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Gmx Resources Inc has a market cap of $303.5 million; its shares were traded at around $5.38 with a P/E ratio of 67.3 and P/S ratio of 3.1.
Highlight of Business Operations: Oil and Natural Gas Sales. Oil and natural gas sales during the three months ended March 31, 2011 increased 38% to $29.4 million compared to the first quarter of 2010. Ineffectiveness of derivative gains recognized in oil and gas sales of $0.4 million and $0.5 million for the three months ended March 31, 2011 and 2010, respectively, is the result of a difference in the fair value of our cash flow hedges and the fair value of the projected cash flows of a hypothetical derivative based on our expected sales point. The increase in oil and natural gas sales was due to an 89% increase in production on a Bcfe-basis and a 22% increase in oil prices, offset by a 27% decrease in the average realized price of natural gas and a 10% decrease in the average realized price in natural gas liquids (“NGLs”), excluding ineffectiveness of hedging activities. The average price per barrel of oil, per gallon of natural gas liquids NGLs and Mcf of natural gas received (exclusive of ineffectiveness from derivatives) in the three months ended March 31, 2011 was $92.34, $0.85 and $3.67, respectively, compared to $75.47, $0.94 and $4.69, respectively, in the three months ended March 31, 2010. Our realized sales price for natural gas, including the effect of hedges of $0.80 and $1.45, for the three months ended March 31, 2011 and 2010, respectively, was approximately 109% and 117% of the average NYMEX closing contract price for the respective periods. In the first quarter of 2011 and 2010, the conversion of natural gas to NGLs produced an upgrade of approximately $0.25 per Mcf and $0.90 per Mcf, respectively, for every Mcf of natural gas produced. This upgrade in value was previously included in the realized price of our natural gas sales.
Lease Operations. Lease operations expense decreased $0.2 million, or 7%, for the three months ended March 31, 2011 to $2.9 million, compared to $3.1 million for the three months ended March 31, 2010. Lease operations expense on an equivalent unit of production basis decreased $0.49 per Mcfe in the three months ended March 31, 2011 to $0.48 per Mcfe, compared to $0.97 per Mcfe for the three months ended March 31, 2010. The decrease in lease operations expense on an equivalent unit basis resulted from an increase in H/B horizontal well production and cost control measures implemented by us during 2010 which lowered overall lease operating expense. With little to no incremental increase in lease operations cost from a Cotton Valley vertical well, the significantly larger amount of production from a H/B horizontal well will result in lower per unit lease operations costs. The overall decrease in lease operations expense is primarily related to a decrease in well workovers and repairs of approximately $0.4 million in the three months ended March 31, 2011 compared to the three months ended March 31, 2010.
General and Administrative Expense. General and administrative expense for the three months ended March 31, 2011 was $7.1 million compared to $7.2 million for the three months ended March 31, 2010, a decrease of $0.1 million or 2%. General and administrative expense per equivalent unit of production was $1.17 per Mcfe for the first quarter of 2011 compared to $2.25 per Mcfe for the comparable period in 2010. During the three months ended March 31, 2010, the Company incurred approximately $1.5 million in severance costs of which $0.9 million or 62% was non-cash expense. Adjusting for severance costs incurred in the first quarter of 2010, general and administrative costs would have increased by $1.4 million from the three months ended March 31, 2010 compared to the three months ended March 31, 2011. The adjusted general and administrative expense per equivalent unit of production was $1.77 per Mcfe. The severance costs paid to terminated employees in the first quarter of 2010 were mostly offset by an increase in employee expenses related to the hiring of additional staff. General and administrative expenses include $1.2 million and $2.4 million of non-cash compensation expense as of the three months ended March 31, 2011 and 2010, respectively. Non-cash compensation represented 17% and 26% of total general and administrative expenses, excluding severance costs for the three months ended March 31, 2011 and 2010, respectively. General and administrative expense has not historically varied in direct proportion to oil and natural gas production because certain types of general and administrative expenses are non-recurring or fixed in nature. We expect general and administrative expenses on a per Mcfe basis to decrease as production increases, excluding any non-cash compensation expense from stock based compensation plans.
Interest. Interest expense for the three months ended March 31, 2011 was $8.0 million compared to $4.2 million for the same period in 2010. For the three months ended March 31, 2011 and 2010, interest expense includes non-cash interest expense of $2.4 million and $2.2 million, respectively. As a result of the accounting for convertible bonds, Share Lending Agreement and deferred premiums on derivative instruments, our non-cash interest expense related to these financial instruments was $1.5 million and $1.8 million for the three months ended March 31, 2011 and 2010, respectively. Cash interest expense for the three months ended March 31, 2011 and 2010 was $5.6 million and $2.0 million, respectively. The increase in cash interest expense of $3.6 million was mainly due to the Company’s issuance and sale of $200 million aggregate principal amount of 11.375% Senior Notes due 2019 (“11.375% Senior Notes”) in February 2011.
As of March 31, 2011, we had cash and cash equivalents of $77.6 million and working capital of $78.3 million. Through the period ended March 31, 2011, we have funded our operating expenses and capital expenditures through positive operating cash flows, as well as from $105.3 million raised from the issuance of 22,173,518 common shares in February 2011, $6.9 million raised from the issuance of 300,638 shares of our 9.25% Series B Cumulative Preferred Stock preferred shares and $193.7 million, net of original issue discount, from the issuance of our 11.375% Senior Notes. The outstanding balance of our bank credit facility at the time of the offerings of $110 million was fully repaid, and we completed a $50 million tender offer for a portion of our 5.00% convertible senior notes due 2013 (“5.00% convertible notes”). The remaining proceeds from the offerings will be used to fund the Niobrara and Bakken acreage acquisitions and future capital expenditures.
In order to protect us against the financial impact of a decline in natural gas prices, we have an active, rolling three-year hedging program. As of March 31, 2011, we have natural gas hedges in place of 11.5 Bcf for our remaining estimated natural gas production for 2011 at an average hedge floor price of $6.12 per Mcf. In addition, we have 16.7 Bcf and 1.1 Bcf of natural gas hedged in 2012 and 2013, respectively, at average hedge prices of $6.08 and $5.25 per Mcf. As of March 31, 2011, we have also sold put options that would reduce the average hedge floor price if the monthly natural gas contract settlement price is below $4.17 for 2011, $4.13 for 2012 and $3.75 for 2013. If the monthly natural gas contract settlement is below the average sold put price, we will receive the monthly natural gas contract settlement price plus $1.95 in 2011, $1.95 in 2012, and $1.50 in 2013. In May 2011, we added a NYMEX natural gas swap at $5.45 for 10,000/Mmbtu per day for 2013. For further discussion of our derivative instruments, please also read Note C to the notes to unaudited financial statements included in this report.
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