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Warren Resources Inc. Reports Operating Results (10-Q)

August 05, 2009 | About:
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Warren Resources Inc. (WRES) filed Quarterly Report for the period ended 2009-06-30.

Warren Resources Inc. is a growing independent energy company engaged in the exploration and development of domestic natural gas and oil reserves. Warren is primarily focused on the exploration and development of coalbed methane properties located in the Rocky Mountain region and its water flood oil recovery program in the Wilmington Unit located in the Los Angeles Basin of California. The Company is headquartered in New York New York and its exploration and development subsidiary Warren E&P Inc. is headquartered in Casper Wyoming. Warren Resources Inc. has a market cap of $139.5 million; its shares were traded at around $2.37 with a P/E ratio of 7.6 and P/S ratio of 1.2.

Highlight of Business Operations:

On May 12, 2009, Warren and its lenders amended the Credit Facility (the “First Amendment”) to (i) increase the margins on LIBOR based borrowings from a range of 1.25% to 2.0% to a range of 2.75% to 3.50% (depending on the then-current borrowing base usage), (ii) increase the margins on Base Rate borrowings from a range of 0% to 0.75% to a range of 1.50% to 2.25% (depending on the then-current borrowing base usage), (iii) add a floor to the margin rate of all LIBOR based loans to 3.50% for the next six months, and (iv) increase the unused commitment fee rate from a range of 0.20% to 0.50% to a flat rate of 0.50%. The First Amendment also gives Warren the right for the next six months, if it so chooses, to obtain up to a $30 million financing secured by a second mortgage lien on its assets on terms acceptable to each of the Credit Facility lenders.

If oil and gas commodity prices remain at recent low levels or go lower, the Company may not generate sufficient cash flows to cover capital expenditures. In such case, the availability of funds under our Credit Facility is critical to our Company. The borrowing base will be re-determined during the fourth quarter of 2009 unless the syndicate banks or the Company request an earlier, one-time re-determination. If the Credit Facility’s borrowing base is reduced to a level below current borrowings, the Company would be obligated to begin reducing the deficiency by 25% within 90 days after the deficiency occurs and the remaining 75% within 180 days after the deficiency occurs.

Depreciation, depletion and amortization .Depreciation, depletion and amortization expense increased $0.7 million for the second quarter of 2009 to $5.2 million, a 15% increase compared to the corresponding quarter last year. This increase reflects an increase in production and an increase in the depletion rate resulting from a decrease in proved reserves compared to the same quarter in 2008. Production increased 8% during this period.

Lease operating expense. Lease operating expense for the first six months of 2009 increased 15% to $14.2 million ($2.96 per Mcfe) compared to $12.4 million ($3.07 per Mcfe) in the comparable period of 2008. Primarily, this increase resulted from an increase in production. Total production increased to 4.8 Bcfe for the first six months of 2009 compared to 4.0 Bcfe for the first six months of 2008, an increase of 19%.

Depreciation, depletion and amortization .Depreciation, depletion and amortization expense increased $2.1 million for the first six months of 2009 to $10.5 million, a 25% increase compared to the corresponding period last year. This increase reflects an increase in production and an increase in the depletion rate resulting from a decrease in proved reserves compared to the same period in 2008. Production increased 19% during this period.

At June 30, 2009, we had debt outstanding under our Credit Facility of $115 million. On May 12, 2009, Warren and its lenders amended the Credit Facility (the “First Amendment”) to (i) increase the margins on LIBOR based borrowings from a range of 1.25% to 2.0% to a range of 2.75% to 3.50% (depending on the then-current borrowing base usage), (ii) increase the margins on Base Rate borrowings from a range of 0% to 0.75% to a range of 1.50% to 2.25% (depending on the then-current borrowing base usage), (iii) add a floor to the margin rate of all LIBOR based loans to 3.50% for the next six months, and (iv) increase the unused commitment fee rate from a range of 0.20% to 0.50% to a flat rate of 0.50%.

Read the The complete ReportWRES is in the portfolios of NWQ Managers of NWQ Investment Management Co.

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