TRAVERSE CITY, Mich., March 13 /PRNewswire-FirstCall/ -- Aurora Oil & Gas Corporation (NYSE Alternext US: AOG) today reported a net loss of $107.4 million for the year ended December 31, 2008, largely related to one-time non-cash items.
William W. Deneau, Chairman and Chief Executive Officer, commented, "This has been a challenging year for our business and the economy at large. When we entered 2008, we anticipated a favorable conclusion to our strategic alternatives process. Instead, the year presented a strong headwind of limited capital resources, global credit challenges, and weakening energy markets. I believe 2009 will present more of the same. Fortunately, our team has been working to 'batten down the hatches' since the beginning of 2008 and we will continue working diligently to weather this storm."
2008 Financial Review
Oil and natural gas production revenues totaled $25.2 million on sales of over 3 billion cubic feet of natural gas equivalent (Bcfe) for the year. This equates to an average of 8.3 million cubic feet of natural gas equivalent (Mmcfe) per day, a decrease of approximately 5% from the previous year. The weighted average sales price of $8.28 for the year includes a loss of $3.5 million in realized losses on natural gas hedges.
Excluding one-time non-cash items, expenses totaled $39.3 million, a 35% increase from 2007. Production and lease operating expenses ("LOE") increased 19% as a result of increased energy costs, general maintenance across a larger base of properties, and repairs and workover charges related to Aurora's 2008 well enhancement program. General and administrative costs increased by 13% from 2007, primarily as a result of additional legal and consulting services related to Aurora's refinancing and various restructuring efforts. Also, interest expense more than doubled from 2007, due to higher utilization of debt and higher interest charges from Aurora's defaulted status.
One-time non-cash items were related to an impairment of goodwill and a ceiling-test write-down of oil and gas properties. The Company recorded $16 million in goodwill impairment related to the reverse merger of Cadence Resources Corporation, completed in 2005, and $3.4 million related to the acquisition of Bach Services and Manufacturing Company, completed in 2006. These are determined to be impaired based upon the estimated market value of the assets acquired in the transactions.
A ceiling-test write-down of oil and natural gas reserves in the amount of $78.5 million was recorded as a result of the application of the "ceiling test" under the full cost method of accounting. Under full cost accounting requirements, capitalized costs of oil and natural gas properties may not exceed an amount equal to the present value, discounted at 10%, of estimated future net revenues from proved reserves plus the lower of cost or fair value of unproved properties. Should capitalized costs exceed this ceiling, an impairment is recognized. The present value of estimated future net cash flows is computed by applying year-end prices of oil and natural gas to estimated future production of proved oil and natural gas reserves as of year-end less estimated future expenditures to be incurred in developing and producing the proved reserves and assuming continuation of existing economic conditions. The impairment is driven by changes in the Company's base of proved reserves, as discussed in the "Update on Proved Reserves", below.
Including all items, the net loss totaled $107.4 million or ($1.04) per basic and diluted share for the year ended December 31, 2008, as compared to a net loss of $4.4 million or ($0.04) per basic and diluted share for the same period in 2007.
Complete detail on the financial results can be found in the Company's Form 10-K filed March 13, 2009. This form can be retrieved from the Securities and Exchange Commission or via the Company website at http://www.auroraogc.com/SEC_Filings.htm. Selected annual and quarterly historical financial data are provided for reference below.
Update on Acreage
Aurora's acreage portfolio decreased by approximately 8.5% during 2008. The change was the result of several transactions involving the sale or trade of undeveloped properties. The most significant change was related to the sale of Aurora's interest in its Oklahoma properties. The sale was completed in September 2008 and decreased leasehold by approximately 37,000 net acres, as reflected in the table below. There were also certain less-prospective locations on which the leases were allowed to expire.
Following is a summary of the Company's entire acreage inventory on December 31, 2008 and December 31, 2007.
Acreage by Play/Trend 2008 2007 Gross Net Gross Net Michigan Antrim Shale 286,390 134,003 310,141 154,643 New Albany Shale 787,595 449,183 833,365 441,351 Woodford Shale 0 0 37,325 12,785 Other 90,475 68,203 102,352 81,112 Total 1,164,460 651,389 1,283,183 712,215
During 2009, Aurora will continue to optimize its portfolio of acreage. The Company will focus on developing its portfolio via partnerships with other operators and allowing less-prospective acreage positions to expire. This will allow the Company to focus its resources on the best potential locations for development.
2008 Drilling Activities
Aurora's capital constraints and slow-down by its operating partners caused drilling activity to be significantly reduced - from 101 gross (59.13 net) wells in 2007 to 26 gross (6.12 net) wells in 2008. Of the wells participated in, 14 (2.80 net) wells were in the Antrim shale, no wells were in the New Albany shale, and 12 (3.32 net) wells were drilled in Other project areas. A summary of 2008 drilling activity is provided below:
Drilling Activities - FY 2008 Operated Non-Operated Total Gross Net Gross Net Gross Net Producing 0 0.00 1 0.72 1 0.72 Waiting on Hook-Up 0 0.00 16 3.40 16 3.40 Resource Assessment 0 0.00 6 0.97 6 0.97 Dry 0 0.00 3 1.03 3 1.03 Total 0 0.00 26 6.12 26 6.12 The Company's inventory of wells at the end of 2008 is as follows: Well Status as of December 31, 2008 Antrim Operated Antrim Non-Operated Gross Net Gross Net Producing 177 168.15 390 93.74 Waiting on Hook-Up 0 0.00 24 4.80 Res. Assessment 1 0.97 9 1.87 Total 178 169.12 423 100.41 Well Status as of December 31, 2008 New Albany Operated New Albany Non- Operated Gross Net Gross Net Producing 0 0.00 25 1.25 Waiting on Hook-Up 6 6.00 0 0.00 Res. Assessment 0 0.00 0 0.00 Total 6 6.00 25 1.25 Well Status as of December 31, 2008 Other Total Gross Net Gross Net Producing 36 18.35 628 281.49 Waiting on Hook-Up 1 0.10 31 10.90 Res. Assessment 10 4.00 20 6.84 Total 47 22.45 679 299.23
Many companies in the oil and gas industry have cited pricing issues for slowdown in development of properties. Though Aurora has other challenges as well, the case is no different with Aurora and its operating partners. Without a change in the broader energy markets, the Company does not expect development in 2009 greater than what was experienced in 2008.
2008 Production Activities
Total company production during 2008 averaged 8.3 net Mmcfe per day, a 5% decrease from the previous year. A summary of production for 2008 and 2007 is provided below:
Estimated Production by Play/ Trend (net mcfe) 2008 2007 Total Daily Total Daily Average Average Antrim Shale 2,789,727 7,622 2,975,715 8,153 New Albany Shale 100,678 275 57,186 157 Other 153,707 420 174,254 477 Total 3,044,112 8,317 3,207,155 8,787 Operated 1,924,947 5,259 2,292,429 6,281 Non-operated 1,119,165 3,058 914,726 2,506 Total 3,044,112 8,317 3,207,155 8,787
During 2008, Aurora attempted to address its declining operated production. Faced with minimal available capital, efforts to proactively address production declines were limited. Beginning October 1, 2008, production sales are subject to market fluctuations, resulting in property gross margins declining with falling natural gas prices. This further limits Company spending on production enhancement efforts. Nonetheless, Aurora management is working to review various alternatives presented by its engineering team and consulting experts, which may address the declining production.
Update on Proved Reserves
Aurora's year-end 2008 proved reserves decreased 41% from year-end 2007 to 98 Bcfe. Of the 98 Bcfe, approximately 56% is considered proved developed, of which 17% is behind pipe or waiting on hook-up. The remaining 27% of total proved reserves is considered proved undeveloped. With respect to proved reserves by property location, 71.1 Bcf is in the Antrim shale, 26 Bcf is in the New Albany shale, and 1 Bcfe is held in Other project areas.
A summary of the proved reserves reconciliation is provided below: Reconciliation of Reserves Proved Reserves (Bcfe) Proved Reserves as of December 31, 2007 166.6 Revisions of previous estimates -68.3 Extensions and discoveries 2.8 Production -3.0 Proved Reserves as of December 31, 2008 98.1
The significant revision in previous estimates was driven by the use of production data from the Company's Antrim shale projects to estimate reserves. Aurora's Antrim shale reserves have historically been determined by our third-party reserve engineers using type curves derived from a combination of reservoir simulation and nearby production performance from more mature Antrim shale units operated by others. Now that sufficient historical data is available to develop decline curves for Aurora's wells, the engineers have based their projections of future production volumes on actual historical data from our own wells instead of representative data from other wells in the Antrim play. This not only affected the proved developed producing reserves, but also the type curves used for proved undeveloped reserves. Additional impacts to the reserve base were the result of capital constraints, regulatory concerns on some of Aurora's northernmost properties, and lower market prices for oil and natural gas.
After integrating these impacts and using price levels required by the SEC (an average natural gas price of $6.07 per mcf, as compared to $7.18 per mcf in 2007), Aurora's pre-tax PV-10 decreased 64%, from $190 million in 2007 to $68.6 million in 2008. If the benefit of Aurora's pipeline ownership were included in the SEC evaluation, the PV-10 would improve by $9.2 million for a total pre-tax PV-10 value of $77.8 million.
Management Comments
Mr. William W. Deneau commented further on Aurora's activities and prospects:
"Currently, we are focused on meeting the obligations of our forbearance agreement as well as working with our lenders to develop a collaborative solution to our situation. Given the challenging economic times, we cannot predict when our situation will be resolved. However, we will continue to adapt to our changing environment by quickly making the necessary changes to our business to enhance operational efficiency and drive down controllable costs. With diligence, time, and improvement in the markets in which we work, we expect to not only survive, but thrive in what we still believe to be the most important industry in the world."
Selected Financial Data
The following table sets forth Aurora's quarterly unaudited statement of operations for the quarter ended December 31, 2008 and September 30, 2008, respectively. You should review this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and related notes included in Aurora's Form 10-K for the year ending December 31, 2008.
Three Months Ended December 31, September 30, 2008 2008 Statement of operations data Revenues Oil and natural gas sales $4,306,161 $7,657,965 Pipeline transportation and marketing 176,815 215,540 Field service and sales 1,057,145 1,280,206 Interest and other income 427,197 205,983 Total revenue 5,967,318 9,359,694 Expenses Production taxes 219,939 376,381 Production and lease operating expenses 2,131,907 2,557,330 Pipeline and processing operating expenses 147,641 179,977 Field services expense 884,999 977,235 General and administrative expenses 2,506,467 2,770,028 Oil and natural gas depletion and amortization 2,597,539 874,426 Other assets depreciation and amortization 342,859 265,040 Interest expense 3,952,227 2,023,411 Ceiling write-down of oil and gas properties 78,457,801 - Goodwill impairment 3,399,918 15,973,346 Taxes, other 93,912 29,005 Total expenses 94,735,209 26,026,179 Loss before minority interest (88,767,891) (16,666,485) Minority interest in income of subsidiaries (17,605) (28,385) Net loss $(88,785,496) $(16,694,870) Net loss per common share - basic and diluted $(0.86) $(0.16) Selected Historical Financial Data
The following tables set forth our December 31, 2008, 2007, and 2006, year-end selected financial data as of and for each of the periods indicated. The data as of and for the years ended December 31, 2008, 2007, and 2006, is derived from our audited consolidated financial statements for the periods indicated. You should review this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and audited consolidated financial statements and related notes included in our Form 10-K for the year ending December 31, 2008.
Statement of Operations Data 2008 2007 2006 Revenues: Oil and natural gas sales $25,201,777 $26,723,818 $21,591,811 Pipeline transportation and marketing 710,250 578,020 489,473 Field service and sales 3,051,419 390,401 125,611 Interest and other 877,488 549,149 220,592 Total revenues 29,840,934 28,491,388 22,427,487 Expenses: Production taxes 1,338,397 1,123,070 877,319 Production and lease operating expense 9,995,981 8,424,096 5,966,341 Pipeline and processing operating expense 593,059 482,647 265,795 Field services expense 2,439,939 321,753 90,913 General and administrative expense 9,075,903 8,029,122 7,531,718 Oil and natural gas depletion and amortization 5,380,106 3,769,104 2,681,290 Other assets depreciation and amortization 1,193,993 2,396,026 2,083,191 Interest expense 9,201,343 4,582,021 4,573,785 Ceiling write-down of oil and gas properties 78,457,801 - - Goodwill impairment 19,373,264 - - Loss on debt extinguishment - 3,448,520 - Taxes, other 77,671 19,021 250,884 Total expenses 137,127,457 32,595,380 24,321,236 Loss before minority interest (107,286,523) (4,353,992) (1,893,749) Minority interest in (income) loss of subsidiaries (78,139) (67,841) (50,898) Net loss $(107,364,662)$(4,421,833)$(1,944,647) Net loss per common share-basic and diluted $ (1.04)$ (0.04) $ (0.02) Weighted average common shares outstanding - basic and diluted 103,062,697 101,633,162 82,288,243 Cash Flow Data Cash provided by (used in) operating activities $4,098,818 $10,079,049 $5,467,910 Cash used by investing activities (10,701,427)(61,100,489)(89,606,098) Cash provided by financing activities 14,182,069 51,711,722 73,892,946 As of December 31, Balance Sheet Data 2008 2007 Cash and cash equivalents $ 10,005,138 $ 2,425,678 Other current assets 5,411,250 8,901,774 Oil and natural gas properties, net (using full cost accounting) 116,426,381 209,818,344 Other property and equipment, net 14,451,523 10,365,599 Other assets 13,906,789 23,160,273 Total assets $160,201,081 $254,671,668 Current liabilities $127,312,547 $ 8,580,990 Long-term debt, net of current maturities 5,265,459 113,835,028 Minority interest in nets assets of subsidiaries 467,937 112,661 Shareholders' equity 27,155,138 132,142,989 Total liabilities and shareholders' equity $160,201,081 $254,671,668 About Aurora Oil & Gas Corporation
Aurora Oil & Gas Corporation is an independent energy company focused on unconventional natural gas exploration, acquisition, development and production with its primary operations in the Antrim Shale of Michigan and the New Albany Shale of Indiana and Kentucky.
Cautionary Note on Forward-Looking Statements
Statements regarding future events, occurrences, circumstances, activities, performance, outcomes, beliefs and results, including future revenues, renegotiation of existing credit facilities, the procurement of new credit facilities, the continued forbearance and future relations with our existing lenders, anticipated capital availability, anticipated capital expenditures, estimated reserve values, anticipated partnerships with other operators, activities intended to address declining production, expected improvement in the domestic or global economies, anticipated improvement in energy prices, drilling results, and plans for future growth through drilling and production are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that the forward-looking statements described are based on reasonable assumptions, we can give no assurance that they will prove accurate. Important factors that could cause our actual results to differ materially from those included in the forward-looking statements include the timing and extent of changes in commodity prices for oil and gas, drilling and operating risks, the availability of drilling rigs, changes in laws or government regulations, unforeseen engineering and mechanical or technological difficulties in drilling the wells, operating hazards, weather-related delays, the loss of existing credit facilities, availability of capital, and other risks more fully described in our filings with the Securities and Exchange Commission. All forward-looking statements contained in this release, including any forecasts and estimates, are based on management's outlook only as of the date of this release and we undertake no obligation to update or revise these forward-looking statements, whether as a result of subsequent developments or otherwise.
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Contact: Aurora Oil & Gas Corporation Jeffrey W. Deneau, Investor Relations (231) 941-0073 http://www.auroraogc.com/
