GeoMet Inc. (GMET, Financial) filed Quarterly Report for the period ended 2010-09-30.
Geomet Inc. has a market cap of $25.6 million; its shares were traded at around $0.65 with and P/S ratio of 0.8. GMET is in the portfolios of Chuck Royce of Royce& Associates.
Convertible Redeemable Preferred Stock The Series A Convertible Redeemable Preferred Stock has been classified within the mezzanine (temporary) equity section of the Consolidated Balance Sheets (Unaudited) because the shares are redeemable at the option of the holder and therefore do not qualify for permanent equity. In addition, we evaluated the conversion feature and have determined that its terms require the holders conversion option to be separated and recorded at fair value as a derivative liability on the Consolidated Balance Sheets (Unaudited). Subsequent changes in the fair value of the derivative liability will be recorded as a component of other income and expense in the Consolidated Statements of Operations (Unaudited). The fair value of the derivative liability attributable to the conversion option was determined using an American binomial lattice model, which utilized assumptions including 80% volatility, a 17% discount factor and an expected term of 6.4 years determined using a Monte Carlo simulation model, and resulted in a fair value of approximately $18.4 million on the date of issuance. The remaining net proceeds of $20.4 million were allocated to Series A Convertible Redeemable Preferred Stock in the Consolidated Balance Sheets (Unaudited) at September 30, 2010. For the three and nine months ended September 30, 2010, the Company recorded approximately $1.6 million to Unrealized gain from change in fair value of derivative liability - Series A Convertible Redeemable Preferred Stock in the Consolidated Statements of Operations (Unaudited) as a result of the change in the fair value of the derivative liability. The $1.6 million gain in the current quarter was primarily the result of the decrease in the market price of our stock from the issuance date of our Series A Convertible Redeemable Preferred Stock of September 14, 2010 through the end of the current quarter.
Gas sales. Gas sales increased by $1.85 million, or 29%, to $8.24 million compared to the prior year quarter. The increase in gas sales was a result of increased gas prices partially offset by decreased production. Production decreased 3% and average gas prices increased 33%, excluding hedging transactions. The $1.85 million increase in gas sales consisted of a $2.03 million increase in prices and a $0.18 million decrease in production. The decrease in production was primarily due to the shutting in of certain uneconomic wells, as a result of low gas prices.
Lease operating expenses. Lease operating expenses decreased by $0.32 million, or 10%, to $2.88 million compared to the prior year quarter. The decrease in lease operating expenses consisted of a $0.22 million decrease in costs and a $0.10 million decrease in production. The $0.22 million decrease in costs was primarily due to the continued success of a company-wide cost reduction strategy implemented in April 2009.
Compression expense. Compression expense decreased by $0.14 million, or 16%, to $0.78 million compared to the prior year quarter. The $0.14 million decrease was comprised of a $0.11 million decrease in costs and a $0.03 million decrease in production. The $0.11 million decrease in costs was primarily due to the continued success of a company-wide cost reduction strategy implemented in April 2009.
Interest expense. Interest expense increased by $0.12 million, or 9%, to $1.51 million compared to the prior year quarter. The increase is comprised of a $0.13 million increase in interest related to the increased interest rate under our new Credit Agreement that became effective September 14, 2010 and a $0.16 million increase in amortization of loan costs related to the revolving credit facility, partially offset by a $0.17 million decreased realized loss on interest rate swaps.
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Geomet Inc. has a market cap of $25.6 million; its shares were traded at around $0.65 with and P/S ratio of 0.8. GMET is in the portfolios of Chuck Royce of Royce& Associates.
Highlight of Business Operations:
The borrowing base will be determined as of each June and December with the next determination scheduled to be completed by December 2010. All outstanding borrowings under the Credit Agreement become due and payable on September 14, 2013. The Credit Agreement provides for interest to accrue at a rate calculated, at the Companys option, at the Adjusted Base Rate plus a margin of 1.75% to 2.25% or the London Interbank Offered Rate (the LIBOR Rate) rate plus a margin of 2.75% to 3.25%. Adjusted Base Rate is defined to be the greater of (i) the agents base rate or (ii) the federal funds rate plus one half of one percent or (iii) the LIBOR Rate plus a margin of 1.00%). In all cases the applicable margin is dependent on the percentage of borrowing base usage. Under the Credit Agreement we are subject to certain financial covenants requiring maintenance of (i) a minimum Current Ratio, (ii) a maximum Debt Ratio and, (iii) depending on our Debt Ratio, either (a) a minimum Interest Coverage Ratio or (b) a minimum Fixed Charge Ratio. The Current Ratio of consolidated current assets (defined to include amounts available under our borrowing base) to consolidated current liabilities (defined to exclude up to $1.5 million in accrued and unpaid preferred dividends) is not permitted to be less than 1.0 to 1.0 as of the end of any fiscal quarter. The Debt Ratio (defined as funded debt at the end of each fiscal quarter to trailing four quarter consolidated EBITDA) at the end of each fiscal quarter cannot exceed 4.5 to 1.0 through the quarter ending June 30, 2011 and 4.0 to 1.0 thereafter. If our Debt Ratio at the end of each fiscal quarter is above 3.5 to 1.0, then the Fixed Charge Ratio (defined as consolidated EBITDA less capital expenditures to consolidated net cash interest expense for the four preceding quarters) is applicable and cannot be less than 1.25 to 1.0. If our Debt Ratio at the end of each fiscal quarter is 3.5 to 1.0 or less, the Interest Coverage Ratio (defined as consolidated EBITDA to consolidated net cash interest expense plus letter of credit fees accruing during the preceding four quarters) is applicable and cannot be less than 2.75. Consolidated EBITDA is defined as earnings (loss) before deducting net interest expense, income taxes, depreciation, depletion and amortization and also excludes non-recurring charges and other non-cash charges deducted in determining net income (loss), which would include unrealized gains and losses from a change in the market value of open derivative contracts. We are also subject to covenants restricting or prohibiting cash dividends and other restricted payments, transactions with affiliates, incurrence of debt, consolidations and mergers, the level of operating leases, assets sales, investments in other entities, and liens on properties. Cash dividends on our preferred stock are permitted if, following any such cash payment our availability is equal to or greater than 15% of the then current borrowing base and our Debt Ratio is less than 3.5 to 1.0. There are no restrictions associated with the payment of PIK dividends on our preferred stock. As of September 30, 2010, we had $79.5 million of borrowings outstanding under our revolving credit facility, resulting in a borrowing availability of $10.5 million under our $90.0 million borrowing base.Convertible Redeemable Preferred Stock The Series A Convertible Redeemable Preferred Stock has been classified within the mezzanine (temporary) equity section of the Consolidated Balance Sheets (Unaudited) because the shares are redeemable at the option of the holder and therefore do not qualify for permanent equity. In addition, we evaluated the conversion feature and have determined that its terms require the holders conversion option to be separated and recorded at fair value as a derivative liability on the Consolidated Balance Sheets (Unaudited). Subsequent changes in the fair value of the derivative liability will be recorded as a component of other income and expense in the Consolidated Statements of Operations (Unaudited). The fair value of the derivative liability attributable to the conversion option was determined using an American binomial lattice model, which utilized assumptions including 80% volatility, a 17% discount factor and an expected term of 6.4 years determined using a Monte Carlo simulation model, and resulted in a fair value of approximately $18.4 million on the date of issuance. The remaining net proceeds of $20.4 million were allocated to Series A Convertible Redeemable Preferred Stock in the Consolidated Balance Sheets (Unaudited) at September 30, 2010. For the three and nine months ended September 30, 2010, the Company recorded approximately $1.6 million to Unrealized gain from change in fair value of derivative liability - Series A Convertible Redeemable Preferred Stock in the Consolidated Statements of Operations (Unaudited) as a result of the change in the fair value of the derivative liability. The $1.6 million gain in the current quarter was primarily the result of the decrease in the market price of our stock from the issuance date of our Series A Convertible Redeemable Preferred Stock of September 14, 2010 through the end of the current quarter.
Gas sales. Gas sales increased by $1.85 million, or 29%, to $8.24 million compared to the prior year quarter. The increase in gas sales was a result of increased gas prices partially offset by decreased production. Production decreased 3% and average gas prices increased 33%, excluding hedging transactions. The $1.85 million increase in gas sales consisted of a $2.03 million increase in prices and a $0.18 million decrease in production. The decrease in production was primarily due to the shutting in of certain uneconomic wells, as a result of low gas prices.
Lease operating expenses. Lease operating expenses decreased by $0.32 million, or 10%, to $2.88 million compared to the prior year quarter. The decrease in lease operating expenses consisted of a $0.22 million decrease in costs and a $0.10 million decrease in production. The $0.22 million decrease in costs was primarily due to the continued success of a company-wide cost reduction strategy implemented in April 2009.
Compression expense. Compression expense decreased by $0.14 million, or 16%, to $0.78 million compared to the prior year quarter. The $0.14 million decrease was comprised of a $0.11 million decrease in costs and a $0.03 million decrease in production. The $0.11 million decrease in costs was primarily due to the continued success of a company-wide cost reduction strategy implemented in April 2009.
Interest expense. Interest expense increased by $0.12 million, or 9%, to $1.51 million compared to the prior year quarter. The increase is comprised of a $0.13 million increase in interest related to the increased interest rate under our new Credit Agreement that became effective September 14, 2010 and a $0.16 million increase in amortization of loan costs related to the revolving credit facility, partially offset by a $0.17 million decreased realized loss on interest rate swaps.
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