GMX Resources Inc. Provides an Operational Update and Guidance for 2012

OKLAHOMA CITY, Feb. 1, 2012 (GLOBE NEWSWIRE) -- GMX RESOURCES INC., (NYSE:GMXR) today announces an operational update on our Bakken development program, provides production guidance for the first quarter and year-end 2012 and provides an update on the Company's capital expenditures for 2012.

Review of 2011 Important Accomplishments

Over the last 14 months many important accomplishments have been made regarding the Company's strategic direction to transform from a concentrated natural gas producer into a more diversified energy Company focused on an accelerated program to increase oil as a significant component of our near term exploration and production activities while improving liquidity in challenging market conditions. 

• Agreements to purchase 35,524 acres in the Bakken (150/1,280 acre Units) and 40,191 acres in the Niobrara providing the Company the opportunity to switch from primarily a natural gas producer to predominately an oil producer
• Issued equity for approximately $105 million of cash and $200 million in High Yield Bonds to make acquisitions and fund drilling
• Suspended natural gas drilling in July 2011 to re-direct capital to significantly higher rate of return acreage
• Reduced H&P Flex Rig contract obligations by $47 million
• Successfully completed a natural gas VPP for $49.7 million
• Captured $18.5 million of natural gas hedge value
• Terminated credit agreement and related financial maintenance covenants; no longer dependent on commercial lending
• Successfully generated $100 million in new liquidity in connection with Bond Exchange
• Implemented plan to reduce cash G&A by an estimated 21% for 2012
• Established operational footprint in one of the largest and most competitive oil plays in USA
• Prefunded planned 2012 drilling program with recent liquidity events

Given the continued decline in natural gas pricing resulting from an oversupply created by the success of horizontal drilling in the United States, our decision to transition to an oil producer and to suspend drilling of our core East Texas natural gas assets continues to be a prudent business decision. The liquidity-enhancing steps undertaken by the Company during the fourth quarter of 2011 consisting of the issuance of secured senior notes due 2017, the execution of the VPP and the monetization of natural gas hedges were both creative and challenging to accomplish but resulted in approximately $168 million of additional capital available for drilling.  We plan to proactively maintain liquidity and are working on new oil hedging strategies.

Operations Update

The Company has shifted its activity in 2012 to actively drill our McKenzie County and Billings County, North Dakota leaseholds. In McKenzie County, our first non-operated well, the Taboo #1- 25-36H Sections 25 & 36 Townships 147N Range 100W was drilled by Slawson Exploration and had a 24 hour IP of 1,436 BOE/D. Our first Billings County well, the Evoniuk #21-2-1H was completed in Sections 2&11 Township 142N Range 100W with a total depth of 20,600' and lateral length of 9,293'. The well was completed with a 30-stage sliding sleeve swell packer system and produced a Peak Rate test of 637 BOE/D without recovering any frac balls. The well has flow restrictions downhole that will require a workover rig. To that end, the Company has signed a long-term new build contract for a dedicated fit-for-purpose workover rig and crew, with an expected delivery of March 1, 2012.

The Company's fourth operated well and second McKenzie County well; the Lange #11-30-1H in Sections 30 & 31 Township 147N Range 99W is currently drilling in the lateral with a target of Middle Bakken production and has exhibited similar oil shows to the Taboo. The Lange #11-30-1H is a direct offset and located 3,000 feet east of the Taboo. The Company also reports today that we have elected to participate with Continental Resources Inc. in the drilling of the Pojorlie #21-2-1H well in Section 2 &11 Township 146N Range 98W of McKenzie County. The Company will have 34% working interest in the well that is expected to spud in February 2012. The Company will focus its drilling and development activities in Billings & McKenzie Counties in 2012.

In Stark County North Dakota, the Company has drilled and completed two Three Forks wells.    The Wock #21-2-1H and Frank #31-4-1H were both successfully fracture stimulated but are also awaiting the workover rig to clean out their laterals. These wells represent five successfully drilled and completed wells in our Bakken Petroleum System acreage and drilling program. 

The following table summarizes our Bakken development program to date:

Tim Benton, acting Vice President of Operations said "Securing access to the workover rig is deemed strategic to the Company's plan to establish a meaningful operational footprint as well as the need to remove frac balls and other restrictive materials from the 10,000-foot laterals in the first three operated wells.  As noted by other operators in the Williston Basin, workover rigs have become another operational bottleneck as the need to clean out newly completed wells from a higher rig count as well as routine maintenance for a growing population of producing wells stress current capabilities. Furthermore, we believe that a significant portion of our Billings & McKenzie Counties acreage position has been de-risked by us and several other operators."

The Company has continued to make significant progress in completing the necessary steps to receive permits on both its Federal and State leaseholds. The Company has four additional locations permitted and one in process in McKenzie County, one permitted and seven in process in Billings County and two additional locations permitted in Stark County, North Dakota. In addition to the four wells that we have already elected to participate in, the Company has an additional seven wells that we expect to participate in with working interest ranging between 1% and 14% with an average of 5%.

In the Niobrara, the Company reports that the Newton Ranches #14-3444H well, operated by Devon Energy, in Goshen County Wyoming in which the Company has a 29.2% working interest has been successfully fracture stimulated and is currently on pump. Due to commercial considerations, the Company will not be releasing information related to the production from this well. 

The Company has received a proposal from Devon Energy to drill, core and complete the Newton Ranches #3-2635H in Section 26 Township 23N Range 65W.  We expect additional wells to be drilled in and around our Niobrara acreage in 2012. 

The majority of the Company's 204-square mile Chugwater 3D seismic shoot that encompasses our Platte, Laramie and Goshen Counties, Wyoming leases has been completed and is currently in processing.

The Company completed a total of eight "long lateral" Haynesville/Bossier ("H/B") horizontal ("Hz") wells during 2011 before suspending the drilling program due to decreasing commodity prices and high completed well costs. The "long lateral" H/B Hz wells are consistent with the Company's previously stated expectation of 6.5 BCF estimated ultimate recovery. Other operators have also discontinued their H/B drilling programs, and completed well costs have begun to decline. We are also capable of drilling much longer laterals that would increase recoveries. We will re-evaluate our activity periodically depending on economic conditions.

Reduction in General and Administrative Expenses

The Company has undertaken a thorough review of its general and administrative expenses and reports today the specifics of certain reductions that have been implemented in 2012.   Total cash expenditures for general and administrative ("G&A") expenses in 2011 are estimated to be $33 million, before deductions of capitalized cash G&A of $9 million.  For 2012, total cash expenditures for G&A expenses are projected to be $26 million including $5 million of capitalized cash G&A, representing a 21% reduction over 2011 totals. The $7 million reduction in cash expenditures for G&A expenses is projected as result of the following:

• Reductions in cash compensation, long-term incentive payments and annual incentive bonuses for the executive officers.
• A reduction in force of approximately 13% of the employee base through attrition and consolidation of responsibilities.
• The reduction or elimination of a number of other non-compensation related G&A expenses.

The total 2011 cash compensation paid or awarded to the top three executive officers is estimated to be approximately 36% less than they received in 2010. In addition, approximately 25% of the estimated 2011 cash compensation for the top three executive officers may be deferred by the Company for two years and paid in common shares, if available, under the Company's Long-Term Incentive Plan.

Production for Fourth Quarter and Year-End 2011; Guidance for 2012

Production for Q4 2011 was 4.8 BCFE, down 9% from Q4 2010, and production for 2011 was 24 BCFE, up 37% from 2010, before designated VPP volumes. Production allocated to the Company's VPP agreement in the fourth quarter was 0.45 BCFE. Oil production for the fourth quarter 2011 was 28,171 BBLs, representing an increase of 17% over the fourth quarter of 2010 and a 50% increase over the third quarter of 2011. Crude and NGLs as a percentage of revenues, excluding hedges, during the fourth quarter 2011 were 39% compared to 23% in the fourth quarter of 2010.  Estimated production guidance for the first quarter 2012 is 591,000 BOE which includes an estimated 52,000 BBLs of oil. The Company projects oil production to increase 302% from 92,837 BBLs during 2011 to approximately 373,000 during 2012, and for total production to be approximately 2,274,000 BOE. Oil production in BBLs from the year-end 2011 to year-end 2013 is projected to have a compound annual growth rate of approximately 215% assuming a second rig is added in 2012 and a third rig is added in 2013.

Capital Expenditures for 2012

Capital expenditures are expected to be approximately $97 million in 2012 including capitalized interest and G&A. Bakken targeted drilling capital expenditures are expected to be approximately $68 million for 7.1 net wells. The Company plans to alternate our one-rig program between McKenzie and Billings Counties North Dakota. 

2011 Year-End Reserves/ Oil Hedges

The Company expects to complete our 2011 year-end reserve report with independent reserve auditors and expects to provide it on or before our fourth quarter year-end financial and operational update call. The Company is in the process of finalizing hedge facilities with several counterparties and we expect to begin actively hedging our projected oil production in February.

Management Comment

Michael J. Rohleder, President said "The increased liquidity created last year allowed us to enter the Bakken play earlier than forecasted, eliminated the bank revolver and its restrictive maintenance covenants and fully funds our Capex plan in 2012. We jump started our transition from a natural gas only producer to an oil producer beginning in July of 2011. Our first two wells in the Bakken demonstrated that we could successfully make this transition and the results of our latest wells are in the direction of what we expect to have in our Billings and McKenzie units where we will focus our drilling during 2012. By drilling in the most productive areas of our acreage, in and around other successful operators, we intend to maximize our economics, improve our average EURs and more rapidly generate greater enterprise value. The reduction of G&A expenses is another step in addressing our financial challenges in a proactive manner. We are committed to the goal of successfully transitioning the Company into an oil producer, and this year will be the most challenging. We expect our rapidly increasing oil production will serve to offset some of the decline in revenue from natural gas and we have committed 100% of our 2012 drilling capital expenditures to oil exploration. 

Natural gas pricing deteriorated throughout 2011 and continues to deteriorate making the decisions to cease drilling our Haynesville last summer and to enter into a VPP agreement for a portion of our gas production in December even more meaningful for the Company. Our core East Texas natural gas assets are virtually all held by production and with existing infrastructure and readily available services we are positioned to re-start a gas drilling program when natural gas prices rise to economic levels. In the meantime, we believe that we have tremendous upside with our proved and potential natural gas reserves."

GMXR is a resource play rich E&P company.  Oil shale resources are located in the Williston Basin, North Dakota & Montana targeting the Bakken Petroleum System and in the DJ Basin, Wyoming targeting the Niobrara Petroleum System; both plays are 90% oil. Our natural gas resources are located in the East Texas Basin, in the Haynesville/Bossier gas shale and the Cotton Valley Sand Formation, where the majority of our acreage is contiguous, with infrastructure in place and mostly held by production. We believe these oil and natural gas resource plays provide a substantial inventory of operated, high probability, repeatable, organic growth opportunities. The Company's multiple basin strategy provides flexibility to allocate capital to achieve the highest risk adjusted rate of return, with both oil and natural gas resources throughout our portfolio. Please visit www.gmxresources.com for more information on the Company.

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 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 financing plans and objectives, 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 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. Such statements are subject to a number of risks, including but not limited to risks relating to the Company's ability to obtain financing for its planned activities,, 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 these reasons, actual results or developments may differ materially from those projected in the forward-looking statements.