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CREDO Petroleum Corporation Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: September 10, 2012 05:11PM

CREDO Petroleum Corporation (CRED) filed Quarterly Report for the period ended 2012-07-31. Credo Petroleum Corporation has a market cap of $145.2 million; its shares were traded at around $14.46 with a P/E ratio of 27.3 and P/S ratio of 8.7.



Highlight of Business Operations:

For the nine months ended July 31, 2012, oil and gas revenues increased 53% to $18,043,000 compared to $11,806,000 during the same period last year. As the oil and gas price/volume table on page 20 shows, the Company’s oil production increased 86% to 184,200 barrels while natural gas production declined 7% to 641,000 Mcf. Total production, at the six to one gas to oil energy equivalent conversion ratio, increased 36% to 291,100 barrels of oil equivalent (BOE), or 1,062 BOE per day. The increased total production volume resulted in a revenue increase of $7,198,000. For the nine months ended July 31, 2012, oil sales prices decreased 1% to $86.64 per barrel and natural gas sales prices decreased 28% to $3.26 per Mcf. The net effect of these price changes was to decrease oil and gas sales by $961,000.

Total costs and expenses increased 59% to $13,236,000 compared to $8,310,000 for the same period last year. Transaction costs related to the Forestar merger were $1,026,000 during the nine months ended July 31, 2012. Total expenditures excluding these transaction costs would have been $12,210,000, or a 47% increase compared to the same period last year. Oil and gas production expenses increased 22% due to (i) increased production taxes on increased revenue which were partially offset by a production tax credit related to prior years, (ii) increased ad valorem taxes related to an increase in the number of wells subject to the tax, and (iii) increased lease operating expense due primarily to the addition of new wells during the reporting period. DD&A increased primarily due to property cost additions for future development costs of proved undeveloped Bakken and Three Forks reserves additions made starting in the fourth quarter of fiscal 2011. Refer to the MD&A section (Item 7) of the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 31, 2011 for additional information regarding “Certain Significant Effects of the Company’s Strategic Transition to Oil from Natural Gas”. General and administrative expenses increased $1,518,000, or 75%, compared to prior year. As mentioned above, $1,026,000 of the increase related to one-time merger related costs including fairness opinions, legal expenses and proxy costs. Excluding merger related costs, general and administrative expenses increased $492,000, or 24%, compared to prior year due to increases in salary expense related to staff additions, one-time employment placement costs and professional fees primarily related to accounting and auditing services, partially offset by reduced legal fees related to a lawsuit that was settled in the prior year. The effective tax rate increased to 35% compared to 26% for the same period last year. The increase, required to be calculated on an annualized basis, is primarily due to the 1,000 barrel per day limitation on percentage depletion and the non-deductible merger related costs. As the Company’s fiscal 2012 production grows beyond the 1,000 barrel per day tax limitation, as it did during the second and third quarters of 2012, percentage depletion will have a proportionately smaller impact on reducing the effective tax rate. For the nine month period, the total of realized and unrealized derivative losses on hedges decreased $504,000 because the differential between market prices at July 31, 2012 and the hedged prices for the related months narrowed significantly compared to the comparable period.

For the three months ended July 31, 2012, oil and gas revenues increased 42% to $6,362,000 compared to $4,488,000 during the same period last year. As the oil and gas price/volume table on page 20 shows, the Company’s oil production increased 92% to 73,000 barrels while natural gas production declined 8% to 217,000 Mcf. Total production, at the six to one gas to oil energy equivalent conversion ratio, increased 41% to 109,200 BOE, or 1,187 BOE per day, resulting in a revenue increase of $2,671,000. For the three months ended July 31, 2012, oil sales prices decreased 12% to $78.00 per barrel and natural gas sales prices decreased 36% to $3.09 per Mcf. The net effect of these price changes was to decrease oil and gas sales by $797,000.

For the three months ended July 31, 2012, total costs and expenses increased 75% to $5,486,000 compared to $3,139,000 for the same period last year. Transaction costs related to the Forestar merger were $994,000 during the three months ended July 31, 2012. Total expenditures excluding these transaction costs would have been $4,492,000, or a 43% increase compared to the same period last year. Oil and gas production expenses increased 22% due to (i) higher production taxes related to increased revenue, (ii) increased ad valorem taxes related to an increase in the number of wells subject to the tax, and (iii) increased lease operating expense due primarily to the addition of new wells during the reporting period. DD&A increased primarily due to property cost additions for future development costs of proved undeveloped Bakken and Three Forks reserves additions made starting in the fourth quarter of fiscal 2011. Refer to the MD&A section (Item 7) of the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 31, 2011 for additional information regarding “Certain Significant Effects of the Company’s Strategic Transition to Oil from Natural Gas”. General and administrative expenses increased $1,029,000, or 125%, compared to prior year. As mentioned above, $994,000 of the increase related to one-time merger related costs including fairness opinions, legal fees and proxy costs. Excluding merger related costs, general and administrative expenses increased $35,000, or 4%, compared to prior year due to

At July 31, 2012, the Company held open short sales derivative contracts for 5,000 barrels of oil (five contracts) for each production month of August 2012 through December 2012 with prices ranging from $91.95 to $92.21. This hedge is expected to cover approximately 15% to 25% of estimated oil production for the hedged period. During the three months ended July 31, 2012, the Company closed one contract per month at a price of $99.80 per barrel.

Read the The complete Report



Stocks Discussed: CRED,
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