (Mcf)a | $ | 5.08 | $ | 11.23 | $ | 9.64 | $ | 8.33 | $ | 7.00 | ||||||||||
Total, without hedges (Boe) | $ | 40.67 | $ | 92.59 | $ | 79.80 | $ | 60.54 | $ | 52.62 | ||||||||||
Total, with hedges (Boe)a | $ | 52.53 | $ | 79.59 | $ | 74.49 | $ | 58.93 | $ | 51.12 | ||||||||||
Operating costs and expenses per Boe: | ||||||||||||||||||||
Lease operating expenses and workover costs | $ | 6.24 | $ | 5.86 | $ | 6.31 | $ | 5.56 | $ | 5.40 | ||||||||||
Oil and natural gas taxes | $ | 3.40 | $ | 7.73 | $ | 6.57 | $ | 5.24 | $ | 4.35 | ||||||||||
General and administrative | $ | 4.93 | $ | 5.69 | $ | 5.76 | $ | 5.01 | $ | 5.60 | ||||||||||
Depreciation, depletion and amortization | $ | 19.66 | $ | 15.13 | $ | 17.50 | $ | 15.28 | $ | 15.65 | ||||||||||
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(a) | Includes the effect of (i) commodity derivatives designated as hedges and reported in oil and natural gas sales and (ii) includes the cash payments/receipts from commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash payments/receipts from commodity derivatives not designated as hedges that were included in computing average prices with hedges and reconciles to the amount in gain (loss) on derivatives not designated as hedges as reported in the statement of operations: |
Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
(in thousands) | 2009 | 2008 | 2008 | 2007 | 2006 | |||||||||||||||
Oil and natural gas sales: | ||||||||||||||||||||
Cash payments from oil derivatives | $ | – | $ | (20,573 | ) | $ | (30,591 | ) | $ | (11,091 | ) | $ | (7,000 | ) | ||||||
Cash receipts from natural gas derivatives | – | – | – | 188 | 1,232 | |||||||||||||||
Designated natural gas cash flow hedges reclassified from accumulated other comprehensive income | – | (222 | ) | (696 | ) | 1,103 | – | |||||||||||||
Total effect on oil and natural gas sales | $ | – | $ | (20,795 | ) | $ | (31,287 | ) | $ | (9,800 | ) | $ | (5,768 | ) | ||||||
Gain (loss) on derivatives not designated as hedges: | ||||||||||||||||||||
Cash (payments) receipts from oil derivatives | $ | 56,412 | $ | (15,965 | ) | $ | (7,780 | ) | $ | – | $ | – | ||||||||
Cash (payments) receipts from natural gas derivatives | 5,832 | (422 | ) | 1,426 | 1,815 | – | ||||||||||||||
Cash payments from interest rate derivatives | (779 | ) | – | – | – | – | ||||||||||||||
Unrealizedmark-to-market gain (loss) on commodity and interest rate derivatives | (148,117 | ) | (103,247 | ) | 256,224 | (22,089 | ) | – | ||||||||||||
Gain (loss) on derivatives not designated as hedges | $ | (86,652 | ) | $ | (119,634 | ) | $ | 249,870 | $ | (20,274 | ) | $ | – | |||||||
The presentation of average prices with hedges is a non-GAAP measure as a result of including the cash payments/receipts from commodity derivatives that are presented in gain (loss) on derivatives not designated as hedges in the statements of operations. This presentation of average prices with hedges is a means by which to reflect the actual cash performance of our commodity derivatives for the respective periods and presents oil and natural gas prices with hedges in a manner consistent with the presentation generally used by the investment community. |
December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
PV-10 | $ | 1,663.2 | $ | 2,138.5 | $ | 954.0 | ||||||
Present value of future income tax discounted at 10% | (464.2 | ) | (706.7 | ) | (243.7 | ) | ||||||
Standardized measure of discounted future cash flows | $ | 1,199.0 | $ | 1,431.8 | $ | 710.3 | ||||||
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Six months | ||||||||||||||||||||
ended June 30, | Years ended December 31, | |||||||||||||||||||
(in thousands) | 2009 | 2008 | 2008 | 2007 | 2006 | |||||||||||||||
Net income (loss) | $ | (46,443 | ) | $ | 7,945 | $ | 278,702 | $ | 25,360 | $ | 19,668 | |||||||||
Exploration and abandonments | 7,419 | 3,464 | 38,468 | 29,098 | 5,612 | |||||||||||||||
Depreciation, depletion and amortization | 103,150 | 43,294 | 123,912 | 76,779 | 60,722 | |||||||||||||||
Accretion of discount on asset retirement obligations | 579 | 301 | 889 | 444 | 287 | |||||||||||||||
Impairment of long-lived assets | 8,555 | 69 | 18,417 | 7,267 | 9,891 | |||||||||||||||
Non-cash stock-based compensation | 4,113 | 3,029 | 5,223 | 3,841 | 9,144 | |||||||||||||||
Bad debt expense | – | 1,799 | 2,905 | – | – | |||||||||||||||
Ineffective portion of cash flow hedges | – | (920 | ) | (1,336 | ) | 821 | (1,193 | ) | ||||||||||||
Unrealized (gain) loss on derivatives not designated as hedges | 148,117 | 103,247 | (256,224 | ) | 22,089 | – | ||||||||||||||
Interest expense | 10,570 | 9,500 | 29,039 | 36,042 | 30,567 | |||||||||||||||
Income tax expense (benefit) | (33,797 | ) | 5,199 | 162,085 | 16,019 | 14,379 | ||||||||||||||
EBITDAX | $ | 202,263 | $ | 176,927 | $ | 402,080 | $ | 217,760 | $ | 149,077 | ||||||||||
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• | the level of consumer demand for oil and natural gas; |
• | the domestic and foreign supply of oil and natural gas; |
• | commodity processing, gathering and transportation availability, and the availability of refining capacity; |
• | the price and level of imports of foreign oil and natural gas; |
• | the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; |
• | domestic and foreign governmental regulations and taxes; |
• | the price and availability of alternative fuel sources; |
• | weather conditions; |
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• | political conditions or hostilities in oil and gas producing regions, including the Middle East, Africa and South America; |
• | technological advances affecting energy consumption; and |
• | worldwide economic conditions. |
• | delays imposed by or resulting from compliance with regulatory and contractual requirements; |
• | pressure or irregularities in geological formations; |
• | shortages of or delays in obtaining equipment and qualified personnel; |
• | equipment failures or accidents; |
• | adverse weather conditions; |
• | reductions in oil and natural gas prices; |
• | surface access restrictions; |
• | loss of title or other title related issues; |
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• | oil, natural gas liquids or natural gas gathering, transportation and processing availability restrictions or limitations; and |
• | limitations in the market for oil and natural gas. |
• | historical production from the area compared with production from other producing areas; |
• | the quality, quantity and interpretation of available relevant data; |
• | the assumed effects of regulations by governmental agencies; |
• | the assumed effects of regulations by governmental agencies; |
• | assumptions concerning future commodity prices; and |
• | assumptions concerning future operating costs; severance, ad valorem and excise taxes; development costs; and workover and remedial costs. |
• | the quantities of oil and natural gas that are ultimately recovered; |
• | the production and operating costs incurred; |
• | the amount and timing of future development expenditures; and |
• | future commodity prices. |
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• | the amount and timing of actual production; |
• | levels of future capital spending; |
• | increases or decreases in the supply of or demand for oil and gas; and |
• | changes in governmental regulations or taxation. |
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• | our proved reserves; |
• | the level of oil and natural gas we are able to produce from existing wells; |
• | the prices at which our oil and natural gas are sold; and |
• | our ability to acquire, locate and produce new reserves. |
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• | our lending counterparties may be unwilling or unable to meet their funding obligations; |
• | the borrowing base under our credit facility is redetermined at least twice a year and may decrease due to a decrease in oil or natural gas prices, operating difficulties, declines in reserves, lending requirements or regulations, or for other reasons; or |
• | if any lender is unable or unwilling to fund their respective portion of any advance under our credit facility, then the other lenders thereunder are not required to provide additional funding to make up the portion of the advance that the defaulting lender refused to fund. |
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• | the counterparty to a commodity price risk management contract may default on its contractual obligations to us; |
• | there may be a change in the expected differential between the underlying price in a commodity price risk management agreement and actual prices received; or |
• | market prices may exceed the prices which we are contracted to receive, resulting in our need to make significant cash payments to our counterparties. |
• | the counterparty may default on its contractual obligations to us; |
• | there may be issues with regard to the legal enforceability of such instruments; |
• | the early repayment of our interest rate derivative instruments could lead to prepayment penalties; or |
• | unanticipated and significant changes in interest rates may cause a significant loss of basis in the instrument and a change in current period expense. |
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• | the nature and timing of drilling and operational activities; |
• | the timing and amount of capital expenditures; |
• | the operators’ expertise and financial resources; |
• | the approval of other participants in such properties; and |
• | the selection of suitable technology. |
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• | unexpected drilling conditions; |
• | title problems; |
• | pressure or lost circulation in formations; |
• | equipment failures or accidents; |
• | adverse weather conditions; |
• | compliance with environmental and other governmental or contractual requirements; and |
• | increases in the cost of, or shortages or delays in the availability of, electricity, supplies, materials, drilling or workover rigs, equipment and services. |
• | environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater contamination; |
• | abnormally pressured or structured formations; |
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• | mechanical difficulties, such as stuck oilfield drilling and service tools and casing collapse; |
• | fires, explosions and ruptures of pipelines; |
• | personal injuries and death; and |
• | natural disasters. |
• | injury or loss of life; |
• | damage to and destruction of property, natural resources and equipment; |
• | pollution and other environmental damage; |
• | regulatory investigations and penalties; |
• | suspension of our operations; and |
• | repair and remediation costs. |
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• | impair our ability to make investments and obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes; |
• | limit our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to make principal and interest payments on our indebtedness; |
• | limit our ability to borrow funds that may be necessary to operate or expand our business; |
• | put us at a competitive disadvantage to competitors that have less debt; |
• | increase our vulnerability to interest rate increases; and |
• | hinder our ability to adjust to rapidly changing economic and industry conditions. |
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• | we will have additional cash requirements in order to support the payment of interest on our outstanding indebtedness; |
• | increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure; and |
• | depending on the levels of our outstanding indebtedness, our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited. |
• | incur additional debt; |
• | make certain investments or pay dividends or distributions on our capital stock or purchase, redeem or retire capital stock; |
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• | sell assets, including capital stock of our restricted subsidiaries; |
• | restrict dividends or other payments by restricted subsidiaries; |
• | create liens that secure debt; |
• | enter into transactions with affiliates; and |
• | merge or consolidate with another company. |
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• | the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest; |
• | the lenders under our credit facility could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets; and |
• | we could be forced into bankruptcy or liquidation. |
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• | the guarantor was insolvent or rendered insolvent by reason of the incurrence of the guarantee or subsequently become insolvent for other reasons; |
• | the incurrence of the guarantee left the guarantor with an unreasonably small amount of capital to carry on the business; or |
• | the guarantor intended to, or believed that it would, incur debts beyond its ability to pay such debts as they mature. |
• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets; |
• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they became absolute and mature; or |
• | it could not pay its debts as they became due. |
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• | time remaining to the maturity of the notes; |
• | outstanding amount of the notes; |
• | terms related to optional redemption of the notes; and |
• | level, direction and volatility of market interest rates generally. |
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Concho Resources Inc. | Chase Group Properties | |||||||||||||||||||||||||||
Years ended | Inception (April 21, | Years ended | ||||||||||||||||||||||||||
Six months ended | December 31, | 2004) through | December 31, | |||||||||||||||||||||||||
June 30, 2009 | 2008 | 2007 | 2006 | 2005 | December 31, 2004 | 2005 | 2004 | |||||||||||||||||||||
Ratios of earnings to fixed chargesa | c | 15.36 | 2.00 | 1.97 | 2.01 | c | NMd | NM | d | |||||||||||||||||||
Ratios of earnings to fixed charges and preferred stock dividendsb | e | 15.36 | 2.00 | 1.90 | f | e | NMd | NM | d | |||||||||||||||||||
(a) | The ratio has been computed by dividing earnings by fixed charges. For purposes of computing the ratio: |
• | earnings include income (loss) before income taxes, adjusted for interest expense and the portion of rental expense deemed to be representative of the interest component of rental expense; and | |
• | fixed charges consist of interest expense, capitalized interest and the portion of rental expense deemed to be representative of the interest component of rental expense. |
(b) | The ratio has been computed by dividing earnings by fixed charges and preferred stock dividends. For purposes of computing the ratio: |
• | earnings include income (loss) before income taxes, adjusted for interest expense and the portion of rental expense deemed to be representative of the interest component of rental expense; and | |
• | fixed charges and preferred stock dividends consist of interest expense, capitalized interest, the portion of rental expense deemed to be representative of the interest component of rental expense and preferred stock dividends. |
(c) | Due to our net loss for the six months ended June 30, 2009 and from inception (April 21, 2004) through December 31, 2004, the ratio coverage was less than 1:1. To achieve ratio coverage of 1:1, we would have needed additional earnings of approximately $80.3 million and $3.6 million, respectively. | |
(d) | Not meaningful, as there were no fixed charges or preferred stock dividends for these periods. | |
(e) | Due to our net loss for the six months ended June 30, 2009 and from inception (April 21, 2004) through December 31, 2004, the ratio coverage was less than 1:1. To achieve a ratio coverage of 1:1, we would have needed additional earnings of approximately $80.3 million and $4.4 million, respectively. | |
(f) | Due to the fixed charges and preferred stock dividends exceeding earnings for the period, we would have needed additional earnings of approximately $1.1 million to achieve a ratio coverage of 1:1. |
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• | on an actual basis; and |
• | on an as adjusted basis to give effect to (i) the completion of this offering and (ii) our application of the net proceeds from this offering in the manner described in “Use of proceeds.” |
June 30, 2009 | ||||||||
(unaudited) (in thousands) | Actual | As adjusted | ||||||
Cash and cash equivalents | $ | 3,081 | $ | 3,081 | ||||
Long-term debt: | ||||||||
Credit facilitya | $ | 660,000 | $ | 373,016 | ||||
8.625% Senior Notes due 2017b | – | 295,734 | ||||||
Total long-term debt | 660,000 | 668,750 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value; 300,000,000 authorized; 85,529,591 shares issued at June 30, 2009 actual and as adjusted | 86 | 86 | ||||||
Additional paid-in capital | 1,020,060 | 1,020,060 | ||||||
Retained earnings | 269,726 | 269,726 | ||||||
Treasury stock, at cost; 9,341 shares at June 30, 2009 | (317 | ) | (317 | ) | ||||
Total stockholders’ equity | 1,289,555 | 1,289,555 | ||||||
Total capitalization | $ | 1,949,555 | $ | 1,958,305 | ||||
(a) | As of June 30, 2009, after giving effect to the issuance and sale of the notes and the application of the net proceeds therefrom and the automatic reduction in the borrowing base under our credit facility resulting from the issuance of the notes, we would have been able to incur an additional $582.8 million of indebtedness under our credit facility. For further discussion, see “Description of other indebtedness—Senior secured credit facility.” | |
(b) | The $300 million of notes are recorded at their discounted amount, with the discount to be amortized over the life of the notes. |
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• | prior to December 7, 2004, Concho Equity Holdings Corp. did not own any material assets and did not conduct substantial operations other than organizational activities; |
• | on December 7, 2004, Concho Equity Holdings Corp. acquired oil and gas assets for approximately $117 million and commenced oil and gas operations; |
• | on February 27, 2006, the initial closing of the Chase Oil transaction occurred, and we acquired the Chase Group Properties for approximately 35 million shares of common stock and approximately $409 million in cash; |
• | on March 27, 2007, we entered into a $200 million second lien term loan facility from which we received proceeds of $199 million that we used to repay the $39.8 million outstanding under our prior term loan facility and to reduce the outstanding balance under our credit facility by $154 million, with the remaining $5.2 million used to pay loan fees, accrued interest and for general corporate purposes; |
• | in August 2007, we completed our initial public offering of common stock from which we received proceeds of $173 million that we used to retire outstanding borrowings under our second lien term loan facility totaling $86.5 million and to retire outstanding borrowings under our credit facility totaling $86.5 million; and |
• | on July 31, 2008, we closed our acquisition of the Henry Entities and additional non-operated interests in oil and gas properties from persons affiliated with the Henry Entities. In August 2008 and September 2008, we acquired additional non-operated interests in oil and gas properties from persons affiliated with the Henry Entities. We paid approximately $583.5 million in net cash for the acquisition of the Henry Entities and the related acquisition of the along-side interests, which was funded with borrowings under our credit facility, which was amended and restated on July 31, 2008, and net proceeds of approximately $242.4 million from our private placement of 8,302,894 shares of our common stock. |
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Concho Resources Inc. | ||||||||||||||||||||||||||||||||||||
Inception | ||||||||||||||||||||||||||||||||||||
(April 21, | Chase Group Properties | |||||||||||||||||||||||||||||||||||
2004) through | Years ended | |||||||||||||||||||||||||||||||||||
Six months ended June 30, | Years ended December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||
2009 | 2008 | 2008a | 2007 | 2006b | 2005 | 2004c | 2005 | 2004 | ||||||||||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||||||||||||
Oil sales | $ | 166,485 | $ | 171,226 | $ | 390,945 | $ | 195,596 | $ | 131,773 | $ | 31,621 | $ | 1,851 | $ | 73,132 | $ | 66,529 | ||||||||||||||||||
Natural gas sales | 46,849 | 72,868 | 142,844 | 98,737 | 66,517 | 23,315 | 1,771 | 46,546 | 41,247 | |||||||||||||||||||||||||||
Total operating revenues | 213,334 | 244,094 | 533,789 | 294,333 | 198,290 | 54,936 | 3,622 | 119,678 | 107,776 | |||||||||||||||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||||||||||||||||||
Oil and gas production | 50,583 | 38,874 | 91,234 | 54,267 | 37,822 | 14,635 | 746 | 23,277 | 20,964 | |||||||||||||||||||||||||||
Exploration and abandonments | 7,419 | 3,464 | 38,468 | 29,098 | 5,612 | 2,666 | 1,850 | – | 179 | |||||||||||||||||||||||||||
Depreciation, depletion and amortization | 103,150 | 43,294 | 123,912 | 76,779 | 60,722 | 11,485 | 956 | 18,646 | 20,196 | |||||||||||||||||||||||||||
Accretion of discount on asset retirement obligations | 579 | 301 | 889 | 444 | 287 | 89 | 7 | 446 | 263 | |||||||||||||||||||||||||||
Impairments of long-lived assets | 8,555 | 69 | 18,417 | 7,267 | 9,891 | 2,295 | – | 194 | 3,233 | |||||||||||||||||||||||||||
General and administrative | 21,805 | 13,237 | 35,553 | 21,336 | 12,577 | 8,055 | 3,086 | 1,702 | 1,387 | |||||||||||||||||||||||||||
Stock-based compensation | 4,113 | 3,029 | 5,223 | 3,841 | 9,144 | 3,252 | 1,128 | – | – | |||||||||||||||||||||||||||
Bad debt expense | – | 1,799 | 2,905 | – | – | – | – | – | – | |||||||||||||||||||||||||||
Contract drilling fees—stacked rigs | – | – | – | 4,269 | – | – | – | – | – | |||||||||||||||||||||||||||
Ineffective portion of cash flow hedges | – | (920 | ) | (1,336 | ) | 821 | (1,193 | ) | 1,148 | – | – | – | ||||||||||||||||||||||||
(Gain) loss on derivatives not designated as hedges | 86,652 | 119,634 | (249,870 | ) | 20,274 | – | 5,001 | (684 | ) | 1,062 | 7,936 | |||||||||||||||||||||||||
Total operating costs and expenses | 282,856 | 222,781 | 65,395 | 218,396 | 134,862 | 48,626 | 7,089 | 45,327 | 54,158 | |||||||||||||||||||||||||||
Income (loss) from operations | (69,522 | ) | 21,313 | 468,394 | 75,937 | 63,428 | 6,310 | (3,467 | ) | 74,351 | 53,618 | |||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||
Interest expense | (10,570 | ) | (9,500 | ) | (29,039 | ) | (36,042 | ) | (30,567 | ) | (3,096 | ) | (272 | ) | – | – | ||||||||||||||||||||
Other, net | (148 | ) | 1,331 | 1,432 | 1,484 | 1,186 | 779 | 168 | – | – | ||||||||||||||||||||||||||
Total other expense | (10,718 | ) | (8,169 | ) | (27,607 | ) | (34,558 | ) | (29,381 | ) | (2,317 | ) | (104 | ) | – | – | ||||||||||||||||||||
Income (loss) before income taxes | (80,240 | ) | 13,144 | 440,787 | 41,379 | 34,047 | 3,993 | (3,571 | ) | 74,351 | 53,618 | |||||||||||||||||||||||||
Income tax (expense) benefit | 33,797 | (5,199 | ) | (162,085 | ) | (16,019 | ) | (14,379 | ) | (2,039 | ) | 915 | – | – | ||||||||||||||||||||||
Net income (loss) | (46,443 | ) | 7,945 | 278,702 | 25,360 | 19,668 | 1,954 | (2,656 | ) | $ | 74,351 | $ | 53,618 | |||||||||||||||||||||||
Preferred stock dividends | – | – | – | (45 | ) | (1,244 | ) | (4,766 | ) | (804 | ) | |||||||||||||||||||||||||
Effect of induced conversion of preferred stock | – | – | – | – | 11,601 | – | – | |||||||||||||||||||||||||||||
Net income (loss) applicable to common shareholders | $ | (46,443 | ) | $ | 7,945 | $ | 278,702 | $ | 25,315 | $ | 30,025 | $ | (2,812 | ) | $ | (3,460 | ) | |||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||
Net income (loss) per share | $ | (0.55 | ) | $ | 0.11 | $ | 3.52 | $ | 0.39 | $ | 0.63 | $ | (0.70 | ) | $ | (3.48 | ) | |||||||||||||||||||
Shares used in basic earnings (loss) per share | 84,665 | 75,569 | 79,206 | 64,316 | 47,287 | 4,059 | 994 | |||||||||||||||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||
Net income (loss) per share | $ | (0.55 | ) | $ | 0.10 | $ | 3.46 | $ | 0.38 | $ | 0.59 | $ | (0.70 | ) | $ | (3.48 | ) | |||||||||||||||||||
Shares used in diluted earnings (loss) per share | 84,665 | 77,034 | 80,587 | 66,309 | 50,729 | 4,059 | 994 | |||||||||||||||||||||||||||||
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Chase Group | ||||||||||||||||||||||||||||||||||||
Concho Resources Inc. | Properties | |||||||||||||||||||||||||||||||||||
Inception (April 21, | Years ended | |||||||||||||||||||||||||||||||||||
Six months ended June 30, | Years ended December 31, | 2004) through | December 31, | |||||||||||||||||||||||||||||||||
2009 | 2008 | 2008a | 2007 | 2006b | 2005 | December 31, 2004c | 2005 | 2004 | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Other financial data: | ||||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operations | $ | 118,232 | $ | 162,948 | $ | 391,397 | $ | 169,769 | $ | 112,181 | $ | 25,070 | $ | (2,193 | ) | $ | 93,162 | $ | 84,202 | |||||||||||||||||
Net cash used in investing activities | (162,828 | ) | (142,127 | ) | (946,050 | ) | (160,353 | ) | (596,852 | ) | (61,902 | ) | (122,473 | ) | (35,611 | ) | (30,045 | ) | ||||||||||||||||||
Net cash provided by (used in) financing | 29,925 | (19,529 | ) | 541,981 | 19,886 | 476,611 | 45,358 | 125,322 | (57,551 | ) | (54,157 | ) | ||||||||||||||||||||||||
Capital expenditures on oil and natural gas properties | 223,283 | 122,757 | 347,702 | 162,378 | 182,389 | 52,768 | 6,450 | 29,709 | 25,372 | |||||||||||||||||||||||||||
Chase Group | ||||||||||||||||||||||||||||||||||||
Concho Resources Inc. | Properties | |||||||||||||||||||||||||||||||||||
June 30, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||
2009 | 2008 | 2008a | 2007 | 2006b | 2005 | 2004c | 2005 | 2004 | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 3,081 | $ | 31,716 | $ | 17,752 | $ | 30,424 | $ | 1,122 | $ | 9,182 | $ | 656 | $ | – | $ | – | ||||||||||||||||||
Property and equipment, net | 2,487,166 | 1,475,521 | 2,401,404 | 1,394,994 | 1,320,655 | 170,583 | 115,455 | 149,042 | 135,568 | |||||||||||||||||||||||||||
Total assets | 2,764,799 | 1,634,233 | 2,815,203 | 1,508,229 | 1,390,072 | 232,385 | 130,717 | 161,792 | 145,100 | |||||||||||||||||||||||||||
Long-term debt, including current maturities | 660,000 | 300,953 | 630,000 | 327,404 | 495,500 | 72,000 | 53,000 | – | – | |||||||||||||||||||||||||||
Equity | 1,289,555 | 783,959 | 1,325,154 | 775,398 | 575,156 | 109,670 | 71,710 | 150,814 | 134,014 | |||||||||||||||||||||||||||
(a) | The acquisition of the Henry Entities occurred on July 31, 2008. | |
(b) | The acquisition of the Chase Group Properties was substantially consummated on February 27, 2006. | |
(c) | The acquisition of the Lowe Properties was completed on December 7, 2004. See “—Selected historical financial and operating information for Lowe Properties” below. |
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Period from | ||||
January 1 | ||||
through | ||||
November 30, | ||||
(in thousands) | 2004 | |||
Revenues | $ | 34,663 | ||
Direct operating expenses: | ||||
Lease operating expense | 6,983 | |||
Production tax expense | 2,159 | |||
Other expenses | 461 | |||
Total operating costs and expenses | 9,603 | |||
Revenues in excess of direct operating expenses | $ | 25,060 | ||
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financial condition and results of operations
• | developments generally impacting the Middle East, including Iraq and Iran; |
• | the extent to which members of the Organization of Petroleum Exporting Countries and other oil exporting nations are able to continue to manage oil supply through export quotas; |
• | the overall global demand for oil; and |
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• | overall North American natural gas supply and demand fundamentals, including: |
• | the impact of the decline of the United States economy, | |
• | weather conditions, and | |
• | liquefied natural gas deliveries to the United States. |
Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Average NYMEX prices: | ||||||||||||||||||||
Oil (per Bbl) | $ | 51.61 | $ | 111.02 | $ | 99.75 | $ | 72.45 | $ | 66.26 | ||||||||||
Natural gas (per MMBtu) | $ | 4.15 | $ | 10.10 | $ | 8.89 | $ | 7.11 | $ | 6.99 | ||||||||||
High/low NYMEX prices: | ||||||||||||||||||||
Oil (per Bbl): | ||||||||||||||||||||
High | $ | 72.68 | $ | 140.21 | $ | 145.29 | $ | 98.18 | $ | 77.03 | ||||||||||
Low | $ | 33.98 | $ | 86.99 | $ | 33.87 | $ | 50.48 | $ | 55.81 | ||||||||||
Natural gas (per MMBtu): | ||||||||||||||||||||
High | $ | 6.07 | $ | 13.35 | $ | 13.58 | $ | 8.64 | $ | 11.23 | ||||||||||
Low | $ | 3.25 | $ | 7.48 | $ | 5.29 | $ | 5.38 | $ | 4.20 | ||||||||||
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Current 2009 | ||||||||
Original 2009 | planned capital | |||||||
(in millions) | budget | expenditures | ||||||
Drilling and recompletion opportunities in our core operating areas | $ | 398 | $ | 316 | ||||
Projects operated by third parties | 8 | 5 | ||||||
Emerging plays, acquisition of leasehold acreage and other property interests, and geological and geophysical | 72 | 60 | ||||||
Maintenance capital in our core operating areas | 22 | 19 | ||||||
Total 2009 capital budget | $ | 500 | $ | 400 | ||||
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• | None of our properties and facilities were directly impacted by Hurricane Ike; however, facilities which ultimately received our production, primarily natural gas liquids, sustained power interruptions and physical damage. As a result, our production was either curtailed or shut-in for significant periods of time. As a result, we estimate that our September 2008 production was reduced by approximately 117 MBoe and our October 2008 production was reduced by approximately 33 MBoe. |
• | On May 16, 2008, a refinery located in New Mexico shut down for ten days due to repairs. As a result, we temporarily shut-in approximately 37 MBoe of production. |
• | On April 7, 2008, a natural gas processing plant through which we process and sell a portion of the production from our New Mexico shelf properties was curtailed for its annual routine maintenance. The plant resumed full operation on April 19, 2008, and we thereafter began restoring production from all of our properties that had been affected. Approximately 75 MBoe of our production was shut-in as a result of this plant shut-down. |
• | During the first quarter of 2008, we experienced short-term interruptions in our production on our New Mexico shelf properties due to operational problems with a natural gas processing plant. There were a total of ten days of curtailment during the first quarter, and approximately 17 MBoe of our production was curtailed during this period. |
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Aggregate volume | Index price | Contract period | ||||||||||
Oil (volumes in Bbls): | ||||||||||||
Price collar | 600,000 | $ | 45.00 – $49.00 | a d | 3/1/09 – 5/31/09 | |||||||
Price swap | 270,000 | $ | 69.50 | a | 7/1/09 – 9/30/09 | |||||||
Price swap | 540,000 | $ | 51.62 | a d | 7/1/09 – 12/31/09 | |||||||
Price swap | 150,000 | $ | 69.50 | a | 10/1/09 – 12/31/09 | |||||||
Price swap | 2,508,000 | $ | 62.15 | a d | 1/1/10 – 12/31/10 | |||||||
Price swap | 1,800,000 | $ | 72.17 | a d | 1/1/11 – 12/31/11 | |||||||
Natural gas (volumes in MMBtus): | ||||||||||||
Price collar | 1,500,000 | $ | 5.00 – $5.81 | b | 10/1/09 – 12/31/09 | |||||||
Price collar | 1,500,000 | $ | 5.00 – $5.81 | b | 1/1/10 – 3/31/10 | |||||||
Price collar | 3,000,000 | $ | 5.25 – $5.75 | b | 4/1/10 – 9/30/10 | |||||||
Price collar | 1,500,000 | $ | 6.00 – $6.80 | b | 10/1/10 – 12/31/10 | |||||||
Price collar | 1,500,000 | $ | 6.00 – $6.80 | b | 1/1/11 – 3/31/11 | |||||||
Price swap | 3,000,000 | $ | 4.31 | b | 4/1/09 – 9/30/09 | |||||||
Price swap | 600,000 | $ | 4.66 | b | 7/1/09 – 9/30/09 | |||||||
Price swap | 450,000 | $ | 4.66 | b | 10/1/09 – 12/31/09 | |||||||
Price swap | 2,400,000 | $ | 6.31 | b | 1/1/10 – 12/31/10 | |||||||
Price swap | 300,000 | $ | 7.29 | b | 1/1/11 – 3/31/11 | |||||||
Price swap | 5,400,000 | $ | 6.96 | b d | 4/1/11 – 12/31/11 | |||||||
Basis swap | 600,000 | $ | 0.79 | c | 7/1/09 – 9/30/09 | |||||||
Basis swap | 450,000 | $ | 0.89 | c | 10/1/09 – 12/31/09 | |||||||
Basis swap | 8,400,000 | $ | 0.85 | c d | 1/1/10 – 12/31/10 | |||||||
Basis swap | 1,800,000 | $ | 0.87 | c d | 1/1/11 – 3/31/11 | |||||||
Basis swap | 5,400,000 | $ | 0.76 | c | 4/1/11 – 12/31/11 | |||||||
(a) | The index prices for the oil price swaps and collars are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | The index price for the natural gas price swaps and collars are based on the NYMEX-Henry Hub last trading day futures price. | |
(c) | Represents the basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery point. | |
(d) | Prices represent weighted-average prices. |
Aggregate volume | Index price | Contract period | ||||||||||
Oil (volumes in Bbls): | ||||||||||||
Price swap | 273,000 | $ | 67.50 | a | 8/1/09 – 12/31/09 | |||||||
Price swap | 799,000 | $ | 67.50 | a | 1/1/10 – 12/31/10 | |||||||
Price swap | 801,000 | $ | 70.53 | a b | 1/1/11 – 12/31/11 | |||||||
(a) | The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | Prices represent weighted-average prices. |
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• | On February 24, 2006, we entered into a combination agreement in which we agreed to purchase the Chase Group Properties and combine them with substantially all of the outstanding equity interests of Concho Equity Holdings Corp. to form Concho. We have accounted for the combination transaction that occurred on February 27, 2006, as an acquisition by Concho Equity Holdings Corp. of the Chase Group Properties and a simultaneous reorganization of Concho such that Concho Equity Holdings Corp. became our wholly owned subsidiary. Concho Equity Holdings Corp. is our predecessor for accounting purposes. As a result, our historical financial statements prior to February 27, 2006, are the financial statements of Concho Equity Holdings Corp. |
• | On February 27, 2006, the initial closing of the Chase Oil transaction occurred, and we acquired the Chase Group Properties for approximately 35 million shares of common stock and approximately $409 million in cash. |
• | On March 27, 2007, we entered into a $200 million second lien term loan facility from which we received proceeds of $199 million that we used to repay the $39.8 million outstanding under our prior term loan facility and to reduce the outstanding balance under our credit facility by $154 million, with the remaining $5.2 million used to pay loan fees, accrued interest and for general corporate purposes. |
• | In August 2007, we completed our initial public offering of common stock from which we received proceeds of $173 million that we used to retire outstanding borrowings under our second lien term loan facility totaling $86.5 million, and to retire outstanding borrowings under our credit facility totaling $86.5 million. |
• | On July 31, 2008, we closed our acquisition of the Henry Entities and additional non-operated interests in oil and gas properties from persons affiliated with the Henry Entities. In August 2008 and September 2008, we acquired additional non-operated interests in oil and gas properties from persons affiliated with the Henry Entities. We paid approximately $583.5 million in net cash for the acquisition of the Henry Entities and the related acquisition of the along-side interests, which was funded with borrowings under our credit facility, which was amended and restated on July 31, 2008, and net proceeds of approximately $242.4 million from our private placement of 8,302,894 shares of our common stock. |
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Six months ended | ||||||||||||||||||||
June 30, | Years ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Net production volumes: | ||||||||||||||||||||
Oil (MBbl) | 3,518 | 1,786 | 4,586 | 3,014 | 2,295 | |||||||||||||||
Natural gas (MMcf) | 10,369 | 6,451 | 14,968 | 12,064 | 9,507 | |||||||||||||||
Total (MBoe) | 5,246 | 2,861 | 7,081 | 5,025 | 3,880 | |||||||||||||||
Average daily production volumes: | ||||||||||||||||||||
Oil (Bbl) | 19,436 | 9,813 | 12,530 | 8,258 | 6,288 | |||||||||||||||
Natural gas (Mcf) | 57,287 | 35,445 | 40,896 | 33,052 | 26,047 | |||||||||||||||
Total (Boe) | 28,984 | 15,721 | 19,347 | 13,767 | 10,630 | |||||||||||||||
Average prices: | ||||||||||||||||||||
Oil, without hedges (Bbl) | $ | 47.32 | $ | 107.39 | $ | 91.92 | $ | 68.58 | $ | 60.47 | ||||||||||
Oil, with hedgesa (Bbl) | $ | 47.32 | $ | 95.87 | $ | 85.25 | $ | 64.90 | $ | 57.42 | ||||||||||
Natural gas, without hedges (Mcf) | $ | 4.52 | $ | 11.33 | $ | 9.59 | $ | 8.08 | $ | 6.87 | ||||||||||
Natural gas, with hedgesa (Mcf) | $ | 4.52 | $ | 11.30 | $ | 9.54 | $ | 8.18 | $ | 7.00 | ||||||||||
Total, without hedges (Boe) | $ | 40.67 | $ | 92.59 | $ | 79.80 | $ | 60.54 | $ | 52.62 | ||||||||||
Total, with hedgesa (Boe) | $ | 40.67 | $ | 85.32 | $ | 75.38 | $ | 58.56 | $ | 51.12 | ||||||||||
(a) | These prices do not reflect the cash receipts/payments related to the oil and natural gas derivatives that were not designated as hedges and are reflected in gain (loss) on derivatives not designated as hedges in our statements of operations. If the cash receipts/payments related to the oil and natural gas derivatives that were not designated as hedges were included in our oil and natural gas sales, our oil and natural gas prices would be as follows: |
Years ended | ||||||||||||||||||||
Six months ended June 30, | December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Oil (Bbl) | $ | 63.36 | $ | 86.93 | $ | 83.55 | $ | 64.90 | $ | 57.42 | ||||||||||
Natural gas (Mcf) | $ | 5.08 | $ | 11.23 | $ | 9.64 | $ | 8.33 | $ | 7.00 | ||||||||||
Total (Boe) | $ | 52.53 | $ | 79.59 | $ | 74.49 | $ | 58.93 | $ | 51.12 | ||||||||||
• | average realized oil price (after giving effect to hedging activities) was $47.32 per Bbl during the six months ended June 30, 2009, a decrease of 51 percent from $95.87 per Bbl during the six months ended June 30, 2008; |
• | total oil production was 3,518 MBbl for the six months ended June 30, 2009, an increase of 1,732 MBbl (97 percent) from 1,786 MBbl for the six months ended June 30, 2008; |
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• | average realized natural gas price (after giving effect to hedging activities) was $4.52 per Mcf during the six months ended June 30, 2009, a decrease of 60 percent from $11.30 per Mcf during the six months ended June 30, 2008; |
• | total natural gas production was 10,369 MMcf for the six months ended June 30, 2009, an increase of 3,918 MMcf (61 percent) from 6,451 MMcf for the six months ended June 30, 2008; |
• | average realized barrel of oil equivalent price (after giving effect to hedging activities) was $40.67 per Boe during the six months ended June 30, 2009, a decrease of 52 percent from $85.32 per Boe during the six months ended June 30, 2008; and |
• | total production was 5,246 MBoe for the six months ended June 30, 2009, an increase of 2,385 MBoe (83 percent) from 2,861 MBoe for the six months ended June 30, 2008. |
Oil hedges | Natural gas hedges | |||||||
Six months ended | Six months ended | |||||||
June 30, 2008 | June 30, 2008 | |||||||
Hedging revenue increase (decrease) (in thousands) | $ | (20,573 | ) | $ | (222 | ) | ||
Hedged volumes (Bbls and MMBtus, respectively) | 473,000 | 2,457,000 | ||||||
Hedged revenue decrease per hedged volume | $ | (43.49 | ) | $ | (0.09 | ) | ||
Six months ended June 30, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
Lease operating expenses | $ | 32,294 | $ | 6.16 | $ | 16,238 | $ | 5.68 | ||||||||
Taxes: | ||||||||||||||||
Ad valorem | 2,491 | 0.47 | 1,006 | 0.35 | ||||||||||||
Production | 15,365 | 2.93 | 21,108 | 7.38 | ||||||||||||
Workover costs | 433 | 0.08 | 522 | 0.18 | ||||||||||||
Total oil and gas production expenses | $ | 50,583 | $ | 9.64 | $ | 38,874 | $ | 13.59 | ||||||||
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Six months ended June 30, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Geological and geophysical | $ | 1,125 | $ | 2,317 | ||||
Exploratory dry holes | 1,866 | (1 | ) | |||||
Leasehold abandonments and other | 4,428 | 1,148 | ||||||
Total exploration and abandonments | $ | 7,419 | $ | 3,464 | ||||
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Six months ended June 30, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
Depletion of proved oil and natural gas properties | $ | 100,995 | $ | 19.25 | $ | 42,510 | $ | 14.86 | ||||||||
Depreciation of property and equipment | 1,374 | 0.26 | 784 | 0.27 | ||||||||||||
Amortization of intangible asset—operating rights | 781 | 0.15 | – | – | ||||||||||||
Total depreciation, depletion and amortization | $ | 103,150 | $ | 19.66 | $ | 43,294 | $ | 15.13 | ||||||||
Oil price used to estimate proved oil reserves at period end | $ | 66.25 | $ | 136.50 | ||||||||||||
Natural gas price used to estimate proved gas reserves at period end | $ | 3.72 | $ | 13.10 | ||||||||||||
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Six months ended June 30, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
General and administrative expenses—recurring | $ | 21,939 | $ | 4.18 | $ | 13,741 | $ | 4.80 | ||||||||
Non-recurring bonus paid to former Henry Entities’ employees | 5,311 | 1.01 | – | – | ||||||||||||
Non-cash stock-based compensation—stock options | 1,913 | 0.36 | 2,167 | 0.76 | ||||||||||||
Non-cash stock-based compensation—restricted stock | 2,200 | 0.42 | 862 | 0.30 | ||||||||||||
Less: third-party fee reimbursements | (5,445 | ) | (1.04 | ) | (504 | ) | (0.17 | ) | ||||||||
Total general and administrative expenses | $ | 25,918 | $ | 4.93 | $ | 16,266 | $ | 5.69 | ||||||||
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Six months ended June 30, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Cash payments (receipts): | ||||||||
Commodity derivatives—oil | $ | (56,412 | ) | $ | 15,965 | |||
Commodity derivatives—natural gas | (5,832 | ) | 422 | |||||
Financial derivatives—interest | 779 | – | ||||||
Mark-to-market (gain) loss: | ||||||||
Commodity derivatives—oil | 144,099 | 88,900 | ||||||
Commodity derivatives—natural gas | 5,018 | 14,347 | ||||||
Financial derivatives—interest | (1,000 | ) | – | |||||
Loss on derivatives not designated as hedges | $ | 86,652 | $ | 119,634 | ||||
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• | average realized oil prices (after giving effect to hedging activities) were $85.25 per Bbl during the year ended December 31, 2008, an increase of 31 percent from $64.90 per Bbl during the year ended December 31, 2007; |
• | total oil production was 4,586 MBbl for the year ended December 31, 2008, an increase of 1,572 MBbl (52 percent) from 3,014 MBbl for the year ended December 31, 2007; |
• | average realized natural gas prices (after giving effect to hedging activities) were $9.54 per Mcf during the year ended December 31, 2008, an increase of 17 percent from $8.18 per Mcf during the year ended December 31, 2007; |
• | total natural gas production was 14,968 MMcf for the year ended December 31, 2008, an increase of 2,904 MMcf (24 percent) from 12,064 MMcf for the year ended December 31, 2007; |
• | average realized barrel of oil equivalent prices (after giving effect to hedging activities) were $75.38 per Boe during the year ended December 31, 2008, an increase of 29 percent from $58.56 per Boe during the year ended December 31, 2007; and |
• | total production was 7,081 MBoe for the year ended December 31, 2008, an increase of 2,056 MBoe (41 percent) from 5,025 MBoe for the year ended December 31, 2007. |
Oil hedges | Natural gas hedges | |||||||||||||||
Years ended December 31, | Years ended December 31, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Hedging revenue increase (decrease) (in thousands) | $ | (30,591 | ) | $ | (11,091 | ) | $ | (696 | ) | $ | 1,291 | |||||
Hedged volumes (Bbls and MMBtus, respectively) | 951,000 | 1,076,750 | 4,941,000 | 6,482,600 | ||||||||||||
Hedged revenue increase (decrease) per hedged volume | $ | (32.17 | ) | $ | (10.30 | ) | $ | (0.14 | ) | $ | 0.20 | |||||
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Years ended December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
Lease operating expenses | $ | 43,725 | $ | 6.17 | $ | 26,480 | $ | 5.27 | ||||||||
Taxes: | ||||||||||||||||
Ad valorem | 2,738 | 0.39 | 2,012 | 0.40 | ||||||||||||
Production | 43,775 | 6.18 | 24,301 | 4.84 | ||||||||||||
Workover costs | 996 | 0.14 | 1,474 | 0.29 | ||||||||||||
Total oil and gas production expenses | $ | 91,234 | $ | 12.88 | $ | 54,267 | $ | 10.80 | ||||||||
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Years ended December 31, | ||||||||
(in thousands) | 2008 | 2007 | ||||||
Geological and geophysical | $ | 3,139 | $ | 4,089 | ||||
Exploratory dry holes | 3,723 | 21,923 | ||||||
Leasehold abandonments and other | 31,606 | 3,086 | ||||||
Total exploration and abandonments | $ | 38,468 | $ | 29,098 | ||||
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Years ended December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
Depletion of proved oil and natural gas properties | $ | 121,464 | $ | 17.15 | $ | 75,744 | $ | 15.07 | ||||||||
Depreciation of property and equipment | 1,808 | 0.26 | 1,035 | 0.21 | ||||||||||||
Amortization of intangible asset—operating rights | 640 | 0.09 | – | – | ||||||||||||
Total depreciation, depletion and amortization | $ | 123,912 | $ | 17.50 | $ | 76,779 | $ | 15.28 | ||||||||
Oil price used to estimate proved oil reserves at period end | $ | 41.00 | $ | 92.50 | ||||||||||||
Natural gas price used to estimate proved gas reserves at period end | $ | 5.71 | $ | 6.80 | ||||||||||||
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Years ended December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
General and administrative expenses—recurring | $ | 36,170 | $ | 5.11 | $ | 22,419 | $ | 4.46 | ||||||||
Non-recurring bonus paid to former Henry Entities’ employees | 4,328 | 0.61 | – | – | ||||||||||||
Non-cash stock-based compensation—stock options | 3,101 | 0.44 | 2,463 | 0.49 | ||||||||||||
Non-cash stock-based compensation—restricted stock | 2,122 | 0.30 | 1,378 | 0.27 | ||||||||||||
Less: third-party fee reimbursements | (4,945 | ) | (0.70 | ) | (1,083 | ) | (0.21 | ) | ||||||||
Total general and administrative expenses | $ | 40,776 | $ | 5.76 | $ | 25,177 | $ | 5.01 | ||||||||
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Years ended December 31, | ||||||||
(in thousands) | 2008 | 2007 | ||||||
Cash payments (receipts): | ||||||||
Commodity derivatives—oil | $ | 7,780 | $ | – | ||||
Commodity derivatives—natural gas | (1,426 | ) | (1,815 | ) | ||||
Financial derivatives—interest | – | – | ||||||
Mark-to-market (gain) loss: | ||||||||
Commodity derivatives—oil | (253,960 | ) | 22,988 | |||||
Commodity derivatives—natural gas | (3,347 | ) | (899 | ) | ||||
Financial derivatives—interest | 1,083 | – | ||||||
(Gain) loss on derivatives not designated as hedges | $ | (249,870 | ) | $ | 20,274 | |||
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• | average realized oil prices (after giving effect to hedging activities) were $64.90 per Bbl during the year ended December 31, 2007, an increase of 13 percent from $57.42 per Bbl during the year ended December 31, 2006; |
• | total oil production was 3,014 MBbl for the year ended December 31, 2007, an increase of 719 MBbl (31 percent) from 2,295 MBbl for the year ended December 31, 2006; |
• | average realized natural gas prices (after giving effect to hedging activities) were $8.18 per Mcf during the year ended December 31, 2007, an increase of 17 percent from $7.00 per Mcf during the year ended December 31, 2006; |
• | total natural gas production was 12,064 MMcf for the year ended December 31, 2007, an increase of 2,557 MMcf (27 percent) from 9,507 MMcf for the year ended December 31, 2006; |
• | average realized barrel of oil equivalent prices (after giving effect to hedging activities) were $58.56 per Boe during the year ended December 31, 2007, an increase of 15 percent from $51.12 per Boe during the year ended December 31, 2006; |
• | total production was 5,025 MBoe for the year ended December 31, 2007, an increase of 1,145 MBoe (30 percent) from 3,880 MBoe for the year ended December 31, 2006; and |
• | total production during the year ended December 31, 2007 was reduced by approximately 110 MBoe as a result of the temporary shut-downs of a natural gas processing plant through which we process and sell a portion of our production. |
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Oil hedges | Natural gas hedges | |||||||||||||||
Years ended December 31, | Years ended December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Hedging revenue increase (decrease) (in thousands) | $ | (11,091 | ) | $ | (7,000 | ) | $ | 1,291 | 1,232 | |||||||
Hedged volumes (Bbls and MMBtus, respectively) | 1,076,750 | 1,080,500 | 6,482,600 | 5,447,500 | ||||||||||||
Hedged revenue increase (decrease) per hedged volume | $ | (10.30 | ) | $ | (6.48 | ) | $ | 0.20 | $ | 0.23 | ||||||
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Years ended December 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
Lease operating expenses | $ | 26,480 | $ | 5.27 | $ | 20,424 | $ | 5.26 | ||||||||
Taxes: | ||||||||||||||||
Ad valorem | 2,012 | 0.40 | 1,120 | 0.29 | ||||||||||||
Production | 24,301 | 4.84 | 15,762 | 4.06 | ||||||||||||
Workover costs | 1,474 | 0.29 | 516 | 0.14 | ||||||||||||
Total oil and gas production expenses | $ | 54,267 | $ | 10.80 | $ | 37,822 | $ | 9.75 | ||||||||
Years ended December 31, | ||||||||
(in thousands) | 2007 | 2006 | ||||||
Geological and geophysical | $ | 4,089 | $ | 2,185 | ||||
Exploratory dry holes | 21,923 | 3,192 | ||||||
Leasehold abandonments and other | 3,086 | 235 | ||||||
Total exploration and abandonments | $ | 29,098 | $ | 5,612 | ||||
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Years ended December 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
Depletion of proved oil and natural gas properties | $ | 75,744 | $ | 15.07 | $ | 59,872 | $ | 15.43 | ||||||||
Depreciation of property and equipment | 1,035 | 0.21 | 850 | 0.22 | ||||||||||||
Total depreciation, depletion and amortization | $ | 76,779 | $ | 15.28 | $ | 60,722 | $ | 15.65 | ||||||||
Oil price used to estimate proved oil reserves at period end | $ | 92.50 | $ | 57.75 | ||||||||||||
Natural gas price used to estimate proved gas reserves at period end | $ | 6.80 | $ | 5.64 | ||||||||||||
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Years ended December 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
(in thousands, except per unit amounts) | Amount | Per Boe | Amount | Per Boe | ||||||||||||
General and administrative expenses—recurring | $ | 22,419 | $ | 4.46 | $ | 13,376 | $ | 3.45 | ||||||||
Non-cash stock-based compensation—Capital Options | – | – | 975 | 0.25 | ||||||||||||
Non-cash stock-based compensation—stock options | 2,463 | 0.49 | 7,125 | 1.84 | ||||||||||||
Non-cash stock-based compensation—restricted stock | 1,378 | 0.27 | 1,044 | 0.27 | ||||||||||||
Less: third-party fee reimbursements | (1,083 | ) | (0.21 | ) | (799 | ) | (0.21 | ) | ||||||||
Total general and administrative expenses | $ | 25,177 | $ | 5.01 | $ | 21,721 | $ | 5.60 | ||||||||
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Years ended December 31, | ||||||||
(in thousands) | 2007 | 2006 | ||||||
Cash receipts: | ||||||||
Commodity derivatives—oil | $ | – | $ | – | ||||
Commodity derivatives—natural gas | (1,815 | ) | – | |||||
Mark-to-market (gain) loss: | ||||||||
Commodity derivatives—oil | 22,988 | – | ||||||
Commodity derivatives—natural gas | (899 | ) | – | |||||
Loss on derivatives not designated as hedges | $ | 20,274 | $ | – | ||||
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Payments due by period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
(in thousands) | Total | 1 year | 1-3 years | 3-5 years | 5 years | |||||||||||||||
Long-term debta | $ | 660,000 | $ | – | $ | – | $ | 660,000 | $ | – | ||||||||||
Operating lease obligations | 8,105 | 1,062 | 3,237 | 3,806 | – | |||||||||||||||
Drilling commitmentsb | 2,928 | 2,928 | – | – | – | |||||||||||||||
Employment agreements with executive officersc | 4,725 | 1,890 | 2,835 | – | – | |||||||||||||||
Henry Entities bonus obligationd | 11,253 | 10,387 | 866 | – | – | |||||||||||||||
Net derivative assetse | (24,323 | ) | (10,541 | ) | (13,782 | ) | – | – | ||||||||||||
Asset retirement obligationsf | 14,386 | 2,706 | 337 | 415 | 10,928 | |||||||||||||||
Total contractual cash obligations | $ | 677,074 | $ | 8,432 | $ | (6,507 | ) | $ | 664,221 | $ | 10,928 | |||||||||
(a) | The amounts included in the table above represent principal maturities only and have not been adjusted to give effect to the issuance of notes in this offering and the repayment of a portion of the outstanding borrowings under our credit facility with the proceeds thereof. | |
(b) | Consists of daywork drilling contracts related to drilling rigs contracted through June 30, 2010. | |
(c) | Represents amounts of cash compensation we are obligated to pay our executive officers under our employment agreements, assuming such employees continue to serve the entire term of their employment agreement and their cash compensation is not adjusted. | |
(d) | Represents bonuses we agreed to pay certain employees of the Henry Entities at each of the first and second anniversaries of the closing of the Henry Properties acquisition. The first such anniversary bonus payment was made on July 31, 2009. | |
(e) | Derivative obligations represent net asset for commodity and interest rate derivatives that were valued at June 30, 2009. The ultimate settlement amounts of our derivative obligations are unknown because they are subject to continuing market risk. See “—Quantitative and qualitative disclosures about market risk.” | |
(f) | Amounts represent costs related to expected oil and gas property abandonments related to proved reserves by period, net of any future accretion. |
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• | affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction; |
• | clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active; |
• | eliminates the proposed presumption that all transactions are distressed (not orderly) unless proven otherwise. The FSP instead requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence; |
• | includes an example that provides additional explanation on estimating fair value when the market activity for an asset has declined significantly; |
• | requires an entity to disclose a change in valuation technique (and the related inputs) resulting from the application of the FSP and to quantify its effects, if practicable; and |
• | applies to all fair value measurements when appropriate. |
• | the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; |
• | the circumstances under which a reporting entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and |
• | the disclosures that a reporting entity should make about events or transactions that occurred after the balance sheet date. |
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Derivative instruments net assets (liabilities)a | ||||||||||||
(in thousands) | Commodities | Interest rate | Total | |||||||||
Fair value of contracts outstanding at December 31, 2008 | $ | 173,523 | $ | (1,083 | ) | $ | 172,440 | |||||
Changes in fair valuesb | (86,873 | ) | 221 | (86,652 | ) | |||||||
Contract maturities | (62,244 | ) | 779 | (61,465 | ) | |||||||
Fair value of contracts outstanding at June 30, 2009 | $ | 24,406 | $ | (83 | ) | $ | 24,323 | |||||
(a) | Represents the fair values of open derivative contracts subject to market risk. | |
(b) | At inception, new derivative contracts entered into by us have no intrinsic value. |
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Six months ended | Years ended December 31, | |||||||||||||||||||||||||||||||
June 30, 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||
Gross | Net | Gross | Net | Gross | Net | Gross | Net | |||||||||||||||||||||||||
Development wells: | ||||||||||||||||||||||||||||||||
Productive | 81.0 | 52.4 | 118.0 | 76.8 | 60.0 | 38.5 | 93.0 | 57.8 | ||||||||||||||||||||||||
Dry | – | – | – | – | – | – | 7.0 | 2.4 | ||||||||||||||||||||||||
Exploratory wells: | ||||||||||||||||||||||||||||||||
Productive | 72.0 | 46.4 | 93.0 | 63.2 | 55.0 | 48.0 | 37.0 | 25.4 | ||||||||||||||||||||||||
Dry | 3.0 | 0.6 | 1.0 | 1.0 | 2.0 | 1.2 | 3.0 | 0.8 | ||||||||||||||||||||||||
Total wells: | ||||||||||||||||||||||||||||||||
Productive | 153.0 | 98.8 | 211.0 | 140.0 | 115.0 | 86.5 | 130.0 | 83.2 | ||||||||||||||||||||||||
Dry | 3.0 | 0.6 | 1.0 | 1.0 | 2.0 | 1.2 | 10.0 | 3.2 | ||||||||||||||||||||||||
Total | 156.0 | 99.4 | 212.0 | 141.0 | 117.0 | 87.7 | 140.0 | 86.4 | ||||||||||||||||||||||||
Drilling | ||||||||||||||||
in-progress | Pending completion | |||||||||||||||
Gross | Net | Gross | Net | |||||||||||||
Development wells | 9.0 | 6.1 | 12.0 | 7.9 | ||||||||||||
Exploratory wells | 3.0 | 1.2 | 9.0 | 6.1 | ||||||||||||
Total | 12.0 | 7.3 | 21.0 | 14.0 | ||||||||||||
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Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Production and operating data: | ||||||||||||||||||||
Net production volumes: | ||||||||||||||||||||
Oil (MBbl) | 3,518 | 1,786 | 4,586 | 3,014 | 2,295 | |||||||||||||||
Natural gas (MMcf) | 10,369 | 6,451 | 14,968 | 12,064 | 9,507 | |||||||||||||||
Total (MBoe) | 5,246 | 2,861 | 7,081 | 5,025 | 3,880 | |||||||||||||||
Average daily production volumes: | ||||||||||||||||||||
Oil (Bbl) | 19,436 | 9,813 | 12,530 | 8,258 | 6,288 | |||||||||||||||
Natural gas (Mcf) | 57,287 | 35,445 | 40,896 | 33,052 | 26,047 | |||||||||||||||
Total (Boe) | 28,984 | 15,721 | 19,347 | 13,767 | 10,630 | |||||||||||||||
Average prices: | ||||||||||||||||||||
Oil, without hedges (per Bbl) | $ | 47.32 | $ | 107.39 | $ | 91.92 | $ | 68.58 | $ | 60.47 | ||||||||||
Oil, with hedges (per Bbl)a | $ | 63.36 | $ | 86.93 | $ | 83.55 | $ | 64.90 | $ | 57.42 | ||||||||||
Natural gas, without hedges (per Mcf) | $ | 4.52 | $ | 11.33 | $ | 9.59 | $ | 8.08 | $ | 6.87 | ||||||||||
Natural gas, with hedges (per Mcf)a | $ | 5.08 | $ | 11.23 | $ | 9.64 | $ | 8.33 | $ | 7.00 | ||||||||||
Total, without hedges (per Boe) | $ | 40.67 | $ | 92.59 | $ | 79.80 | $ | 60.54 | $ | 52.62 | ||||||||||
Total, with hedges (per Boe)a | $ | 52.53 | $ | 79.59 | $ | 74.49 | $ | 58.93 | $ | 51.12 | ||||||||||
Operating costs and expenses per Boe: | ||||||||||||||||||||
Lease operating expenses and workover costs | $ | 6.24 | $ | 5.86 | $ | 6.31 | $ | 5.56 | $ | 5.40 | ||||||||||
Oil and natural gas taxes | $ | 3.40 | $ | 7.73 | $ | 6.57 | $ | 5.24 | $ | 4.35 | ||||||||||
General and administrative | $ | 4.93 | $ | 5.69 | $ | 5.76 | $ | 5.01 | $ | 5.60 | ||||||||||
Depreciation, depletion and amortization | $ | 19.66 | $ | 15.13 | $ | 17.50 | $ | 15.28 | $ | 15.65 | ||||||||||
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(a) | Includes the effect of (i) commodity derivatives designated as hedges and reported in oil and natural gas sales and (ii) includes the cash payments/receipts from commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash payments/receipts from commodity derivatives not designated as hedges that were included in computing average prices with hedges and reconciles to the amount in gain (loss) on derivatives not designated as hedges as reported in the statement of operations: |
Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
(in thousands) | 2009 | 2008 | 2008 | 2007 | 2006 | |||||||||||||||
Oil and natural gas sales: | ||||||||||||||||||||
Cash payments on oil derivatives | $ | – | $ | (20,573 | ) | $ | (30,591 | ) | $ | (11,091 | ) | $ | (7,000 | ) | ||||||
Cash receipts from natural gas derivatives | – | – | – | 188 | 1,232 | |||||||||||||||
Designated natural gas cash flow hedges reclassified from accumulated other comprehensive income | – | (222 | ) | (696 | ) | 1,103 | – | |||||||||||||
Total effect on oil and natural gas sales | $ | – | $ | (20,795 | ) | $ | (31,287 | ) | $ | (9,800 | ) | $ | (5,768 | ) | ||||||
Gain (loss) on derivatives not designated as hedges: | ||||||||||||||||||||
Cash (payments) receipts from oil derivatives | $ | 56,412 | $ | (15,965 | ) | $ | (7,780 | ) | $ | – | $ | – | ||||||||
Cash (payments) receipts from natural gas derivatives | 5,832 | (422 | ) | 1,426 | 1,815 | – | ||||||||||||||
Cash payments from interest rate derivatives | (779 | ) | – | – | – | – | ||||||||||||||
Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives | (148,117 | ) | (103,247 | ) | 256,224 | (22,089 | ) | – | ||||||||||||
Gain (loss) on derivatives not designated as hedges | $ | (86,652 | ) | $ | (119,634 | ) | $ | 249,870 | $ | (20,274 | ) | $ | – | |||||||
The presentation of average prices with hedges is a non-GAAP measure as a result of including the cash payments/receipts from commodity derivatives that are presented in gain (loss) on derivatives not designated as hedges in the statements of operations. This presentation of average prices with hedges is a means by which to reflect the actual cash performance of our commodity derivatives for the respective periods and presents oil and natural gas prices with hedges in a manner consistent with the presentation generally used by the investment community. |
Gross productive wells | Net productive wells | |||||||||||||||||||||||
Oil | Gas | Total | Oil | Gas | Total | |||||||||||||||||||
Core Operating Areas: | ||||||||||||||||||||||||
New Mexico Permian | 1,596 | 193 | 1,789 | 1,032.2 | 56.8 | 1,089.0 | ||||||||||||||||||
Texas Permian | 1,686 | 69 | 1,755 | 398.3 | 10.8 | 409.2 | ||||||||||||||||||
Emerging plays: | ||||||||||||||||||||||||
Lower Abo | 14 | – | 14 | 7.3 | – | 7.3 | ||||||||||||||||||
Bakken/Three Forks | 31 | – | 31 | 3.9 | – | 3.9 | ||||||||||||||||||
Other | 23 | 126 | 149 | 1.1 | 6.0 | 7.1 | ||||||||||||||||||
Total | 3,350 | 388 | 3,738 | 1,442.8 | 73.6 | 1,516.5 | ||||||||||||||||||
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Quarter | ||||||||||||||||||||||||||||||||
ended | ||||||||||||||||||||||||||||||||
December 31, 2008 | June 30, 2009 | June 30, 2009 | ||||||||||||||||||||||||||||||
Total | Average net | |||||||||||||||||||||||||||||||
proved | PV-10 | daily | Identified | Total | ||||||||||||||||||||||||||||
reserves | ($ in | % Proved | production | drilling | gross | Total net | ||||||||||||||||||||||||||
Areas | (MBoe) | millions) | % Oil | developed | (Boe per day) | locations | acreage | acreage | ||||||||||||||||||||||||
Core Operating Areas: | ||||||||||||||||||||||||||||||||
New Mexico Permian | 95,055 | $ | 1,242.8 | 59.3% | 52.9% | 18,847 | 1,654 | 151,766 | 70,868 | |||||||||||||||||||||||
Texas Permian | 39,392 | 378.0 | 71.9% | 62.9% | 8,709 | 1,558 | 283,043 | 77,784 | ||||||||||||||||||||||||
Emerging Plays: | ||||||||||||||||||||||||||||||||
Lower Abo | 2,127 | 34.4 | 67.8% | 39.3% | 1,939 | 152 | 31,978 | 27,805 | ||||||||||||||||||||||||
Bakken/Three Forks | 206 | 3.8 | 83.2% | 100.0% | 376 | 150 | 44,221 | 11,661 | ||||||||||||||||||||||||
Other | 495 | 4.2 | 6.2% | 87.1% | 166 | 8 | 147,715 | 68,645 | ||||||||||||||||||||||||
Total | 137,275 | $ | 1,663.2 | 62.9% | 55.7% | 30,037 | 3,522 | 658,723 | 256,763 | |||||||||||||||||||||||
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• | Central Basin Platform of West Texas, where we drilled one unsuccessful Woodford shale exploratory well in 2008; |
• | Western Delaware Basin of West Texas, where we drilled four exploratory wells prior to 2008, targeting the Bone Springs, Atoka, Barnett and Woodford shales, of which three were unsuccessful and one was successful; and |
• | Arkoma Basin in Arkansas, where, in 2008, we participated in the drilling of three exploratory wells targeting both the Hale and the Fayetteville shale, of which one was unsuccessful and two were completed and are currently in production. |
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• | require the acquisition of various permits before drilling commences; |
• | restrict the types, quantities and concentration of various substances that can be released into the environment in connection with oil and natural gas drilling and production, and saltwater disposal activities; |
• | limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and |
• | require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells. |
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• | any employment of an executive officer if his or her compensation is required to be reported in our proxy statement under Item 402; |
• | director compensation which is required to be reported in our proxy statement under Item 402; |
• | any transaction with an entity at which the related person’s only relationship is as a director or manager (other than sole director or manager) or beneficial owner of less than 10% of the entity’s equity, if the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of the entity’s annual revenues; and |
• | transactions with Chase Oil Corporation (“Chase Oil”) and its affiliates, pursuant to which we acquire equipment, services or supplies in the ordinary course of its oil and gas business. |
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Six months ended | Year ended | |||||||
June 30, 2009 | December 31, 2008 | |||||||
Production Specialty Services, Inc. | $ | – | $ | 2,020 | ||||
Catalyst Oilfield Services LLC | 1,999 | 1,927 | ||||||
Deer Horn Aviation Ltd. Co. | 101 | 383 | ||||||
Total | $ | 2,100 | $ | 4,330 | ||||
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Name | Agea | Position | ||||
Timothy A. Leach | 49 | Chairman of the Board of Directors, Chief Executive Officer, President and Class I Director | ||||
David W. Copeland | 52 | Vice President, General Counsel and Secretary | ||||
Jack F. Harper | 38 | Vice President—Business Development and Capital Markets | ||||
Darin G. Holderness | 45 | Vice President, Chief Financial Officer and Treasurer | ||||
Matthew G. Hyde | 53 | Vice President—Exploration and Land | ||||
E. Joseph Wright | 49 | Vice President—Engineering and Operations | ||||
Steven L. Beal | 50 | Class II Director | ||||
Tucker S. Bridwell | 57 | Class II Director | ||||
William H. Easter III | 59 | Class I Director | ||||
W. Howard Keenan, Jr. | 58 | Class I Director | ||||
Ray M. Poage | 62 | Class III Director | ||||
A. Wellford Tabor | 40 | Class III Director | ||||
(a) | As of September 1, 2009. |
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• | maintenance of certain financial ratios including (i) maintenance of a quarterly ratio of total debt to consolidated earnings before interest expense, income taxes, depletion, depreciation, and amortization, exploration expense and other noncash income and expenses to be no greater than 4.0 to 1.0, and (ii) maintenance of a ratio of current assets to current liabilities, excluding noncash assets and liabilities related to financial derivatives and asset retirement |
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obligations and including the unfunded amounts under the credit facility, to be no less than 1.0 to 1.0; |
• | limits on the incurrence of certain additional indebtedness and certain types of liens; |
• | restrictions on sale and leaseback transactions; |
• | limitations on making investments; |
• | limitations on entering into transactions with affiliates; |
• | restrictions on making material changes to the type of business we conduct or our business structure; |
• | restrictions on making guarantees; |
• | restrictions as to mergers and sales or transfer of assets; and |
• | a restriction on the payment of cash dividends. |
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• | are general unsecured, senior obligations of the Company; |
• | mature on October 1, 2017; |
• | will be issued in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000; |
• | will be represented by one or more registered Notes in global form, but in certain circumstances may be represented by Notes in definitive form, see “Book-entry, delivery and form”; |
• | rank senior in right of payment to all existing and future Subordinated Obligations of the Company; |
• | rank equally in right of payment to any future senior Indebtedness of the Company, without giving effect to collateral arrangements; |
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• | will be initially unconditionally guaranteed on a senior basis by each current Subsidiary of the Company, see “—Subsidiary guarantees”; |
• | effectively rank junior to any existing or future secured Indebtedness of the Company, including amounts that may be borrowed under our Senior Secured Credit Agreement, to the extent of the value of the collateral securing such Indebtedness; and |
• | rank structurally junior to the indebtedness and other obligations of our future non-guarantor subsidiaries, if any. |
• | accrue at the rate of 8.625% per annum; |
• | accrue from the Issue Date or, if interest has already been paid, from the most recent interest payment date; |
• | be payable in cash semi-annually in arrears on April 1 and October 1, commencing on April 1, 2010; |
• | be payable to the holders of record on the March 15 and September 15 immediately preceding the related interest payment dates; and |
• | be computed on the basis of a360-day year comprised of twelve30-day months. |
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Year | Percentage | |||
2013 | 104.313% | |||
2014 | 102.156% | |||
2015 and thereafter | 100.000% | |||
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• | we and our Subsidiary Guarantors would have had $668.7 million (net of discount) of total Indebtedness (excluding Hedging Obligations and intercompany Indebtedness); and |
• | of the $668.7 million (net of discount) of such total Indebtedness, $373.0 million would have constituted secured Indebtedness under our Senior Secured Credit Agreement, and we would have additional availability of $582.8 million (after giving effect to the reduction in the borrowing base due to issuance of the Notes) under our Senior Secured Credit Agreement as to which the Notes would have been effectively subordinated to the extent of the value of the collateral thereunder. For further discussion, see “Description of other indebtedness—Senior secured credit facility.” |
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• | ”—Limitation on Indebtedness and Preferred Stock,” |
• | “—Limitation on Restricted Payments,” |
• | “—Limitation on restrictions on distributions from Restricted Subsidiaries,” |
• | “—Limitation on sales of assets and Subsidiary stock,” |
• | “—Limitation on Affiliate Transactions” and |
• | Clause (3) of “—Merger and consolidation” |
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• | you will not be entitled to receive a certificate representing your interest in the notes; |
• | all references in this prospectus supplement to actions by holders will refer to actions taken by DTC upon instructions from its direct participants; and |
• | all references in this prospectus supplement to payments and notices to holders will refer to payments and notices to DTC or Cede & Co., as the registered holder of the notes, for distribution to you in accordance with DTC procedures. |
• | a limited-purpose trust company organized under the New York Banking Law; |
• | a “banking organization” under the New York Banking Law; |
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• | a member of the Federal Reserve System; |
• | a “clearing corporation” under the New York Uniform Commercial Code; and |
• | a “clearing agency” registered under the provisions of Section 17A of the Exchange Act. |
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• | we advise the trustee in writing that DTC is no longer willing or able to discharge its responsibilities properly or that DTC is no longer a registered clearing agency under the Exchange Act, and we have not appointed a qualified successor within 90 days; |
• | an event of default has occurred and is continuing under the indenture and DTC has notified us and the trustee of its desire to exchange the global notes for certificated notes; or |
• | subject to DTC’s rules, we, at our option, elect to terminate the book-entry system through DTC. |
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• | dealers in securities or currencies; |
• | traders in securities that have elected themark-to-market method of accounting for their securities; |
• | U.S. holders (as defined below) whose functional currency is not the U.S. dollar; |
• | persons holding notes as part of a hedge, straddle, conversion or other “synthetic security” or integrated transaction; |
• | certain U.S. expatriates; |
• | financial institutions; |
• | insurance companies; |
• | regulated investment companies; |
• | real estate investment trusts; |
• | persons subject to the alternative minimum tax; |
• | entities that are tax-exempt for U.S. federal income tax purposes; and |
• | partnerships and other pass-through entities and holders of interests therein. |
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• | an individual who is a U.S. citizen or U.S. resident alien; |
• | a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, that was created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
• | a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or that has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person. |
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• | you do not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock entitled to vote; |
• | you are not a “controlled foreign corporation” that is related to us (actually or constructively); |
• | you are not a bank whose receipt of interest on the notes is in connection with an extension of credit made pursuant to a loan agreement entered into in the ordinary course of your trade or business; and |
• | interest on the notes is not effectively connected with your conduct of a U.S. trade or business. |
S-183
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• | the gain is effectively connected with the conduct by you of a U.S. trade or business (and, if required by an applicable income tax treaty, is treated as attributable to a permanent establishment maintained by you in the United States); or |
• | you are an individual who has been present in the United States for 183 days or more in the taxable year of disposition and certain other requirements are met. |
S-184
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• | is a United States person; |
• | is a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States; |
• | is a controlled foreign corporation for U.S. federal income tax purposes; or |
• | is a foreign partnership that, at any time during its taxable year, has more than 50% of its income or capital interests owned by United States persons or is engaged in the conduct of a U.S. trade or business. |
S-185
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S-186
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S-187
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Underwriter | Principal amount | |||
J.P. Morgan Securities Inc. | $ | 120,000,000 | ||
Banc of America Securities LLC | 45,000,000 | |||
BNP Paribas Securities Corp. | 30,000,000 | |||
Wells Fargo Securities, LLC | 30,000,000 | |||
Calyon Securities (USA) Inc. | 15,000,000 | |||
Scotia Capital (USA) Inc. | 15,000,000 | |||
SunTrust Robinson Humphrey, Inc. | 15,000,000 | |||
Deutsche Bank Securities Inc. | 5,001,000 | |||
ING Financial Markets LLC | 5,001,000 | |||
KeyBanc Capital Markets Inc. | 5,001,000 | |||
Mitsubishi UFJ Securities (USA), Inc. | 5,001,000 | |||
Natixis Bleichroeder Inc. | 5,001,000 | |||
Raymond James & Associates, Inc. | 4,995,000 | |||
Total | $ | 300,000,000 | ||
• | we will not offer or sell any of our debt securities (other than the notes) for a period of 45 days after the date of this prospectus supplement without the prior consent of J.P. Morgan Securities Inc.; and |
S-188
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• | we will indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in respect of those liabilities. |
• | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
• | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or |
• | in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. |
S-189
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S-190
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S-191
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S-192
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G-1
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G-2
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G-3
Table of Contents
G-4
Index to consolidated financial statements
Unaudited consolidated financial statements: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
Audited consolidated financial statements: | ||||
F-40 | ||||
F-41 | ||||
F-42 | ||||
F-43 | ||||
F-44 | ||||
F-45 | ||||
F-90 |
F-1
Table of Contents
Consolidated balance sheets
June 30, | December 31, | |||||||
(in thousands, except share and per share data) | 2009 | 2008 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,081 | $ | 17,752 | ||||
Accounts receivable, net of allowance for doubtful accounts: | ||||||||
Oil and natural gas | 58,430 | 48,793 | ||||||
Joint operations and other | 73,992 | 92,833 | ||||||
Related parties | 174 | 314 | ||||||
Derivative instruments | 26,272 | 113,149 | ||||||
Prepaid costs and other | 5,330 | 5,942 | ||||||
Total current assets | 167,279 | 278,783 | ||||||
Property and equipment, at cost: | ||||||||
Oil and natural gas properties, successful efforts method | 2,885,275 | 2,693,574 | ||||||
Accumulated depletion | (413,252 | ) | (306,990 | ) | ||||
Total oil and natural gas properties, net | 2,472,023 | 2,386,584 | ||||||
Other property and equipment, net | 15,143 | 14,820 | ||||||
Total property and equipment, net | 2,487,166 | 2,401,404 | ||||||
Deferred loan costs, net | 13,988 | 15,701 | ||||||
Inventory | 27,158 | 19,956 | ||||||
Intangible asset, net—operating rights | 37,319 | 37,768 | ||||||
Noncurrent derivative instruments | 31,438 | 61,157 | ||||||
Other assets | 451 | 434 | ||||||
Total assets | $ | 2,764,799 | $ | 2,815,203 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable: | ||||||||
Trade | $ | 15,837 | $ | 7,462 | ||||
Related parties | 1,352 | 312 | ||||||
Other current liabilities: | ||||||||
Bank overdrafts | 2,628 | 9,434 | ||||||
Revenue payable | 31,262 | 22,286 | ||||||
Accrued and prepaid drilling costs | 111,172 | 154,196 | ||||||
Derivative instruments | 15,731 | 1,866 | ||||||
Deferred income taxes | 3,300 | 37,205 | ||||||
Other current liabilities | 38,149 | 38,057 | ||||||
Total current liabilities | 219,431 | 270,818 | ||||||
Long-term debt | 660,000 | 630,000 | ||||||
Noncurrent derivative instruments | 17,656 | – | ||||||
Deferred income taxes | 565,217 | 573,763 | ||||||
Asset retirement obligations and other long-term liabilities | 12,940 | 15,468 | ||||||
Commitments and contingencies (Note K) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value; 300,000,000 authorized; 85,529,591 and 84,828,824 shares issued at June 30, 2009 and December 31, 2008, respectively | 86 | 85 | ||||||
Additional paid-in capital | 1,020,060 | 1,009,025 | ||||||
Retained earnings | 269,726 | 316,169 | ||||||
Treasury stock, at cost; 9,341 and 3,142 shares at June 30, 2009 and December 31, 2008, respectively | (317 | ) | (125 | ) | ||||
Total stockholders’ equity | 1,289,555 | 1,325,154 | ||||||
Total liabilities and stockholders’ equity | $ | 2,764,799 | $ | 2,815,203 | ||||
F-2
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Consolidated statements of operations
Unaudited
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(in thousands, except per share amounts) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Operating revenues: | ||||||||||||||||
Oil sales | $ | 101,511 | $ | 95,408 | $ | 166,485 | $ | 171,226 | ||||||||
Natural gas sales | 25,821 | 41,975 | 46,849 | 72,868 | ||||||||||||
Total operating revenues | 127,332 | 137,383 | 213,334 | 244,094 | ||||||||||||
Operating costs and expenses: | ||||||||||||||||
Oil and natural gas production | 25,817 | 21,979 | 50,583 | 38,874 | ||||||||||||
Exploration and abandonments | 1,424 | 723 | 7,419 | 3,464 | ||||||||||||
Depreciation, depletion and amortization | 52,402 | 22,010 | 103,150 | 43,294 | ||||||||||||
Accretion of discount on asset retirement obligations | 301 | 148 | 579 | 301 | ||||||||||||
Impairments of long-lived assets | 4,499 | 53 | 8,555 | 69 | ||||||||||||
General and administrative (including non-cash stock-based compensation of $2,188 and $1,730 for the three months ended June 30, 2009 and 2008, respectively, and $4,113 and $3,029 for the six months ended June 30, 2009 and 2008, respectively) | 14,172 | 8,586 | 25,918 | 16,266 | ||||||||||||
Bad debt expense | – | 1,799 | – | 1,799 | ||||||||||||
Ineffective portion of cash flow hedges | – | (356 | ) | – | (920 | ) | ||||||||||
Loss on derivatives not designated as hedges | 81,606 | 102,456 | 86,652 | 119,634 | ||||||||||||
Total operating costs and expenses | 180,221 | 157,398 | 282,856 | 222,781 | ||||||||||||
Income (loss) from operations | (52,889 | ) | (20,015 | ) | (69,522 | ) | 21,313 | |||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (6,200 | ) | (3,885 | ) | (10,570 | ) | (9,500 | ) | ||||||||
Other, net | 180 | 311 | (148 | ) | 1,331 | |||||||||||
Total other expense | (6,020 | ) | (3,574 | ) | (10,718 | ) | (8,169 | ) | ||||||||
Income (loss) before income taxes | (58,909 | ) | (23,589 | ) | (80,240 | ) | 13,144 | |||||||||
Income tax (expense) benefit | 25,691 | 9,169 | 33,797 | (5,199 | ) | |||||||||||
Net income (loss) | $ | (33,218 | ) | $ | (14,420 | ) | $ | (46,443 | ) | $ | 7,945 | |||||
Basic earnings per share: | ||||||||||||||||
Net income (loss) per share | $ | (0.39 | ) | $ | (0.19 | ) | $ | (0.55 | ) | $ | 0.11 | |||||
Weighted average shares used in basic earnings per share | 84,799 | 75,665 | 84,665 | 75,569 | ||||||||||||
Diluted earnings per share: | ||||||||||||||||
Net income (loss) per share | $ | (0.39 | ) | $ | (0.19 | ) | $ | (0.55 | ) | $ | 0.10 | |||||
Weighted average shares used in diluted earnings per share | 84,799 | 75,665 | 84,665 | 77,034 | ||||||||||||
F-3
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Consolidated statement of stockholders’ equity
Unaudited
Additional | Total | |||||||||||||||||||||||||||
Common stock | paid-in | Retained | Treasury stock | stockholders’ | ||||||||||||||||||||||||
(in thousands) | Shares | Amount | capital | earnings | Shares | Amount | equity | |||||||||||||||||||||
Balance at December 31, 2008 | 84,829 | $ | 85 | $ | 1,009,025 | $ | 316,169 | 3 | $ | (125 | ) | $ | 1,325,154 | |||||||||||||||
Net loss | – | – | – | (46,443 | ) | – | – | (46,443 | ) | |||||||||||||||||||
Stock options exercise | 446 | 1 | 3,930 | – | – | – | 3,931 | |||||||||||||||||||||
Stock-based compensation for restricted stock | 257 | – | 2,200 | – | – | – | 2,200 | |||||||||||||||||||||
Cancellation of restricted stock | (2 | ) | – | – | – | – | – | – | ||||||||||||||||||||
Stock-based compensation for stock options | – | – | 1,913 | – | – | – | 1,913 | |||||||||||||||||||||
Excess tax benefits related to stock-based compensation | – | – | 2,992 | – | – | – | 2,992 | |||||||||||||||||||||
Purchase of treasury stock | – | – | – | – | 6 | (192 | ) | (192 | ) | |||||||||||||||||||
Balance at June 30, 2009 | 85,530 | $ | 86 | $ | 1,020,060 | $ | 269,726 | 9 | $ | (317 | ) | $ | 1,289,555 | |||||||||||||||
F-4
Table of Contents
Consolidated statements of cash flows
Unaudited
Six months ended June 30, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (46,443 | ) | $ | 7,945 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation, depletion and amortization | 103,150 | 43,294 | ||||||
Impairments of long-lived assets | 8,555 | 69 | ||||||
Accretion of discount on asset retirement obligations | 579 | 301 | ||||||
Exploration expense, including dry holes | 6,294 | 1,147 | ||||||
Non-cash compensation expense | 4,113 | 3,029 | ||||||
Bad debt expense | – | 1,799 | ||||||
Deferred income taxes | (39,799 | ) | 4,504 | |||||
(Gain) loss on sale of assets | 191 | (777 | ) | |||||
Ineffective portion of cash flow hedges | – | (920 | ) | |||||
Loss on derivatives not designated as hedges | 86,652 | 119,634 | ||||||
Dedesignated cash flow hedges reclassified from accumulated other comprehensive income | – | 222 | ||||||
Other non-cash items | 1,686 | 558 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (18,401 | ) | (12,003 | ) | ||||
Prepaid costs and other | 612 | 793 | ||||||
Inventory | (6,786 | ) | (7,243 | ) | ||||
Accounts payable | 9,415 | (10,209 | ) | |||||
Revenue payable | 8,976 | 7,718 | ||||||
Other current liabilities | (562 | ) | 3,087 | |||||
Net cash provided by operating activities | 118,232 | 162,948 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures on oil and natural gas properties | (223,283 | ) | (122,757 | ) | ||||
Additions to other property and equipment | (2,014 | ) | (4,017 | ) | ||||
Proceeds from the sale of oil and natural gas properties and other assets | 1,004 | 1,034 | ||||||
Settlements received (paid) on derivatives not designated as hedges | 61,465 | (16,387 | ) | |||||
Net cash used in investing activities | (162,828 | ) | (142,127 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of long-term debt | 211,650 | 13,000 | ||||||
Payments of long-term debt | (181,650 | ) | (39,500 | ) | ||||
Exercise of stock options | 3,931 | 2,373 | ||||||
Excess tax benefit from stock-based compensation | 2,992 | 2,146 | ||||||
Proceeds from repayment of employee notes | – | 333 | ||||||
Payments for loan origination costs | – | (1,001 | ) | |||||
Purchase of treasury stock | (192 | ) | (125 | ) | ||||
Bank overdrafts | (6,806 | ) | 3,245 | |||||
Net cash provided by (used in) financing activities | 29,925 | (19,529 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (14,671 | ) | 1,292 | |||||
Cash and cash equivalents at beginning of period | 17,752 | 30,424 | ||||||
Cash and cash equivalents at end of period | $ | 3,081 | $ | 31,716 | ||||
Supplemental cash flows: | ||||||||
Cash paid for interest and fees, net of $18 and $840 capitalized interest | $ | 6,911 | $ | 9,918 | ||||
Cash paid for income taxes | $ | 4,232 | $ | 650 | ||||
F-5
Table of Contents
Condensed notes to consolidated financial statements
June 30, 2009
Unaudited
Note A. | Organization and nature of operations |
Note B. | Summary of significant accounting policies |
F-6
Table of Contents
Remaining 2009 | $ | 1,713 | ||
2010 | 3,426 | |||
2011 | 3,426 | |||
2012 | 3,426 | |||
2013 | 1,997 | |||
Total | $ | 13,988 | ||
Remaining 2009 | $ | 775 | ||
2010 | 1,550 | |||
2011 | 1,550 | |||
2012 | 1,550 | |||
2013 | 1,550 | |||
Thereafter | 30,344 | |||
Total | $ | 37,319 | ||
F-7
Table of Contents
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Natural gas imbalance receivable (included in other assets) | $ | 423 | $ | 406 | ||||
Undertake position (Mcf) | (94,102 | ) | (90,321 | ) | ||||
Natural gas imbalance liability (included in asset retirement obligations and other long-term liabilities) | $ | 449 | $ | 472 | ||||
Overtake position (Mcf) | 79,408 | 85,698 | ||||||
Six months | ||||||||||||||||
Three months ended June 30, | ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Value of net overtake (undertake) arising during the period (increasing (reducing) oil and natural gas production expense) | $ | 9 | $ | (133 | ) | $ | (40 | ) | $ | (137 | ) | |||||
Net overtake (undertake) position arising during the period (Mcf) | 1,697 | (9,117 | ) | (10,069 | ) | (8,103 | ) | |||||||||
F-8
Table of Contents
F-9
Table of Contents
• | Affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction; |
• | Clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active; |
• | Eliminates the proposed presumption that all transactions are distressed (not orderly) unless proven otherwise. The FSP instead requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence; |
• | Includes an example that provides additional explanation on estimating fair value when the market activity for an asset has declined significantly; |
F-10
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• | Requires an entity to disclose a change in valuation technique (and the related inputs) resulting from the application of the FSP and to quantify its effects, if practicable; and |
• | Applies to all fair value measurements when appropriate. |
• | The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; |
• | The circumstances under which a reporting entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and |
• | The disclosures that a reporting entity should make about events or transactions that occurred after the balance sheet date. |
F-11
Table of Contents
Note C. | Exploratory well costs |
Three months ended | Six months ended | |||||||
June 30, 2009 | June 30, 2009 | |||||||
Beginning capitalized exploratory well costs | $ | 2,536 | $ | 25,553 | ||||
Additions to exploratory well costs pending the determination of proved reserves | 91,305 | 93,842 | ||||||
Reclassifications due to determination of proved reserves | (86,537 | ) | (111,640 | ) | ||||
Exploratory well costs charged to expense | – | (451 | ) | |||||
Ending capitalized exploratory well costs | $ | 7,304 | $ | 7,304 | ||||
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Wells in drilling progress | $ | 533 | $ | 7,765 | ||||
Capitalized exploratory well costs that have been capitalized for a period of one year or less | 6,771 | 17,788 | ||||||
Capitalized exploratory well costs that have been capitalized for a period greater than one year | – | – | ||||||
Total capitalized exploratory well costs | $ | 7,304 | $ | 25,553 | ||||
Note D. | Acquisitions |
F-12
Table of Contents
Fair value of Henry Properties’ net assets: | ||||
Current assets, net of cash acquired of $19,049a | $ | 86,005 | ||
Proved oil and natural gas properties | 593,984 | |||
Unproved oil and natural gas properties | 233,492 | |||
Other long-term assets | 7,392 | |||
Intangible assets—operating rights | 38,740 | |||
Total assets acquired | 959,613 | |||
Current liabilities | (113,729 | ) | ||
Asset retirement obligations and other long-term liabilities | (7,529 | ) | ||
Noncurrent derivative liabilities | (39,037 | ) | ||
Deferred tax liability | (215,815 | ) | ||
Total liabilities assumed | (376,110 | ) | ||
Net purchase price | $ | 583,503 | ||
Consideration paid for Henry Properties’ net assets: | ||||
Cash consideration paid, net of cash acquired of $19,049 | $ | 577,853 | ||
Acquisition costsb | 5,650 | |||
Total purchase price | $ | 583,503 | ||
(a) | Includes a deferred tax asset of approximately $9.0 million. | |
(b) | Acquisition costs include legal and accounting fees, advisory fees and other acquisition-related costs. |
F-13
Table of Contents
Three months | Six months | |||||||
ended | ended | |||||||
June 30, 2008 | June 30, 2008 | |||||||
Operating revenues | $ | 185,095 | $ | 339,519 | ||||
Net income | $ | 5,941 | $ | 20,483 | ||||
Earnings per common share: | ||||||||
Basic | $ | 0.07 | $ | 0.24 | ||||
Diluted | $ | 0.07 | $ | 0.24 | ||||
Note E. | Asset retirement obligations |
Three months | Six months | |||||||||||||||
ended June 30, | ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Asset retirement obligations, beginning of period | $ | 18,254 | $ | 8,795 | $ | 16,809 | $ | 9,418 | ||||||||
Liabilities incurred from new wells | 102 | 275 | 270 | 309 | ||||||||||||
Accretion expense | 301 | 148 | 579 | 301 | ||||||||||||
Disposition of wells sold | – | – | (142 | ) | – | |||||||||||
Liabilities settled upon plugging and abandoning wells | (343 | ) | – | (353 | ) | – | ||||||||||
Revision of estimates | (3,928 | ) | 1,138 | (2,777 | ) | 328 | ||||||||||
Asset retirement obligations, end of period | $ | 14,386 | $ | 10,356 | $ | 14,386 | $ | 10,356 | ||||||||
Note F. | Stockholders’ equity |
F-14
Table of Contents
Note G. | Incentive plans |
Number of | ||||
common shares | ||||
Approved and authorized awards | 5,850,000 | |||
Stock option grants, net of forfeitures | (3,461,485 | ) | ||
Restricted stock grants, net of forfeitures | (767,787 | ) | ||
Awards available for future grant | 1,620,728 | |||
Number of | Grant date | |||||||
restricted | fair value | |||||||
shares | per share | |||||||
Outstanding at December 31, 2008 | 407,351 | |||||||
Shares granted | 257,398 | $ | 25.14 | |||||
Shares cancelled/forfeited | (2,420 | ) | ||||||
Lapse of restrictions | (169,519 | ) | ||||||
Outstanding at June 30, 2009 | 492,810 | |||||||
F-15
Table of Contents
Six months | ||||||||||||||||
Three months ended June 30, | ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Stock-based compensation expense related to restricted stock | $ | 1,303 | $ | 468 | $ | 2,200 | $ | 862 | ||||||||
Income tax benefit related to restricted stock | $ | 586 | $ | 187 | $ | 927 | $ | 341 | ||||||||
Deductions in current taxable income related to restricted stock | $ | 3,989 | $ | 771 | $ | 4,367 | $ | 1,200 | ||||||||
Number of | Weighted average | |||||||
options | exercise price | |||||||
Outstanding at December 31, 2008 | 2,731,324 | $ | 12.46 | |||||
Options granted | 117,801 | $ | 20.40 | |||||
Options exercised | (445,789 | ) | $ | 8.82 | ||||
Outstanding at June 30, 2009 | 2,403,336 | $ | 13.53 | |||||
Vested at end of period | 1,637,752 | $ | 10.38 | |||||
Vested and exercisable at end of period | 812,760 | $ | 12.62 | |||||
Weighted | ||||||||||||||||||||
Number of | average | Weighted | ||||||||||||||||||
stock | remaining | average | Intrinsic | |||||||||||||||||
(in thousands) | options | contractual life | exercise price | value | ||||||||||||||||
Vested options: | ||||||||||||||||||||
June 30, 2009: | ||||||||||||||||||||
Exercise price | $ | 8.00 | 1,183,214 | 2.64 years | $ | 8.00 | $ | 24,481 | ||||||||||||
Exercise price | $ | 12.00 | 122,516 | 4.85 years | $ | 12.00 | 2,045 | |||||||||||||
Exercise price | $ | 15.35 | 210,000 | 6.98 years | $ | 15.35 | 2,800 | |||||||||||||
Exercise price | $ | 21.85 | 103,500 | 8.67 years | $ | 21.85 | 708 | |||||||||||||
Exercise price | $ | 31.33 | 18,522 | 8.90 years | $ | 31.33 | – | |||||||||||||
1,637,752 | $ | 10.38 | $ | 30,034 | ||||||||||||||||
Vested and exercisable options: | ||||||||||||||||||||
June 30, 2009: | ||||||||||||||||||||
Exercise price | $ | 8.00 | 394,183 | 3.93 years | $ | 8.00 | $ | 8,156 | ||||||||||||
Exercise price | $ | 12.00 | 86,555 | 6.04 years | $ | 12.00 | 1,445 | |||||||||||||
Exercise price | $ | 15.35 | 210,000 | 6.98 years | $ | 15.35 | 2,800 | |||||||||||||
Exercise price | $ | 21.85 | 103,500 | 8.67 years | $ | 21.85 | 708 | |||||||||||||
Exercise price | $ | 31.33 | 18,522 | 8.90 years | $ | 31.33 | – | |||||||||||||
812,760 | $ | 12.62 | $ | 13,109 | ||||||||||||||||
F-16
Table of Contents
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Grant date fair value for awards during the period: | ||||||||||||||||
Time vesting options | $ | – | $ | – | $ | – | $ | 183 | ||||||||
Stock option grants under the plan | – | 794 | 1,454 | 5,090 | ||||||||||||
Total | $ | – | $ | 794 | $ | 1,454 | $ | 5,273 | ||||||||
Stock-based compensation expense from stock options: | ||||||||||||||||
Time vesting options | $ | 70 | $ | 35 | $ | 141 | $ | 65 | ||||||||
Performance vesting options—officers | – | 133 | 71 | 284 | ||||||||||||
Stock option grants under the plan | 815 | 1,094 | 1,701 | 1,818 | ||||||||||||
Total | $ | 885 | $ | 1,262 | $ | 1,913 | $ | 2,167 | ||||||||
Income taxes and other information: | ||||||||||||||||
Income tax benefit related to stock options | $ | 415 | $ | 504 | $ | 806 | $ | 858 | ||||||||
Deductions in current taxable income related to stock options exercised | $ | 4,117 | $ | 3,132 | $ | 7,157 | $ | 5,338 | ||||||||
Risk-free interest rate | 2.46% | |||
Expected term (years) | 6.25 | |||
Expected volatility | 63.40% | |||
Expected dividend yield | – | |||
Restricted | Stock | |||||||||||
stock | options | Total | ||||||||||
Remaining 2009 | $ | 2,333 | $ | 1,423 | $ | 3,756 | ||||||
2010 | 3,431 | 1,694 | 5,125 | |||||||||
2011 | 2,159 | 706 | 2,865 | |||||||||
2012 | 643 | 166 | 809 | |||||||||
2013 | 24 | 14 | 38 | |||||||||
Total | $ | 8,590 | $ | 4,003 | $ | 12,593 | ||||||
F-17
Table of Contents
F-18
Table of Contents
Fair value measurements using | ||||||||||||||||
Quoted | Significant | Total | ||||||||||||||
prices | other | Significant | carrying value | |||||||||||||
in active | observable | unobservable | at | |||||||||||||
markets | inputs | inputs | June 30, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2009 | |||||||||||||
Assets1 | ||||||||||||||||
Current:a | ||||||||||||||||
Commodity derivative price swap contracts | $ | – | $ | 26,408 | $ | – | $ | 26,408 | ||||||||
Commodity derivative basis swap contracts | – | – | – | – | ||||||||||||
Interest rate derivative swap contracts | – | – | – | – | ||||||||||||
Commodity derivative price collar contracts | – | – | 18,856 | 18,856 | ||||||||||||
– | 26,408 | 18,856 | 45,264 | |||||||||||||
Noncurrent:b | ||||||||||||||||
Commodity derivative price swap contracts | – | 43,604 | – | 43,604 | ||||||||||||
Commodity derivative basis swap contracts | – | – | – | – | ||||||||||||
Interest rate derivative swap contracts | – | 3,541 | – | 3,541 | ||||||||||||
Commodity derivative price collar contracts | – | – | – | – | ||||||||||||
– | 47,145 | – | 47,145 | |||||||||||||
F-19
Table of Contents
Fair value measurements using | ||||||||||||||||
Quoted | Significant | Total | ||||||||||||||
prices | other | Significant | carrying value | |||||||||||||
in active | observable | unobservable | at | |||||||||||||
markets | inputs | inputs | June 30, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2009 | |||||||||||||
Liabilities1 | ||||||||||||||||
Current:a | ||||||||||||||||
Commodity derivative price swap contracts | – | (27,650 | ) | – | (27,650 | ) | ||||||||||
Commodity derivative basis swap contracts | – | (2,456 | ) | – | (2,456 | ) | ||||||||||
Interest rate derivative swap contracts | – | (3,624 | ) | – | (3,624 | ) | ||||||||||
Commodity derivative price collar contracts | – | – | (993 | ) | (993 | ) | ||||||||||
– | (33,730 | ) | (993 | ) | (34,723 | ) | ||||||||||
Noncurrent:b | ||||||||||||||||
Commodity derivative price swap contracts | – | (29,782 | ) | – | (29,782 | ) | ||||||||||
Commodity derivative basis swap contracts | – | (1,476 | ) | – | (1,476 | ) | ||||||||||
Interest rate derivative swap contracts | – | – | – | – | ||||||||||||
Commodity derivative price collar contracts | – | – | (2,105 | ) | (2,105 | ) | ||||||||||
– | (31,258 | ) | (2,105 | ) | (33,363 | ) | ||||||||||
Total financial assets (liabilities) | $ | – | $ | 8,565 | $ | 15,758 | $ | 24,323 | ||||||||
(a)Total current financial assets (liabilities), gross basis | $ | 10,541 | ||||||||||||||
(b)Total noncurrent financial assets (liabilities), gross basis | 13,782 | |||||||||||||||
Total financial assets (liabilities) | $ | 24,323 | ||||||||||||||
F-20
Table of Contents
Fair value measurements using | ||||||||||||||||
Quoted | Significant | |||||||||||||||
prices in | other | Significant | Total carrying | |||||||||||||
active | observable | unobservable | value at | |||||||||||||
markets | inputs | inputs | December 31, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2008 | |||||||||||||
Assets1 | ||||||||||||||||
Current:a | ||||||||||||||||
Commodity derivative price swap contracts | $ | – | $ | 64,162 | $ | – | $ | 64,162 | ||||||||
Commodity derivative basis swap contracts | – | – | – | – | ||||||||||||
Interest rate derivative swap contracts | – | – | – | – | ||||||||||||
Commodity derivative price collar contracts | – | – | 49,562 | 49,562 | ||||||||||||
– | 64,162 | 49,562 | 113,724 | |||||||||||||
Noncurrent:b | ||||||||||||||||
Commodity derivative price swap contracts | – | 60,995 | – | 60,995 | ||||||||||||
Commodity derivative basis swap contracts | – | – | – | – | ||||||||||||
Interest rate derivative swap contracts | – | 678 | – | 678 | ||||||||||||
Commodity derivative price collar contracts | – | – | – | – | ||||||||||||
– | 61,673 | – | 61,673 | |||||||||||||
Liabilities1 | ||||||||||||||||
Current:a | ||||||||||||||||
Commodity derivative price swap contracts | – | – | – | – | ||||||||||||
Commodity derivative basis swap contracts | – | (680 | ) | – | (680 | ) | ||||||||||
Interest rate derivative swap contracts | – | (1,761 | ) | – | (1,761 | ) | ||||||||||
Commodity derivative price collar contracts | – | – | – | – | ||||||||||||
– | (2,441 | ) | – | (2,441 | ) | |||||||||||
Noncurrent:b | ||||||||||||||||
Commodity derivative price swap contracts | – | (516 | ) | – | (516 | ) | ||||||||||
Commodity derivative basis swap contracts | – | – | – | – | ||||||||||||
Interest rate derivative swap contracts | – | – | – | – | ||||||||||||
Commodity derivative price collar contracts | – | – | – | – | ||||||||||||
– | (516 | ) | – | (516 | ) | |||||||||||
Total financial assets (liabilities) | $ | – | $ | 122,878 | $ | 49,562 | $ | 172,440 | ||||||||
(a)Total current financial assets (liabilities), gross basis | $ | 111,283 | ||||||||||||||
(b)Total noncurrent financial assets (liabilities), gross basis | 61,157 | |||||||||||||||
Total financial assets (liabilities) | $ | 172,440 | ||||||||||||||
F-21
Table of Contents
(1) | The fair value of derivative instruments reported in the Company’s consolidated balance sheets are subject to netting arrangements and qualify for net presentation. The following table reports the net basis derivative fair values as reported in the consolidated balance sheets at June 30, 2009 and December 31, 2008 (in thousands): |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Consolidated balance sheet classification: | ||||||||
Current derivative contracts: | ||||||||
Assets | $ | 26,272 | $ | 113,149 | ||||
Liabilities | (15,731 | ) | (1,866 | ) | ||||
Net current | $ | 10,541 | $ | 111,283 | ||||
Noncurrent derivative contracts: | ||||||||
Assets | $ | 31,438 | $ | 61,157 | ||||
Liabilities | (17,656 | ) | – | |||||
Net noncurrent | $ | 13,782 | $ | 61,157 | ||||
Balance at December 31, 2008 | $ | 49,562 | ||
Realized and unrealized losses | (9,686 | ) | ||
Purchases, issuances, and settlements | (24,118 | ) | ||
Balance at June 30, 2009 | $ | 15,758 | ||
Total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at the reporting date | $ | (33,804 | ) | |
F-22
Table of Contents
Fair value measurements using | ||||||||||||||||
Quoted | Significant | |||||||||||||||
prices in | other | Significant | ||||||||||||||
active | observable | unobservable | Total | |||||||||||||
markets | inputs | inputs | impairments | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | loss | |||||||||||||
Three months ended June 30, 2009: | ||||||||||||||||
Impairment of long-lived assets | $ | – | $ | – | $ | 2,733 | $ | (4,499 | ) | |||||||
Asset retirement obligations incurred in current period | – | – | 102 | |||||||||||||
Three months ended June 30, 2008: | ||||||||||||||||
Impairment of long-lived assets | $ | – | $ | – | $ | 7 | $ | (53 | ) | |||||||
Asset retirement obligations incurred in current period | – | – | 275 | |||||||||||||
Six months ended June 30, 2009: | ||||||||||||||||
Impairment of long-lived assets | $ | – | $ | – | $ | 5,620 | $ | (8,555 | ) | |||||||
Asset retirement obligations incurred in current period | – | – | 270 | |||||||||||||
Six months ended June 30, 2008: | ||||||||||||||||
Impairment of long-lived assets | $ | – | $ | – | $ | 7 | $ | (69 | ) | |||||||
Asset retirement obligations incurred in current period | – | – | 309 | |||||||||||||
Note I. | Derivative financial instruments |
F-23
Table of Contents
Aggregate | Index | Contract | ||||||||||
volume | price | period | ||||||||||
Oil (volumes in Bbls): | ||||||||||||
Price collar | 600,000 | $ | 45.00 – $49.00 | a d | 3/1/09 – 5/31/09 | |||||||
Price swap | 270,000 | $ | 69.50 | a | 7/1/09 – 9/30/09 | |||||||
Price swap | 540,000 | $ | 51.62 | a d | 7/1/09 – 12/31/09 | |||||||
Price swap | 150,000 | $ | 69.50 | a | 10/1/09 – 12/31/09 | |||||||
Price swap | 2,508,000 | $ | 62.15 | a d | 1/1/10 – 12/31/10 | |||||||
Price swap | 1,800,000 | $ | 72.17 | a d | 1/1/11 – 12/31/11 | |||||||
Natural gas (volumes in MMBtus): | ||||||||||||
Price collar | 1,500,000 | $ | 5.00 – $5.81 | b | 10/1/09 – 12/31/09 | |||||||
Price collar | 1,500,000 | $ | 5.00 – $5.81 | b | 1/1/10 – 3/31/10 | |||||||
Price collar | 3,000,000 | $ | 5.25 – $5.75 | b | 4/1/10 – 9/30/10 | |||||||
Price collar | 1,500,000 | $ | 6.00 – $6.80 | b | 10/1/10 – 12/31/10 | |||||||
Price collar | 1,500,000 | $ | 6.00 – $6.80 | b | 1/1/11 – 3/31/11 | |||||||
Price swap | 3,000,000 | $ | 4.31 | b | 4/1/09 – 9/30/09 | |||||||
Price swap | 600,000 | $ | 4.66 | b | 7/1/09 – 9/30/09 | |||||||
Price swap | 450,000 | $ | 4.66 | b | 10/1/09 – 12/31/09 | |||||||
Price swap | 2,400,000 | $ | 6.31 | b | 1/1/10 – 12/31/10 | |||||||
Price swap | 300,000 | $ | 7.29 | b | 1/1/11 – 3/31/11 | |||||||
Price swap | 5,400,000 | $ | 6.96 | b d | 4/1/11 – 12/31/11 | |||||||
Basis swap | 600,000 | $ | 0.79 | c | 7/1/09 – 9/30/09 | |||||||
Basis swap | 450,000 | $ | 0.89 | c | 10/1/09 – 12/31/09 | |||||||
Basis swap | 8,400,000 | $ | 0.85 | c d | 1/1/10 – 12/31/10 | |||||||
Basis swap | 1,800,000 | $ | 0.87 | c d | 1/1/11 – 3/31/11 | |||||||
Basis swap | 5,400,000 | $ | 0.76 | c | 4/1/11 – 12/31/11 | |||||||
(a) | The index prices for the oil price swaps and collars are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | The index prices for the natural gas price swaps and collars are based on the NYMEX-Henry Hub last trading day futures price. | |
(c) | Represents the basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery point. | |
(d) | Prices represent weighted average prices. |
F-24
Table of Contents
Aggregate | Index | Contract | ||||||||||
volume | price | period | ||||||||||
Oil (volumes in Bbls): | ||||||||||||
Price swap | 273,000 | $ | 67.50 | a | 8/1/09 – 12/31/09 | |||||||
Price swap | 799,000 | $ | 67.50 | a | 1/1/10 – 12/31/10 | |||||||
Price swap | 801,000 | $ | 70.53 | a b | 1/1/11 – 12/31/11 | |||||||
(a) | The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | Prices represent weighted average prices. |
First | Second | Third | Fourth | |||||||||||||||||
quarter | quarter | quarter | quarter | Total | ||||||||||||||||
Oil swaps:a | ||||||||||||||||||||
2009: | ||||||||||||||||||||
Volume (Bbl) | 995,473 | 875,473 | 1,870,946 | |||||||||||||||||
Price per Bble | $ | 72.71 | $ | 73.15 | $ | 72.92 | ||||||||||||||
2010: | ||||||||||||||||||||
Volume (Bbl) | 787,436 | 787,436 | 787,436 | 787,436 | 3,149,744 | |||||||||||||||
Price per Bble | $ | 68.49 | $ | 68.49 | $ | 68.49 | $ | 68.49 | $ | 68.49 | ||||||||||
2011: | ||||||||||||||||||||
Volume (Bbl) | 589,436 | 589,436 | 589,436 | 589,436 | 2,357,744 | |||||||||||||||
Price per Bble | $ | 79.91 | $ | 79.91 | $ | 79.91 | $ | 79.91 | $ | 79.91 | ||||||||||
2012: | ||||||||||||||||||||
Volume (Bbl) | 126,000 | 126,000 | 126,000 | 126,000 | 504,000 | |||||||||||||||
Price per Bbl | $ | 127.80 | $ | 127.80 | $ | 127.80 | $ | 127.80 | $ | 127.80 | ||||||||||
Oil collars:a | ||||||||||||||||||||
2009: | ||||||||||||||||||||
Volume (Bbl) | 192,000 | 192,000 | 384,000 | |||||||||||||||||
Price per Bble | $ | 120.00-$134.60 | $ | 120.00-$134.60 | $ | 120.00-$134.60 | ||||||||||||||
Natural gas swaps:b | ||||||||||||||||||||
2009: | ||||||||||||||||||||
Volume (MMBtu) | 460,000 | 460,000 | 920,000 | |||||||||||||||||
Price per MMBtu | $ | 8.44 | $ | 8.44 | $ | 8.44 | ||||||||||||||
Natural gas swaps:c | ||||||||||||||||||||
2009: | ||||||||||||||||||||
Volume (MMBtu) | 2,100,000 | 450,000 | 2,550,000 | |||||||||||||||||
Price per MMBtu | $ | 4.41 | $ | 4.66 | $ | 4.45 |
F-25
Table of Contents
First | Second | Third | Fourth | |||||||||||||||||
quarter | quarter | quarter | quarter | Total | ||||||||||||||||
2010: | ||||||||||||||||||||
Volume (MMBtu) | 600,000 | 600,000 | 600,000 | 600,000 | 2,400,000 | |||||||||||||||
Price per MMBtu | $ | 6.31 | $ | 6.31 | $ | 6.31 | $ | 6.31 | $ | 6.31 | ||||||||||
2011: | ||||||||||||||||||||
Volume (MMBtu) | 300,000 | 1,800,000 | 1,800,000 | 1,800,000 | 5,700,000 | |||||||||||||||
Price per MMBtu | $ | 7.29 | $ | 6.96 | $ | 6.96 | $ | 6.96 | $ | 6.98 | ||||||||||
Natural gas collars:c | ||||||||||||||||||||
2009: | ||||||||||||||||||||
Volume (MMBtu) | – | 1,500,000 | 1,500,000 | |||||||||||||||||
Price per MMBtu | – | $ | 5.00-$5.81 | $ | 5.00-$5.81 | |||||||||||||||
2010: | ||||||||||||||||||||
Volume (MMBtu) | 1,500,000 | 1,500,000 | 1,500,000 | 1,500,000 | 6,000,000 | |||||||||||||||
Price per MMBtu | $ | 5.00-$5.81 | $ | 5.25-$5.75 | $ | 5.25-$5.75 | $ | 6.00-$6.80 | $ | 5.38-$6.03 | ||||||||||
2011: | ||||||||||||||||||||
Volume (MMBtu) | 1,500,000 | – | – | – | 1,500,000 | |||||||||||||||
Price per MMBtu | $ | 6.00-$6.80 | – | – | – | $ | 6.00-$6.80 | |||||||||||||
Natural gas basis swaps:d | ||||||||||||||||||||
2009: | ||||||||||||||||||||
Volume (MMBtu) | 2,118,000 | 1,968,000 | 4,086,000 | |||||||||||||||||
Price per MMBtue | $ | 0.99 | $ | 1.03 | $ | 1.01 | ||||||||||||||
2010: | ||||||||||||||||||||
Volume (MMBtu) | 2,100,000 | 2,100,000 | 2,100,000 | 2,100,000 | 8,400,000 | |||||||||||||||
Price per MMBtue | $ | 0.85 | $ | 0.85 | $ | 0.85 | $ | 0.85 | $ | 0.85 | ||||||||||
2011: | ||||||||||||||||||||
Volume (MMBtu) | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | 7,200,000 | |||||||||||||||
Price per MMBtue | $ | 0.87 | $ | 0.76 | $ | 0.76 | $ | 0.76 | $ | 0.79 | ||||||||||
(a) | The index prices for the oil price swaps and collars are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | The index price for the natural gas price swap is based on the Inside FERC-El Paso Permian Basin first-of-the-month spot price. | |
(c) | Represents the index prices for the natural gas price swaps and collars are based on the NYMEX-Henry Hub last trading day futures price. | |
(d) | The basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery point. | |
(e) | Prices represent weighted average prices. |
F-26
Table of Contents
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Decrease in oil and natural gas revenue from derivative activity: | ||||||||||||||||
Cash payments on cash flow hedges in oil sales | $ | – | $ | (13,367 | ) | $ | – | $ | (20,573 | ) | ||||||
Dedesignated cash flow hedges reclassified from AOCI in natural gas sales | – | 74 | – | (222 | ) | |||||||||||
Total decrease in oil and natural gas revenue from derivative activity | $ | – | $ | (13,293 | ) | $ | – | $ | (20,795 | ) | ||||||
Loss on derivatives not designated as hedges: | ||||||||||||||||
Mark-to-market gain (loss): | ||||||||||||||||
Commodity derivatives | $ | (109,374 | ) | $ | (90,055 | ) | $ | (149,117 | ) | $ | (103,247 | ) | ||||
Interest rate derivatives | 3,427 | – | 1,000 | – | ||||||||||||
Cash (payments) receipts on derivatives not designated as hedges: | ||||||||||||||||
Commodity derivatives | 25,120 | (12,401 | ) | 62,244 | (16,387 | ) | ||||||||||
Interest rate derivatives | (779 | ) | – | (779 | ) | – | ||||||||||
Total loss on derivatives not designated as hedges | $ | (81,606 | ) | $ | (102,456 | ) | $ | (86,652 | ) | $ | (119,634 | ) | ||||
Gain from ineffective portion of cash flow hedges | $ | – | $ | 356 | $ | – | $ | 920 | ||||||||
Accumulated other comprehensive income (loss): | ||||||||||||||||
Cash flow hedges: | ||||||||||||||||
Mark-to-market loss of cash flow hedges | $ | – | $ | (25,903 | ) | $ | – | $ | (32,510 | ) | ||||||
Reclassification adjustment of losses to earnings | – | 13,367 | – | 20,573 | ||||||||||||
Net change, before income taxes | – | (12,536 | ) | – | (11,937 | ) | ||||||||||
Income tax effect | – | 4,899 | – | 4,665 | ||||||||||||
Net change, net of income taxes | $ | – | $ | (7,637 | ) | $ | – | $ | (7,272 | ) | ||||||
Dedesignated cash flow hedges: | ||||||||||||||||
Reclassification adjustment of (gains) losses to earnings | $ | – | $ | (74 | ) | $ | – | $ | 222 | |||||||
Income tax effect | – | 29 | – | (87 | ) | |||||||||||
Net change, net of income taxes | $ | – | $ | (45 | ) | $ | – | $ | 135 | |||||||
Note J. | Debt |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Credit facility | $ | 660,000 | $ | 630,000 | ||||
Less: current portion | – | – | ||||||
Total long-term debt | $ | 660,000 | $ | 630,000 | ||||
F-27
Table of Contents
Remaining 2009 | $ | – | ||
2010 | – | |||
2011 | – | |||
2012 | – | |||
2013 | 660,000 | |||
Total | $ | 660,000 | ||
F-28
Table of Contents
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Cash payments for interest | $ | 3,457 | $ | 3,982 | $ | 6,929 | $ | 10,758 | ||||||||
Amortization of original issue discount | – | 25 | – | 50 | ||||||||||||
Amortization of deferred loan origination costs | 857 | 314 | 1,713 | 626 | ||||||||||||
Write-off of deferred loan origination costs and original issue discount | – | – | – | – | ||||||||||||
Net changes in accruals | 1,889 | (71 | ) | 1,946 | (1,094 | ) | ||||||||||
Interest costs incurred | 6,203 | 4,250 | 10,588 | 10,340 | ||||||||||||
Less: capitalized interest | (3 | ) | (365 | ) | (18 | ) | (840 | ) | ||||||||
Total interest expense | $ | 6,200 | $ | 3,885 | $ | 10,570 | $ | 9,500 | ||||||||
Note K. | Commitments and contingencies |
F-29
Table of Contents
Payments due by period | ||||||||||||||||||||
Less than | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 year | years | years | 5 years | ||||||||||||||||
Daywork drilling contracts | $ | 299 | $ | 299 | $ | – | $ | – | $ | – | ||||||||||
Daywork drilling contracts with related partiesa | 1,000 | 1,000 | – | – | – | |||||||||||||||
Daywork drilling contracts assumed in the Henry Properties acquisitionb | 1,629 | 1,629 | – | – | – | |||||||||||||||
Total contractual drilling commitments | $ | 2,928 | $ | 2,928 | $ | – | $ | – | $ | – | ||||||||||
(a) | Consists of daywork drilling contracts with Silver Oak Drilling, LLC, an affiliate of Chase Oil Corporation. |
(b) | A major oil and gas company which owns an interest in the wells being drilled and the Company are parties to these contracts. Only the Company’s 25% share of the contract obligation has been reflected above. |
Remaining 2009 | $ | 523 | ||
2010 | 1,077 | |||
2011 | 1,083 | |||
2012 | 1,077 | |||
2013 | 1,084 | |||
Thereafter | 3,261 | |||
Total | $ | 8,105 | ||
Note L. | Income taxes |
F-30
Table of Contents
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Income (loss) from operations | $ | (25,691 | ) | $ | (9,169 | ) | $ | (33,797 | ) | $ | 5,199 | |||||
Changes in stockholders’ equity: | ||||||||||||||||
Net deferred hedge losses | – | (10,123 | ) | – | (12,705 | ) | ||||||||||
Net settlement losses included in earnings | – | 5,195 | – | 8,127 | ||||||||||||
Tax benefits related to stock-based compensation | (2,188 | ) | (1,553 | ) | (2,992 | ) | (2,146 | ) | ||||||||
$ | (27,879 | ) | $ | (15,650 | ) | $ | (36,789 | ) | $ | (1,525 | ) | |||||
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Current: | ||||||||||||||||
U.S. federal | $ | 2,856 | $ | 523 | $ | 5,294 | $ | 585 | ||||||||
U.S. state and local | 381 | 98 | 708 | 110 | ||||||||||||
3,237 | 621 | 6,002 | 695 | |||||||||||||
Deferred: | ||||||||||||||||
U.S. federal | (25,518 | ) | (8,201 | ) | (35,103 | ) | 3,790 | |||||||||
U.S. state and local | (3,410 | ) | (1,589 | ) | (4,696 | ) | 714 | |||||||||
(28,928 | ) | (9,790 | ) | (39,799 | ) | 4,504 | ||||||||||
$ | (25,691 | ) | $ | (9,169 | ) | $ | (33,797 | ) | $ | 5,199 | ||||||
F-31
Table of Contents
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Income (loss) at U.S. federal statutory rate | $ | (20,618 | ) | $ | (8,256 | ) | $ | (28,084 | ) | $ | 4,600 | |||||
State income taxes (net of federal tax effect) | (1,969 | ) | (968 | ) | (2,592 | ) | 537 | |||||||||
Nondeductible expense & other | (3,104 | ) | 55 | (3,121 | ) | 62 | ||||||||||
Income tax expense (benefit) | $ | (25,691 | ) | $ | (9,169 | ) | $ | (33,797 | ) | $ | 5,199 | |||||
Note M. | Related party transactions |
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Note N. | Net income (loss) per share |
F-33
Table of Contents
Three months ended | Six months ended | |||||||||||||||
June 30 | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 84,799 | 75,665 | 84,665 | 75,569 | ||||||||||||
Dilutive capital options | – | – | – | 12 | ||||||||||||
Dilutive common stock options | – | – | – | 1,206 | ||||||||||||
Dilutive restricted stock | – | – | – | 247 | ||||||||||||
Diluted | 84,799 | 75,665 | 84,665 | 77,034 | ||||||||||||
Note O. | Other current liabilities |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Other current liabilities: | ||||||||
Accrued production costs | $ | 18,229 | $ | 15,489 | ||||
Payroll related matters | 11,843 | 11,290 | ||||||
Accrued interest | 2,299 | 353 | ||||||
Asset retirement obligations | 2,706 | 2,611 | ||||||
Other | 3,072 | 8,314 | ||||||
Other current liabilities | $ | 38,149 | $ | 38,057 | ||||
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Table of Contents
Note P. | Subsidiary guarantors |
June 30, 2009
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Assets | ||||||||||||||||
Accounts receivable—related parties | $ | 1,992,996 | $ | 1,641,913 | $ | (3,634,735 | ) | $ | 174 | |||||||
Other current assets | 34,085 | 133,020 | – | 167,105 | ||||||||||||
Total oil and natural gas properties, net | – | 2,472,023 | – | 2,472,023 | ||||||||||||
Other property and equipment, net | – | 15,143 | – | 15,143 | ||||||||||||
Investment in subsidiaries | 742,592 | – | (742,592 | ) | – | |||||||||||
Total other long-term assets | 45,426 | 64,928 | – | 110,354 | ||||||||||||
Total assets | $ | 2,815,099 | $ | 4,327,027 | $ | (4,377,327 | ) | $ | 2,764,799 | |||||||
Liabilities and equity | ||||||||||||||||
Accounts payable—related parties | $ | 264,149 | $ | 3,371,938 | $ | (3,634,735 | ) | $ | 1,352 | |||||||
Other current liabilities | 21,234 | 196,845 | – | 218,079 | ||||||||||||
Other long-term liabilities | 580,161 | 15,652 | – | 595,813 | ||||||||||||
Long-term debt | 660,000 | – | – | 660,000 | ||||||||||||
Equity | 1,289,555 | 742,592 | (742,592 | ) | 1,289,555 | |||||||||||
Total liabilities and equity | $ | 2,815,099 | $ | 4,327,027 | $ | (4,377,327 | ) | $ | 2,764,799 | |||||||
F-35
Table of Contents
December 31, 2008
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Assets | ||||||||||||||||
Accounts receivable—related parties | $ | 2,500,186 | $ | 1,432,829 | $ | (3,932,701 | ) | $ | 314 | |||||||
Other current assets | 120,406 | 158,063 | – | 278,469 | ||||||||||||
Total oil and natural gas properties, net | – | 2,386,584 | – | 2,386,584 | ||||||||||||
Other property and equipment, net | – | 14,820 | – | 14,820 | ||||||||||||
Investment in subsidiaries | 734,969 | – | (734,969 | ) | – | |||||||||||
Total other long-term assets | 73,538 | 61,478 | – | 135,016 | ||||||||||||
Total assets | $ | 3,429,099 | $ | 4,053,774 | $ | (4,667,670 | ) | $ | 2,815,203 | |||||||
Liabilities and equity | ||||||||||||||||
Accounts payable—related parties | $ | 860,758 | $ | 3,072,255 | $ | (3,932,701 | ) | $ | 312 | |||||||
Other current liabilities | 39,424 | 231,082 | – | 270,506 | ||||||||||||
Other long-term liabilities | 573,763 | 15,468 | – | 589,231 | ||||||||||||
Long-term debt | 630,000 | – | – | 630,000 | ||||||||||||
Equity | 1,325,154 | 734,969 | (734,969 | ) | 1,325,154 | |||||||||||
Total liabilities and equity | $ | 3,429,099 | $ | 4,053,774 | $ | (4,667,670 | ) | $ | 2,815,203 | |||||||
For the three months ended June 30, 2009
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | – | $ | 127,332 | $ | – | $ | 127,332 | ||||||||
Total operating costs and expenses | (72,075 | ) | (108,146 | ) | – | (180,221 | ) | |||||||||
Income (loss) from operations | (72,075 | ) | 19,186 | – | (52,889 | ) | ||||||||||
Interest expense | (6,200 | ) | – | – | (6,200 | ) | ||||||||||
Other, net | 19,366 | 180 | (19,366 | ) | 180 | |||||||||||
Income (loss) before income taxes | (58,909 | ) | 19,366 | (19,366 | ) | (58,909 | ) | |||||||||
Income tax benefit | 25,691 | – | – | 25,691 | ||||||||||||
Net income (loss) | $ | (33,218 | ) | $ | 19,366 | $ | (19,366 | ) | $ | (33,218 | ) | |||||
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Table of Contents
For the three months ended June 30, 2008
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | (13,293 | ) | $ | 150,676 | $ | – | $ | 137,383 | |||||||
Total operating costs and expenses | (71 | ) | (157,327 | ) | – | (157,398 | ) | |||||||||
Loss from operations | (13,364 | ) | (6,651 | ) | – | (20,015 | ) | |||||||||
Interest expense | (3,885 | ) | – | – | (3,885 | ) | ||||||||||
Other, net | (6,340 | ) | 311 | 6,340 | 311 | |||||||||||
Loss before income taxes | (23,589 | ) | (6,340 | ) | 6,340 | (23,589 | ) | |||||||||
Income tax benefit | 9,169 | – | – | 9,169 | ||||||||||||
Net loss | $ | (14,420 | ) | $ | (6,340 | ) | $ | 6,340 | $ | (14,420 | ) | |||||
For the six months ended June 30, 2009
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | – | $ | 213,334 | $ | – | $ | 213,334 | ||||||||
Total operating costs and expenses | (77,293 | ) | (205,563 | ) | – | (282,856 | ) | |||||||||
Income (loss) from operations | (77,293 | ) | 7,771 | – | (69,522 | ) | ||||||||||
Interest expense | (10,570 | ) | – | – | (10,570 | ) | ||||||||||
Other, net | 7,623 | (148 | ) | (7,623 | ) | (148 | ) | |||||||||
Income (loss) before income taxes | (80,240 | ) | 7,623 | (7,623 | ) | (80,240 | ) | |||||||||
Income tax benefit | 33,797 | – | – | 33,797 | ||||||||||||
Net income (loss) | $ | (46,443 | ) | $ | 7,623 | $ | (7,623 | ) | $ | (46,443 | ) | |||||
For the six months ended June 30, 2008
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | (20,795 | ) | $ | 264,889 | $ | – | $ | 244,094 | |||||||
Total operating costs and expenses | (144 | ) | (222,637 | ) | – | (222,781 | ) | |||||||||
Income (loss) from operations | (20,939 | ) | 42,252 | �� | – | 21,313 | ||||||||||
Interest expense | (9,500 | ) | – | – | (9,500 | ) | ||||||||||
Other, net | 43,583 | 1,331 | (43,583 | ) | 1,331 | |||||||||||
Income before income taxes | 13,144 | 43,583 | (43,583 | ) | 13,144 | |||||||||||
Income tax expense | (5,199 | ) | – | – | (5,199 | ) | ||||||||||
Net income | $ | 7,945 | $ | 43,583 | $ | (43,583 | ) | $ | 7,945 | |||||||
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Table of Contents
For the six months ended June 30, 2009
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Net cash flows provided by (used in) operating activities | $ | (93,214 | ) | $ | 211,446 | $ | – | $ | 118,232 | |||||||
Net cash flows provided by (used in) investing activities | 56,534 | (219,362 | ) | – | (162,828 | ) | ||||||||||
Net cash flows provided by (used in) financing activities | 36,731 | (6,806 | ) | – | 29,925 | |||||||||||
Net increase (decrease) in cash and cash equivalents | 51 | (14,722 | ) | – | (14,671 | ) | ||||||||||
Cash and cash equivalents at beginning of period | – | 17,752 | – | 17,752 | ||||||||||||
Cash and cash equivalents at end of period | $ | 51 | $ | 3,030 | $ | – | $ | 3,081 | ||||||||
For the six months ended June 30, 2008
Parent | Subsidiary | Consolidating | ||||||||||||||
(in thousands) | issuer | guarantors | entries | Total | ||||||||||||
Net cash flows provided by operating activities | $ | 39,505 | $ | 123,443 | $ | – | $ | 162,948 | ||||||||
Net cash flows used in investing activities | (16,387 | ) | (125,740 | ) | – | (142,127 | ) | |||||||||
Net cash flows provided by (used in) financing activities | (22,774 | ) | 3,245 | – | (19,529 | ) | ||||||||||
Net increase in cash and cash equivalents | 344 | 948 | – | 1,292 | ||||||||||||
Cash and cash equivalents at beginning of period | 107 | 30,317 | – | 30,424 | ||||||||||||
Cash and cash equivalents at end of period | $ | 451 | $ | 31,265 | $ | – | $ | 31,716 | ||||||||
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Table of Contents
Note Q. | Subsequent events |
Note R. | Supplementary information |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Oil and natural gas properties: | ||||||||
Proved | $ | 2,608,138 | $ | 2,316,330 | ||||
Unproved | 277,137 | 377,244 | ||||||
Less: accumulated depletion | (413,252 | ) | (306,990 | ) | ||||
Net capitalized costs for oil and natural gas properties | $ | 2,472,023 | $ | 2,386,584 | ||||
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Property acquisition costs:b | ||||||||||||||||
Proved | $ | (68 | ) | $ | (104 | ) | $ | (1,008 | ) | $ | 1 | |||||
Unproved | 3,361 | 587 | 4,582 | 1,349 | ||||||||||||
Exploration | 61,131 | 21,136 | 84,940 | 50,701 | ||||||||||||
Development | 31,450 | 46,365 | 115,229 | 71,242 | ||||||||||||
Total costs incurred for oil and natural gas properties | $ | 95,874 | $ | 67,984 | $ | 203,743 | $ | 123,293 | ||||||||
(a) | The costs incurred for oil and natural gas producing activities includes the following amounts of asset retirement obligations (in thousands): |
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Proved property acquisition costs | $ | – | $ | – | $ | – | $ | – | ||||||||
Exploration costs | 52 | 168 | 220 | 194 | ||||||||||||
Development costs | (3,878 | ) | 1,245 | (2,727 | ) | 443 | ||||||||||
Total | $ | (3,826 | ) | $ | 1,413 | $ | (2,507 | ) | $ | 637 | ||||||
(b) | During the three and six months ended June 30, 2009, the Company adjusted the purchase price allocation related to the acquisition of the Henry Properties. This adjustment reduced the proved acquisition costs by $80,000 and $1,020,000 during the three and six months ended June 30, 2009, respectively, while the unproved acquisition costs were decreased by $298,000 and increased by $293,000 during the three and six months ended June 30, 2009, respectively. |
F-39
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F-40
Table of Contents
Consolidated balance sheets
December 31, | ||||||||
(in thousands, except share and per share data) | 2008 | 2007 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 17,752 | $ | 30,424 | ||||
Accounts receivable, net of allowance for doubtful accounts: | ||||||||
Oil and gas | 48,793 | 36,735 | ||||||
Joint operations and other | 92,833 | 21,183 | ||||||
Related parties | 314 | – | ||||||
Derivative instruments | 113,149 | 1,866 | ||||||
Deferred income taxes | – | 13,502 | ||||||
Prepaid costs and other | 5,942 | 4,273 | ||||||
Total current assets | 278,783 | 107,983 | ||||||
Property and equipment, at cost: | ||||||||
Oil and gas properties, successful efforts method | 2,693,574 | 1,555,018 | ||||||
Accumulated depletion and depreciation | (306,990 | ) | (167,109 | ) | ||||
Total oil and gas properties, net | 2,386,584 | 1,387,909 | ||||||
Other property and equipment, net | 14,820 | 7,085 | ||||||
Total property and equipment, net | 2,401,404 | 1,394,994 | ||||||
Deferred loan costs, net | 15,701 | 3,426 | ||||||
Inventory | 19,956 | 1,459 | ||||||
Intangible asset, net—operating rights | 37,768 | – | ||||||
Noncurrent derivative instruments | 61,157 | – | ||||||
Other assets | 434 | 367 | ||||||
Total assets | $ | 2,815,203 | $ | 1,508,229 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable: | ||||||||
Trade | $ | 7,462 | $ | 14,222 | ||||
Related parties | 312 | 2,119 | ||||||
Other current liabilities: | ||||||||
Bank overdrafts | 9,434 | 5,651 | ||||||
Revenue payable | 22,286 | 14,494 | ||||||
Accrued and prepaid drilling costs | 154,196 | 39,276 | ||||||
Derivative instruments | 1,866 | 36,414 | ||||||
Deferred income taxes | 37,205 | – | ||||||
Current portion of long-term debt | – | 2,000 | ||||||
Other current liabilities | 38,057 | 14,466 | ||||||
Total current liabilities | 270,818 | 128,642 | ||||||
Long-term debt | 630,000 | 325,404 | ||||||
Noncurrent derivative instruments | – | 10,517 | ||||||
Deferred income taxes | 573,763 | 259,070 | ||||||
Asset retirement obligations and other long-term liabilities | 15,468 | 9,198 | ||||||
Commitments and contingencies (Note K) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding at December 31, 2008 and 2007 | – | – | ||||||
Common stock, $0.001 par value; 300,000,000 shares authorized; 84,828,824 and 75,832,310 shares issued at December 31, 2008 and 2007, respectively | 85 | 76 | ||||||
Additional paid-in capital | 1,009,025 | 752,380 | ||||||
Notes receivable from employees | – | (330 | ) | |||||
Retained earnings | 316,169 | 37,467 | ||||||
Accumulated other comprehensive loss | – | (14,195 | ) | |||||
Treasury stock, at cost; 3,142 and no shares at December 31, 2008 and 2007, respectively | (125 | ) | – | |||||
Total stockholders’ equity | 1,325,154 | 775,398 | ||||||
Total liabilities and stockholders’ equity | $ | 2,815,203 | $ | 1,508,229 | ||||
F-41
Table of Contents
Consolidated statements of operations
Years ended December 31, | ||||||||||||
(in thousands, except per share amounts) | 2008 | 2007 | 2006 | |||||||||
Operating revenues: | ||||||||||||
Oil sales | $ | 390,945 | $ | 195,596 | $ | 131,773 | ||||||
Natural gas sales | 142,844 | 98,737 | 66,517 | |||||||||
Total operating revenues | 533,789 | 294,333 | 198,290 | |||||||||
Operating costs and expenses: | ||||||||||||
Oil and gas production | 91,234 | 54,267 | 37,822 | |||||||||
Exploration and abandonments | 38,468 | 29,098 | 5,612 | |||||||||
Depreciation, depletion and amortization | 123,912 | 76,779 | 60,722 | |||||||||
Accretion of discount on asset retirement obligations | 889 | 444 | 287 | |||||||||
Impairments of long-lived assets | 18,417 | 7,267 | 9,891 | |||||||||
General and administrative (including non-cash stock-based compensation of $5,223, $3,841 and $9,144 for the years ended December 31, 2008, 2007 and 2006, respectively) | 40,776 | 25,177 | 21,721 | |||||||||
Bad debt expense | 2,905 | – | – | |||||||||
Contract drilling fees—stacked rigs | – | 4,269 | – | |||||||||
Ineffective portion of cash flow hedges | (1,336 | ) | 821 | (1,193 | ) | |||||||
(Gain) loss on derivatives not designated as hedges | (249,870 | ) | 20,274 | – | ||||||||
Total operating costs and expenses | 65,395 | 218,396 | 134,862 | |||||||||
Income from operations | 468,394 | 75,937 | 63,428 | |||||||||
Other income (expense): | ||||||||||||
Interest expense | (29,039 | ) | (36,042 | ) | (30,567 | ) | ||||||
Other, net | 1,432 | 1,484 | 1,186 | |||||||||
Total other expense | (27,607 | ) | (34,558 | ) | (29,381 | ) | ||||||
Income before income taxes | 440,787 | 41,379 | 34,047 | |||||||||
Income tax expense | (162,085 | ) | (16,019 | ) | (14,379 | ) | ||||||
Net income | 278,702 | 25,360 | 19,668 | |||||||||
Preferred stock dividends | – | (45 | ) | (1,244 | ) | |||||||
Effect of induced conversion of preferred stock | – | – | 11,601 | |||||||||
Net income applicable to common shareholders | $ | 278,702 | $ | 25,315 | $ | 30,025 | ||||||
Basic earnings per share: | ||||||||||||
Net income per share | $ | 3.52 | $ | 0.39 | $ | 0.63 | ||||||
Weighted average shares used in basic earnings per share | 79,206 | 64,316 | 47,287 | |||||||||
Diluted earnings per share: | ||||||||||||
Net income per share | $ | 3.46 | $ | 0.38 | $ | 0.59 | ||||||
Weighted average shares used in diluted earnings per share | 80,587 | 66,309 | 50,729 | |||||||||
F-42
Table of Contents
Consolidated statements of stockholders’ equity
Notes | ||||||||||||||||||||||||||||||||||||||||||||
receivable | Retained | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
6% Series A | Additional | from | earnings | other | Total | |||||||||||||||||||||||||||||||||||||||
preferred stock | Common stock | paid-in | officers and | (accumulated | comprehensive | Treasury stock | stockholders’ | |||||||||||||||||||||||||||||||||||||
(in thousands) | Shares | Amount | Shares | Amount | capital | employees | deficit) | income (loss) | Shares | Amount | equity | |||||||||||||||||||||||||||||||||
Balance at December 31, 2005 | 12,959 | $ | 130 | 8,142 | $ | 8 | $ | 135,876 | $ | (9,012 | ) | $ | (6,272 | ) | $ | (11,060 | ) | – | $ | – | $ | 109,670 | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Net income | – | – | – | – | – | – | 19,668 | – | – | – | 19,668 | |||||||||||||||||||||||||||||||||
Deferred hedge gains, net of tax of $4,200 | – | – | – | – | – | – | – | 7,736 | – | – | 7,736 | |||||||||||||||||||||||||||||||||
Net settlement losses included in earnings, net of taxes of $2,030 | – | – | – | – | – | – | – | 3,738 | – | – | 3,738 | |||||||||||||||||||||||||||||||||
Total comprehensive income | 31,142 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of subscribed units | 4,518 | 45 | 2,259 | 2 | 45,329 | (3,158 | ) | – | – | – | – | 42,218 | ||||||||||||||||||||||||||||||||
Issuance of common stock | – | – | 578 | 1 | 577 | – | – | – | – | – | 578 | |||||||||||||||||||||||||||||||||
Conversion of preferred stock | (17,477 | ) | (175 | ) | 13,106 | 13 | 162 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
Issuance of common stock for acquisition | – | – | 34,795 | 35 | 384,301 | – | – | – | – | – | 384,336 | |||||||||||||||||||||||||||||||||
Stock-based compensation for restricted stock | – | – | 214 | – | 1,044 | – | – | – | – | – | 1,044 | |||||||||||||||||||||||||||||||||
Cancellation of restricted stock | – | – | (1 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
Stock-based compensation for stock options | – | – | – | – | 7,125 | – | – | – | – | – | 7,125 | |||||||||||||||||||||||||||||||||
Stock-based compensation on issuance of units | – | – | – | – | 975 | – | – | – | – | – | 975 | |||||||||||||||||||||||||||||||||
Accrued interest—officer and employee notes | – | – | – | – | – | (688 | ) | – | – | – | – | (688 | ) | |||||||||||||||||||||||||||||||
6% Series A preferred stock dividends | – | – | – | – | – | – | (1,244 | ) | – | – | – | (1,244 | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2006 | – | – | 59,093 | 59 | 575,389 | (12,858 | ) | 12,152 | 414 | – | – | 575,156 | ||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Net income | – | – | – | – | – | – | 25,360 | – | – | – | 25,360 | |||||||||||||||||||||||||||||||||
Deferred hedge losses, net of taxes of $13,204 | – | – | – | – | – | – | – | (20,579 | ) | – | – | (20,579 | ) | |||||||||||||||||||||||||||||||
Net settlement losses included in earnings, net of taxes of $3,830 | – | – | – | – | – | – | – | 5,970 | – | – | 5,970 | |||||||||||||||||||||||||||||||||
Total comprehensive income | 10,751 | |||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation for restricted stock | – | – | 138 | – | 1,378 | – | – | – | – | – | 1,378 | |||||||||||||||||||||||||||||||||
Cancellation of restricted stock | – | – | (2 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
Stock-based compensation for stock options | – | – | – | – | 2,463 | – | – | – | – | – | 2,463 | |||||||||||||||||||||||||||||||||
Amendment of certain outstanding stock options due to 409A modification | – | – | 83 | – | (192 | ) | – | – | – | – | – | (192 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock for acquisition obligation | – | – | 54 | – | 650 | – | – | – | – | – | 650 | |||||||||||||||||||||||||||||||||
Net proceeds from initial public equity offering | – | – | 16,466 | 17 | 172,692 | – | – | – | – | – | 172,709 | |||||||||||||||||||||||||||||||||
Proceeds from notes receivable—officers and employees | – | – | – | – | – | 12,830 | – | – | – | – | 12,830 | |||||||||||||||||||||||||||||||||
Accrued interest—officer and employee notes | – | – | – | – | – | (302 | ) | – | – | – | – | (302 | ) | |||||||||||||||||||||||||||||||
6% Series A preferred stock dividends | – | – | – | – | – | – | (45 | ) | – | – | – | (45 | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2007 | – | – | 75,832 | 76 | 752,380 | (330 | ) | 37,467 | (14,195 | ) | – | – | 775,398 | |||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Net income | – | – | – | – | – | – | 278,702 | – | – | – | 278,702 | |||||||||||||||||||||||||||||||||
Deferred hedge losses, net of taxes of $3,121 | – | – | – | – | – | – | – | (4,864 | ) | – | – | (4,864 | ) | |||||||||||||||||||||||||||||||
Net settlement losses included in earnings, net of taxes of $12,228 | – | – | – | – | – | – | – | 19,059 | – | – | 19,059 | |||||||||||||||||||||||||||||||||
Total comprehensive income | 292,897 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | – | – | 8,303 | 8 | 242,418 | – | – | – | – | – | 242,426 | |||||||||||||||||||||||||||||||||
Stock options exercised | – | – | 612 | 1 | 5,390 | – | – | – | – | – | 5,391 | |||||||||||||||||||||||||||||||||
Stock-based compensation for restricted stock | – | – | 128 | – | 2,122 | – | – | – | – | – | 2,122 | |||||||||||||||||||||||||||||||||
Cancellation of restricted stock | – | – | (46 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
Stock-based compensation for stock options | – | – | – | – | 3,101 | – | – | – | – | – | 3,101 | |||||||||||||||||||||||||||||||||
Excess tax benefits related to stock-based compensation | – | – | – | – | 3,614 | – | – | – | – | – | 3,614 | |||||||||||||||||||||||||||||||||
Proceeds from notes receivable—employees | – | – | – | – | – | 333 | – | – | – | – | 333 | |||||||||||||||||||||||||||||||||
Accrued interest—employee notes | – | – | – | – | – | (3 | ) | – | – | – | – | (3 | ) | |||||||||||||||||||||||||||||||
Purchase of treasury stock | – | – | – | – | – | – | – | – | 3 | (125 | ) | (125 | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2008 | – | $ | – | 84,829 | $ | 85 | $ | 1,009,025 | $ | – | $ | 316,169 | $ | – | 3 | $ | (125 | ) | $ | 1,325,154 | ||||||||||||||||||||||||
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Consolidated statements of cash flows
Years ended December 31, | ||||||||||||
(in thousands) | 2008 | 2007 | 2006 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 278,702 | $ | 25,360 | $ | 19,668 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation, depletion and amortization | 123,912 | 76,779 | 60,722 | |||||||||
Impairments of long-lived assets | 18,417 | 7,267 | 9,891 | |||||||||
Accretion of discount on asset retirement obligations | 889 | 444 | 287 | |||||||||
Exploration expense, including dry holes | 35,328 | 25,009 | 3,387 | |||||||||
Non-cash compensation expense | 5,223 | 3,841 | 9,144 | |||||||||
Deferred income taxes | 153,484 | 13,716 | 12,618 | |||||||||
Gain on sale of assets | (777 | ) | (368 | ) | (3 | ) | ||||||
Ineffective portion of cash flow hedges | (1,336 | ) | 821 | (1,193 | ) | |||||||
(Gain) loss on derivatives not designated as hedges | (249,870 | ) | 20,274 | – | ||||||||
Dedesignated cash flow hedges reclassified from accumulated other comprehensive income (loss) | 696 | (1,103 | ) | – | ||||||||
Other non-cash items | 6,517 | 3,376 | 1,150 | |||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable | 42,514 | (5,759 | ) | (27,683 | ) | |||||||
Prepaid costs and other | (5,542 | ) | (169 | ) | (2,162 | ) | ||||||
Inventory | (16,819 | ) | (150 | ) | (291 | ) | ||||||
Accounts payable | (25,234 | ) | (3,493 | ) | 13,853 | |||||||
Revenue payable | 7,074 | 4,593 | 2,372 | |||||||||
Other current liabilities | 18,219 | (669 | ) | 10,421 | ||||||||
Net cash provided by operating activities | 391,397 | 169,769 | 112,181 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures on oil and gas properties | (347,702 | ) | (162,378 | ) | (182,389 | ) | ||||||
Acquisition of oil and gas properties, businesses and other assets | (584,220 | ) | (255 | ) | (413,229 | ) | ||||||
Additions to other property and equipment | (8,808 | ) | (2,813 | ) | (1,234 | ) | ||||||
Proceeds from the sale of oil and gas properties and other assets | 1,034 | 3,278 | – | |||||||||
Settlements received (paid) on derivatives not designated as hedges | (6,354 | ) | 1,815 | – | ||||||||
Net cash used in investing activities | (946,050 | ) | (160,353 | ) | (596,852 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of long-term debt | 767,800 | 300,200 | 664,993 | |||||||||
Payments of long-term debt | (465,700 | ) | (468,800 | ) | (241,493 | ) | ||||||
Exercise of stock options | 5,391 | – | – | |||||||||
Excess tax benefit from stock-based compensation | 3,614 | – | – | |||||||||
Net proceeds from issuance of common stock | 242,426 | 172,709 | 61,178 | |||||||||
Payments of preferred stock dividends | – | (132 | ) | (2,567 | ) | |||||||
Proceeds from repayment of officer and employee notes | 333 | 12,830 | – | |||||||||
Payments for loan origination costs | (15,541 | ) | (2,572 | ) | (5,500 | ) | ||||||
Purchase of treasury stock | (125 | ) | – | – | ||||||||
Bank overdrafts | 3,783 | 5,651 | – | |||||||||
Net cash provided by financing activities | 541,981 | 19,886 | 476,611 | |||||||||
Net increase (decrease) in cash and cash equivalents | (12,672 | ) | 29,302 | (8,060 | ) | |||||||
Cash and cash equivalents at beginning of period | 30,424 | 1,122 | 9,182 | |||||||||
Cash and cash equivalents at end of period | $ | 17,752 | $ | 30,424 | $ | 1,122 | ||||||
Supplemental cash flows: | ||||||||||||
Cash paid for interest and fees, net of $1,233, $2,647 and $2,129 capitalized interest | $ | 27,747 | $ | 41,036 | $ | 23,882 | ||||||
Cash paid for income taxes | $ | 11,304 | $ | 2,050 | $ | 1,725 | ||||||
Non-cash investing and financing activities: | ||||||||||||
Issuance of common stock in acquisition of oil and gas properties and other assets | $ | – | $ | 650 | $ | 384,336 | ||||||
Deferred tax effect of acquired oil and gas properties | $ | 206,497 | $ | (444 | ) | $ | 227,735 | |||||
Issuance of notes receivable in connection with capital options | $ | – | $ | – | $ | 3,158 | ||||||
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Notes to consolidated financial statements
December 31, 2008, 2007 and 2006
Note A. | Organization and nature of operations |
Note B. | Summary of significant accounting policies |
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F-46
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2009 | $ | 3,426 | ||
2010 | 3,426 | |||
2011 | 3,426 | |||
2012 | 3,426 | |||
2013 | 1,997 | |||
Total | $ | 15,701 | ||
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2009 | $ | 1,536 | ||
2010 | 1,536 | |||
2011 | 1,536 | |||
2012 | 1,536 | |||
2013 | 1,536 | |||
Thereafter | 30,088 | |||
Total | $ | 37,768 | ||
December 31, | ||||||||
2008 | 2007 | |||||||
Gas imbalance liability (included in asset retirement obligations and other long-term liabilities) | $ | 472 | $ | 621 | ||||
Overtake position (Mcf) | 85,698 | 96,215 | ||||||
Gas imbalance receivable (included in other assets) | $ | 406 | $ | 367 | ||||
Undertake position (Mcf) | 90,321 | 81,569 | ||||||
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Years ended December 31, | ||||||||
2008 | 2007 | |||||||
Value of net undertake arising during the year (reducing oil and gas production expense) | $ | 189 | $ | 14 | ||||
Net undertake position arising during the year (Mcf) | 19,269 | 4,264 | ||||||
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F-51
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F-52
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F-53
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• | permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes; |
• | allow companies to disclose in SEC filed documents their probable and possible reserves to investors (currently, the SEC rules limit disclosure to only proved reserves); |
• | require companies to report the independence and qualifications of a reserves preparer or auditor; |
• | file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and |
• | report oil and gas reserves using an average price based upon the prior12-month period rather than year-end prices. |
Note C. | Exploratory well costs |
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Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Beginning capitalized exploratory well costs | $ | 21,056 | $ | 26,503 | $ | 4,370 | ||||||
Additions to exploratory well costs pending the determination of proved reserves | 25,621 | 97,368 | 25,170 | |||||||||
Reclassifications due to determination of proved reserves | (18,327 | ) | (95,869 | ) | (2,759 | ) | ||||||
Exploratory well costs charged to expense | (2,797 | ) | (6,946 | ) | (278 | ) | ||||||
Ending capitalized exploratory well costs | $ | 25,553 | $ | 21,056 | $ | 26,503 | ||||||
December 31, | ||||||||
2008 | 2007 | |||||||
Wells in drilling progress | $ | 7,765 | $ | 4,199 | ||||
Capitalized exploratory well costs that have been capitalized for a period of one year or less | 17,788 | 16,857 | ||||||
Capitalized exploratory well costs that have been capitalized for a period greater than one year | – | – | ||||||
Total capitalized exploratory well costs | $ | 25,553 | $ | 21,056 | ||||
Note D. | Acquisition and business combination |
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Fair value of Henry Properties’ net assets: | ||||
Current assets, net of cash acquired of $19,049a | $ | 86,321 | ||
Proved oil and gas properties | 595,005 | |||
Unproved oil and gas properties | 233,199 | |||
Other long-term assets | 6,977 | |||
Intangible assets—operating rights | 38,409 | |||
Total assets acquired | 959,911 | |||
Current liabilities | (113,729 | ) | ||
Asset retirement obligations and other long-term liabilities | (7,529 | ) | ||
Noncurrent derivative liabilities | (39,037 | ) | ||
Deferred tax liability | (215,475 | ) | ||
Total liabilities assumed | (375,770 | ) | ||
Net purchase price | $ | 584,141 | ||
Consideration paid for Henry Properties’ net assets: | ||||
Cash consideration paid, net of cash acquired of $19,049 | $ | 578,491 | ||
Acquisition costsb | 5,650 | |||
Total purchase price | $ | 584,141 | ||
(a) | Includes a deferred tax asset of approximately $9.0 million. | |
(b) | Estimated acquisition costs include legal and accounting fees, advisory fees and other acquisition-related costs. |
Years ended December 31, | ||||||||
2008 | 2007 | |||||||
Operating revenues | $ | 629,214 | $ | 389,758 | ||||
Net income (loss) applicable to common shareholders | $ | 257,540 | $ | (7,471 | ) | |||
Earnings (loss) per common share: | ||||||||
Basic | $ | 2.94 | $ | (0.10 | ) | |||
Diluted | $ | 2.90 | $ | (0.10 | ) | |||
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Note E. | Asset retirement obligations |
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Asset retirement obligations, beginning of period | $ | 9,418 | $ | 8,700 | $ | 1,120 | ||||||
Liabilities incurred from new wells | 1,197 | 471 | 1,288 | |||||||||
Liabilities assumed in acquisitions | 7,062 | – | 6,155 | |||||||||
Accretion expense | 889 | 444 | 287 | |||||||||
Liabilities settled upon plugging and abandoning wells | – | (26 | ) | – | ||||||||
Revision of estimates | (1,757 | ) | (171 | ) | (150 | ) | ||||||
Asset retirement obligations, end of period | $ | 16,809 | $ | 9,418 | $ | 8,700 | ||||||
Note F. | Stockholders’ equity and stock issued subject to limited recourse notes |
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F-59
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Number of | Weighted | |||||||
bundled capital | average | |||||||
options | exercise price | |||||||
Outstanding at December 31, 2005 | 1,100,000 | $ | 9.52 | |||||
Bundled capital options granted | – | $ | – | |||||
Cancelled/forfeited | (161,697 | ) | $ | 9.52 | ||||
Outstanding at December 31, 2006 | 938,303 | $ | 9.52 | |||||
Bundled capital options exercised | (938,303 | ) | $ | 9.52 | ||||
Outstanding at December 31, 2007 | – | $ | – | |||||
Vested outstanding at: | ||||||||
December 31, 2006 | 938,303 | $ | 9.52 | |||||
December 31, 2007 | – | $ | – | |||||
Number of | Weighted | |||||||
capital | average | |||||||
options | exercise price | |||||||
Outstanding at December 31, 2005 | 482,500 | $ | 9.74 | |||||
$15 Capital Options granted | 16,000 | $ | 12.13 | |||||
Cancelled/forfeited | (73,279 | ) | $ | 9.81 | ||||
Outstanding at December 31, 2006 | 425,221 | $ | 9.81 | |||||
$10 Capital Options exercised | (270,828 | ) | $ | 8.97 | ||||
$15 Capital Options exercised | (116,008 | ) | $ | 12.26 | ||||
Outstanding at December 31, 2007 | 38,385 | $ | 8.34 | |||||
$10 Capital Options exercised | (38,385 | ) | $ | 8.34 | ||||
Outstanding at December 31, 2008 | – | $ | – | |||||
Vested outstanding at: | ||||||||
December 31, 2006 | 425,221 | $ | 9.81 | |||||
December 31, 2007 | 38,385 | $ | 8.34 | |||||
December 31, 2008 | – | $ | – | |||||
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Capital options | Weighted | Weighted | ||||||||||||||||||
outstanding | average | average | ||||||||||||||||||
vested and | remaining | exercise | Intrinsic | |||||||||||||||||
exercisable | contractual life | price | value | |||||||||||||||||
Vested capital options outstanding and exercisable at December 31, 2007: | ||||||||||||||||||||
Exercise price | $ | 10.00 | 38,385 | 2.52 years | $ | 8.34 | $ | 562,000 | ||||||||||||
Stock-based compensation expense from capital options | $ | 975,000 | ||
Bundled capital options: | ||||
Stock-based compensation expense | $ | 508,000 | ||
Options vesting during period | 242,000 | |||
Weighted average grant date fair value per option | $ | 2.10 | ||
Capital options: | ||||
Stock-based compensation expense | $ | 467,000 | ||
Options vesting during period | 119,799 | |||
Weighted average grant date fair value per option | $ | 3.90 | ||
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Note G. | Incentive plans |
Number of | ||||
common | ||||
shares | ||||
Approved and authorized awards | 5,850,000 | |||
Stock option grants, net of forfeitures | (3,343,684 | ) | ||
Restricted stock grants, net of forfeitures | (512,809 | ) | ||
Awards available for future grant | 1,993,507 | |||
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Number of | Grant date | |||||||
restricted | fair value | |||||||
shares | per share | |||||||
Restricted stock: | ||||||||
Outstanding at January 1, 2006 | – | |||||||
Shares granted | 213,584 | $ | 15.40 | |||||
Shares cancelled/forfeited | (1,368 | ) | ||||||
Lapse of restrictions | – | |||||||
Outstanding at December 31, 2006 | 212,216 | |||||||
Shares granted | 220,995 | $ | 9.22 | |||||
Shares cancelled/forfeited | (1,662 | ) | ||||||
Lapse of restrictions | (60,000 | ) | ||||||
Outstanding at December 31, 2007 | 371,549 | |||||||
Shares granted | 128,001 | $ | 32.13 | |||||
Shares cancelled/forfeited | (46,741 | ) | ||||||
Lapse of restrictions | (45,458 | ) | ||||||
Outstanding at December 31, 2008 | 407,351 | |||||||
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Stock-based compensation expense related to restricted stock | $ | 2,122 | $ | 1,378 | $ | 1,044 | ||||||
Income tax benefit related to restricted stock | $ | 808 | $ | 533 | $ | 407 | ||||||
Deductions in current taxable income related to restricted stock | $ | 1,234 | $ | – | $ | – | ||||||
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January 1, 2006 | ||||||||
through February 27, 2006 | ||||||||
Weighted | ||||||||
Number of | average | |||||||
unitsa | price | |||||||
Outstanding at beginning of period | 1,365,075 | $ | 10.32 | |||||
Options granted | 514,267 | $ | 10.68 | |||||
Options forfeited | – | $ | – | |||||
Options exercised | – | $ | – | |||||
Outstanding at end of period | 1,879,342 | $ | 10.42 | |||||
Exercisable at end of period | 1,562,770 | $ | 10.51 | |||||
(a) | Each option Unit can be exercised for on Preferred Unit which is comprised of one-half of a share of CEHC common stock and one share of CEHC preferred stock. |
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CEHC | Resources | |||||||||||||||
CEHC | unit | Conversion | option | Resources | ||||||||||||
unit option exercise price | options | rate | exercise price | options | ||||||||||||
$10.00 | 1,721,010 | 1.25:1 | $ | 8.00 | 2,151,129 | |||||||||||
$15.00 | 158,332 | 1.25:1 | $ | 12.00 | 197,984 | |||||||||||
1,879,342 | 2,349,113 | |||||||||||||||
February 27, | ||||||||||||||||||||||||
Years ended December 31, | 2006 through | |||||||||||||||||||||||
2008 | 2007 | December 31, 2006 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number of | average | Number of | average | Number of | average | |||||||||||||||||||
options | exercise price | options | exercise price | options | exercise price | |||||||||||||||||||
Stock options: | ||||||||||||||||||||||||
Outstanding at beginning of period | 3,011,722 | $ | 9.71 | 2,797,997 | $ | 8.93 | 2,349,113 | $ | 8.34 | |||||||||||||||
Options granted | 607,555 | $ | 23.54 | 215,000 | $ | 12.85 | 450,000 | $ | 12.00 | |||||||||||||||
Options forfeited | (275,593 | ) | $ | 14.96 | (1,275 | ) | $ | 8.00 | (1,116 | ) | $ | 10.88 | ||||||||||||
Options exercised | (612,360 | ) | $ | 8.80 | – | $ | – | – | $ | – | ||||||||||||||
Outstanding at end of period | 2,731,324 | $ | 12.46 | 3,011,722 | $ | 9.71 | 2,797,997 | $ | 8.93 | |||||||||||||||
Vested at end of period | 1,567,389 | $ | 9.18 | 2,063,499 | $ | 8.79 | 1,952,274 | $ | 8.40 | |||||||||||||||
Exercisable at end of period | 517,019 | $ | 11.16 | 508,462 | $ | 10.58 | 1,952,274 | $ | 8.40 | |||||||||||||||
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Weighted | ||||||||||||||||||
Weighted average | average | |||||||||||||||||
Number vested | remaining | exercise | ||||||||||||||||
and exercisable | contractual life | price | Intrinsic value | |||||||||||||||
(in thousands) | ||||||||||||||||||
Vested options: | ||||||||||||||||||
December 31, 2008: | ||||||||||||||||||
Exercise price | $ | 8.00 | 1,232,647 | 2.58 years | $ | 8.00 | $ | 18,268 | ||||||||||
Exercise price | $ | 12.00 | 143,492 | 4.99 years | $ | 12.00 | 1,553 | |||||||||||
Exercise price | $ | 14.68 | 191,250 | 7.78 years | $ | 14.68 | 1,556 | |||||||||||
1,567,389 | $ | 9.18 | $ | 21,377 | ||||||||||||||
Exercisable options: | ||||||||||||||||||
December 31, 2008: | ||||||||||||||||||
Exercise price | $ | 8.00 | 236,227 | 5.62 years | $ | 8.00 | $ | 3,501 | ||||||||||
Exercise price | $ | 12.00 | 89,542 | 6.78 years | $ | 12.00 | 969 | |||||||||||
Exercise price | $ | 14.68 | 191,250 | 7.78 years | $ | 14.68 | 1,556 | |||||||||||
517,019 | $ | 11.16 | $ | 6,026 | ||||||||||||||
Vested options: | ||||||||||||||||||
December 31, 2007: | ||||||||||||||||||
Exercise price | $ | 8.00 | 1,753,819 | 3.15 years | $ | 8.00 | $ | 22,116 | ||||||||||
Exercise price | $ | 12.00 | 197,180 | 5.72 years | $ | 12.00 | 1,698 | |||||||||||
Exercise price | $ | 15.40 | 112,500 | 8.45 years | $ | 15.40 | 586 | |||||||||||
2,063,499 | $ | 10.58 | $ | 24,400 | ||||||||||||||
Exercisable options: | ||||||||||||||||||
December 31, 2007: | ||||||||||||||||||
Exercise price | $ | 8.00 | 275,685 | 6.62 years | $ | 8.00 | $ | 3,476 | ||||||||||
Exercise price | $ | 12.00 | 120,277 | 7.78 years | $ | 12.00 | 1,036 | |||||||||||
Exercise price | $ | 15.40 | 112,500 | 8.45 years | $ | 15.40 | 586 | |||||||||||
508,462 | $ | 10.58 | $ | 5,098 | ||||||||||||||
Vested and exercisable options: | ||||||||||||||||||
December 31, 2006: | ||||||||||||||||||
Exercise price | $ | 8.00 | 1,755,094 | 8.47 years | $ | 8.00 | $ | 15,099 | ||||||||||
Exercise price | $ | 12.00 | 197,180 | 8.86 years | $ | 12.00 | 769 | |||||||||||
1,952,274 | $ | 8.40 | $ | 15,868 | ||||||||||||||
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Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Grant date fair value for awards during the period: | ||||||||||||
Time vesting optionsa | $ | 580 | $ | 87 | $ | 1,931 | ||||||
Performance vesting options: | ||||||||||||
Officersb | – | – | 531 | |||||||||
Non-officersc | – | – | 142 | |||||||||
Stock option grants under the Pland | 5,675 | 1,921 | 3,555 | |||||||||
Total | $ | 6,255 | $ | 2,008 | $ | 6,159 | ||||||
Stock-based compensation expense from stock options: | ||||||||||||
Time vesting optionsa | $ | 181 | $ | 17 | $ | 5,085 | ||||||
Performance vesting options: | ||||||||||||
Officersb | 253 | 602 | 511 | |||||||||
Non-officersc | – | – | 505 | |||||||||
Stock option grants under the Pland | 2,667 | 1,844 | 1,024 | |||||||||
Total | $ | 3,101 | $ | 2,463 | $ | 7,125 | ||||||
Income taxes and other information: | ||||||||||||
Income tax benefit related to stock options | $ | 1,990 | $ | 953 | $ | 2,779 | ||||||
Deductions in current taxable income related to stock options exercised | $ | 10,756 | $ | – | $ | – | ||||||
(a) | Options granted prior to February 27, 2006, vested immediately as of the date of the Combination, as a result of a change of control. Options granted thereafter vest using a four year graded vesting schedule by approval from the Board of Directors. | |
(b) | Options granted prior to February 27, 2006, vest using a three year cliff vesting schedule by approval from CEHC’s Board of Directors. |
(c) | Vested as of the date of the Combination by approval from CEHC’s Board of Directors. |
(d) | Vest using a three or four year graded vesting schedule by approval from the Board of Directors. The 2007 grant date fair value includes an adjustment of $765,000 from a change in fair value due to the Code Section 409A (defined later) option modification. |
2008 | 2007 | 2006 | ||||||||||
Risk-free interest rate | 3.18% | 4.47% | 4.81% | |||||||||
Expected term (years) | 6.21 | 6.25 | 2.87 | |||||||||
Expected volatility | 38.88% | 37.33% | 37.12% | |||||||||
Expected dividend yield | – | – | – | |||||||||
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Restricted | Stock | |||||||||||
stock | options | Total | ||||||||||
2009 | $ | 2,470 | $ | 2,701 | $ | 5,171 | ||||||
2010 | 1,393 | 1,242 | 2,635 | |||||||||
2011 | 475 | 466 | 941 | |||||||||
2012 | 40 | 55 | 95 | |||||||||
Total | $ | 4,378 | $ | 4,464 | $ | 8,842 | ||||||
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Note H. | Disclosures about fair value of financial instruments |
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Fair value measurements using | ||||||||||||||||
Significant | Total carrying | |||||||||||||||
Quoted prices in | Significant other | unobservable | value at | |||||||||||||
active markets | observable inputs | inputs | December 31, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2008 | |||||||||||||
Commodity derivative price swap contracts | $ | – | $ | 124,641 | $ | – | $ | 124,641 | ||||||||
Commodity derivative basis swap contracts | – | (680 | ) | – | (680 | ) | ||||||||||
Interest rate derivative swap contracts | – | (1,083 | ) | – | (1,083 | ) | ||||||||||
Commodity derivative price collar contracts | – | – | 49,562 | 49,562 | ||||||||||||
Total financial assets (liabilities) | $ | – | $ | 122,878 | $ | 49,562 | $ | 172,440 | ||||||||
Balance at January 1, 2008 | $ | 1,866 | ||
Realized and unrealized gains | 49,122 | |||
Purchases, issuances, and settlements | (1,426 | ) | ||
Balance at December 31, 2008 | $ | 49,562 | ||
Total gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held at the reporting date | $ | 47,696 | ||
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Note I. | Derivative financial instruments |
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Aggregate | Remaining | |||||||||||||||
remaining | Daily | Index | contract | |||||||||||||
volume | volume | price | period | |||||||||||||
Crude oil (volumes in Bbls): | ||||||||||||||||
Price collar | 768,000 | 2,104 | $ | 120.00 - $134.60a | 1/1/09-12/31/09 | |||||||||||
Price swap | 292,000 | 800 | $ | 98.35a | 1/1/09-12/31/09 | |||||||||||
Price swap | 348,000 | 953 | $ | 125.10a | 1/1/09-12/31/09 | |||||||||||
Price swap | 240,000 | 658 | $ | 128.80a | 1/1/10-12/31/10 | |||||||||||
Price swap | 336,000 | 921 | $ | 128.66a | 1/1/11-12/31/11 | |||||||||||
Price swap | 504,000 | 1,377 | $ | 127.80a | 1/1/12-12/31/12 | |||||||||||
Natural gas (volumes in MMBtus): | ||||||||||||||||
Price swap | 1,825,000 | 5,000 | $ | 8.44b | 1/1/09-12/31/09 | |||||||||||
Index basis swap | 6,022,500 | 16,500 | $ | 1.08c | 1/1/09-12/31/09 | |||||||||||
(a) | The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | The index price for the natural gas price collar is based on the Inside FERC-El Paso Permian Basinfirst-of-the-month spot price. |
(c) | Represents the basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery point. |
Aggregate | ||||||||
remaining | Daily | Index | Remaining | |||||
volume | volume | price | contract period | |||||
Crude oil (volumes in Bbls): | ||||||||
Price swap | 443,491 | 1,215 | $73.59a | 1/1/09-12/31/09 | ||||
Price swap | 401,746 | 1,101 | $72.03a | 1/1/10-12/31/10 | ||||
Price swap | 221,746 | 608 | $68.92a | 1/1/11-12/31/11 | ||||
(a) | The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price and the prices represent weighted average prices. |
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Aggregate | ||||||||||||||||||||
remaining | ||||||||||||||||||||
volume/ | Index | Remaining | ||||||||||||||||||
Fair value | notional | Daily | price / | contract | ||||||||||||||||
asset (liability) | amount | volume | rate | period | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Crude oil (volumes in Bbls): | ||||||||||||||||||||
Price collar | $ | 49,562 | 768,000 | 2,104 | $ | 120.00 - $134.60a | 1/1/09-12/31/09 | |||||||||||||
Price swap | 58,269 | 1,813,491 | 4,968 | $ | 87.16a c | 1/1/09-12/31/09 | ||||||||||||||
Price swap | 17,948 | 641,746 | 1,758 | $ | 93.26a c | 1/1/10-12/31/10 | ||||||||||||||
Price swap | 18,191 | 557,746 | 1,528 | $ | 104.91a c | 1/1/11-12/31/11 | ||||||||||||||
Price swap | 24,339 | 504,000 | 1,377 | $ | 127.80a | 1/1/12-12/31/12 | ||||||||||||||
Natural gas (volumes in MMBtus): | ||||||||||||||||||||
Price swap | 5,894 | 1,825,000 | 5,000 | $ | 8.44b | 1/1/09-12/31/09 | ||||||||||||||
Basis swap | (680 | ) | 6,022,500 | 16,500 | $ | 1.08d | 1/1/09-12/31/09 | |||||||||||||
Interest rate (notional amount in dollars): | ||||||||||||||||||||
Rate swap | (1,083 | ) | $ | 300,000,000 | 1.90%e | 5/1/09-4/30/12 | ||||||||||||||
Net asset | $ | 172,440 | ||||||||||||||||||
(a) | The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price. | |
(b) | The index price for the natural gas price collar is based on the Inside FERC-El Paso Permian Basinfirst-of-the-month spot price. |
(c) | Prices represent weighted-average prices. |
(d) | Represents the basis differential between the El Paso Permian delivery point and the NYMEX Henry Hub delivery point. | |
(e) | The index rate is based on the one-month LIBOR. |
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Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Increase (decrease) in oil and gas revenue from derivative activity: | ||||||||||||
Cash payments on cash flow hedges in oil sales | $ | (30,591 | ) | $ | (11,091 | ) | $ | (7,000 | ) | |||
Cash receipts from cash flow hedges in gas sales | – | 188 | 1,232 | |||||||||
Dedesignated cash flow hedges reclassified from AOCI in gas sales | (696 | ) | 1,103 | – | ||||||||
Total decrease in oil and gas revenue from derivative activity | $ | (31,287 | ) | $ | (9,800 | ) | $ | (5,768 | ) | |||
Gain (loss) on derivatives not designated as hedges: | ||||||||||||
Mark-to-market gain (loss): | ||||||||||||
Commodity derivatives | $ | 257,307 | $ | (22,089 | ) | $ | – | |||||
Interest rate derivatives | (1,083 | ) | – | – | ||||||||
Cash (payments) receipts on derivatives not designated as hedges: | ||||||||||||
Commodity derivatives | (6,354 | ) | 1,815 | – | ||||||||
Interest rate derivatives | – | – | – | |||||||||
Total gain (loss) on derivatives not designated as hedges | $ | 249,870 | $ | (20,274 | ) | $ | – | |||||
Gain (loss) from ineffective portion of cash flow hedges: | $ | 1,336 | $ | (821 | ) | $ | 1,193 | |||||
Accumulated other comprehensive income (loss): | ||||||||||||
Cash flow hedges: | ||||||||||||
Mark-to-market gain (loss) of cash flow hedges | $ | (7,985 | ) | $ | (33,783 | ) | $ | 11,936 | ||||
Reclassification adjustment of losses to earnings | 30,591 | 10,903 | 5,768 | |||||||||
Net AOCI upon dedesignation at June 30, 2007 | – | (407 | ) | – | ||||||||
Net change, before income taxes | 22,606 | (23,287 | ) | 17,704 | ||||||||
Income tax effect | (8,835 | ) | 9,102 | (6,230 | ) | |||||||
Net change, net of income taxes | $ | 13,771 | $ | (14,185 | ) | $ | 11,474 | |||||
Dedesignated cash flow hedges: | ||||||||||||
Net AOCI upon dedesignation at June 30, 2007 | $ | – | $ | 407 | $ | – | ||||||
Reclassification adjustment of (gains) losses to earnings | 696 | (1,103 | ) | – | ||||||||
Income tax effect | (272 | ) | 272 | – | ||||||||
Net change, net of income taxes | $ | 424 | $ | (424 | ) | $ | – | |||||
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Aggregate | Remaining | |||||||||||||||
remaining | Daily | Index | contract | |||||||||||||
volume | volume | price | period | |||||||||||||
Crude oil (volumes in Bbls): | ||||||||||||||||
Price swap | 600,000 | 1,644 | $ | 57.55a | 1/1/10-12/31/10 | |||||||||||
Price collar | 600,000 | 6,522 | $ | 45.00-$49.00a | 3/1/09-5/31/09 | |||||||||||
(a) | The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price. |
Note J. | Debt |
December 31, | ||||||||
2008 | 2007 | |||||||
Senior credit facility | $ | 630,000 | $ | 216,000 | ||||
2nd lien credit facility | – | 109,900 | ||||||
Unamortized original issue discount on 2nd lien credit facility | – | (496 | ) | |||||
Total long-term debt | 630,000 | 325,404 | ||||||
Current portion of 2nd lien credit facility | – | 2,000 | ||||||
Total debt | $ | 630,000 | $ | 327,404 | ||||
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2009 | $ | – | ||
2010 | – | |||
2011 | – | |||
2012 | – | |||
2013 | 630,000 | |||
Total | $ | 630,000 | ||
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Cash payments for interest | $ | 27,747 | $ | 41,036 | $ | 23,882 | ||||||
Amortization of original issue discount | 58 | 98 | – | |||||||||
Amortization of deferred loan origination costs | 2,157 | 1,338 | 1,494 | |||||||||
Write-off of deferred loan origination costs and original issue discount | 1,547 | 2,631 | – | |||||||||
Net changes in accruals | (1,237 | ) | (6,414 | ) | 7,320 | |||||||
Interest costs incurred | 30,272 | 38,689 | 32,696 | |||||||||
Less: capitalized interest | (1,233 | ) | (2,647 | ) | (2,129 | ) | ||||||
Total interest expense | $ | 29,039 | $ | 36,042 | $ | 30,567 | ||||||
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Note K. | Commitments and contingencies |
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Payment due by period | ||||||||||||||||||||
Less than | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 year | years | years | 5 years | ||||||||||||||||
Daywork drilling contracts | $ | 5,584 | $ | 5,584 | $ | – | $ | – | $ | – | ||||||||||
Daywork drilling contracts with related partiesa | 12,296 | 12,296 | – | – | – | |||||||||||||||
Daywork drilling contracts assumed in the Henry Properties acquisitionb | 10,850 | 7,978 | 2,872 | – | – | |||||||||||||||
Total contractual drilling commitments | $ | 28,730 | $ | 25,858 | $ | 2,872 | $ | – | $ | – | ||||||||||
(a) | Consists of daywork drilling contracts with Silver Oak Drilling, LLC, an affiliate of the Chase Group. | |
(b) | A major oil and gas company which owns an interest in the wells being drilled and the Company are parties to these contracts. Only the Company’s 25% share of the contract obligation has been reflected above. |
2009 | $ | 970 | ||
2010 | 985 | |||
2011 | 989 | |||
2012 | 981 | |||
2013 | 818 | |||
Total | $ | 4,743 | ||
Note L. | Income taxes |
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Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Income from operations | $ | 162,085 | $ | 16,019 | $ | 14,379 | ||||||
Changes in stockholders’ equity: | ||||||||||||
Net deferred hedge gains (losses) | (3,121 | ) | (13,204 | ) | 4,200 | |||||||
Net settlement losses included in earnings | 12,228 | 3,830 | 2,030 | |||||||||
Tax benefits related to stock-based compensation | (3,614 | ) | – | – | ||||||||
$ | 167,578 | $ | 6,645 | $ | 20,609 | |||||||
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Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Current: | ||||||||||||
U.S. federal | $ | 8,080 | $ | 1,902 | $ | 1,527 | ||||||
U.S. state and local | 521 | 401 | 234 | |||||||||
8,601 | 2,303 | 1,761 | ||||||||||
Deferred: | ||||||||||||
U.S. federal | 141,668 | 10,069 | 10,777 | |||||||||
U.S. state and local | 11,816 | 3,647 | 1,841 | |||||||||
153,484 | 13,716 | 12,618 | ||||||||||
$ | 162,085 | $ | 16,019 | $ | 14,379 | |||||||
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Income at U.S. federal statutory rate | $ | 154,276 | $ | 14,483 | $ | 11,916 | ||||||
State income taxes (net of federal tax effect) | 13,372 | 2,631 | 2,083 | |||||||||
Stock-based compensation | – | – | 380 | |||||||||
Statutory depletion carryover | – | (613 | ) | – | ||||||||
Change in tax rate | (5,671 | ) | – | – | ||||||||
Nondeductible expense & other | 108 | (482 | ) | – | ||||||||
Expense for income taxes | $ | 162,085 | $ | 16,019 | $ | 14,379 | ||||||
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Table of Contents
December 31, | ||||||||
2008 | 2007 | |||||||
Deferred tax asset: | ||||||||
Stock-based compensation | $ | 5,569 | $ | 4,440 | ||||
Derivative instruments | – | 17,612 | ||||||
Statutory depletion carryover | 1,635 | 613 | ||||||
Federal tax credit carryovers | 8,525 | 1,195 | ||||||
Other | 10,625 | 564 | ||||||
Total deferred tax assets | 26,354 | 24,424 | ||||||
Deferred tax liability: | ||||||||
Oil and gas properties, principally due to differences in basis and depletion and the deduction of intangible drilling costs for tax purposes | (557,011 | ) | (269,938 | ) | ||||
Intangible asset—operating rights | (14,387 | ) | – | |||||
Derivative instruments | (65,689 | ) | – | |||||
Other | (235 | ) | (54 | ) | ||||
Total deferred tax liabilities | (637,322 | ) | (269,992 | ) | ||||
Net deferred tax liability | $ | (610,968 | ) | $ | (245,568 | ) | ||
Note M. | Major customers and derivative counterparties |
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Navajo Refining Company, L.P. | 59% | 60% | 52% | |||||||||
DCP Midstream LP | 18% | 23% | 17% | |||||||||
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Note N. | Related parties |
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Note O. | Net income per share |
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Table of Contents
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 79,206 | 64,316 | 47,287 | |||||||||
Dilutive bundled capital options | – | 847 | 2,516 | |||||||||
Dilutive capital options | 6 | 154 | 192 | |||||||||
Dilutive common stock options | 1,134 | 901 | 714 | |||||||||
Dilutive restricted stock | 241 | 91 | 20 | |||||||||
Diluted | 80,587 | 66,309 | 50,729 | |||||||||
Note P. | Other current liabilities |
December 31, | ||||||||
2008 | 2007 | |||||||
Other current liabilities: | ||||||||
Accrued production costs | $ | 15,489 | $ | 4,135 | ||||
Payroll related matters | 11,290 | 3,821 | ||||||
Accrued interest | 353 | 1,590 | ||||||
Asset retirement obligations | 2,611 | 912 | ||||||
Other | 8,314 | 4,008 | ||||||
Other current liabilities | $ | 38,057 | $ | 14,466 | ||||
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Note Q. | Subsidiary guarantors |
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December 31, 2008
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Assets | ||||||||||||||||
Accounts receivable—related parties | $ | 2,500,186 | $ | 1,432,829 | $ | (3,932,701 | ) | $ | 314 | |||||||
Other current assets | 120,406 | 158,063 | – | 278,469 | ||||||||||||
Total oil and natural gas properties, net | – | 2,386,584 | – | 2,386,584 | ||||||||||||
Other property and equipment, net | – | 14,820 | – | 14,820 | ||||||||||||
Investment in subsidiaries | 734,969 | – | (734,969 | ) | – | |||||||||||
Total other long-term assets | 73,538 | 61,478 | – | 135,016 | ||||||||||||
Total assets | $ | 3,429,099 | $ | 4,053,774 | $ | (4,667,670 | ) | $ | 2,815,203 | |||||||
Liabilities and equity | ||||||||||||||||
Accounts payable—related parties | $ | 860,758 | $ | 3,072,255 | $ | (3,932,701 | ) | $ | 312 | |||||||
Other current liabilities | 39,424 | 231,082 | – | 270,506 | ||||||||||||
Other long-term liabilities | 573,763 | 15,468 | – | 589,231 | ||||||||||||
Long-term debt | 630,000 | – | – | 630,000 | ||||||||||||
Equity | 1,325,154 | 734,969 | (734,969 | ) | 1,325,154 | |||||||||||
Total liabilities and equity | $ | 3,429,099 | $ | 4,053,774 | $ | (4,667,670 | ) | $ | 2,815,203 | |||||||
December 31, 2007
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Assets | ||||||||||||||||
Accounts receivable—related parties | $ | 1,086,155 | $ | 644,595 | $ | (1,730,750 | ) | $ | – | |||||||
Other current assets | 17,127 | 90,856 | – | 107,983 | ||||||||||||
Total oil and natural gas properties, net | – | 1,387,909 | – | 1,387,909 | ||||||||||||
Other property and equipment, net | – | 7,085 | – | 7,085 | ||||||||||||
Investment in subsidiaries | 411,240 | – | (411,240 | ) | – | |||||||||||
Total other long-term assets | 3,426 | 1,826 | – | 5,252 | ||||||||||||
Total assets | $ | 1,517,948 | $ | 2,132,271 | $ | (2,141,990 | ) | $ | 1,508,229 | |||||||
Liabilities and equity | ||||||||||||||||
Accounts payable—related parties | $ | 107,523 | $ | 1,625,346 | $ | (1,730,750 | ) | $ | 2,119 | |||||||
Other current liabilities | 40,036 | 86,487 | – | 126,523 | ||||||||||||
Other long-term liabilities | 269,587 | 9,198 | – | 278,785 | ||||||||||||
Long-term debt | 325,404 | – | – | 325,404 | ||||||||||||
Equity | 775,398 | 411,240 | (411,240 | ) | 775,398 | |||||||||||
Total liabilities and equity | $ | 1,517,948 | $ | 2,132,271 | $ | (2,141,990 | ) | $ | 1,508,229 | |||||||
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For the year ended December 31, 2008
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | (31,287 | ) | $ | 565,076 | $ | – | $ | 533,789 | |||||||
Total operating costs and expenses | 177,384 | (242,779 | ) | – | (65,395 | ) | ||||||||||
Income from operations | 146,097 | 322,297 | – | 468,394 | ||||||||||||
Interest expense | (29,039 | ) | – | – | (29,039 | ) | ||||||||||
Other, net | 323,729 | 1,432 | (323,729 | ) | 1,432 | |||||||||||
Income before income taxes | 440,787 | 323,729 | (323,729 | ) | 440,787 | |||||||||||
Income tax expense | (162,085 | ) | – | – | (162,085 | ) | ||||||||||
Net income | $ | 278,702 | $ | 323,729 | $ | (323,729 | ) | $ | 278,702 | |||||||
For the year ended December 31, 2007
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | (2,968 | ) | $ | 297,301 | $ | – | $ | 294,333 | |||||||
Total operating costs and expenses | (22,472 | ) | (195,924 | ) | – | (218,396 | ) | |||||||||
Income (loss) from operations | (25,440 | ) | 101,377 | – | 75,937 | |||||||||||
Interest expense | (36,042 | ) | – | – | (36,042 | ) | ||||||||||
Other, net | 102,861 | 1,174 | (102,551 | ) | 1,484 | |||||||||||
Income before income taxes | 41,379 | 102,551 | (102,551 | ) | 41,379 | |||||||||||
Income tax expense | (16,019 | ) | – | – | (16,019 | ) | ||||||||||
Net income | $ | 25,360 | $ | 102,551 | $ | (102,551 | ) | $ | 25,360 | |||||||
Preferred stock dividends | (45 | ) | – | – | (45 | ) | ||||||||||
Net income applicable to common shareholders | $ | 25,315 | $ | 102,551 | $ | (102,551 | ) | $ | 25,315 | |||||||
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Table of Contents
For the year ended December 31, 2006
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Total operating revenues | $ | 366 | $ | 197,924 | $ | – | $ | 198,290 | ||||||||
Total operating costs and expenses | (180 | ) | (134,682 | ) | (134,862 | ) | ||||||||||
Income from operations | 186 | 63,242 | – | 63,428 | ||||||||||||
Interest expense | (30,567 | ) | – | – | (30,567 | ) | ||||||||||
Other, net | 64,428 | 469 | (63,711 | ) | 1,186 | |||||||||||
Income before income taxes | 34,047 | 63,711 | (63,711 | ) | 34,047 | |||||||||||
Income tax expense | (14,379 | ) | – | – | (14,379 | ) | ||||||||||
Net income | $ | 19,668 | $ | 63,711 | $ | (63,711 | ) | $ | 19,668 | |||||||
Preferred stock dividends | (1,244 | ) | – | – | (1,244 | ) | ||||||||||
Effect of induced conversion of preferred stock | 11,601 | – | – | 11,601 | ||||||||||||
Net income applicable to common shareholders | $ | 30,025 | $ | 63,711 | $ | (63,711 | ) | $ | 30,025 | |||||||
For the year ended December 31, 2008
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Net cash flows provided by (used in) operating activities | $ | (532,919 | ) | $ | 924,316 | $ | – | $ | 391,397 | |||||||
Net cash flows used in investing activities | (5,386 | ) | (940,664 | ) | – | (946,050 | ) | |||||||||
Net cash flows provided by financing activities | 538,198 | 3,783 | – | 541,981 | ||||||||||||
Net decrease in cash and cash equivalents | (107 | ) | (12,565 | ) | – | (12,672 | ) | |||||||||
Cash and cash equivalents at beginning of year | 107 | 30,317 | – | 30,424 | ||||||||||||
Cash and cash equivalents at end of year | $ | – | $ | 17,752 | $ | – | $ | 17,752 | ||||||||
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Table of Contents
For the year ended December 31, 2007
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Net cash flows provided by (used in) operating activities | $ | (15,094 | ) | $ | 184,863 | $ | – | $ | 169,769 | |||||||
Net cash flows provided by (used in) investing activities | 631 | (160,984 | ) | – | (160,353 | ) | ||||||||||
Net cash flows provided by financing activities | 14,235 | 5,651 | – | 19,886 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | (228 | ) | 29,530 | – | 29,302 | |||||||||||
Cash and cash equivalents at beginning of year | 335 | 787 | – | 1,122 | ||||||||||||
Cash and cash equivalents at end of year | $ | 107 | $ | 30,317 | $ | – | $ | 30,424 | ||||||||
For the year ended December 31, 2006
Subsidiary | Consolidating | |||||||||||||||
(in thousands) | Parent issuer | guarantors | entries | Total | ||||||||||||
Net cash flows provided by (used in) operating activities | $ | (487,349 | ) | $ | 599,530 | $ | – | $ | 112,181 | |||||||
Net cash flows used in investing activities | – | (596,852 | ) | – | (596,852 | ) | ||||||||||
Net cash flows provided by financing activities | 476,611 | – | – | 476,611 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | (10,738 | ) | 2,678 | – | (8,060 | ) | ||||||||||
Cash and cash equivalents at beginning of year | 11,073 | (1,891 | ) | – | 9,182 | |||||||||||
Cash and cash equivalents at end of year | $ | 335 | $ | 787 | $ | – | $ | 1,122 | ||||||||
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Unaudited supplementary information
December 31, 2008, 2007 and 2006
December 31, | ||||||||
2008 | 2007 | |||||||
Oil and gas properties: | ||||||||
Proved | $ | 2,316,330 | $ | 1,303,665 | ||||
Unproved | 377,244 | 251,353 | ||||||
Less: accumulated depletion | (306,990 | ) | (167,109 | ) | ||||
Net capitalized costs for oil and gas properties | $ | 2,386,584 | $ | 1,387,909 | ||||
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Property acquisition costs: | ||||||||||||
Proved | $ | 597,713 | $ | – | $ | 830,537 | ||||||
Unproved | 240,294 | 7,293 | 220,295 | |||||||||
Exploration | 160,174 | 116,004 | 49,297 | |||||||||
Development | 178,842 | 64,524 | 124,817 | |||||||||
Total costs incurred for oil and gas properties | $ | 1,177,023 | $ | 187,821 | $ | 1,224,946 | ||||||
(a) | The costs incurred for oil and gas producing activities includes the following amounts of asset retirement obligations (in thousands): |
Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Proved property acquisition costs | $ | 7,062 | $ | – | $ | 6,155 | ||||||
Exploration costs | 563 | (15 | ) | 43 | ||||||||
Development costs | (1,123 | ) | 315 | 1,095 | ||||||||
Total | $ | 6,502 | $ | 300 | $ | 7,293 | ||||||
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December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Prices utilized in the reserve estimates before adjustments: | ||||||||||||
Year-end West Texas Intermediate posted oil price per Bbl | $ | 41.00 | $ | 92.50 | $ | 57.75 | ||||||
Year-end Henry Hub spot market natural gas price per MMBtu | $ | 5.71 | $ | 6.80 | $ | 5.64 | ||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
Oil and | Natural | Oil and | Natural | Oil and | Natural | |||||||||||||||||||||||||||||||
condensate | gas | Total | condensate | gas | Total | condensate | gas | Total | ||||||||||||||||||||||||||||
(MBbls) | (MMcf) | (MBoe) | (MBbls) | (MMcf) | (MBoe) | (Mbls) | (MMcf) | (MBoe) | ||||||||||||||||||||||||||||
Total proved reserves: | ||||||||||||||||||||||||||||||||||||
Balance, January 1 | 53,361 | 225,837 | 91,000 | 44,322 | 200,818 | 77,792 | 9,658 | 49,530 | 17,913 | |||||||||||||||||||||||||||
Purchase ofminerals-in-place | 20,837 | 56,022 | 30,174 | 105 | 354 | 164 | 27,163 | 137,963 | 50,157 | |||||||||||||||||||||||||||
Sales ofminerals-in-place | – | – | – | (1 | ) | – | (1 | ) | – | – | – | |||||||||||||||||||||||||
Discoveries and extensionsa | 24,194 | 73,380 | 36,424 | 13,140 | 48,751 | 21,265 | 10,226 | 39,427 | 16,797 | |||||||||||||||||||||||||||
Revisions of previous estimates | (7,521 | ) | (34,323 | ) | (13,242 | ) | (1,191 | ) | (12,022 | ) | (3,195 | ) | (430 | ) | (16,595 | ) | (3,196 | ) | ||||||||||||||||||
Production | (4,586 | ) | (14,968 | ) | (7,081 | ) | (3,014 | ) | (12,064 | ) | (5,025 | ) | (2,295 | ) | (9,507 | ) | (3,880 | ) | ||||||||||||||||||
Balance, December 31 | 86,285 | 305,948 | 137,275 | 53,361 | 225,837 | 91,000 | 44,322 | 200,818 | 77,791 | |||||||||||||||||||||||||||
Proved developed reserves: | ||||||||||||||||||||||||||||||||||||
January 1 | 27,617 | 128,872 | 49,096 | 23,443 | 112,423 | 42,180 | 6,502 | 34,160 | 12,195 | |||||||||||||||||||||||||||
December 31 | 46,661 | 179,124 | 76,515 | 27,617 | 128,872 | 49,096 | 23,443 | 112,423 | 42,180 | |||||||||||||||||||||||||||
(a) | The 2008, 2007 and 2006 discoveries and extensions included 14,533, 9,601 and 5,211 net MBoe, respectively, related to additions from the Company’s infill drilling activities. |
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December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Oil and gas producing activities: | ||||||||||||
Future cash inflows | $ | 5,785,109 | $ | 6,507,955 | $ | 3,560,326 | ||||||
Future production costs | (1,666,380 | ) | (1,517,415 | ) | (995,335 | ) | ||||||
Future development and abandonment costsa | (668,005 | ) | (484,140 | ) | (484,462 | ) | ||||||
Future income tax expense | (919,251 | ) | (1,482,633 | ) | (530,212 | ) | ||||||
2,531,473 | 3,023,767 | 1,550,317 | ||||||||||
10% annual discount factor | (1,332,488 | ) | (1,591,993 | ) | (839,968 | ) | ||||||
Standardized measure of discounted future cash flows | $ | 1,198,985 | $ | 1,431,774 | $ | 710,349 | ||||||
(a) | Includes $28.8 million, $19.5 million and $25.3 million of undiscounted asset retirement cash inflow estimated at December 31, 2008, 2007 and 2006, respectively, using current estimates of future salvage values less future abandonment costs. See Note E for corresponding information regarding the Company’s discounted asset retirement obligations. |
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Years ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Oil and gas producing activities: | ||||||||||||
Purchases ofminerals-in-place | $ | 1,014,689 | $ | 4,054 | $ | 795,072 | ||||||
Sales ofminerals-in-place | (24 | ) | (54 | ) | – | |||||||
Extensions and discoveries | 426,208 | 511,519 | 156,266 | |||||||||
Net changes in prices and production costs | (1,622,800 | ) | 802,584 | (109,264 | ) | |||||||
Oil and gas sales, net of production costs | (473,841 | ) | (249,866 | ) | (166,236 | ) | ||||||
Changes in future development costs | 74,160 | 72,441 | (6,085 | ) | ||||||||
Revisions of previous quantity estimates | (283,557 | ) | (82,299 | ) | (51,147 | ) | ||||||
Accretion of discount | 255,660 | 85,533 | 23,085 | |||||||||
Changes in production rates, timing and other | 104,137 | 35,834 | (10,119 | ) | ||||||||
Change in present value of future net revenues | (505,368 | ) | 1,179,746 | 631,572 | ||||||||
Net change in present value of future income taxes | 272,579 | (458,321 | ) | (144,985 | ) | |||||||
(232,789 | ) | 721,425 | 486,587 | |||||||||
Balance, beginning of year | 1,431,774 | 710,349 | 223,762 | |||||||||
Balance, end of year | $ | 1,198,985 | $ | 1,431,774 | $ | 710,349 | ||||||
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Quarter | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Year ended December 31, 2008: | ||||||||||||||||
Total operating revenues | $ | 106,711 | $ | 137,383 | $ | 170,457 | $ | 119,238 | ||||||||
Operating costs and expenses (excluding gains (losses) on derivatives not designated as hedges) | (48,205 | ) | (54,942 | ) | (90,889 | ) | (121,229 | ) | ||||||||
Gains (losses) on derivatives not designated as hedges | (17,178 | ) | (102,456 | ) | 163,312 | 206,192 | ||||||||||
Income (loss) from operations | $ | 41,328 | $ | (20,015 | ) | $ | 242,880 | $ | 204,201 | |||||||
Net income (loss) | $ | 22,365 | $ | (14,420 | ) | $ | 141,928 | $ | 128,829 | |||||||
Net income (loss) available to common stockholders | $ | 22,365 | $ | (14,420 | ) | $ | 141,928 | $ | 128,829 | |||||||
Net income (loss) per common share—Basic | $ | 0.30 | $ | (0.19 | ) | $ | 1.75 | $ | 1.53 | |||||||
Net income (loss) per common share—Diluted | $ | 0.29 | $ | (0.19 | ) | $ | 1.72 | $ | 1.51 | |||||||
Year ended December 31, 2007: | ||||||||||||||||
Total operating revenues | $ | 60,346 | $ | 66,103 | $ | 69,098 | $ | 98,786 | ||||||||
Operating costs and expenses (excluding gains (losses) on derivatives not designated as hedges) | (41,938 | ) | (46,324 | ) | (49,690 | ) | (60,170 | ) | ||||||||
Gains (losses) on derivatives not designated as hedges | – | – | 3,088 | (23,362 | ) | |||||||||||
Income from operations | $ | 18,408 | $ | 19,779 | $ | 22,496 | $ | 15,254 | ||||||||
Net income | $ | 4,623 | $ | 5,925 | $ | 7,954 | $ | 6,858 | ||||||||
Net income available to common stockholders | $ | 4,589 | $ | 5,914 | $ | 7,954 | $ | 6,858 | ||||||||
Net income per common share—Basic | $ | 0.08 | $ | 0.10 | $ | 0.12 | $ | 0.09 | ||||||||
Net income per common share—Diluted | $ | 0.08 | $ | 0.10 | $ | 0.11 | $ | 0.09 | ||||||||
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Debt Securities
Preferred Stock
Common Stock
Depositary Shares
Warrants
COG Operating LLC
COG Realty LLC
Concho Energy Services LLC
Quail Ranch LLC
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• | our Annual Report onForm 10-K for the year ended December 31, 2008; | |
• | our Quarterly Report onForm 10-Q for the quarter ended March 31, 2009; | |
• | our Quarterly Report onForm 10-Q for the quarter ended June 30, 2009; | |
• | our Current Reports onForm 8-K and8-K/A filed on each of August 6, 2008, October 7, 2008, January 28, 2009, March 4, 2009, April 9, 2009, June 12, 2009, August 12, 2009 and September 9, 2009 (excluding any information furnished pursuant to Item 2.02 or Item 7.01 of any such Current Report onForm 8-K); and | |
• | the description of our common stock contained in our registration statement onForm 8-A12B filed on July 23, 2007, including any amendment to that form that we may file in the future for the purpose of updating the description of our common stock. |
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• | our business and financial strategy; | |
• | the estimated quantities of crude oil and natural gas reserves; | |
• | our use of industry technology; | |
• | our realized oil and natural gas prices; | |
• | the timing and amount of the future production of our oil and natural gas; | |
• | the amount, nature and timing of our capital expenditures; | |
• | the drilling of our wells; | |
• | our competition and government regulations; | |
• | the marketing of our oil and natural gas; | |
• | our exploitation activities or property acquisitions; | |
• | the costs of exploiting and developing our properties and conducting other operations; | |
• | general economic and business conditions; | |
• | our cash flow and anticipated liquidity; | |
• | hedging results; | |
• | uncertainty regarding our future operating results; | |
• | our plans, objectives, expectations and intentions contained in this prospectus that are not historical; and | |
• | our ability to integrate acquisitions. |
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preferred stock dividends
Concho Resources Inc. | ||||||||||||||||||||||||||||||||
Inception | Chase Group | |||||||||||||||||||||||||||||||
(April 21, | Properties | |||||||||||||||||||||||||||||||
Six Months | Years Ended | 2004) through | Years Ended | |||||||||||||||||||||||||||||
Ended June 30, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
Ratios of earnings to fixed charges(a) | (c | ) | 15.36 | 2.00 | 1.97 | 2.01 | (c | ) | NM(d | ) | NM(d | ) | ||||||||||||||||||||
Ratios of earnings to fixed charges and preferred stock dividends(b) | (e | ) | 15.36 | 2.00 | 1.90 | (f | ) | (e | ) | NM(d | ) | NM(d | ) |
(a) | The ratio has been computed by dividing earnings by fixed charges. For purposes of computing the ratio: |
• | earnings include income (loss) before income taxes, adjusted for interest expense and the portion of rental expense deemed to be representative of the interest component of rental expense; and | |
• | fixed charges consist of interest expense, capitalized interest and the portion of rental expense deemed to be representative of the interest component of rental expense. |
(b) | The ratio has been computed by dividing earnings by fixed charges and preferred stock dividends. For purposes of computing the ratio: |
• | earnings include income (loss) before income taxes, adjusted for interest expense and the portion of rental expense deemed to be representative of the interest component of rental expense; and | |
• | fixed charges and preferred stock dividends consist of interest expense, capitalized interest, the portion of rental expense deemed to be representative of the interest component of rental expense and preferred stock dividends. |
(c) | Due to our net loss for the six months ended June 30, 2009 and from inception (April 21, 2004) through December 31, 2004, the ratio coverage was less than 1:1. To achieve ratio coverage of 1:1, we would have needed additional earnings of approximately $80.3 million and $3.6 million, respectively. | |
(d) | Not meaningful, as there were no fixed charges or preferred stock dividends for these periods. | |
(e) | Due to our net loss for the six months ended June 30, 2009 and from inception (April 21, 2004) through December 31, 2004, the ratio coverage was less than 1:1. To achieve a ratio coverage of 1:1, we would have needed additional earnings of approximately $80.3 million and $4.4 million, respectively. | |
(f) | Due to the fixed charges and preferred stock dividends exceeding earnings for the period, we would have needed additional earnings of approximately $1.1 million to achieve a ratio coverage of 1:1. |
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• | the applicability and effect of such provisions upon any payment or distribution respecting that series following any liquidation, dissolution or otherwinding-up, or any assignment for the benefit of creditors or other marshalling of assets or any bankruptcy, insolvency or similar proceedings; | |
• | the applicability and effect of such provisions in the event of specified defaults with respect to any Senior Debt, including the circumstances under which and the periods during which we will be prohibited from making payments on the Subordinated Debt Securities; and | |
• | the definition of Senior Debt applicable to the Subordinated Debt Securities of that series and, if the series is issued on a senior subordinated basis, the definition of Subordinated Debt applicable to that series. |
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• | restricting dividends on the common stock; | |
• | diluting the voting power of the common stock; | |
• | impairing the liquidation rights of the common stock; and | |
• | delaying or preventing a change in control of our company. |
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• | any business opportunity that is brought to the attention of a covered individual or entity solely in such person’s capacity as a director or officer of our company and with respect to which, at the time of such presentment, no other covered individual or entity has independently received notice or otherwise identified such opportunity; or | |
• | any business opportunity that is identified by a covered individual or entity solely through the disclosure of information by or on behalf of us. |
• | for any breach of the director’s duty of loyalty to us or our stockholders; |
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• | for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws; | |
• | for unlawful payment of a dividend or unlawful stock purchase or stock redemption; and | |
• | for any transaction from which the director derived an improper personal benefit. |
• | before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder | |
• | upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (1) by persons who are directors and also officers and (2) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or | |
• | on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder. |
• | any merger or consolidation involving the corporation and the interested stockholder; | |
• | any sale, transfer, pledge or other disposition (in one transaction or a series of transactions) of 10% or more of the assets of the corporation involving the interested stockholder; | |
• | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; | |
• | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or | |
• | the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the corporation. |
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(1) | the number of shares of common stock purchasable upon exercise of the warrants and the price at which such number of shares of common stock may be purchased upon exercise of the warrants; | |
(2) | the date on which the right to exercise the warrants commences and the date on which such right expires (the “Expiration Date”); | |
(3) | United States federal income tax consequences applicable to the warrants; | |
(4) | the amount of the warrants outstanding as of the most recent practicable date; and | |
(5) | any other terms of the warrants. |
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• | the terms of the offering; | |
• | the names of any underwriters or agents; | |
• | the name or names of any managing underwriter or underwriters; | |
• | the purchase price of the securities; | |
• | the estimated net proceeds to us from the sale of the securities; | |
• | any delayed delivery arrangements; | |
• | any underwriting discounts, commissions and other items constituting underwriters’ compensation; | |
• | any discounts or concessions allowed or reallowed or paid to dealers; and | |
• | any commissions paid to agents. |
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