WESTMINSTER, Colo., Aug. 15, 2012 (GLOBE NEWSWIRE) -- Arete Industries, Inc. (OTCQB:ARET), announced revenue for the second quarter ended June 30, 2012 of $481,360 as the result of selling 5,525 barrels of oil and 20,457 Mcf of natural gas.
Highlights from Second Quarter 2012
- Arete had cash and cash equivalents of approximately $168,241 as of June 30, 2012.
- Arete sold 5,525 barrels of oil during the second quarter ended June 30th, 2012 and 20,457 Mcf of natural gas during the second quarter ended June 30th, 2012, representing 8,935 net barrels of oil equivalent (BOE).
- Oil production was 6,089 barrels for the quarter adding 564 barrels to increase its oil held in tanks awaiting sale to 5,917 barrels.
- Invested approximately $181,000 reworking existing wells which are expected to increase production in the second half of 2012.
The average oil price for the second quarter of 2012 of $74.33 per barrel decreased by 16.8% compared to $89.34 per barrel for the first quarter of 2012. During April and June 2012, the Company received "force majeure" notices about service interruptions and curtailments. As a result, natural gas production from the Company's Colorado properties was approximately 15% lower in the second quarter of 2012 compared to the first quarter of 2012. Furthermore, the average natural gas price, including proceeds from sales of natural gas liquids, amounted to $3.45 per Mcf for the second quarter of 2012, representing a decrease of 23.8% compared to $4.53 per Mcf for the first quarter of 2012.
The "force majeure" was related to the owner of the natural gas gathering system that the Company uses to transport production from its Colorado natural gas properties notifying us that it is undertaking a program to significantly expand its gathering and processing capacity. While the long-term impact of this program may be somewhat favorable, the near term impact will likely be service interruptions and curtailments that could have an adverse impact on the Company's future natural gas sales.
General and administrative expenses decreased by $396,156 in 2012 compared to 2011, primarily due to decreases in acquisition investigation and due diligence costs of $472,978 and unrelated party consulting fees of $28,551. Income from operations for the first six-months of 2012 was $12,441 compared to a loss of $1,259,910 for the first six-months of 2011.
Donald W. Prosser, CEO of Arete Industries stated: "The second quarter of 2012 was challenging due to a decrease in commodity pricing and some factors in our Colorado properties that were out of our control. Despite these economic and operational challenges, we were able to stay focused and post solid financial and production results, while significantly trimming our G&A expenses. Going forward, we expect to report strong revenue growth and gains from strategic sales as opportunities present themselves."
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About Arete Industries
The Company holds oil and gas properties in the Rocky Mountain Region of the United States and operates a small natural gas gathering system. For additional information on Arete Industries visit the Company's new website at: http://www.AreteIndustries.com/
SAFE HARBOR
This press release contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this report, such as statements regarding our future expectations to increase our production are forward-looking statements (often, but not always, using words such as "expects", "anticipates", "plans", "estimates", "potential", "possible", "probable", or "intends", or stating that certain actions, events or results "may", "will", "should", or "could" be taken, occur or be achieved). Forward-looking statements are based on our current expectations and assumptions about future events and involve inherent risks and uncertainties. These risks include, but are not limited to, the volatility in commodity prices for crude oil and natural gas, the presence or recoverability of estimated reserves, the ability to replace reserves, environmental risks, drilling and operating risks, exploration and development risks, competition and government regulation or other actions. Additional information on these and other factors which could affect Arete's operations or financial results are included in Arete's reports on file with the Securities and Exchange Commission. Such factors (many of which are beyond our control) could cause actual results to differ materially from those set forth in the forward-looking statements.. Readers should not place undue reliance on any such forward-looking statements, which are made only as of the date hereof. Arete undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in Arete's expectations.
| ARETE INDUSTRIES, INC. AND SUBSIDIARIES | ||
| UNAUDITED CONSOLIDATED BALANCE SHEETS | ||
| December 31, 2011 and June 30, 2012 | ||
| ASSETS | 2011 | 2012 |
| Current Assets: | ||
| Cash and equivalents | $ 219,566 | $ 168,241 |
| Receivable from DNR Oil & Gas, Inc.: | ||
| Oil and gas sales, net of production costs | 165,283 | 106,957 |
| Other | 15,597 | 38,444 |
| Prepaid expenses and other | 207,338 | 147,874 |
| Total Current Assets | 607,784 | 461,516 |
| Property and Equipment: | ||
| Oil and gas properties, at cost, successful efforts method: | ||
| Proved properties | 9,056,032 | 8,969,558 |
| Unevaluated properties | 287,728 | 310,288 |
| Natural gas gathering system | 442,195 | 442,195 |
| Furniture and equipment | 22,522 | 22,522 |
| Total property and equipment | 9,808,477 | 9,744,563 |
| Less accumulated depreciation, depletion and amortization | (525,154) | (876,551) |
| Net Property and Equipment | 9,283,323 | 8,868,012 |
| TOTAL ASSETS | $ 9,891,107 | $ 9,329,528 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current Liabilities: | ||
| Accounts payable: | ||
| Payable to DNR Oil & Gas, Inc.: | ||
| Oil and gas property acquisition costs | $ 826,791 | $ 291,616 |
| Gas gathering operating costs | 416,835 | 436,403 |
| Operator fees and other | 151,748 | 151,748 |
| Unrelated parties | 92,019 | 96,912 |
| Notes and advances payable: | ||
| Directors and affiliates | 109,319 | 245,950 |
| Unrelated parties | 250,000 | 250,000 |
| Accrued interest expense | 88,303 | 39,375 |
| Director fees payable in common stock | 90,000 | 30,000 |
| Finders fee payable for private placement of preferred stock | 105,000 | 105,000 |
| Accrued consulting services payable in common stock | 18,750 | 48,750 |
| Current portion of asset retirement obligations | 15,398 | 67,527 |
| Other accrued costs and expenses | 111,061 | 153,040 |
| Total Current Liabilities | 2,275,224 | 1,916,321 |
| Asset Retirement Obligations, net of current portion | 637,842 | 599,840 |
| Total Liabilities | 2,913,066 | 2,516,161 |
| Commitments and Contingencies (Note 3, 5 and 9) | ||
| Stockholders' Equity: | ||
| Convertible Class A preferred stock; $10,000 face value per share, authorized 1,000,000 shares: | ||
| Series 1; authorized 30,000 shares, issued and outstanding 522.5 shares in 2011 and 2012, liquidation preference of $5,421,000 in 2011 and 2012 | 5,023,371 | 5,023,371 |
| Series 2; authorized 2,500 shares, issued and outstanding no shares in 2011 and 2012 | -- | -- |
| Common stock, no par value; authorized 499,000,000 shares, issued and outstanding 7,764,476 in 2011 and 7,979,803 in 2012 | 16,904,154 | 17,151,096 |
| Accumulated deficit | (14,949,484) | (15,361,100) |
| Total Stockholders' Equity | 6,978,041 | 6,813,367 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 9,891,107 | $ 9,329,528 |
| ARETE INDUSTRIES, INC. AND SUBSIDIARIES | ||||
| UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| For the Quarter and the Six-Months Ended June 30, 2011 and 2012 | ||||
| Quarter Ended June 30: | Six-Months Ended June 30: | |||
| 2011 | 2012 | 2011 | 2012 | |
| Revenues: | ||||
| Oil and natural gas sales | $ -- | $ 481,360 | $ -- | $ 1,035,395 |
| Sale of oil and natural gas properties | -- | -- | -- | 533,048 |
| Gas gathering income | 15,983 | -- | 45,639 | -- |
| Total revenues | 15,983 | 481,360 | 45,639 | 1,568,443 |
| Operating Expenses: | ||||
| Oil and gas producing activities: | ||||
| Lease operating expenses | -- | 117,944 | -- | 401,653 |
| Production taxes | -- | 40,130 | -- | 84,326 |
| Depreciation, depletion, amortization and accretion | -- | 205,730 | -- | 336,837 |
| Gas gathering: | ||||
| Cost of operations: | ||||
| Related Party | 10,204 | -- | 30,815 | -- |
| Unrelated parties | 33,415 | 3,660 | 80,558 | 7,320 |
| Depreciation | 11,055 | 11,055 | 22,110 | 22,110 |
| General and administrative expenses: | ||||
| Director fees | 30,000 | 30,000 | 60,000 | 60,000 |
| Investor relations | 84,782 | 84,227 | 225,322 | 130,031 |
| Acquisition investigation and due diligence | 472,978 | -- | 500,478 | -- |
| Legal, auditing and professional services | 42,430 | 28,562 | 85,969 | 77,642 |
| Consulting and executive services: | ||||
| Related parties | 56,375 | 155,750 | 112,750 | 316,500 |
| Unrelated parties | 83,610 | 55,059 | 161,852 | 76,504 |
| Other administrative expenses | 8,970 | 29,249 | 25,695 | 42,795 |
| Depreciation | -- | 142 | -- | 285 |
| Total operating expenses | 833,819 | 761,508 | 1,305,549 | 1,556,003 |
| Operating income (loss) | (817,836) | (280,148) | (1,259,910) | 12,441 |
| Other income (expense): | ||||
| Interest income | 139 | 65 | 279 | 220 |
| Interest expense | (22,697) | (14,556) | (34,442) | (32,401) |
| Loss before income taxes | (840,394) | (294,639) | (1,294,073) | (19,741) |
| Income tax benefit (expense) | -- | -- | -- | -- |
| Net loss | $ (840,394) | $ (294,639) | $ (1,294,073) | $ (19,741) |
| Net Loss Applicable to Common Stockholders: | ||||
| Net loss | $ (840,394) | $ (294,639) | $ (1,294,073) | $ (19,741) |
| Accrued preferred stock dividends | -- | (195,938) | -- | (391,875) |
| Net loss applicable to common stockholders | $ (840,394) | $ (490,577) | $ (1,294,073) | $ (411,616) |
| Earnings (Loss) Per Share Applicable to Common | ||||
| Stockholders: | ||||
| Basic | $ (0.12) | $ (0.06) | $ (0.22) | $ (0.05) |
| Diluted | $ (0.12) | $ (0.06) | $ (0.22) | $ (0.05) |
| Weighted Average Number of Common Shares | ||||
| Outstanding: | ||||
| Basic | 6,985,000 | 7,788,000 | 5,995,000 | 7,776,000 |
| Diluted | 6,985,000 | 7,788,000 | 5,995,000 | 7,776,000 |
| ARETE INDUSTRIES, INC. AND SUBSIDIARIES | ||
| UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| For the Six-Months Ended June 30, 2011 and 2012 | ||
| 2011 | 2012 | |
| Cash Flows from Operating Activities: | ||
| Net loss | $ (1,294,073) | $ (19,741) |
| Adjustments to reconcile net loss to net cash provided by | ||
| (used in) operating activities: | ||
| Depreciation, depletion and amortization | 22,110 | 355,132 |
| Accretion of discount on asset retirement obligations | -- | 4,100 |
| Gain on sale of oil and gas properties | -- | (533,048) |
| Common stock issued in exchange for services | 734,084 | 246,942 |
| Common stock issued in exchange for accrued interest | -- | 10,462 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 11,832 | (76,179) |
| Prepaid expenses and other | -- | 60,712 |
| Accounts payable | (5,721) | 24,461 |
| Accrued costs and expenses | 72,991 | 2,590 |
| Net cash provided by (used in) operating activities | (458,777) | 75,431 |
| Cash Flows from Investing Activities: | ||
| Capital expenditures for oil and gas properties | (500,000) | (646,269) |
| Proceeds from sale of oil and gas properties | -- | 1,108,709 |
| Contingent consideration paid to DNR under sharing arrangement | -- | (282,704) |
| Net cash provided by (used in) investing activities | (500,000) | 179,736 |
| Cash Flows from Financing Activities: | ||
| Proceeds from notes and advance payable | 870,000 | 400,000 |
| Principal payments on notes payable | (9,256) | (264,619) |
| Payment of dividends on preferred stock | -- | (391,875) |
| Proceeds from sale of common stock | 103,500 | -- |
| Payment of preferred stock offering costs | -- | (50,000) |
| Net cash provided by (used in) financing activities | 964,244 | (306,494) |
| Net increase in cash and equivalents | 5,467 | (51,327) |
| Cash and equivalents, beginning of period | 15,990 | 219,566 |
| Cash and equivalents, end of period | $ 21,457 | $ 168,239 |
| Supplemental Disclosure of Cash Flow Information: | ||
| Cash paid for interest | $ 17,755 | $ 83,827 |
| Cash paid for income taxes | $ -- | $ -- |
| Supplemental Disclosure of Non-cash Investing and Financing Activities: | ||
| Conversion of notes payable to 897,500 shares of common stock | $ 1,335,000 | $ -- |
| Note payable to DNR for acquisition of oil and gas properties | $ 9,500,000 | $ -- |
| Payable to DNR for acquisition of oil and gas properties | $ -- | $ 41,616 |
| Asset retirement obligations assumed upon sale of oil and gas properties | $ -- | $ 16,411 |
| Increase in oil and gas properties due to revision of asset retirement obligations | $ -- | $ 26,437 |
| Contact: |
| Arete Industries, Inc. Investor Relations: |
| Gerald Kieft |
| WSR Communications |
| 772-219-7525 |
| IR@WSRcommunications.com |
| http://wsrcommunications.ir.stockpr.com/areteindustries/overview |