FX Energy, Inc. (FXEN)
Q3 2012 Results Earnings Call
November 9, 2012 1:00 PM ET
Clay Newton - VP, Finance
David Pierce - Chief Executive Officer
Jason Gammel - Macquarie
Chad Mabry - KLR Group
John Bair - SKA Financial Services
Joel Musante - C.K. Cooper & Company
Roger Liddell - Clear Harbor Asset Management
Dan Mittag - Oppenheimer and Company
Alec Rutherford - Analyst
Good afternoon ladies and gentlemen and welcome to the FX Energy, Inc. Third Quarter 2012 Financial and Operating Results Conference Call. As a reminder today’s call is being recorded. At this time, I’d like to turn things over to Mr. Clay Newton, Vice President of Finance, please go ahead.
Thank you, Deanna. And thank you all for joining us today. I’m Clay Newton, VP of Finance here at FX Energy. Welcome to our 2012 third quarter and first nine months earnings call.
This call will follow our usual format. I’ll talk about just a few key financial items, as substantial details available in our earnings release and our 10-Q that will be filed shortly and will be available on our website once it is filed.
After that, David Pierce, our CEO, will provide some operational updates. We’ll also have a Q-&-A at the end of David’s remarks.
I’d like to remind investors that during today’s call we’ll be making statements that are forward looking and consequently are subject to risks and uncertainties. Examples of these statements include statements regarding exploration, drilling, development, construction or operations that may be subject to the successful completion of technical work, environmental, governmental or partner approvals, equipment availability, or other things that are or may be beyond our control.
You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risks set forth in our Form 10-K we filed in March and in our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances.
I am pleased to announced that today, once again, we have reported record production and record oil & gas revenues for both the 3 and 9 month periods ended this past September 30th, with strong cash flow from our operating activities. We remain well positioned to move forward with our active capital program.
I’ve divided my remarks today into three sections. First, I’ll talk about production, revenues, and non-cash charges, followed by a review of our exploration and impairment charges. Then I’ll finish with a short discussion about cash flow, liquidity and capital resources.
Let’s start with production. Our production in the third quarter was 1.2 billion cubic feet of gas equivalent, compared to 1.1 billion cubic feet equivalent during the third quarter of 2011. Daily production for the third quarter of 2012 was approximately 13.2 million cubic feet equivalent per day, compared to 12.0 million cubic feet per day during the same quarter of 2011, an increase of 10%. As we reported previously, our third quarter 2012 production would have averaged nearly 14.0 Mmcfe/d but for Conference Call November 9, 2012 the unexpected shut down of our Zaniemysl well for nearly a month for unscheduled maintenance.
Total production for the first nine months of 2012 was 3.5 billion cubic feet of gas equivalent, compared to 3.3 billion cubic feet equivalent during the first nine months of 2011. Production for the first nine months of 2012 was approximately 12.8 million cubic feet equivalent per day, compared to approximately 12.0 million during the first nine months of 2011, an increase of 7%.
Production at November 5, 2012, was approximately 13.7 million cubic feet equivalent per day. Despite the production interruption at Zaniemysl, we are pleased to have achieved a production increase for both the quarter and the nine month period. With our Winna Gora well starting production later this quarter, we could see our average daily production for the full fourth quarter at approximately 14 Mmcfe/d. This growing production is a critical source of support for our exploration and development program in Poland.
As I mentioned, we posted record oil and gas revenues during both the third quarter and the first nine months of this year. Oil and gas revenues were $9.0 million for the third quarter of 2012, compared to $7.6 million for the same period of 2011, an increase of 19%.
Oil and gas revenues were $24.8 million for the first nine months of this year, compared to $22.5 million for the same period of last year, an increase of 10%. Regarding pricing, as we mentioned in our earnings release earlier today, the Polish low-methane tariff, which serves as the reference price for our gas sales agreements, was significantly higher during the first nine months of 2012, compared to the same period of 2011. This was due to two price increases approved by the Polish utility regulator since mid-2011. However, period-to-period strength in the U.S. dollar against the Polish zloty decreased our U.S. dollar-denominated gas prices.
Despite the two price increases, as a result of the fluctuation in exchange rates our natural gas prices in Poland only increased 6% year over year. While we’re on this topic, I’d like to spend a few minutes discussing currency issues in a little more depth. As you know, our functional currency in Poland is the Polish zloty.
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