OKLAHOMA CITY, March 6, 2002 (PRIMEZONE) -- Canaan Energy Corporation ("Canaan") (Nasdaq:KNAN) today announced record revenues of $28.4 million and production of 7.6 billion cubic feet of natural gas equivalent (Bcfe) for the year ended December 31, 2001. Year-end proved reserves, calculated based on December 31, 2001 prices, totaled 94.9 Bcfe. Due to sharply lower year-end gas prices, a $13.4 million net noncash full cost ceiling writedown of Canaan's oil and gas properties was taken, resulting in a net loss of $8.9 million.
BASIS OF PRESENTATION
In October 2000 Canaan completed the acquisition of eight affiliated limited partnerships ("Partnerships"), Indian Oil Company ("Indian"), a privately held oil and gas company based in Oklahoma City, Oklahoma, and Canaan Securities, Inc. ("CSI"), an unaffiliated broker/dealer, which owned an interest in the Partnerships. The acquisition of the Partnerships was accounted for as a reorganization of interests under common control in a manner similar to a pooling of interests, and the acquisitions of Indian and CSI were accounted for as purchases. Accordingly, the results of operations of the Partnerships have been included with Canaan's results for the entire 2001 and 2000 periods. The results of operations of Indian and CSI have been included for all of 2001, but only for November and December of 2000. The 1,310,596 common shares issued to acquire Indian and CSI were considered outstanding for all of 2001 and for November and December of 2000.
RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
For the three months ended December 31, 2001, Canaan reported a net loss of $13.7 million, or $2.91 per share, on total revenues of $5.1 million, compared with a net loss $2.0 million, or $0.44 per share for the three months ended December 31, 2000. In the fourth quarter of 2001, the Company recorded a $21.7 pre-tax charge from applying the full cost pool ceiling test as prescribed by the SEC for companies using the full cost method of accounting. This charge was offset by a related $8.3 million deferred tax benefit. Exclusive of the net full cost pool ceiling writedown charge, the Company generated a net loss of $0.3 million, or $0.05 per share for the three months ended December 31, 2001.
During 2000, the Company incurred one-time charges relating to the Partnership acquisitions for recognition of deferred income taxes, and transaction costs, including the related public registration of Canaan's common stock. The Partnerships had not previously recorded income taxes in their respective financial statements, since they were not tax paying entities, and any tax liabilities were the responsibility of the individual partners. Upon acquisition of the Partnerships, a deferred tax liability was determined based on the differences between financial statement carrying values and the income tax bases of assets and liabilities assumed from the Partnerships by Canaan. The primary differences between financial statement carrying values and income tax bases are the treatment of intangible drilling costs and nonproductive well costs. This catch-up provision for deferred income taxes totaled $3.3 million in the fourth quarter of 2000. Transaction costs totaled $1.3 million and reduced earnings by $0.8 million after a related deferred tax benefit of $0.5 million. Excluding these charges, earnings for the three months ended December 31, 2000 would have been $2.2 million or $0.47 per share. An adjusted earnings comparison of both three-month periods results in a $2.5 million decrease in net earnings and a $0.52 decrease in earnings per share during the three months ended December 31, 2001 as compared to same period of 2000. During the fourth quarter of 2001, Canaan repurchased 560,169 of its common shares. The repurchases comprised 11% of common shares outstanding at the beginning of the quarter.
Production for the fourth quarter of 2001 was 2.1 Bcfe, a 19% increase over the comparable period of 2000, however revenues for the fourth quarter of 2001 decreased by $3.0 million, or 37%, to $5.1 million from $8.1 million during the same period of 2000. The primary cause for the decline in revenue was lower gas prices. The average gas price was $2.34 per Mcf for the fourth quarter of 2001, as compared to $4.71 for the fourth quarter of 2000.
Cash flows from operating activities before working capital changes ("cash flows") increased 14% for the fourth quarter of 2001 to $2.4 million versus $2.1 million for the same period of 2000. Cash flows in the fourth quarter of 2000 were reduced by $1.3 million in nonrecurring transaction costs, as previously discussed. Cash flows for the fourth quarter of 2000 adjusted for these charges would have totaled $3.4 million. The 2001 cash flows decreased by $1.0 million or 29% over this adjusted 2000 amount. The decrease was primarily attributable to sharply lower prices for natural gas, offset somewhat by increased production.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 2001
For the year ended December 31, 2001, Canaan reported a net loss of $8.9 million, or $1.83 per share, on total revenues of $28.4 million, compared with net earnings $2.0 million, or $0.52 per share for the year 2000. Exclusive of the net full cost pool ceiling writedown charge, the company generated net earnings of $4.6 million, or $0.94 per share for the year 2001. In 2000, the previously discussed catch-up provision for deferred income taxes totaled $1.9 million for the year (a $3.3 million total catch-up provision net of a $1.4 million tax benefit associated with $3.8 million in pre-acquisition Partnership income not subject to income tax). Transaction costs totaled $1.3 million and reduced earnings by $0.8 million after a related deferred tax benefit of $0.5 million. Excluding these charges, earnings for 2000 would have been $4.7 million or $1.22 per share. An adjusted earnings comparison of both years results in a $0.1 million decline in net earnings and a $0.28 decrease in earnings per share during 2001 as compared to 2000. During 2001, Canaan repurchased 562,669 of its common shares. The repurchases comprised 11% of common shares outstanding at the beginning of the year. In October 2000, Canaan issued 1,310,596 common shares to acquire Indian and CSI.
Canaan produced 7.6 Bcfe for the year, resulting in a 53% increase over 2000. This increase was due principally to additional production resulting from the acquisition of Indian. Revenues for 2001 increased 58% over 2000, due to increased production. The average gas price was $3.64 per Mcf in 2001, as compared to $3.51 in 2000.
Cash flows increased 98% for the year 2001 to $16.0 million versus $8.1 million for the year 2000, principally due to higher gas production. Cash flows in 2000 were reduced by $1.3 million in nonrecurring transaction costs, as previously discussed. Cash flows for the year 2000 adjusted for these charges would have totaled $9.4 million. The 2001 cash flows increased by $6.6 million or 70% over this adjusted 2000 amount.
YEAR END RESERVES
Canaan reported December 31, 2001 proved oil and gas reserves of 94.9 Bcfe, comprised of 86.7 Bcf of natural gas and 1.4 million barrels of oil. Proved reserve quantities by category were as follows:
December 31, 2001 December 31, 2000
----------------------- ------------------------
Gas Gas
---- ---
Oil Gas Equivalent Oil Gas Equivalent
--- --- --------- --- --- ------
(MMbbls) (Bcf) (Bcfe) (MMbbls) (Bcf) (Bcfe)
------ ----- ------ ----- ---- -----
Proved Developed 1.2 65.4 72.8 1.7 72.4 82.7
Proved Undeveloped 0.2 21.3 22.1 0.3 22.2 23.7
--- ---- ---- --- ---- -----
Total Proved 1.4 86.7 94.9 2.0 94.6 106.4
--- ---- ---- --- ---- -----
Using methods prescribed by the SEC, including year-end prices of $2.58 per Mcf for natural gas and $18.48 per barrel for oil, the estimated future net revenues before income taxes of the proved reserves were $118.6 million, with a present value (using a 10% discount rate) of $62.7 million.
Beginning of year reserve quantities were reduced by 14.5 Bcfe due to the sharp decline in natural gas prices from the year-end 2000 price of $9.54 per Mcf. Production for 2001 was 7.6 Bcfe, comprised of 6.6 Bcf of natural gas and 181,000 Bbls of oil. Canaan's drilling and acquisition efforts, along with performance revisions, added reserves totaling 10.6 Bcfe, replacing 139% of the 7.6 Bcfe produced in 2001. Currently, Canaan's daily production is 20.8 MMcfe, consisting of 18.2 MMcf of natural gas and 435 Bbls of oil.
MANAGEMENT COMMENT
Leo E. Woodard, Chairman and CEO of Canaan, commented, "We are pleased with our record numbers in the areas of production, revenues and cash flow. We have put together a very talented group of oil and gas professionals who we know will continue to add value to Canaan's asset base. The current commodity price environment provides us with definite challenges in the areas of cash flow and capital resources, but likewise creates an arena of opportunity. Canaan evolved primarily from the assets of limited partnerships it once sponsored. There is no question that the highest quality assets in those entities were purchased or developed in times much like these. We believe the Company's low production decline rate provides an excellent base of long-lived reserves upon which to build when these opportunities arise."
"In 2002, we plan to dedicate approximately one half of our drilling budget to low-risk projects in the Anadarko Basin area of the Mid Continent Region, an area in which we have considerable expertise and have had an outstanding success rate. We expect to deploy the balance of our drilling budget in a newly established core area located in South Texas. Projects in this area are expected to yield higher reserve quantities and initial production rates, with minimal additional risk. Additionally, we will continue to seek both geographically strategic and high impact acquisitions. Our strong belief in our people and our commitment to increase shareholder value was obvious when we bought back the previously announced 560,169 shares of our common stock at a price that we believe was below the underlying value of the net assets."
Canaan Energy Corporation is an independent oil and gas exploration and production company headquartered in Oklahoma City, Oklahoma. Canaan trades on the Nasdaq NMS under the symbol KNAN.
Forward-Looking Statement
This press release includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. They include statements regarding the company's drilling plans and objectives, related exploration and development costs, number and location of planned wells, reserve estimates and values, statements regarding the quality of the company's properties and potential reserve and production levels. These statements are based on certain assumptions and analysis made by the company in the light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes appropriate in the circumstances, including the assumption that there will be no material change in the operating environment for the company's properties and that there will be no material acquisitions or divestitures. Such statements are subject to a number of risks, including but not limited to commodity price risks, drilling and production risks, risks related to weather and unforeseen events, governmental regulatory risks and other risks, many of which are beyond the control of the company. Reference is made to the company's reports filed with the Securities and Exchange Commission for a more detailed disclosure of the risks. For all of these reasons, actual results or developments may differ materially from those projected in the forward-looking statements. The company assumes no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date of the statement.
Following are selected financial and operating data for the years and quarters ended December 31, 2001 and 2000 (in thousands, except per share data and as noted):
Three Months Ended Years Ended
December 31, December 31,
2001 2000 2001 2000
(unaudited)
Revenues:
Oil and natural
gas sales $ 5,120 $ 8,099 $ 28,381 $ 17,992
Costs and expenses:
Lease operating 1,173 786 4,536 2,089
Production taxes 325 629 1,852 1,458
Depreciation
and amortization 2,317 1,017 7,352 2,891
General and
administrative
expenses 1,211 1,470 4,912 2,858
Merger costs -- 1,351 -- 1,351
Reduction in carrying
value of oil and
natural gas
properties 21,748 -- 21,748 --
Interest expense 547 740 2,675 1,260
Total costs and
expenses 27,321 5,993 43,075 11,907
Other income,
principally interest 51 81 368 163
Earnings (loss)
before income taxes (22,150) 2,187 (14,326) 6,248
Income taxes
(benefit) (8,410) 4,196 (5,437) 4,228
Net earnings
(loss) $ (13,740) $ (2,009) $ (8,889) $ 2,020
Earnings (loss)
per share:
Basic $ (2.91) $ (0.44) $ (1.83) $ 0.52
Diluted $ (2.91) $ (0.44) $ (1.83) $ 0.52
Weighted average
shares outstanding:
Basic 4,725,062 4,618,412 4,868,075 3,872,566
Diluted 4,725,062 4,618,412 4,868,075 3,878,482
Three Months Ended Years Ended
December 31, December 31,
2001 2000 2001 2000
(unaudited)
Cash flows from operating
activities before working
capital changes $ 2,383 $ 2,143 $ 15,962 $ 8,056
Cash flows from operating
activities 6,032 1,846 17,295 7,068
Cash flows from investing
activities (11,683) 200 (22,758) 202
Cash flows from financing
activities 1,578 1,605 1,561 (2,283)
EBITDA* 2,461 3,944 17,448 10,398
* EBITDA is defined earnings before interest, income taxes,
depreciation, amortization and impairment.
Three Months Ended Years Ended
December 31, December 31,
2001 2000 2001 2000
Oil production (MBbls) 47 47 181 143
Natural gas production
(MMcf) 1,800 1,463 6,562 4,137
Gas equivalent production
(MMcfe) 2,084 1,747 7,646 4,996
Average oil price (per Bbl)
before hedging contract
settlements $ 20.51 $ 30.16 $ 25.09 $ 29.38
Adjustment for hedging
contract settlements -- (5.90) -- (5.94)
Average oil price (per Bbl) $ 20.51 $ 24.26 $ 25.09 $ 23.44
Average gas price (per Mcf)
before hedging contract
settlements $ 2.34 $ 5.17 $ 3.89 $ 3.93
Adjustment for hedging
contract settlements -- (0.46) (0.25) (0.42)
Average gas price (per Mcf) $ 2.34 $ 4.71 3.64 $ 3.51
Average gas equivalent
price (per Mcfe) before
hedging contract
settlements $ 2.48 $ 5.15 $ 3.93 $ 4.09
Adjustment for hedging
contract settlements -- (0.54) (0.22) (0.51)
Average gas equivalent
price (per Mcfe) $ 2.48 $ 4.61 $ 3.71 $ 3.58
Operating Costs (per Mcfe):
Lease operating expense $ 0.56 $ 0.45 $ 0.59 $ 0.42
Production taxes 0.16 0.36 0.24 0.29
General and administrative
expense 0.58 0.84 0.64 0.57
Depreciation, depletion
and amortization - oil &
gas properties 1.10 0.58 0.95 0.57
Following is selected balance sheet information as of December 31, 2001 and 2000:
Dec. 31, Dec. 31,
2001 2000
ASSETS
Cash and cash equivalents $ 2,580 $ 6,482
Other current assets 6,340 7,671
Total current assets 8,920 14,153
Property and equipment, net 66,452 71,432
Other assets 148 188
Total assets $ 75,520 $ 85,773
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities 4,966 4,964
Long-term debt 42,265 33,964
Deferred income tax liability 7,587 10,514
Stockholders' equity 20,702 36,331
Total liabilities and
stockholders' equity $ 75,520 $ 85,773
MBbls -- thousand barrels
Mcf -- thousand cubic feet
Mcfe -- thousand cubic feet equivalent
MMcf -- million cubic feet
Mmcfe -- million cubic feet equivalent