HOUSTON, TX--(Marketwire - Nov 9, 2011) - GeoMet, Inc. (
J. Darby Seré, GeoMet's Chairman and Chief Executive Officer, had the following comments, "The Company is reporting a seventh consecutive quarter of Adjusted Net Income even as the gas price environment remains difficult. The results of our current year capital program are being realized as growth in gas sales volumes is accelerating. The combination of this internal growth and the pending closing of our previously announced CBM asset acquisition provides the platform for transformational growth in 2012."
Third Quarter 2011 Financial and Operating Results
For the quarter ended September 30, 2011, GeoMet reported net income of $2.4 million. Included in net income was a $2.5 million pre-tax, non-cash, mark-to-market gain on natural gas derivative contracts. The Company received net cash payments of $1.7 million from the settlement of natural gas derivative contracts during the current year quarter. Net income for the current year quarter was reduced by $0.4 million from a non-routine charge relating to an asset purchase agreement. For the quarter ended September 30, 2010, GeoMet reported net income of $4.5 million. Included in net income for the quarter ended September 30, 2010 was a $5.1 million pre-tax, non-cash, mark-to-market gain on derivative contracts and a $1.6 million unrealized gain from the change in fair value of the derivative liability associated with our Series A Convertible Redeemable Preferred Stock. The Company received net cash payments of $1.8 million from the settlement of natural gas derivative contracts during the prior year quarter.
For the quarter ended September 30, 2011, GeoMet reported net income available to common stockholders of $0.6 million, or $0.02 per fully diluted share. Included in net income available to common stockholders for the quarter ended September 30, 2011 were non-cash charges of $0.4 million for accretion of preferred stock and $1.4 million for paid-in-kind ("PIK") dividends paid on preferred stock. For the quarter ended September 30, 2010, GeoMet reported net income available to common stockholders of $4.2 million, or $0.10 per fully diluted share. Included in net income available to common stockholders for the quarter ended September 30, 2010 were non-cash charges of $0.1 million for accretion of preferred stock and $0.2 million for accrued PIK dividends on preferred stock.
Adjusted Net Income for the quarter increased to $1.1 million from $0.4 million in the prior year quarter. Adjusted Net Income is a non-GAAP measure. See the accompanying table for a reconciliation of Adjusted Net Income to Net Income.
Adjusted EBITDA for the quarter decreased to $4.5 million from $5.1 million in the prior year quarter. Adjusted EBITDA is a non-GAAP measure. See the accompanying table for a reconciliation of Adjusted EBITDA to Net Income.
Revenues, including the effects of cash settlements of natural gas derivative contracts, increased to $10.3 million for the quarter ended September 30, 2011 from $10.1 million in the prior year quarter. The average natural gas price, adjusted for cash settlements of natural gas derivative contracts, was $5.26 per Mcf during the quarter ended September 30, 2011 versus $5.45 per Mcf for the prior year quarter. Revenues, as reported for the quarter ended September 30, 2011 which excludes the effects of cash settlements of natural gas derivative contracts, were $8.6 million, as compared to $8.3 million for the prior year quarter. The average natural gas price, excluding the effects of cash settlements of natural gas derivative contracts, for the quarter ended September 30, 2011 was $4.39 per Mcf as compared to the prior year quarter average of $4.47 per Mcf.
Average net gas sales volumes for the quarter ended September 30, 2011 were 21.1 MMcf per day, a 5% increase from the same quarter in 2010.
Capital expenditures for the quarter ended September 30, 2011 were $5.0 million as compared to $3.6 million for the same quarter in the prior year.
Nine Months Ended September 30, 2011 Financial and Operating Results
For the nine months ended September 30, 2011, GeoMet reported net income of $4.0 million. Included in net income was a $0.1 million pre-tax, non-cash, mark-to-market loss on derivative contracts. The Company received net cash payments of $6.7 million from the settlement of natural gas derivative contracts during the current year period. Net income for the current year period was reduced by $0.4 million from a non-routine charge relating to an asset purchase agreement. For the nine months ended September 30, 2010, GeoMet reported net income of $8.8 million. Included in net income for the nine months ended September 30, 2010 was a $9.8 million pre-tax, non-cash, mark-to-market gain on derivative contracts and a $1.6 million unrealized gain from the change in fair value of the derivative liability associated with our Series A Convertible Redeemable Preferred Stock. Net income for the prior year period was reduced by $1.4 million from a non-routine charge relating to a terminated financing transaction and a terminated effort to sell certain gas properties. The Company received net cash payments of $5.5 million from the settlement of natural gas derivative contracts during the prior year period.
For the nine months ended September 30, 2011, GeoMet reported a net loss available to common stockholders of $1.4 million, or $0.03 per fully diluted share. Included in net loss available to common stockholders for the nine months ended September 30, 2011 were non-cash charges of $1.3 million for accretion of preferred stock and $4.0 million for PIK dividends paid on preferred stock. For the nine months ended September 30, 2010, GeoMet reported net income available to common stockholders of $8.5 million, or $0.21 per fully diluted share. Included in net income available to common stockholders for the nine months ended September 30, 2010 were non-cash charges of $0.1 million for accretion of preferred stock and $0.2 million for accrued PIK dividends on preferred stock.
Adjusted Net Income for the nine months ended September 30, 2011 increased to $4.2 million from $2.6 million in the prior year period. Adjusted Net Income is a non-GAAP measure. See the accompanying table for a reconciliation of Adjusted Net Income to Net Income.
Adjusted EBITDA for the nine months ended September 30, 2011 increased to $15.2 million from $14.1 million in the prior year period. Adjusted EBITDA is a non-GAAP measure. See the accompanying table for a reconciliation of Adjusted EBITDA to Net Income.
Revenues, including the effects of cash settlements of natural gas derivative contracts, increased to $31.6 million for the nine months ended September 30, 2011 from $31.5 million in the prior year period. The average natural gas price, adjusted for cash settlements of natural gas derivative contracts, was $5.59 per Mcf during the nine months ended September 30, 2011 versus $5.70 per Mcf for the prior year period. Revenues, as reported for the nine months ended September 30, 2011, which excludes the effects of cash settlements of natural gas derivative contracts, were $24.9 million, as compared to $26.0 million for the prior year period. The average natural gas price, excluding the effects of cash settlements of natural gas derivative contracts, for the nine months ended September 30, 2011 was $4.40 per Mcf as compared to the prior year period average of $4.70 per Mcf.
Average net gas sales volumes for the nine months ended September 30, 2011 were 20.6 MMcf per day, a 2% increase from the same period in 2010.
Capital expenditures for the nine months ended September 30, 2011 were $13.6 million as compared to $8.4 million for the same period in 2010.
Forward-Looking Statements Notice
This press release may contain "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. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions and in projecting future rates of production, the timing of development expenditures and drilling of wells, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports the Company has filed with the SEC. GeoMet undertakes no duty to update or revise these forward-looking statements.
Conference Call Information
GeoMet will hold its quarterly conference call to discuss the results for the quarter and nine months ended September 30, 2011 on November 9, 2011 at 10:30 a.m. Central Time. To participate, dial (800) 967-7143 a few minutes before the call begins. Please reference GeoMet, Inc. conference ID 1990445. The call will also be broadcast live over the Internet from the Company's website at www.geometinc.com. A replay of the conference call will be accessible shortly after the end of the call on November 9, 2011 and will be available through November 30, 2011. To access the conference call replay, please dial (888) 203-1112 and enter replay passcode 1990445 when prompted.
About GeoMet, Inc.
GeoMet, Inc. is an independent energy company primarily engaged in the exploration for and development and production of natural gas from coal seams ("coalbed methane") and non-conventional shallow gas. Our principal operations and producing properties are located in the Cahaba Basin in Alabama and the Central Appalachian Basin in West Virginia and Virginia. We also control additional coalbed methane and oil and gas development rights, principally in Alabama, British Columbia, Virginia, and West Virginia.
| GEOMET, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Revenues: | ||||||||||||||||
| Gas sales | $ | 8,520 | $ | 8,239 | $ | 24,702 | $ | 25,784 | ||||||||
| Operating fees and other | 65 | 77 | 210 | 223 | ||||||||||||
| Total revenues | 8,585 | 8,316 | 24,912 | 26,007 | ||||||||||||
| Expenses: | ||||||||||||||||
| Total production expenses | 4,493 | 4,200 | 12,915 | 12,696 | ||||||||||||
| Depreciation, depletion and amortization | 1,888 | 1,561 | 5,142 | 4,657 | ||||||||||||
| General and administrative | 1,157 | 1,206 | 4,099 | 3,999 | ||||||||||||
| Acquisition costs | 371 | -- | 371 | -- | ||||||||||||
| Terminated transaction costs | -- | -- | -- | 1,403 | ||||||||||||
| Realized gains on natural gas derivative contracts | (1,682 | ) | (1,825 | ) | (6,715 | ) | (5,496 | ) | ||||||||
| Unrealized (gains) losses on natural gas derivative contracts | (2,544 | ) | (5,096 | ) | 109 | (9,764 | ) | |||||||||
| Total operating expenses | 3,683 | 46 | 15,921 | 7,495 | ||||||||||||
| Operating income | 4,902 | 8,270 | 8,991 | 18,512 | ||||||||||||
| Unrealized gain from change in fair value of derivative liability | -- | 1,596 | -- | 1,596 | ||||||||||||
| Other expenses & interest, net | (852 | ) | (1,526 | ) | (2,511 | ) | (4,180 | ) | ||||||||
| Income before income taxes | 4,050 | 8,340 | 6,480 | 15,928 | ||||||||||||
| Income tax expense | (1,620 | ) | (3,813 | ) | (2,527 | ) | (7,136 | ) | ||||||||
| Net income | $ | 2,430 | $ | 4,527 | $ | 3,953 | $ | 8,792 | ||||||||
| Accretion of Preferred Stock | (449 | ) | (73 | ) | (1,309 | ) | (73 | ) | ||||||||
| Cash Dividends Paid on Preferred Stock | (1 | ) | -- | (2 | ) | -- | ||||||||||
| PIK Dividends on Preferred Stock | (1,378 | ) | (236 | ) | (4,010 | ) | (236 | ) | ||||||||
| Net income (loss) available to common stockholders | $ | 602 | $ | 4,218 | $ | (1,368 | ) | $ | 8,483 | |||||||
| Earnings (loss) per share: | ||||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||
| Basic | $ | 0.02 | $ | 0.11 | $ | (0.03 | ) | $ | 0.22 | |||||||
| Diluted | $ | 0.02 | $ | 0.10 | $ | (0.03 | ) | $ | 0.21 | |||||||
| Weighted average number of common shares: | ||||||||||||||||
| Basic | 39,640 | 39,321 | 39,577 | 39,242 | ||||||||||||
| Diluted | 39,968 | 45,007 | 39,577 | 41,208 | ||||||||||||
| GEOMET, INC. | |||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| (In thousands) | |||||||||
| September 30, 2011 |
December 31, 2010 |
||||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 463 | $ | 537 | |||||
| Accounts receivable | 2,472 | 2,600 | |||||||
| Inventory | 621 | 1,002 | |||||||
| Derivative asset - natural gas contracts | 7,121 | 7,088 | |||||||
| Other current assets | 1,116 | 952 | |||||||
| Total current assets | 11,793 | 12,179 | |||||||
| Property and equipment - net | 114,511 | 106,087 | |||||||
| Other noncurrent assets: | |||||||||
| Derivative asset - natural gas contracts | 2,044 | 2,187 | |||||||
| Deferred income taxes | 45,855 | 48,203 | |||||||
| Other | 770 | 1,430 | |||||||
| Total other noncurrent assets | 48,669 | 51,820 | |||||||
| TOTAL ASSETS | $ | 174,973 | $ | 170,086 | |||||
| LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY | |||||||||
| Current Liabilities: | |||||||||
| Accounts payable | $ | 5,888 | $ | 5,950 | |||||
| Accrued liabilities | 1,747 | 2,306 | |||||||
| Deferred income taxes | 2,373 | 2,207 | |||||||
| Derivative liability - interest rate swaps | -- | 5 | |||||||
| Asset retirement liability | 32 | 33 | |||||||
| Current portion of long-term debt | 90 | 133 | |||||||
| Total current liabilities | 10,130 | 10,634 | |||||||
| Long-term debt | 81,295 | 80,863 | |||||||
| Asset retirement liability | 5,932 | 5,466 | |||||||
| Other long-term accrued liabilities | 16 | 41 | |||||||
| Total liabilities | 97,373 | 97,004 | |||||||
| Mezzanine equity: | |||||||||
| Series A Convertible Redeemable Preferred Stock | 27,263 | 22,074 | |||||||
| Stockholders' equity | 50,337 | 51,008 | |||||||
| TOTAL LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY | $ | 174,973 | $ | 170,086 | |||||
| GEOMET, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2011 | 2010 | |||||||
| Net cash provided by operating activities | $ | 11,583 | $ | 11,651 | ||||
| Net cash used in investing activities | (11,873 | ) | (7,283 | ) | ||||
| Net cash provided by (used in) financing activities | 216 | (4,656 | ) | |||||
| Effect of exchange rates changes on cash | -- | 12 | ||||||
| Decrease in cash and cash equivalents | (74 | ) | (276 | ) | ||||
| Cash and cash equivalents at beginning of period | 537 | 974 | ||||||
| Cash and cash equivalents at end of period | $ | 463 | $ | 698 | ||||
| GEOMET, INC. | ||||||||||||
| OPERATING STATISTICS | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||
| Net sales volumes (MMcf) | 1,940 | 1,845 | 5,619 | 5,490 | ||||||||
| Per Mcf data ($/Mcf): | ||||||||||||
| Average natural gas sales price | $ | 4.39 | $ | 4.47 | $ | 4.40 | $ | 4.70 | ||||
| Differential to NYMEX (1) | $ | 0.20 | $ | 0.08 | $ | 0.19 | $ | 0.10 | ||||
| Average natural gas sales price realized (2) | $ | 5.26 | $ | 5.45 | $ | 5.59 | $ | 5.70 | ||||
| Adjusted lease operating expense (3) | $ | 1.52 | $ | 1.52 | $ | 1.54 | $ | 1.56 | ||||
| Compression expenses | $ | 0.39 | $ | 0.42 | $ | 0.36 | $ | 0.41 | ||||
| Transportation expense | $ | 0.17 | $ | 0.17 | $ | 0.17 | $ | 0.17 | ||||
| Production taxes (4) | $ | 0.20 | $ | 0.12 | $ | 0.19 | $ | 0.13 | ||||
| Total production expenses, as adjusted (3) | $ | 2.28 | $ | 2.23 | $ | 2.26 | $ | 2.27 | ||||
| Depletion | $ | 0.93 | $ | 0.78 | $ | 0.86 | $ | 0.78 | ||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||
| POND CREEK FIELD | ||||||||||||
| Net sales volumes (MMcf) | 1,439 | 1,349 | 4,148 | 3,962 | ||||||||
| Per Mcf data ($/Mcf): | ||||||||||||
| Adjusted lease operating expense (3) | $ | 1.12 | $ | 1.17 | $ | 1.16 | $ | 1.25 | ||||
| Compression expense | $ | 0.37 | $ | 0.42 | $ | 0.34 | $ | 0.39 | ||||
| Transportation expense | $ | 0.22 | $ | 0.23 | $ | 0.22 | $ | 0.24 | ||||
| Production taxes | $ | 0.21 | $ | 0.16 | $ | 0.19 | $ | 0.17 | ||||
| Total production expenses | $ | 1.92 | $ | 1.98 | $ | 1.91 | $ | 2.05 | ||||
| GURNEE FIELD | ||||||||||||
| Net sales volumes (MMcf) | 453 | 455 | 1330 | 1,395 | ||||||||
| Per Mcf data ($/Mcf): | ||||||||||||
| Adjusted lease operating expense (3) | $ | 2.66 | $ | 2.37 | $ | 2.62 | $ | 2.15 | ||||
| Compression expense | $ | 0.39 | $ | 0.45 | $ | 0.36 | $ | 0.40 | ||||
| Production taxes (4) | $ | 0.20 | $ | 0.01 | $ | 0.21 | $ | 0.05 | ||||
| Total production expenses, as adjusted (3) | $ | 3.25 | $ | 2.83 | $ | 3.19 | $ | 2.60 | ||||
| (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 cash settlements from natural gas derivative contracts. | |
| (3) | Produced water disposal fees are recorded as operating fees and other on the Statement of Operations. Lease operating expense per Mcf has been adjusted for produced water disposal fees because the fees are not reflected in the net gas sales volumes. See Reconciliation of Adjusted Lease Operating Expense. | |
| (4) | The increase in production taxes per Mcf was due to refunds received in March and August 2010 for production taxes related to our Gurnee field. | |
| GEOMET, INC. | |||||
| CONSOLIDATED DERIVATIVE CONTRACT POSITIONS | |||||
| At September 30, 2011, the Company had the following natural gas swap position: | |||||
| Period | Volume (MMBtu) |
Price |
|||
| October 2011 | 124,000 | $ | 6.37 | ||
| October 2011 | 124,000 | $ | 5.37 | ||
| October 2011 | 124,000 | $ | 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 2012 through October 2012 | 856,000 | $ | 5.73 | ||
| April 2012 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 | ||
| 6,578,000 | |||||
Our production is sold at an "all-in" price which includes the market price for natural gas plus a "basis differential". 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 a basis differential of $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. As of September 30, 2011, we fixed the NYMEX settle on a portion of the aforementioned forward sale as follows:
| Period | Volume (MMBtu) |
Fixed Market Price |
Fixed Basis Differential |
All-In Price |
|||||||
| October 2011 | 124,000 | $ | 4.80 | $ | 0.115 | $ | 4.915 | ||||
| November 2011 through March 2012 | 456,000 | $ | 5.20 | $ | 0.130 | $ | 5.330 | ||||
| 580,000 | |||||||||||
The remaining volumes giving effect for the fixed amounts denoted above are as follows:
| Period | Volume (MMBtu) |
Fixed Basis Differential |
|||
| October 2011 | 372,000 | $ | 0.115 | ||
| November 2011 through March 2012 | 1,976,000 | $ | 0.130 | ||
| 2,348,000 | |||||
| GEOMET, INC. | ||||||||||||||||
| RECONCILIATION OF ADJUSTED EBITDA TO NET INCOME | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net income | $ | 2,430 | $ | 4,527 | $ | 3,953 | $ | 8,792 | ||||||||
| Add: Interest expense, net of interest income and amounts capitalized | 865 | 1,502 | 2,519 | 4,138 |
||||||||||||
| (Deduct) Add: Other (income) expense | (13 | ) | 25 | (8 | ) | 42 | ||||||||||
| Add: Income tax expense | 1,620 | 3,813 | 2,527 | 7,136 | ||||||||||||
| Add: Depreciation, depletion and amortization | 1,888 | 1,561 | 5,142 | 4,657 | ||||||||||||
| (Deduct) Add: Unrealized (gains) losses on natural gas derivative contracts | (2,544 | ) | (5,096 | ) | 109 | (9,764 | ) | |||||||||
| (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 | 124 | 222 | 576 | 302 | ||||||||||||
| Add: Accretion expense | 137 | 121 | 409 | 363 | ||||||||||||
| Adjusted EBITDA | $ | 4,507 | $ | 5,079 | $ | 15,227 | $ | 14,070 | ||||||||
The table above reconciles Adjusted EBITDA to net income. Adjusted EBITDA is defined as net income before net interest expense, other non-operating income, income taxes, depreciation, depletion and amortization before unrealized (gains) losses on natural gas 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 TO NET INCOME | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net income | $ | 2,430 | $ | 4,527 | $ | 3,953 | $ | 8,792 | ||||||||
| Unrealized (gains) losses on natural gas derivative contracts, net of tax | (2,544 | ) | (5,096 | ) | 109 | (9,764 | ) | |||||||||
| Unrealized gain from change in fair value of derivative liability - Series A Convertible Redeemable Preferred Stock | -- | (1,596 |
) | -- | (1,596 |
) | ||||||||||
| Acquisition costs | 371 | -- | 371 | -- | ||||||||||||
| Terminated transaction costs | -- | -- | -- | 1,403 | ||||||||||||
| Effect of income taxes | 830 | 2,557 | (184 | ) | 3,803 | |||||||||||
| Adjusted Net Income | $ | 1,087 | $ | 392 | $ | 4,249 | $ | 2,638 | ||||||||
The table above reconciles Adjusted Net Income to net income. Adjusted Net Income is calculated by eliminating unrealized (gains) losses on natural gas derivative contracts from net income, acquisition costs, terminated transaction costs, and their related tax effects to arrive at Adjusted Net Income. The tax effects are determined by calculating the tax provision for GAAP net income and comparing the results to the tax provision for Adjusted Net Income, 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 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 and are not eliminated in determining Adjusted Net Income. The adjustment better matches (gains) losses on natural gas 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, | |||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||
| Lease operating expense | $ | 3,019 | $ | 2,877 | $ | 8,871 | $ | 8,798 | ||||
| Deduct: Produced water disposal fees | 65 | 77 | 211 | 222 | ||||||||
| Adjusted lease operating expense | $ | 2,954 | $ | 2,800 | $ | 8,660 | $ | 8,576 | ||||
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 are not reflected in the net gas sales price. The adjustment better matches lease operating expense to the natural gas sales revenue with which it is associated.
Contact Information:
For more information please contact
Stephen M. Smith
(713) 287-2251
()
www.geometinc.com