GEOMET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Revenues:
Gas sales $ 8,239 $ 6,394 $ 25,784 $ 22,684
Operating fees and other 77 97 223 272
---------- ---------- ---------- ----------
Total revenues 8,316 6,491 26,007 22,956
Expenses:
Total production expenses 4,200 4,678 12,696 16,018
Depreciation, depletion
and amortization 1,561 5,169 4,657 10,187
Impairment of gas
properties - 69,146 - 236,441
General and administrative 1,206 1,853 3,999 7,007
Terminated transaction
costs - - 1,403 -
Realized gains on
derivative contracts (1,825) (3,169) (5,496) (8,626)
Unrealized (gains) losses
on derivative contracts (5,096) 3,567 (9,764) 5,526
---------- ---------- ---------- ----------
Total operating expenses 46 81,244 7,495 266,553
Operating income (loss) 8,270 (74,753) 18,512 (243,597)
Unrealized gain from change
in fair value of
derivative liability 1,596 - 1,596 -
Other expenses & interest,
net (1,526) (1,376) (4,180) (3,753)
---------- ---------- ---------- ----------
Income (loss) before income
taxes 8,340 (76,129) 15,928 (247,350)
Income tax (expense) benefit (3,813) 27,786 (7,136) 91,895
---------- ---------- ---------- ----------
Net income (loss) $ 4,527 $ (48,343) $ 8,792 $ (155,455)
========== ========== ========== ==========
Income (loss) per share:
Net income (loss) $ 4,527 $ (48,343) $ 8,792 $ (155,455)
Accretion of preferred
stock (73) - (73) -
Accrued paid-in-kind
dividends (236) - (236) -
---------- ---------- ---------- ----------
Net income (loss) available
to common stockholders $ 4,218 $ (48,343) $ 8,483 $ (155,455)
========== ========== ========== ==========
Basic $ 0.11 $ (1.24) $ 0.22 $ (3.98)
========== ========== ========== ==========
Diluted $ 0.10 $ (1.24) $ 0.21 $ (3.98)
========== ========== ========== ==========
Weighted average number of
common shares:
Basic 39,321 39,140 39,242 39,063
========== ========== ========== ==========
Diluted 45,007 39,140 41,208 39,063
========== ========== ========== ==========
GEOMET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2010 2009
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 698 $ 974
Accounts receivable 2,151 2,909
Inventory 1,448 2,132
Derivative asset - natural gas hedges 9,591 2,564
Other current assets 1,211 475
------------- -------------
Total current assets 15,099 9,054
------------- -------------
Property and equipment--net 102,607 98,698
------------- -------------
Other noncurrent assets:
Derivative asset - natural gas hedges 3,498 761
Deferred income taxes 48,095 51,805
Other 2,212 610
------------- -------------
Total other noncurrent assets 53,805 53,176
------------- -------------
TOTAL ASSETS $ 171,511 $ 160,928
============= =============
LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,354 $ 5,170
Accrued liabilities 2,147 2,808
Deferred income taxes 3,783 157
Derivative liability - interest rate
swaps 152 724
Asset retirement liability 57 108
Current portion of long-term debt 131 122
------------- -------------
Total current liabilities 12,624 9,089
------------- -------------
Long-term debt 79,885 119,996
Asset retirement liability 5,272 4,862
Other long-term accrued liabilities 48 73
Derivative liability - Series A Convertible
Redeemable Preferred Stock 16,882 --
------------- -------------
TOTAL LIABILITIES 114,711 134,020
------------- -------------
Mezzanine equity:
Series A Convertible Redeemable Preferred 20,620 --
------------- -------------
Stockholders' equity 36,180 26,908
------------- -------------
TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDERS'
EQUITY $ 171,511 $ 160,928
============= =============
GEOMET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
--------------------------
2010 2009
------------ ------------
Net cash provided by operating activities $ 11,651 $ 6,861
Net cash used in investing activities (7,283) (11,113)
Net cash (used in) provided by financing
activities (1) (4,656) 2,906
Effect of exchange rates changes on cash 12 67
------------ ------------
Decrease in cash and cash equivalents (276) (1,279)
Cash and cash equivalents at beginning of
period 974 2,097
------------ ------------
Cash and cash equivalents at end of period $ 698 $ 818
============ ============
(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 $37.2 million
to reduce outstanding bank debt.
GEOMET, INC.
OPERATING STATISTICS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2010 2009 2010 2009
--------- -------- --------- ---------
Net sales volumes (MMcf) 1,845 1,901 5,490 5,690
Per Mcf data ($/Mcf):
Average natural gas sales price $ 4.47 $ 3.36 $ 4.70 $ 3.99
Differential to NYMEX (1) $ 0.08 $ (0.03) $ 0.10 $ 0.06
Average natural gas sales price
realized (2) $ 5.45 $ 5.03 $ 5.70 $ 5.50
Adjusted lease operating
expense (3)(4) $ 1.52 $ 1.63 $ 1.56 $ 1.91
Compression expenses $ 0.42 $ 0.48 $ 0.41 $ 0.47
Transportation expense $ 0.17 $ 0.17 $ 0.17 $ 0.24
Production taxes $ 0.12 $ 0.13 $ 0.13 $ 0.15
Total production expenses,
as adjusted (3) $ 2.23 $ 2.41 $ 2.27 $ 2.77
Depletion $ 0.78 $ 0.95 $ 0.78 $ 1.79
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2010 2009 2010 2009
--------- --------- --------- ---------
POND CREEK FIELD
Net sales volumes (MMcf) 1,349 1,318 3,962 3,920
Per Mcf data ($/Mcf):
Lease operating expense $ 1.17 $ 1.27 $ 1.25 $ 1.38
Compression expense $ 0.42 $ 0.41 $ 0.39 $ 0.38
Transportation expense $ 0.23 $ 0.23 $ 0.24 $ 0.33
Production taxes $ 0.16 $ 0.11 $ 0.17 $ 0.12
Total production expenses $ 1.98 $ 2.02 $ 2.05 $ 2.21
GURNEE FIELD
Net sales volumes (MMcf) 455 527 1,395 1,620
Per Mcf data ($/Mcf):
Adjusted lease operating
expense (3)(4) $ 2.37 $ 2.55 $ 2.15 $ 2.57
Compression expense $ 0.45 $ 0.55 $ 0.40 $ 0.56
Production taxes (5) $ 0.01 $ 0.64 $ 0.05 $ 0.23
Total production expenses,
as adjusted (3) $ 2.83 $ 3.74 $ 2.60 $ 3.36
(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 and nine months
ended September 30, 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 September 30, 2010, the Company had the following natural gas
collar positions:
Volume Sold Bought
Period (MMBtu) Ceiling Floor
--------- --------- ---------
October 2010 124,000 $ 6.80 $ 5.50
October 2010 124,000 $ 6.35 $ 5.50
November 2010 through March 2011 604,000 $ 7.45 $ 6.50
---------
852,000
=========
At September 30, 2010, the Company had the following natural gas
swap positions:
Volume
Period (MMBtu) Price
--------- ---------
October 2010 124,000 $ 5.70
October 2010 93,000 $ 6.30
November 2010 through March 2011 604,000 $ 6.67
November 2010 through March 2011 906,000 $ 7.27
April 2011 through October 2011 856,000 $ 6.37
April 2011 through October 2011 856,000 $ 5.37
April 2011 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
April 2012 through October 2012 856,000 $ 5.73
November 2012 through March 2013 604,000 $ 6.42
---------
6,971,000 $ 6.42
=========
At September 30, 2010, the Company had the following interest rate
swap positions:
Effective Maturity Fixed Notional
Description date date rate(1) amount
----------- ----------- ---------- ------------
Floating-to-fixed swap 12/14/2007 12/14/2010 3.86 % $ 15,000,000
Floating-to-fixed swap 1/6/2009 1/6/2011 1.38 % $ 5,000,000
----------
$ 20,000,000
==========
(1) The floating rate paid by the counterparty is the British Bankers'
Association LIBOR rate.
GEOMET, INC.
RECONCILIATION OF ADJUSTED EBITDA TO
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Net income (loss) available
to common stockholders $ 4,218 $ (48,343) $ 8,483 $ (155,455)
Add: Accretion of preferred
stock 73 -- 73 --
Add: Accrued paid-in-kind
dividends 236 -- 236 --
Add: Interest expense, net
of interest income and
amounts capitalized 1,502 1,380 4,138 3,766
Add (Deduct): Other expense
(income) 25 (4) 42 (13)
Add (Deduct): Income tax
expense (benefit) 3,813 (27,786) 7,136 (91,895)
Add: Depreciation,
depletion and
amortization 1,561 5,169 4,657 10,187
Add: Impairment of gas
properties -- 69,146 -- 236,441
(Deduct) Add: Unrealized
(gains) losses on
derivative contracts (5,096) 3,567 (9,764) 5,526
(Deduct): Unrealized gain
from change in fair
value of derivative
liability - Series A
Convertible Redeemable
Preferred Stock (1,596) -- (1,596) --
Add: Stock based
compensation 222 160 302 661
Add: Accretion expense 121 111 363 324
---------- ---------- ---------- ----------
Adjusted EBITDA $ 5,079 $ 3,400 $ 14,070 $ 9,542
========== ========== ========== ==========
The table above reconciles net income (loss) available to common
stockholders to Adjusted EBITDA. Adjusted EBITDA is defined as net income
(loss) available to common stockholders before net interest expense, other
non-operating income, income taxes, depreciation, depletion and
amortization before unrealized (gains) losses 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.
GEOMET, INC.
RECONCILIATION OF ADJUSTED NET INCOME (LOSS) TO
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Net income (loss) available
to common stockholders $ 4,218 $ (48,343) $ 8,483 (155,455)
Accretion of preferred
stock 73 -- 73 --
Accrued paid-in-kind
dividends 236 -- 236 --
Impairment of gas
properties -- 69,146 -- 236,441
Unrealized (gains) losses
on derivative contracts,
net of tax (5,096) 3,567 (9,764) 5,526
Unrealized gain from change
in fair value of
derivative liability -
Series A Convertible
Redeemable Preferred
Stock (1,596) -- (1,596) --
Accelerated Depletion -
Canada -- 2,742 -- 2,742
Terminated transaction
costs -- -- 1,403 --
Effect of income taxes 2,557 (27,759) 3,803 (91,711)
========== ========== ========== ==========
Adjusted Net Income (Loss) $ 392 $ (647) $ 2,638 $ (2,457)
========== ========== ========== ==========
The table above reconciles net income (loss) available to common
stockholders to Adjusted Net Income (Loss). Adjusted Net Income (Loss) is
calculated by eliminating unrealized (gains) losses on derivative contracts
from net income (loss) 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 income (loss) 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 measure, we believe it is useful
information for investors because the unrealized (gains) losses relate to
derivative contracts that hedge our production in future months. The gains
associated with derivative contracts that hedge current production are
recognized in net income (loss) available to common stockholders and are
not eliminated in determining Adjusted Net Income (Loss). The adjustment
better matches (gains) losses on derivative contracts with the period when
the underlying hedged production occurs.
GEOMET, INC.
RECONCILIATION OF ADJUSTED LEASE OPERATING EXPENSE
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Lease operating expense $ 2,877 $ 3,195 $ 8,798 $ 11,113
Deduct: Produced water
disposal fees 77 97 222 272
----------- ----------- ----------- -----------
Adjusted lease operating
expense $ 2,800 $ 3,098 $ 8,576 $ 10,841
=========== =========== =========== ===========
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 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 John Baldissera BPC Financial (800) 368-1217 www.geometinc.com