SOURCE: FX Energy, Inc.

November 09, 2009 16:00 ET

FX Energy's Third Quarter Income Up; Production and Revenues Expected to Rise

SALT LAKE CITY, UT--(Marketwire - November 9, 2009) - FX Energy, Inc. (NASDAQ: FXEN) today announced net income of $9.4 million, or $0.22 per share, for the quarter ended September 30, 2009. Excluding non-cash foreign currency exchange gains of $12.2 million, the Company would have recorded a third quarter loss of $(2.8) million, or $(0.07) per share. Both figures are significant improvements over the net loss of $(3.9) million, or $(0.09) per share reported in the third quarter of 2008.

The most notable oil and gas operations result for the third quarter was a 21 percent boost in oil and gas production from the year earlier quarter. New gas production in Poland that started in the last month of the quarter was large enough to boost company-wide production substantially for the entire quarter. The Company also noted it expects fourth quarter production to be up even more.

Production Gains and Lower Exploration Costs Drive Improved Third Quarter Results

The Company's production rose to 471 Mmcfe during the third quarter of 2009 from 391 Mmcfe during the 2008 quarter. The production increase was due to the commencement of production from the Company's Roszkow and Grabowka wells in Poland.

"The start of production from these wells represents a step-change for us," said Clay Newton, VP Finance for FX Energy. "Specifically, company-wide production jumped up to 12.2 Mmcfe per day, or 265% of the 4.6 Mmcfe daily rate at the beginning of the quarter. The Roszkow well came online only 13 days before the end of the quarter, so the full quarterly impact will not be seen until fourth quarter of this year."

Despite the Company's higher production volumes, lower oil prices and Zloty/US dollar exchange rate effects led to lower revenues of $2.7 million for the 2009 third quarter compared to $3.9 million for the 2008 quarter. Average oil prices of $57.83 in the 2009 third quarter were 45% lower than the $104.68 received per barrel during the same quarter of 2008, resulting in a decline in 2009 revenues of almost $1 million. Zloty-based gas prices in Poland were 5% higher in the 2009 third quarter than in the same quarter of 2008, but in US dollar terms the price was 34% lower, $4.65 per mcf in the 2009 third quarter compared to $7.00 per mcf in the 2008 third quarter.

Total costs for the period were almost 21 percent lower, falling from $8.2 million to $6.5 million. The most material reduction was exploration costs falling from $3.7 million to only $0.7 million. This was partially offset by a property impairment charge of $1.9 million attributable to the Company's Wilga well in Poland. Production at that well came to an end during the third quarter of 2009, despite repeated workover attempts. The Company impaired the remaining capitalized costs at Wilga, and plans to dismantle the production facility.

Nine Month Results

The Company reported a net loss of $(3.9) million, or $(0.09) per share, for the first nine months of 2009. Excluding non-cash foreign currency exchange gains of $5.6 million, the Company would have recorded a loss for the first nine months of 2009 of $(9.4) million, or $(0.22) per share, compared to a net loss of $(9.5) million, or $(0.24) per share reported in the first nine months of 2008.

The Company reported earnings before interest, taxes, depreciation, amortization, exploration expense, and other non-cash charges (EBITDAX)(1) during the first nine months of 2009 of $166,000, compared to $5.2 million in the first nine months of 2008. At September 30, 2009, the Company's cash and investments were $2.5 million and working capital was $2.7 million, in line with Company expectations. Also as expected, the new production streams are reversing the trend of declining cash balances this year. In the month of October, 2009, the Roszkow well alone generated $1.4 million in incremental revenues.

Oil and gas revenues for the 2009 first nine months were 45% lower than those recorded during the same period of 2008. The Company recognized oil and gas revenues of $6.3 million for the first nine months of 2009, compared to $11.4 million for the same period of 2008. Total revenues for the first nine months of 2009 were $8.1 million, compared to $14.5 million in the first nine months of 2008.

Natural gas production in Poland was 888 Mmcf during the first nine months of 2009, compared to 920 Mmcf during the same period of 2008. Production declines at the Wilga well were mostly offset by new production from the Company's Roszkow and Grabowka wells. Though production for the first nine months of 2009 was down slightly from the year earlier, the Company believes this trend is now reversed. The new production streams just added are expected to increase full year 2009 production significantly above full year 2008 production.

Although zloty-based gas prices in Poland were higher, average gas prices as reported in U.S. dollars declined by 31% from 2008 to 2009, a function of the weaker Polish zloty. The average exchange rate during the first nine months of 2008 was 2.26 zlotys per U.S. dollar. The average exchange rate during the same period of 2009 was 3.22 zlotys per U.S. dollar, a change of 42%.

Non-Cash Foreign Exchange Effects

The foreign exchange gains of $12.2 million and $5.5 million for the third quarter and first nine months of 2009, respectively, are both included in other income and expense. These figures come primarily from recognizing gains and losses related to intercompany loans between the Company and its wholly owned Polish subsidiary. These non-cash foreign exchange effects are likely to continue to vary greatly depending upon future exchange rate changes.

Balance Sheet Changes

Cash and working capital balances at September 30, 2009 were substantially lower than those at the end of the 2008 third quarter. However, this results mostly from the temporarily high balances at the end of the 2008 third quarter. During the late third quarter and through the fourth quarter of 2008, the Company allowed cash balances to build and drew on its credit facilities to maximize financial liquidity during the world financial crisis of that period. The Company again noted that production from the Roszkow and Grabowka wells, which has more than doubled company-wide production, is expected to build the Company's cash balances through higher revenues and cash flow.

Earnings Conference Call Today, Monday, November 9, 2009 at 4:30 P.M. Eastern (2:30 P.M. Mountain)

The Company will host a conference call and webcast today to discuss 2009 third quarter results and update operational items at 4:30 p.m. Eastern Time. Conference call information is as follows: U.S. dial-in-number: 800-862-9098; International dial-in-number: 785-424-1000. Passcode: 4550884. Request: FX Energy, Inc. Conference Call.

The call will also be webcast live and interested parties may access the webcast through FX Energy's homepage at www.fxenergy.com. For those that are unable to participate in the live call, a rebroadcast will be available through the Company's website for two weeks, beginning one hour after the completion of the call.

About FX Energy

FX Energy is an independent oil and gas exploration and production company with production in the U.S. and Poland. The Company's main exploration activity is focused on Poland's Permian Basin where the gas-bearing Rotliegend sandstone is a direct analog to the Southern Gas Basin offshore England. The Company trades on the NASDAQ Global Market under the symbol FXEN. Website www.fxenergy.com

(1) Explanation and Reconciliation of Non-GAAP Financial Measures

Earnings before interest, taxes, depreciation, amortization, and exploration expense (EBITDAX) is a non-GAAP measure presented because of its acceptance as an indicator of an oil and gas exploration and production Company's ability to internally fund exploration and development activities and to service debt. EBITDAX should not be considered in isolation or as a substitute for operating income prepared in accordance with generally accepted accounting principles. The table below reconciles EBITDAX with income from continuing operations as derived from the Company's financial information.

EBITDAX:                                            Nine Months Ended
                                              September 30,  September 30,
                                                  2009           2008
                                              -------------  -------------
Net loss                                      $      (3,865) $      (9,468)
Foreign exchange loss (gain)                         (5,547)           338
Exploration expense                                   4,071          9,960
Depletion, depreciation and amortization              1,173          2,100
Property impairment                                   1,864             --
Interest (income) expense, net                          402            (13)
Stock compensation expense                            1,332          1,866
Other non-cash items                                    736            423
                                              -------------  -------------
EBITDAX                                       $         166  $       5,206
                                              =============  =============

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. Forward-looking statements are not guarantees. For example, exploration, drilling, development, construction or other projects or operations may be subject to the successful completion of technical work; environmental, governmental or partner approvals; equipment availability, or other things that are or may be beyond the control of the Company. Operations that are anticipated, planned or scheduled may be changed, delayed, take longer than expected, fail to accomplish intended results, or not take place at all.

In carrying out exploration it is necessary to identify and evaluate risks and potential rewards. This identification and evaluation is informed by science but remains inherently uncertain. Subsurface features that appear to be possible traps may not exist at all, may be smaller than interpreted, may not contain hydrocarbons, may not contain the quantity or quality estimated, or may have reservoir conditions that do not allow adequate recovery to render a discovery commercial or profitable. Forward-looking statements about the size, potential or likelihood of discovery with respect to exploration targets are certainly not guarantees of discovery or of the actual presence or recoverability of hydrocarbons, or of the ability to produce in commercial or profitable quantities. Estimates of potential typically do not take into account all the risks of drilling and completion nor do they take into account the fact that hydrocarbon volumes are never 100% recoverable. Such estimates are part of the complex process of trying to measure and evaluate risk and reward in an uncertain industry.

Forward-looking statements are subject to risks and uncertainties outside FX Energy's control. Actual events or results may differ materially from the forward-looking statements. For a discussion of additional contingencies and uncertainties to which information respecting future events is subject, see FX Energy's SEC reports or visit FX Energy's website at www.fxenergy.com.

                     FX ENERGY, INC. AND SUBSIDIARIES
                       Consolidated Balance Sheets
                               (Unaudited)
                              (in thousands)


                                              September 30,  December 31,
                                                  2009           2008
                                              -------------  -------------
ASSETS

Current assets:
  Cash and cash equivalents                   $       2,508  $      16,588
  Marketable securities                                  --          4,105
  Receivables:
    Accrued oil and gas sales                         1,555          1,093
    Other receivables                                 3,504          1,720
    Input VAT receivable                                629          2,514
  Inventory                                             223            211
  Other current assets                                  358            450
                                              -------------  -------------
      Total current assets                            8,777         26,681
                                              -------------  -------------

Property and equipment, at cost:
  Oil and gas properties (successful
   efforts method):
    Proved                                           31,684         28,600
    Unproved                                          3,351          2,770
  Other property and equipment                        7,492          6,667
                                              -------------  -------------
    Gross property and equipment                     42,527         38,037
  Less accumulated depreciation, depletion
   and amortization                                 (11,014)       (11,164)
                                              -------------  -------------
      Net property and equipment                     31,513         26,873
                                              -------------  -------------

Other assets:
  Certificates of deposit                               406            406
  Loan fees                                             827            842
                                              -------------  -------------
      Total other assets                              1,233          1,248
                                              -------------  -------------

Total assets                                  $      41,523  $      54,802
                                              =============  =============





                    FX ENERGY, INC. AND SUBSIDIARIES
                      Consolidated Balance Sheets
                              (Unaudited)
                   (in thousands, except share data)
                              -Continued-

                                              September 30,  December 31,
                                                  2009           2008
                                              -------------  -------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                            $       5,583  $       7,779
  Accrued liabilities                                   501          4,937
                                              -------------  -------------
    Total current liabilities                         6,084         12,716
                                              -------------  -------------

Long-term liabilities:
  Notes payable                                      25,000         25,000
  Asset retirement obligation                         2,192          1,932
                                              -------------  -------------
    Total long-term liabilities                      27,192         26,932
                                              -------------  -------------

      Total liabilities                              33,276         39,648
                                              -------------  -------------

Stockholders' equity:
  Preferred stock, $0.001 par value,
   5,000,000 shares authorized as of
   September 30, 2009 and December 31,
   2008; no shares outstanding                           --             --
  Common stock, $0.001 par value,
   100,000,000 shares authorized as of
   September 30, 2009 and December 31, 2008;
   42,662,156 and 42,202,878 shares issued
   and outstanding as of September 30, 2009
   and December 31, 2008, respectively                   43             42
  Additional paid-in capital                        160,233        158,075
  Cumulative translation adjustment                  11,936         17,137
  Accumulated deficit                              (163,965)      (160,100)
                                              -------------  -------------
  Total stockholders' equity                          8,247         15,154
                                              -------------  -------------

Total liabilities and stockholders' equity    $      41,523  $      54,802
                                              =============  =============





                  FX ENERGY, INC. AND SUBSIDIARIES
   Consolidated Statements of Operations and Comprehensive Income (Loss)
                           (Unaudited)
              (in thousands, except per share amounts)



                                      For the three        For the nine
                                       months ended        months ended
                                       September 30,       September 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Revenues:
  Oil and gas sales                 $  2,691  $  3,885  $  6,286  $ 11,354
  Oilfield services                    1,118     1,211     1,771     3,162
                                    --------  --------  --------  --------
    Total revenues                     3,809     5,096     8,057    14,516
                                    --------  --------  --------  --------

Operating costs and expenses:
  Lease operating expenses               857       930     2,415     2,698
  Exploration costs                      686     3,683     4,071     9,960
  Property impairment                  1,864        --     1,864        --
  Oilfield services costs                657       815     1,274     2,091
  Depreciation, depletion and
   amortization                          425       653     1,173     2,101
  Accretion expense                        8        21        24        63
  Stock compensation                     449       622     1,332     1,866
  General and administrative           1,512     1,519     4,914     4,880
                                    --------  --------  --------  --------
    Total operating costs and
     expenses                          6,458     8,243    17,067    23,659
                                    --------  --------  --------  --------

                                    --------  --------  --------  --------
Operating loss                        (2,649)   (3,147)   (9,010)   (9,143)
                                    --------  --------  --------  --------

Other income (expense):
  Interest income (expense), net
   and other income (expense)           (130)      (86)     (402)       13
  Foreign exchange gain (loss)        12,227      (455)    5,547      (338)
                                    --------  --------  --------  --------
    Total other income (expense)      12,097      (541)    5,145      (325)
                                    --------  --------  --------  --------
Net income (loss)                      9,448    (3,688)   (3,865)   (9,468)

Other comprehensive income (loss)
  Foreign currency translation
   adjustment                         (9,579)        -    (5,201)        -
  Increase in market value of
   available for sale marketable
   securities                              -       224         -         1
                                    --------  --------  --------  --------
Comprehensive loss                  $   (131) $ (3,464) $ (9,066) $ (9,467)
                                    ========  ========  ========  ========

Net income (loss) per common share
    Basic                           $   0.22  $  (0.09) $  (0.09) $  (0.24)
    Diluted                         $   0.22  $  (0.09) $  (0.09) $  (0.24)
Weighted average common shares
 outstanding
    Basic                             42,560    40,747    42,470    40,037
    Dilutive effect of stock
     options                              84         -         -         -
                                    --------  --------  --------  --------
    Diluted                           42,644    40,747    42,470    40,037
                                    ========  ========  ========  ========




                      FX ENERGY, INC. AND SUBSIDIARIES
                   Consolidated Statements of Cash Flows
                               (Unaudited)
                              (in thousands)


                                                           For the Nine
                                                           Months Ended
                                                          September 30,
                                                        ------------------
                                                          2009      2008
                                                        --------  --------
Cash flows from operating activities:
  Net loss                                              $ (3,865) $ (9,468)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
    Depreciation, depletion and amortization               1,173     2,101
    Property impairment                                    1,864        --
    Accretion expense                                         24        63
    Amortization of bank fees                                137       137
    Stock compensation                                     1,332     1,866
    Foreign exchange gains                                (6,756)     (338)
    Common stock issued for services                         739       665
Increase (decrease) from changes in working capital
 items:
    Receivables                                             (861)   (3,330)
    Inventory                                                (12)      (32)
    Other current assets                                      48      (113)
    Other assets                                            (122)      247
    Accounts payable and accrued liabilities              (2,437)     (663)
                                                        --------  --------
      Net cash used in operating activities               (8,736)   (8,865)
                                                        --------  --------

Cash flows from investing activities:
  Additions to oil and gas properties                     (6,680)  (16,941)
  Additions to other property and equipment                 (802)     (783)
  Additions to marketable securities                         (11)     (170)
  Proceeds from maturities of marketable securities        4,661     9,815
                                                        --------  --------
      Net cash used in investing activities               (2,832)   (8,079)
                                                        --------  --------

Cash flows from financing activities:
  Proceeds from notes payable                                 --    11,000
  Proceeds from loan related to auction-rate securities       --     3,354
  Payments on loan related to auction-rate securities     (2,808)       --
  Proceeds from exercise of stock options and warrants       132     9,364
                                                        --------  --------
      Net cash (used in) provided by financing
       activities                                         (2,676)   23,718
                                                        --------  --------

Effect of exchange rate changes on cash                      164        --
                                                        --------  --------

Net increase (decrease) in cash                          (14,080)    6,774
Cash and cash equivalents at beginning of year            16,588     4,262
                                                        --------  --------

Cash and cash equivalents at end of period              $  2,508  $ 11,036
                                                        ========  ========

Contact Information

  • Contact:
    SCOTT J. DUNCAN
    FX Energy, Inc.
    3006 Highland Drive, Suite 206
    Salt Lake City, Utah 84106
    (801) 486-5555
    Fax (801) 486-5575
    www.fxenergy.com