GEOMET, INC.
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
------------------- --------------------
2010 2009 2010 2009
-------- --------- -------- ----------
Revenues:
Gas sales $ 7,289 $ 7,913 $ 33,074 $ 30,597
Operating fees and other 65 95 287 367
-------- --------- -------- ----------
Total revenues 7,354 8,008 33,361 30,964
Expenses:
Total production expenses 4,032 4,106 16,730 20,125
Depreciation, depletion and
amortization 1,640 1,842 6,296 12,030
Impairment of gas properties -- 20,848 -- 257,288
General and administrative 1,368 1,343 5,367 8,349
Terminated transaction costs -- -- 1,403 --
Realized gains on derivative
contracts (3,510) (2,068) (9,006) (10,694)
Unrealized losses (gains) on
derivative contracts 3,815 (1,530) (5,950) 3,995
-------- --------- -------- ----------
Total operating expenses 7,345 24,541 14,840 291,093
Operating income (loss) 9 (16,533) 18,521 (260,129)
Unrealized loss from change in
fair value of derivative
liability (3,760) -- (2,164) --
Other expenses& interest, net (978) (1,393) (5,158) (5,147)
-------- --------- -------- ----------
(Loss) income before income
taxes (4,729) (17,926) 11,199 (265,276)
Income tax benefit (expense) 1,729 6,247 (5,407) 98,142
-------- --------- -------- ----------
Net (loss) income $ (3,000) $ (11,679) $ 5,792 $ (167,134)
======== ========= ======== ==========
Accretion of preferred stock (424) -- (498) --
Paid-in-kind dividends (1,251) -- (1,487) --
-------- --------- -------- ----------
Net (loss) income available to
common stockholders $ (4,675) $ (11,679) $ 3,807 $ (167,134)
======== ========= ======== ==========
(Loss) income per share:
Basic $ (0.12) $ (0.30) $ 0.10 $ (4.28)
======== ========= ======== ==========
Diluted $ (0.12) $ (0.30) $ 0.10 $ (4.28)
======== ========= ======== ==========
Weighted average number of
common shares:
Basic 39,466 39,148 39,298 39,085
======== ========= ======== ==========
Diluted 39,466 39,148 39,299 39,085
======== ========= ======== ==========
GEOMET, INC.
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2010 2009
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 537 $ 974
Accounts receivable 2,600 2,909
Inventory 1,002 2,132
Derivative asset - natural gas hedges 7,088 2,564
Other current assets 952 475
------------ ------------
Total current assets 12,179 9,054
------------ ------------
Property and equipment - net 106,087 98,698
------------ ------------
Other noncurrent assets:
Derivative asset - natural gas hedges 2,187 761
Deferred income taxes 48,203 51,805
Other 1,430 610
------------ ------------
Total other noncurrent assets 51,821 53,176
------------ ------------
TOTAL ASSETS $ 170,086 $ 160,928
============ ============
LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,950 $ 5,170
Accrued liabilities 2,306 2,808
Deferred income taxes 2,207 157
Derivative liability - interest rate swaps 5 724
Asset retirement liability 33 108
Current portion of long-term debt 133 122
------------ ------------
Total current liabilities 10,634 9,089
------------ ------------
Long-term debt 80,863 119,996
Asset retirement liability 5,466 4,862
Other long-term accrued liabilities 41 73
------------ ------------
TOTAL LIABILITIES 97,004 134,020
------------ ------------
Mezzanine equity:
Series A Convertible Redeemable Preferred Stock 22,074 --
Stockholders' equity 51,008 26,908
------------ ------------
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDERS'
EQUITY $ 170,086 $ 160,928
============ ============
GEOMET, INC.
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
December 31,
------------------
2010 2009
-------- --------
Net cash provided by operating activities $ 16,023 $ 8,518
Net cash used in investing activities (12,185) (12,696)
Net cash (used in) provided by financing activities (1) (4,292) 2,888
Effect of exchange rates changes on cash 17 167
-------- --------
Decrease in cash and cash equivalents (437) (1,123)
Cash and cash equivalents at beginning of period 974 2,097
-------- --------
Cash and cash equivalents at end of period $ 537 $ 974
======== ========
(1) On September 14, 2010, the Company issued and sold 4,000,000 shares of
Series A Convertible Redeemable Preferred Stock, par value $0.001 per
share, at a price of $10.00 per share. After paying transaction fees
and expenses, the Company used the net proceeds of approximately $37.2
million to reduce outstanding bank debt.
GEOMET, INC.
OPERATING STATISTICS
Three Months
Ended Year Ended
December 31, December 31,
------------- -------------
2010 2009 2010 2009
------ ------ ------ ------
Net sales volumes (MMcf) 1,869 1,858 7,359 7,549
Per Mcf data ($/Mcf):
Average natural gas sales price $ 3.90 $ 4.26 $ 4.49 $ 4.05
Differential to NYMEX (1) $ 0.09 $ 0.09 $ 0.10 $ 0.07
Average natural gas sales price realized (2) $ 5.78 $ 5.37 $ 5.72 $ 5.47
Adjusted lease operating expense (3)(4) $ 1.43 $ 1.47 $ 1.53 $ 1.80
Compression expenses $ 0.36 $ 0.35 $ 0.39 $ 0.44
Transportation expense $ 0.17 $ 0.17 $ 0.17 $ 0.22
Production taxes $ 0.16 $ 0.17 $ 0.14 $ 0.16
Total production expenses, as adjusted (3) $ 2.12 $ 2.16 $ 2.23 $ 2.62
Depletion $ 0.82 $ 0.92 $ 0.79 $ 1.51
Three Months
Ended Year Ended
December 31, December 31,
------------- -------------
2010 2009 2010 2009
------ ------ ------ ------
POND CREEK FIELD
Net sales volumes (MMcf) 1,360 1,306 5,322 5,226
Per Mcf data ($/Mcf):
Adjusted lease operating expense (3)(4) $ 1.09 $ 1.37 $ 1.21 $ 1.38
Compression expense $ 0.34 $ 0.32 $ 0.38 $ 0.36
Transportation expense $ 0.23 $ 0.24 $ 0.24 $ 0.31
Production taxes $ 0.16 $ 0.15 $ 0.16 $ 0.13
Total production expenses, as adjusted (3) $ 1.82 $ 2.08 $ 1.99 $ 2.18
GURNEE FIELD
Net sales volumes (MMcf) 462 498 1,858 2,118
Per Mcf data ($/Mcf):
Adjusted lease operating expense (3)(4) $ 2.40 $ 1.39 $ 2.21 $ 2.29
Compression expense $ 0.39 $ 0.28 $ 0.40 $ 0.49
Production taxes (5) $ 0.16 $ 0.25 $ 0.08 $ 0.23
Total production expenses, as adjusted (3) $ 2.95 $ 1.92 $ 2.69 $ 3.01
(1) The difference between the average natural gas price for the period,
before the impact of gains and losses on natural gas derivative
contracts, and the final average settlement price for natural gas
contracts on the New York Mercantile Exchange ("NYMEX") for each month
during the applicable period weighted by gas sales volumes.
(2) Average realized price includes the effects of realized gains on
natural gas derivative contracts.
(3) Produced water disposal fees are recorded in revenues on the Statement
of Operations. Lease operating expense per Mcf has been adjusted for
produced water disposal fees because the fees serve to offset
operating expenses. See Reconciliation of Adjusted Lease Operating
Expense.
(4) The decrease in adjusted lease operating expense from the prior year
is primarily due to the continued success of a company-wide cost
reduction strategy implemented in April 2009.
(5) The decreases in production taxes per Mcf for the three months and
year ended December 31, 2010 were due to refunds received in March
and August 2010 for production taxes related to our Gurnee field.
GEOMET, INC.
CONSOLIDATED INTEREST RATE SWAPS AND
NATURAL GAS DERIVATIVE CONTRACT POSITIONS
At December 31, 2010, the Company had the following natural gas collar
positions:
Period Volume Sold Bought
(MMBtu) Ceiling Floor
------- ------- ------
January through March 2011 360,000 $ 7.45 $ 6.50
-------
At December 31, 2010, the Company had the following natural gas swap
positions:
Volume
Period (MMBtu) Price
--------- ---------
January through March 2011 360,000 $ 6.67
January through March 2011 540,000 $ 7.27
April through October 2011 856,000 $ 6.37
April through October 2011 856,000 $ 5.37
April through October 2011 856,000 $ 5.43
November 2011 through March 2012 608,000 $ 7.12
November 2011 through March 2012 608,000 $ 6.12
November 2011 through March 2012 912,000 $ 5.08
April through October 2012 856,000 $ 5.73
April through October 2012 1,712,000 $ 4.94
November 2012 through March 2013 604,000 $ 6.42
November 2012 through March 2013 906,000 $ 5.50
---------
9,674,000
=========
In January 2011, we agreed to sell gross volumes of 16,000 MMBtu/day of
natural gas from our Pond Creek field for the period February 2011 through
March 2012 through a forward physical sale contract with our existing
purchaser at a price equal to the last day settlement price for the NYMEX
contract for the month of sale plus $0.15, $0.115, and $0.13 for the
periods February 2011 through March 2011, April 2011 through October 2011,
and November 2011 through March 2012, respectively. Additionally, we fixed
the NYMEX settle on a portion of the aforementioned forward sale as
follows:
Volume
Period (MMBtu) Fixed Price Gross Sale
----------- ----------- -----------
April through October 2011 856,000 $ 4.915 $ 4,207,240
November 2011 through March 2012 456,000 $ 5.330 2,430,480
----------- -----------
1,312,000 $ 6,637,720
=========== ===========
The remaining volumes giving effect for the fixed amounts denoted above
are as follows:
Volume Fixed
Period (MMBtu) Basis
--------- ---------
February through March 2011 944,000 $ 0.150
April through October 2011 2,568,000 $ 0.115
November 2011 through March 2012 1,976,000 $ 0.130
---------
5,488,000
=========
At December 31, 2010, the Company had the following interest rate swap
positions:
Effective Maturity Fixed Notional
Description date date rate(1) amount
----------- ----------- ----------- -----------
Floating-to-fixed swap 1/6/2009 1/6/2011 1.38% $ 5,000,000
-----------
(1) The floating rate paid by the counterparty is the British Bankers'
Association LIBOR rate.
GEOMET, INC.
PRELIMINARY RECONCILIATION OF ADJUSTED EBITDA TO
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
------------------- --------------------
2010 2009 2010 2009
-------- --------- -------- ----------
Net (loss) income available to
common stockholders $ (4,675) $ (11,679) $ 3,807 $ (167,134)
Add: Accretion of preferred
stock 424 -- 498 --
Add: Paid-in-kind dividends 1,251 -- 1,487 --
Add: Interest expense, net of
interest income and amounts
capitalized 984 1,380 5,124 5,146
(Deduct) Add: Other (income)
expense (6) 13 34 1
(Deduct) Add: Income tax
(benefit) expense (1,729) (6,247) 5,407 (98,142)
Add: Depreciation, depletion
and amortization 1,640 1,842 6,296 12,030
Add: Impairment of gas
properties -- 20,848 -- 257,288
Add (Deduct): Unrealized losses
(gains) on derivative contracts 3,815 (1,530) (5,950) 3,995
Add: Unrealized loss from change
in fair value of derivative
liability - Series A
Convertible Redeemable
Preferred Stock 3,760 -- 2,164 --
Add: Stock based compensation 108 131 411 793
Add: Accretion expense 120 108 484 432
-------- --------- -------- ----------
Adjusted EBITDA $ 5,692 $ 4,866 $ 19,762 $ 14,409
======== ========= ======== ==========
The table above reconciles net (loss) income available to common
stockholders to Adjusted EBITDA. Adjusted EBITDA is defined as net (loss)
income available to common stockholders before net interest expense, other
non-operating income, income taxes, depreciation, depletion and
amortization before unrealized losses (gains) on derivative contracts,
stock-based compensation and accretion expense. Although Adjusted EBITDA is
not a measure of performance calculated in accordance with accounting
principles generally accepted in the United States of America (GAAP),
management believes that it is useful to GeoMet and to an investor in
evaluating our company because it is a widely used measure to evaluate a
company's operating performance. Adjusted EBITDA should not be considered
as an alternative to net income, operating income, cash flows from
operating activities or any other measure of financial performance or
liquidity presented in accordance with GAAP. Adjusted EBITDA excludes
some, but not all, items that effect net income and operating income and
these measures may vary among companies. Therefore, our Adjusted EBITDA
may not be comparable to similarly titled measures of other companies.
GEOMET, INC.
PRELIMINARY RECONCILIATION OF ADJUSTED NET INCOME (LOSS) TO
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
2010 2009 2010 2009
-------- --------- ------- ----------
Net (loss) income available to
common stockholders $ (4,675) $ (11,679) $ 3,807 $ (167,134)
Accretion of preferred stock 424 -- 498 --
Paid-in-kind dividends 1,251 -- 1,487 --
Impairment of gas properties -- 20,848 -- 257,288
Unrealized losses (gains) on
derivative contracts, net of tax 3,815 (1,530) (5,950) 3,995
Unrealized loss from change in
fair value of derivative
liability - Series A Convertible
Redeemable Preferred Stock 3,760 -- 2,164 --
Accelerated Depletion - Canada -- -- -- 2,742
Terminated transaction costs -- -- 1,403 --
Effect of income taxes (2,894) (7,444) 910 (99,154)
-------- --------- ------- ----------
Adjusted Net Income (Loss) $ 1,681 $ 195 $ 4,319 $ (2,263)
======== ========= ======= ==========
The table above reconciles net (loss) income available to common
stockholders to Adjusted Net Income (Loss). Adjusted Net Income (Loss) is
calculated by eliminating unrealized losses (gains) on derivative contracts
from net (loss) income available to common stockholders, impairments to our
gas properties, terminated transaction costs, and their related tax effects
to arrive at Adjusted Net Income (Loss). The tax effects are determined by
calculating the tax provision for GAAP net (loss) income available to
common stockholders and comparing the results to the tax provision for
Adjusted Net Income (Loss), which excludes the adjusting items. The
difference in the tax provision calculations represents the effect of
income taxes. The calculation is performed at the end of each quarter and,
as a result, the tax rates for each discrete period are different. Although
Adjusted Net Income (Loss) is a non-GAAP financial measure, we believe it
is useful information for investors because the unrealized losses (gains)
relate to derivative contracts that hedge our production in future months.
The gains or losses associated with derivative contracts that hedge current
production are recognized in net (loss) income available to common
stockholders and are not eliminated in determining Adjusted Net Income
(Loss). The adjustment better matches gains or losses on derivative
contracts with the period when the underlying hedged production occurs.
Adjusted Net Income (Loss) should not be considered as an alternative to
net income, operating income, cash flows from operating activities or any
other measure of financial performance or liquidity presented in accordance
with GAAP. Adjusted Net Income (Loss) excludes some, but not all, items
that effect net income and operating income and these measures may vary
among companies. Therefore, our Adjusted Net Income (Loss) may not be
comparable to similarly titled measures of other companies.
GEOMET, INC.
PRELIMINARY RECONCILIATION OF ADJUSTED LEASE OPERATING EXPENSE
(In thousands)
Three Months
Ended Year Ended
December 31, December 31,
----------------- -----------------
2010 2009 2010 2009
-------- -------- -------- --------
Lease operating expense $ 2,746 $ 2,822 $ 11,544 $ 13,935
Deduct: Produced water disposal fees 65 95 288 367
-------- -------- -------- --------
Adjusted lease operating expense $ 2,681 $ 2,727 $ 11,256 $ 13,568
======== ======== ======== ========
The table above reconciles lease operating expense to adjusted lease
operating expense. Adjusted lease operating expense is calculated by
eliminating the produced water disposal fees from lease operating expense
to arrive at adjusted lease operating expense. Although adjusted lease
operating expense is a non-GAAP financial measure, we believe it is useful
information for investors because produced water disposal fees are recorded
as operating fees and other on the Statement of Operations. Lease operating
costs per Mcf are adjusted for produced water disposal fees because the
fees serve to offset operating expenses. The adjustment better matches
lease operating expense with the natural gas sales revenues it is
associated with.
Contact Information: For more information please contact Stephen M. Smith (713) 287-2251 www.geometinc.com