UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 2009
Commission File Number – 0-8041
GEORESOURCES, INC.
(Exact name of registrant as specified in its charter)
Colorado | 84-0505444 | |||
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
110 Cypress Station Drive, Suite 220
Houston, Texas 77090-1629
(Address of principal executive offices) (Zip Code)
(281) 537-9920
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of exchange on which registered | |
| NASDAQ | Common Stock, Par Value $0.01 Per Share |
Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicated by check mark whether the registrant is a large accelerated file, an accelerated file, a non-accelerated filer, or a smaller reporting company. (Check one):
| Larger accelerated filer [ ] | Accelerated filer [ X ] |
| Non-accelerated filer [ ] | Smaller reporting company [ ] |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Aggregate market value of the voting common stock held by non-affiliates of the registrant at June 30, 2009: $74,756,000
Number of shares of the registrant’s common stock outstanding at August 19, 2010: 19,723,916
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates certain portions of the definitive proxy materials of the registrant in respect of its 2010 Annual Meeting of Shareholders.
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EXPLANATORY NOTE
This Form 10-K/A (“Amendment No. 2”) amends the Registrant’s Annual Report on Form 10-K and Amendment No. 1 to Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission on March 12, 2010 (the “Original Report”) and July 23, 2010 (“Amendment No. 1”). The purpose of this Amendment No. 2 is to amend Item 2 “Preparation of Reserve Estimate” to remove the term “generally accepted petroleum engineering principles.”
This Amendment No. 2 has no effect on the Registrant’s consolidated financial statements. Except as described above, this amendment does not amend, update or change any other items or disclosures contained in the Original Report or Amendment No. 1 or otherwise reflect events that occurred subsequent to the filing of the Original Report or Amendment No 1.
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Item 2. Properties
Offices
Our principal offices are located at 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, where we occupy approximately 15,800 square feet of office space. The lease provides for gross rent of $213,422 per year in the first year and escalates $7,900 per year until expiration on April 15, 2013. Our Northern Region office, consisting of approximately 3,600 square feet, is located at 475 17th Street, Suite 1210, Denver, Colorado 80202. The Denver office lease provides for gross rent of $77,190 per year for 2010 and expires on January 31, 2011. Our Williston office consists of approximately 4,000 square feet and is located at 1407 West Dakota Parkway, Williston, N orth Dakota 58801. The Williston office lease provides for gross rent of $24,000 per year for 2010 and expires on December 31, 2010. We currently expect to renew all of our office leases upon expiration.
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Oil and Gas Reserve Information
All of our oil and gas reserves are located in the United States. Unaudited information concerning the estimated net quantities of all of our proved reserves and the standardized measure of future net cash flows from the reserves is presented in Note O to the Consolidated Financial Statements. The reserve estimates are based upon the reports of Cawley, Gillespie & Associates, Inc., an independent petroleum engineering firm. We have no long-term supply or similar agreements with foreign governments or authorities.
Set forth below is a summary of our oil and gas reserves as of December 31, 2009. All of our reserves are located in the United States. We did not provide any reserve information to any federal agencies in 2009 other than to the SEC.
Oil (Mbbl) | Gas (Mmcf) | Present Value Discounted at 10% ($M) (1) | ||||||||||
| Proved developed | 9,221 | 38,138 | $ | 182,580 | ||||||||
| Proved undeveloped | 2,198 | 17,298 | 35,011 | |||||||||
| Total Proved | 11,419 | 55,436 | $ | 217,591 | ||||||||
Oil and Gas Reserve Quantities
Oil (Mbbl) | Gas (Mmcf) | |||||||
| Proved reserve quantities, January 1, 2009 | 8,793 | 34,796 | ||||||
| Purchases of minerals-in-place | 586 | 25,728 | ||||||
| Sales of minerals-in-place | (59 | ) | (80 | ) | ||||
| Extensions and discoveries | 972 | 9,227 | ||||||
| Production | (851 | ) | (4,944 | ) | ||||
| Revisions of quantity estimates | 1,978 | (9,291 | ) | |||||
| Proved reserve quantities, December 31, 2009 | 11,419 | 55,436 | ||||||
| Proved developed reserve quantities | ||||||||
| January 1, 2009 | 7,522 | 25,025 | ||||||
| December 31, 2009 | 9,221 | 38,138 | ||||||
| (1) | Present Value Discounted at 10% (“PV10”) is a Non-GAAP measure that differs from the GAAP measure “standardized measure of discounted future net cash flows” in that PV10 is calculated without regard to future income taxes. Management believes that the presentation of PV10 value is relevant and useful to our investors because it presents the estimated discounted future net cash flows attributable to our estimated proved reserves independent of our income tax attributes, thereby isolating the intrinsic value of the estimated future cash flows attributable to our reserves. Because many factors that are unique to each individual company impact the amount of future income taxes to be paid, we believe the use of a pre-tax measure provides greater comparability of assets when evaluating companies. For these reasons, management uses, and believes the industry generally uses, the PV10 measure in evaluating and comparing acquisition candidates and assessing the potential return on investment related to investments in oil and natural gas properties. |
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PV10 is not a measure of financial or operational performance under GAAP, nor should it be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP. For presentation of the standardized measure of discounted future net cash flows, please see “Note O: Supplemental Financial Information for Oil and Gas Producing Activities - Unaudited” in the Notes to the Consolidated Financial Statements in Part II, Item 8 in this report. The table below (“Non-GAAP Reconciliation”) provides a reconciliation of PV10 to the standardized measure of discounted future net cash flows.
Partnership Operations and Reserves as of December 31, 2009 (not included above):
The reserve quantities and values set forth above do not include our interest in two affiliated partnerships.
We hold a 30% partnership interest in SBE Partners, LP (“SBE Partners”) which owns interests in the Giddings field (as discussed further below in Noteworthy Properties). In addition, we hold direct working interests in producing oil and gas properties located throughout Oklahoma and we also hold the general partner interest in OKLA Energy Partners, LP (“OKLA”) which owns a larger interest in those same producing oil and gas properties. Our 2% partnership interest in OKLA reverts to 35.66% if the limited partner realizes a contractually specified rate of return.
The following table represents our estimated share (excluding our reversionary interests) of the affiliated partnerships’ reserves and estimated present value of future net income discounted at 10% (in thousands), using SEC guidelines.
| Affiliated Partnership Reserves | ||||||||||||
Oil (Mbbl) | Gas (Mmcf) | Present Value Discounted at 10% ($M) (1) | ||||||||||
| Proved developed | 45 | 7,821 | $ | 10,293 | ||||||||
| Proved undeveloped | 10 | 613 | 379 | |||||||||
| Total | 55 | 8,434 | $ | 10,672 | ||||||||
| Non-GAAP Reconcilation | ||||
| The following table reconciles our direct interest in oil and gas reserves (in thousands): | ||||
| Present value of estimated future net revenues (PV10) | $ | 217,591 | ||
| Future income taxes, discounted at 10% | (43,491 | ) | ||
| Standardized measure of discounted future net cash flows | $ | 174,100 | ||
| The following table reconciles our indirect interest, through our affiliated partnerships, in oil and gas reserves (in thousands): | ||||
| Present value of estimated future net revenues (PV10) | $ | 10,672 | ||
| Future income taxes, discounted at 10% | (3,337 | ) | ||
| Standardized measure of discounted future net cash flows | $ | 7,335 | ||
Uncertainties are inherent in estimating quantities of proved reserves, including many risk factors beyond our control. Reserve engineering is a subjective process of estimating subsurface accumulations of oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and the interpretation thereof. As a result, estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of the estimates, as well as economic factors such as change in product prices, may require revision of such estimates. Accordingly, oil and natural gas quantities ultimately recovered will vary from reserve estimates.
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Proved Undeveloped Reserves
From December 31, 2008 to December 31, 2009, our proved undeveloped reserves (“PUDs”) increased 75% from 2,900,000 BOE to 5,081,000 BOE, or an increase of 2,181,000 BOE. This increase was attributable primarily to successful drilling activity and property acquisitions made during 2009 in the Bakken Shale trend of North Dakota and the Giddings field in Texas. We added 1,960,000 BOE as a result of successful drilling in 2009 and the commensurate PUDs associated with such drilling. As a result of acquisitions during 2009, we added 646,000 BOE. These additions to our PUD reserves were offset by 425,000 BOE that were no longer deemed to be economic PUDs at year-end.
The quantities of PUDs that remain undeveloped after having been disclosed as proved undeveloped reserves for a period of five years or more are zero as of December 31, 2009.
Preparation of Reserve Estimates
We engaged an independent petroleum engineering consulting firm, Cawley Gillespie & Associates, Inc. (“CG&A”), to prepare our final reserve estimates and have relied on their expertise to ensure that our reserve estimates are prepared in compliance with SEC guidelines.
The technical person primarily responsible for the preparation of the reserve report is Mr. Robert Ravnaas, Executive Vice President at CG&A. He earned a Bachelor’s of Science degree with special honors in Chemical Engineering from the University of Colorado at Boulder in 1979, and a Master’s of Science degree in Petroleum Engineering from the University of Texas at Austin in 1981. Mr. Ravnaas is a Registered Professional Engineer in Texas and has more than 29 years of experience in the estimation and evaluation of oil and gas reserves. He is also a member of the Society of Petroleum Geologists, and Society of Professional Well Log Analysts.
Our Vice President Business Development, Acquisitions and Divestitures, who is a qualified reserve estimator and auditor, is primarily responsible for overseeing our independent petroleum engineering firm during the preparation of our reserve report. His professional qualifications meet or exceed the qualifications of reserve estimators and auditors set forth in the “Standards Pertaining to Estimation and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers. His qualifications include: Bachelor’s of Science degree in Petroleum Engineering from the University of Wyoming, 1986; Master’s of Business Administration degree from University of Denver, 1988; member of the Society of Petroleum Engineers since 1985; and more than 22 years of practical experience in estimating and evaluating reserve information with more than five years of those being in charge of estimating and evaluating reserves.
We maintain adequate and effective internal controls over our reserve estimation process as well as the underlying data upon which reserve estimates are based. The primary inputs to the reserve estimation process are technical information, financial data, ownership interest, and production data. The relevant field and reservoir technical information, which is updated annually, is assessed for validity when our independent petroleum engineering firm has technical meetings with our engineers, geologist, operations and land personnel. Current revenue and expense information is obtained from our accounting records, which are subject to external quarterly reviews, annual audits and our own set of internal controls over financial reporting. Internal controls over financial reporting are assessed for effectiveness annually using criteria set forth in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. All current financial data such as commodity prices, lease operating expenses, production taxes and field level commodity prices differentials are updated in the reserve database and then analyzed to ensure that they have been entered accurately and that all updates are complete. Our current ownership in mineral interests and well production data are also subject to our internal controls over financial reporting, and they are incorporated in our reserve database as well and verified internally by us to ensure their accuracy and completeness. Once the reserve database has been updated with current information, and the relevant technical sup port material has been assembled, our independent engineering firm meets with our technical personnel to review field performance and future development plans in order to further verify the validity of estimates. Following these reviews the reserve database is furnished to CG&A so that it can prepare its independent reserve estimates and final report. The reserve estimates prepared by CG&A are reviewed and compared to our internal estimates by our Vice President Business Development, Acquisitions and Divestitures and staff in our reservoir engineering department. Material reserve estimation differences are reviewed between CG&A’s reserve estimates and our internally prepared reserves on a case-by-case basis. An iterative process between CG&A and us regarding any significant differences allows for additional data to be provided in order to address the differences. If the supporting documentation will not justify any additional changes, the CG&A reserves are accepted. In the event that additional data supports a reserve estimation adjustment, CG&A will analyze the additional data, and may make any changes it deems necessary. Additional data is usually comprised of updated production information on new wells. Once the review is completed and all material differences are reconciled, the reserve report is finalized and our reserve database is updated with the final estimates provided by CG&A. Access to our reserve database is restricted to specific members of our reservoir engineering department.
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Net Oil and Gas Production, Average Price and Average Production Cost
The net quantities of oil and gas produced and sold by us for each of the three years ended December 31, the average sales price per unit sold and the average production cost per unit are presented below.
| 2009 | 2008 | 2007 | ||||||||||
| Oil Production (MBbls) | 851 | 743 | 392 | |||||||||
| Gas Production (MMcf) | 4,944 | 2,962 | 1,648 | |||||||||
| Total Production (MBOE)* | 1,675 | 1,236 | 667 | |||||||||
| Average sales price (net of hedging): | ||||||||||||
| Oil per Bbl | $ | 61.09 | $ | 82.42 | $ | 67.20 | ||||||
| Gas per Mcf | $ | 3.97 | $ | 8.12 | $ | 6.19 | ||||||
| BOE | $ | 42.76 | $ | 68.96 | $ | 54.74 | ||||||
| Production cost per BOE | $ | 11.20 | $ | 18.53 | $ | 16.24 | ||||||
* Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equal to one barrel of oil equivalent (1 BOE).
Our production is sold to large petroleum purchasers. Due to the quality and location of our crude oil production, we may receive a discount or premium from index prices or “posted” prices in the area. Our gas production is sold primarily to pipelines and/or gas marketers under short-term contracts at prices which are tied to the “spot” market for gas sold in the area.
In 2009, one purchaser accounted for 17% of our consolidated oil and gas revenues, two purchasers accounted for 15% each of our consolidated oil and gas revenues, and one more accounted for 11%. In 2008, one purchaser accounted for 16% of our consolidated oil and gas revenues, two more accounted for 11% each and two purchasers accounted for 10% each of our consolidated oil and gas revenues. In 2007, two purchasers accounted for 17% and 14% of our consolidated oil and gas revenues. No other single purchaser accounted for 10% or more of our oil and gas revenues in 2009, 2008, or 2007. There are adequate alternate purchasers of our production such that we believe the loss of one or more of the above purchasers would not have a material adverse effect on our results of operations or cash f lows.
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Gross and Net Productive Wells
As of December 31, 2009, our total gross and net productive wells were as follows:
Productive Wells *
| Oil | Gas | Total | ||||||||||||||||||||
Gross Wells | Net Wells | Gross Wells | Net Wells | Gross Wells | Net Wells | |||||||||||||||||
| 653.0 | 262.2 | 447.0 | 202.4 | 1,100.0 | 464.6 | |||||||||||||||||
* A gross well is a well in which a working interest is owned. The number of net wells represents the sum of fractions of working interests we own in gross wells. Productive wells are producing wells plus shut-in wells we deem capable of production. Horizontal re-entries of existing wells do not increase a well total above one gross well.
Gross and Net Developed and Undeveloped Acres
As of December 31, 2009, we had total gross and net developed and undeveloped leasehold acres as set forth below. The developed acreage is stated on the basis of spacing units designated by state regulatory authorities.
Gross acres are those acres in which working interest is owned. The number of net acres represents the sum of fraction working interests we own in gross acres.
| Developed | Undeveloped | Total | ||||||||||||||||||||||
| State | Gross | Net | Gross | Net | Gross | Net | ||||||||||||||||||
| Texas | 85,200 | 47,149 | 27,093 | 14,162 | 112,293 | 61,311 | ||||||||||||||||||
| N. Dakota | 47,613 | 19,952 | 101,915 | 31,253 | 149,528 | 51,205 | ||||||||||||||||||
| Colorado | 7,049 | 5,119 | 47,188 | 31,556 | 54,237 | 36,675 | ||||||||||||||||||
| Oklahoma | 53,933 | 10,459 | 595 | - | 54,528 | 10,459 | ||||||||||||||||||
| Alabama | 42,480 | 21,240 | - | - | 42,480 | 21,240 | ||||||||||||||||||
| Louisiana | 31,921 | 11,070 | 4,277 | 2,127 | 36,198 | 13,197 | ||||||||||||||||||
| Montana | 8,891 | 6,393 | 14,343 | 12,277 | 23,234 | 18,670 | ||||||||||||||||||
| All Others | 4,796 | 3,686 | 80 | 52 | 4,876 | 3,738 | ||||||||||||||||||
| Total | 281,883 | 125,068 | 195,491 | 91,427 | 477,374 | 216,495 | ||||||||||||||||||
Exploratory Wells and Development Wells
Set forth below for the three years ended December 31, is information concerning the number of wells we drilled during the years indicated.
| Net Exploratory Wells Drilled | Net Development Wells Drilled | Total Net Productive or Dry Wells Drilled | ||||||||||||||||||
| Year | Productive | Dry | Productive | Dry | ||||||||||||||||
| 2007 | 1.97 | - | 4.27 | - | 6.24 | |||||||||||||||
| 2008 | 0.09 | 1.00 | 9.72 | 1.96 | 12.77 | |||||||||||||||
| 2009 | - | 0.12 | 5.61 | - | 5.73 | |||||||||||||||
During 2009 we also drilled 4 gross (3.87 net) service wells to be used in conjunction with the water flood project at our Starbuck Madison Unit and Southwest Starbuck field in Bottineau County North Dakota.
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Present Activities
At March 11, 2010, we had 28 gross (3.72 net) wells in the process of drilling or completing.
Supply Contracts or Agreements
As of December 31, 2009, we were not obligated to provide any fixed or determinable quantities of oil and gas in the future under any existing contracts or agreements, beyond the short-term contracts customary in division orders and off lease marketing agreements with the industry. In March, 2009, we entered into a forward sales contract for a portion of the crude oil sales on several of our Northern Region properties. The contract obligates us to sell 300 Bbls/d at a fixed price of $40.80. The contract term began April, 2009 and runs through March, 2010. We also engage in hedging activities as discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Description of Noteworthy Properties
We are the operator of properties containing approximately 80% of our proved oil and gas reserves. As operator we are able to directly influence exploration, development and production operations. Our producing properties have reasonably predictable production profiles and cash flows, subject to commodity price fluctuations, and thus provide a foundation for our technical staff to further develop our existing properties and also generate new projects that we believe have the potential to increase our share value. We believe that many of our existing fields have additional exploration and exploitation opportunities. As common in the industry we participate in non-operated properties but are selective; our non-operating participation decisions ar e dependent on the technical and economic nature of the projects and the operating expertise and financial standing of the operators. The following is a description of certain of our noteworthy operated and non-operated producing oil and gas properties.
Bakken Shale Trend, Williston Basin – Our Williston Basin, Bakken Trend properties are located in Mountrail County and the adjacent counties of North Dakota. As of December 31, 2009, we owned working interests in about 106,000 gross acres. To date, our principal drilling has been conducted through a joint venture with Slawson Exploration Company, but we also participate in this area with several other operators. We have varying working interests in the properties ranging from 10% to 18%. Through the end of 2009, we have realized a 100% success rate with 41 joint venture wells drilled by the operator. We also have nominal interests in over 120 wells that are producing or are in various stages of completion with other oper ators. Our joint venture continues to acquire acreage in this expanding play and is currently running five drilling rigs. Pending economic conditions we expect to continue to run 4-5 drilling rigs. The majority of our wells have been and are expected to be drilled on 640 acre spacing units. In our view, the economics are attractive and acreage can be “proved up” and placed on production on an expedited basis. However, we are scheduling 1,280 acre (and some larger) spacing units and have numerous locations which may result in or require larger spacing units. In addition, consistent with our business strategy of expanding acreage positions with growth, beginning in October 2009, we initiated a significant leasing program in Williams County, North Dakota with the objective of establishing a significant operated drilling program. We also solicited industry partners to participate in the project on a promoted basis. 0;As of March 3, 2010, we have acquired approximately 61,000 gross (42,000 net) acres and entered into agreements with industry partners to participate in future drilling and development activities. We expect to retain a 45% working interest, amounting to approximately 18,900 net acres to the Company, in a contractually specified area of mutual interest, with an average 37% net revenue interest. We are continuing to lease additional acreage in this area. Initial drilling is expected to commence in the summer of 2010. For the quarter ended December 31, 2009, the production net to our interest in the Bakken Trend was approximately 728 BOE/day and was approximately 95% oil.
RipRap Coulee Field - This field is a Bakken Shale play in eastern Montana. It involves horizontal drilling at vertical depths of about 10,000 feet. Currently, we own 997 gross (498 net) acres in this prospect.
Starbuck Madison Unit and Southwest Starbuck Madison Unit – These properties are located in Bottineau County, North Dakota. The Starbuck Madison Unit includes 6,619 gross (6,354 net) acres and water-flood operations are underway. This unit includes 14 gross producing wells producing from the Mississippian Madison interval and six active injection wells. We operate the unit and have an average working interest of 96% and an average net revenue interest of 81%. Recent production increases are believed to be initial secondary recovery responses. The flood design includes two productive zones, the Midale (Mississippian Charles) and the Berentson (Mississippian Charles B-1) zone, which are being flooded separately. ;The Starbuck Midale has produced 584,000 barrels of oil and the Berentson has produced 754,000 barrels on primary recovery, for total field production of 1,267,000 barrels of oil. We also have successfully unitized the Southwest Starbuck Madison Unit which includes 560 gross acres. In this unit, we have a 98% working interest, a 75% net revenue interest and have completed the initial phase of water flood operations in connection with phase two of the larger Starbuck Madison Unit. For the quarter ended December 31, 2009, the production net to our interest from these two units was approximately 65 BOE/day and was 100% oil. Production is expected to increase should flood response be successful.
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Chittim Field – We have 12,822 gross (6,411 net) acres in this field, located in Maverick County, Texas. The field presently produces out of the Glen Rose interval and the upside potential includes an additional three proved and probable undeveloped locations. The Maverick Basin, however, has additional plays and targets including the Pearsall and Eagle Ford shale. We have included in our capital budget one horizontal offset well to a vertical Pearsall well that produced. We believe horizontal drilling and advanced completion techniques offer the potential to make the Pearsall meaningful to us. The commercial viability of the Eagle Ford shale is currently unknown but there is significant activity in the area. We will monitor the dr illing and development efforts of other operators before we commit drilling dollars to development. Our acreage is held by production and therefore, we have no pending lease obligations or expirations. For the quarter ended December 31, 2009, the production net to our interest in this field was approximately 989Mcfe/day and was approximately 98% natural gas.
Giddings Field – Our Giddings field properties are located in Brazos, Burleson, Fayette, Grimes, Lee, Montgomery and Washington Counties, Texas. We operate all of these properties, which consist of 66 gross wells that are producing from the Cretaceous Austin Chalk interval. All of these wells are horizontal producers that initially flow at high rates and subsequently produce through rod pumps, compression, and other production methods. We have an average direct working interest of 35% and a net revenue interest of 27% in this field. In Grimes County, however, where the majority of our production and development activity is, we have an average direct working interest of 37% and net revenue interest of 30%. In addition, we are the general partner and hold an interest of 30% in an affiliated limited partnership which owns an average 56% working interest with an average 43% net revenue interest in Giddings field. Our acreage position is 35,804 net acres, with approximately 29,406 net acres held directly and approximately 6,398 net acres held through our interest in the limited partnership. For the quarter ended December 31, 2009, the production net to our interest in Giddings field was approximately 11,515 Mcfe/day and was approximately 98% natural gas. An additional 8,212 Mcfe/day (which was approximately 98% gas) was attributable to our share of the limited partnership.
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The net quantities of oil and gas produced and sold by us in Giddings field for each of the three years ended December 31, the average sales price per unit sold and the average production cost per unit are presented below:
| 2009 | 2008 | 2007 | ||||||||||
| Oil Production (MBbls) | 8 | 2 | 2 | |||||||||
| Gas Production (MMcf) | 3,361 | 928 | 613 | |||||||||
| Total Production (Mmcfe)* | 3,410 | 940 | 626 | |||||||||
| Average sales price (net of hedging): | ||||||||||||
| Oil per Bbl | $ | 64.84 | $ | 96.77 | $ | 70.35 | ||||||
| Gas per Mcf | $ | 2.91 | $ | 7.71 | $ | 5.97 | ||||||
| Mcfe | $ | 3.02 | $ | 7.81 | $ | 6.09 | ||||||
| Production cost per Mcfe | $ | 0.31 | $ | 0.33 | $ | 0.33 | ||||||
*Mcfe have been calculated on the basis of one barrel of oil is equivalent to six thousand cubic feet of natural gas.
In November 2009, we recommenced our successful exploitation of the Austin Chalk Formation in Giddings field, in Grimes County, Texas. The Hutto Unit #1-H, which was a planned 7,800 foot single lateral location, was spud on November 6, 2009. We are the operator and hold a 52% working interest in this well. This location and the next two or three planned drilling locations will be on the northwest side of our acreage block where we expect the reserves to be more “oily” and produce approximately 50% oil and liquids. Through December 31, 2009, we have drilled 14 Austin Chalk wells and achieved a success rate of 100%. Our present drilling inventory for this field includes 22 proved undeveloped and probable locations. We continue to acquire additional acreage. 60; Our direct working interest in our inventory of planned drilling location varies from 37% to 53%. At present, we expect to sequentially drill all locations with a single drilling rig, but we may accelerate development pending continued success and favorable commodity prices.
There has been significant exploration activity in regional proximity to our large acreage position in Grimes County, Texas, including a shallow Yegua formation gas discovery, which we believe would be prospective to our acreage and justify a 3-D seismic program. We believe that the deeper Eagle Ford shale which underlies the Austin Chalk may present us with similar opportunities. The Eagle Ford shale is being drilled and evaluated by a number of substantially larger independents.
South Texas – Our south Texas fields include Odem field, located in San Patricio County and Driscoll field, located in Duval County. Productive formations include the Frio/Miocene and Jackson/Yegua intervals. The fields produce with the aid of rod pumps, gas lift and low pressure gathering systems. We operate these fields and our working interests in them range from 44% to 98%; our net revenue interests range from 35% to 86%. For the quarter ended December 31, 2009, the production net to our interest in these fields was approximately 309 BOE/day (62% oil).
West Texas – Our west Texas and New Mexico fields include Harris field located in Gaines County, Texas; our MAK field, located in Andrews County, Texas, and other fields located in Eddy and Lea Counties, New Mexico. Productive formations include the San Andres, Spraberry, Seven Rivers, Queen and Grayburg intervals. The fields produce with the aid of rod pumps. We operate these fields and our working interests in them range from 68% to 100% and our net revenue interests range from 52% to 78%. For the quarter ended December 31, 2009, the production net to our interests from these properties was approximately 189 BOE/day and was approximately 95% oil.
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Eloi Bay Field Complex – Our Eloi Bay complex is located in Louisiana state waters offshore St. Bernard Parish, Louisiana in 5 to 10 feet of water. This non-operated complex has 46 gross producing wells. At present, 8,074 gross (4,352 net) acres are held by production. Our working interests in these wells vary between 12% and 50%. Across the complex as a whole, our average working interest is 46% and our average net revenue interest is 39%. In addition to the proved production, this field has numerous behind-pipe opportunities due to multiple stacked sand reservoirs along with four proved undeveloped locations, which are above existing production. Other operators have had drilling success and established deeper production in the ar ea. We have budgeted funds for the acquisition and reprocessing of 3-D seismic throughout the field and certain surrounding acreage to define prospective opportunities which may exist. For the quarter ended December 31, 2009, the production net to our interests in the complex was approximately 345 BOE/day and was approximately 100% oil.
Quarantine Bay Field – Our Quarantine Bay field is located in Louisiana State waters offshore Plaquemines Parish, Louisiana in 6 to 15 feet of water. This non-operated field has 31 gross producing wells completed above 10,500 foot depth. All of the wells produce with the aid of gas lift equipment. We have an average working interest in these wells and production facilities of 7% and an average net revenue interest of 5%. For the quarter ended December 31, 2009, the production net to our interest in this field was approximately 45 BOE/day and was approximately 100% oil. While our current share of production is negligible, the production is holding a considerable amount of acreage with exploration potential. We hold 14,535 gross (1,281 net) acres above 10,500 feet and 5,214 net acres below that depth. Upside in the shallow reservoirs in this field consists of numerous behind-pipe opportunities due to the multiple stacked sand reservoirs, along with proved undeveloped and rate acceleration locations in the depths above 10,500 feet. We believe deeper formations provide exploration potential and we have a 33% working interest, with a 24.75% net revenue interest below 10,500 feet. The operator acquired 35 square miles of 3-D seismic data to image and define prospect leads primarily below 10,500 feet. Schlumberger was engaged to reprocess the 3-D seismic data and provide initial interpretive geological and geophysical services. Geophysical and subsurface evaluation is continuing and several prospects have been defined, the majority of which are on acreage that is held by production operations.
St. Martinville Field – Our St. Martinville field is located in St. Martin Parish, Louisiana. The field consists of 16 gross producing wells, which produce from numerous Miocene sand intervals. The wells are on rod-pump or electric submersible pumps. We operate the field and have an average working interest of 97%. We own the majority of the minerals resulting in a net revenue interest of approximately 91%. We are currently interpreting a 3-D seismic survey over this field that was shot and processed in late 2009. We believe the field has development and exploration potential. For the quarter ended December 31, 2009, the production net to our interest in this field was approximately 209 BOE/day and was approximately 100% oil.
Title to Properties
It is customary in the oil and gas industry to make a limited review of title to undeveloped oil and gas leases at the time they are acquired. It is also customary to obtain more extensive title examinations prior to the commencement of drilling operations on undeveloped leases or prior to the acquisition of producing oil and gas properties. With respect to the future acquisition of both undeveloped and proved properties, we plan to conduct title examinations on such properties in a manner consistent with industry and banking practices. We have obtained title opinions, title reports or otherwise conducted title investigations covering substantially all of our producing properties and believe we have satisfactory title to such properties in accordance with standards generally accepted in the oil and gas industry. Our properties are subject to customary royalty interests, overriding royalty interests, and other burdens which we believe do not materially interfere with the use or affect the value of such properties. Substantially all of our oil and gas properties are and may continue to be mortgaged to secure borrowings under bank credit facilities (see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”).
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Item 15. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
FOR
Form 10-K/A for the year ended December 31, 2009.
| 3.1 | Amended and Restated Articles of Incorporation dates June 10, 2003, incorporated by reference to Exhibit 3.1 of Registrant’s Form 10-KSB for the year ended December 31, 2003. | |
| 3.1(a) | Articles of Amendment to the Articles of Incorporation, incorporated by reference as Annex C to the Registrant’s definitive Proxy Statement dated February 23, 2007, and filed with the Commission on February 23, 2007. | |
| 3.1(b) | Articles of Amendment to Articles of Incorporation, dated November 6, 2007. (5) | |
| 3.2 | Bylaws, as amended March 2, 2004, incorporated by reference to Exhibit 3.2 of Registrant’s Form 10-KSB for the year ended December 31, 2003. | |
| 10.15 | Agreement and Plan of Merger dated September 14, 2006, among GeoResources, Inc., Southern Bay Energy Acquisition, LLC, Chandler Acquisition, LLC, Southern Bay Oil & Gas, L.P., Chandler Energy, LLC and PICA Energy, LLC (including Amendment No. 1 dated February 16, 2007). Incorporated by reference as Annex A to the Registrant’s Definitive Proxy Statement dated February 23, 2007 and filed with the Commission on February 23, 2007. | |
| 10.19 | June 7, 2001 Lease Agreement by and between AROC, Inc. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090. (3) | |
| 10.20 | First Amendment to June 7, 2001 Lease Agreement by and between AROC, Inc. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated November 10, 2003. (3) | |
| 10.21 | Assignment and Assumption by Southern Bay Energy, L.L.C. of June 7, 2001 Lease Agreement by and between AROC, Inc. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated April 19, 2005. (3) | |
| 10.22 | Unconditional Guaranty of June 7, 2001 Lease Agreement by and between Southern Bay Energy, L.L.C. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated April 19, 2005. (3) | |
| 10.23 | Second Amendment to June 7, 2001 Lease Agreement by and between Southern Bay Energy, L.L.C. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated April 19, 2005. (3) | |
| 10.24 | Third Amendment to June 7, 2001 Lease Agreement by and between Southern Bay Energy, L.L.C. and BGK Texas Property Management, Inc. for 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated April 9, 2007. (3) | |
| 10.26 | January 31, 2000 Office Building Lease by and between 475-17th Street, CO. and Collis P. Chandler III for 475 17th Street Building, Suite 860, 475 17th Street, Denver, Colorado 80202. (3) | |
| 10.27 | First Amendment to January 31, 2000 Office Building Lease by and between 475-17th Street, CO. and Collis P. Chandler III for 475 17th Street, Suite 860, Denver, Colorado 80202, dated September 28, 2001. (3) | |
| 10.28 | Second Amendment to January 31, 2000 Office Building Lease by and between 475-17th Street, CO. and Collis P. Chandler III for 475 17th Street, Suite 860, Denver, Colorado 80202, dated October 23, 2002. (3) | |
| 10.29 | Third Amendment to January 31, 2000 Office Building Lease by and between 475-17th Street, CO. and Collis P. Chandler III for 475 17th Street, Suite 860, Denver, Colorado 80202, dated June 28, 2004. (3) | |
| 10.30 | Credit Agreement dated September 26, 2007 between the Registrant and Wachovia Bank National Association. (2) |
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| 10.31 | Limited Partner Interest Purchase and Sale Agreement dated October 16, 2007 between the Registrant and TIFD III-X, LLC (2) | |
| 10.32 | Amended and Restated Credit Agreement dated October 16, 2007 between the Registrant and Wachovia Bank National Association (2) | |
| 10.33 | Amended and Restated Credit Agreement dated October 16, 2007 between the Registrant and Wachovia Bank National Association (2) | |
| 10.34 | Form of Purchase Agreement (4) | |
| 10.35 | Form of Warrant (4) | |
| 10.36 | Form of Registration Rights Agreement (4) | |
| 10.37 | Agreement of Limited Partnership for OKLA Energy Partners LP dated May 20, 2008 (6) | |
| 10.38 | Lease Agreement by and between Southern Bay Energy, L.L.C. and Cypress Court Operating Associates, L.P. for office space at 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated September 25, 2008. (7) | |
| 10.39 | Purchase and Sale Agreement between SBE Partners LP and Catena Oil and Gas LLC, dated May 29, 2009. (8) | |
| 10.40 | Consent and Amendment No. 1 to Agreement of Limited Partnership of SBE Partners LP as of May 29, 2009. (8) | |
| 10.41 | Second Amended and Restated Credit Agreement between the Registrant and Wachovia Bank, National Association as Administrative Agent dated July 13, 2009. (8) | |
| 10.42 | Consent, Distribution Agreement, and Amendment No. 2 to Agreement of Limited Partnership of SBE Partners LP (9) | |
| 10.43 | First Amendment to Lease Agreement by and between Southern Bay Energy, L.L.C. and Cypress Court Operating Associates, Limited Partnership for office space at 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, dated January 29, 2010. (10) | |
| 14.1 | Code of Business Conduct and Ethics adopted March 2, 2004, incorporated by reference to Exhibit 14.1 of Registrant’s Form 10-KSB for fiscal year ended December 31, 2003. | |
| 21.1 | Subsidiaries of the Registrant. (3) | |
| 23.1 | Consent of Grant Thornton LLP (for GeoResources). (10) | |
| 23.2 | Consent of Grant Thornton LLP (for SBE Partners LP). (10) | |
| 23.3 | Consent of Cawley, Gillespie & Associates, Inc. (11) | |
| 24.1 | Power of Attorney (10) | |
| 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. (1) | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. (1) | |
| 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. (1) | |
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. (1) | |
| 99.1 | Financial Statements and Report of Independent Certified Public Accountants for SBE Partners LP for the years ended December 31, 2009, 2008 and 2007 (10) | |
| 99.2 | Report of Cawley, Gillespie & Associates, Inc. dated February 22, 2010 (11) |
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| (1) | Filed herewith. |
| (2) | Filed with the Registrant’s Form 10-QSB for the quarter ended September 30, 2007. |
| (3) | Filed with the Registrant’s Form 10-QSB for the quarter ended June 30, 2007. |
| (4) | Filed with the Registrant’s Form 8-K on June 11, 2008. |
| (5) | Filed with the Registrant’s Form 10-KSB for the year ended December 31, 2007. |
| (6) | Filed with the Registrant’s Form 10-Q for the quarter ended June 30, 2008. |
| (7) | Filed with the Registrant’s Form 10-Q for the quarter ended September 30, 2008. |
| (8) | Filed with the Registrant’s Form 10-Q for the quarter ended June 30, 2009. |
| (9) | Filed with the Registrant’s Form 10-Q for the quarter ended September 30, 2009. |
| (10) | Filed with the Registrant’s Form 10-K for the year ended December 31, 2009. |
| (11) | Filed with the Registrant’s Form 10-K/A Amendment No. 1 for the year ended December 31, 2009. |
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Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GEORESOURCES, INC. (the “Registrant)
Dated: August 20, 2010 /s/ Frank A. Lodzinski
_________________________________
Frank A. Lodzinski, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signatures | Title | Date | ||
| /s/ Frank A. Lodzinski | President, Chief Executive Officer (principal executive officer) and Director | August 20, 2010 | ||
| Frank A. Lodzinski | ||||
| /s/ Howard E. Ehler | Principal Financial Officer and Principal Accounting Officer | August 20, 2010 | ||
| Howard E. Ehler | ||||
| * | Director | August 20, 2010 | ||
| Collis P. Chandler, III | ||||
| /s/ Bryant W. Seaman, III | Director | August 20, 2010 | ||
| Bryant W. Seaman, III | ||||
| * | Director | August 20, 2010 | ||
| Jay F. Joliat | ||||
| /s/ Donald J. Whelley | Director | August 20, 2010 | ||
| Donald J. Whelley | ||||
| * | Director | August 20, 2010 | ||
| Nicholas L. Voller | ||||
| * | Director | August 20, 2010 | ||
| Michael A. Vlasic |
* By: /s/ Frank A. Lodzinski
Frank A. Lodzinski, Attorney-in-Fact