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| BOGA.OB > SEC Filings for BOGA.OB > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
Cautionary Notice Regarding Forward Looking Statements
Baseline Oil & Gas Corp. (referred to herein as "Baseline", "we" or "the Company") desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to business, strategies, future results and events and financial performance. All statements made in this Quarterly Report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to revenues, cash flow, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward looking statements. In particular, the words "believe," "expect," "intend," "anticipate," "estimate," "may," "will," variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.
Readers should not place undue reliance on these forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions and apply only as of the date of this report. Baseline's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in "Risk Factors" as well as those discussed elsewhere in this report and in our Annual Report on Form 10-K on file with the Securities and Exchange Commission, as well as the risks discussed in press releases and other communications to stockholders issued by Baseline from time to time which attempt to advise interested parties of the risks and factors that may affect the business. Except as may be required under the federal securities laws, Baseline undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Introductory Note
We are a Houston, Texas-based independent oil and natural gas company engaged in the exploration, production, development, acquisition and exploitation of crude oil and natural gas properties, with interests in: (i) the Eliasville Field in North Texas, or the Eliasville Field Properties; (ii) the Blessing Field in Matagorda County, Texas, onshore along the Texas Gulf Coast, or the Blessing Field Properties; and, (iii) the New Albany Shale resource play in Southern Indiana, or the New Albany Shale Play. Our properties cover 39,945 net acres in these three core areas.
Despite a number of identified opportunities to increase production and develop the reserve base in our core areas, we are presently unable to make the necessary capital expenditures given continuing unfavorable conditions in the capital markets and, more importantly, substantial upcoming repayment obligations with respect to our outstanding senior notes - all of which have significantly adversely affected our liquidity. See Liquidity and Capital Resources discussion below.
Our financial statements have been prepared assuming that we will continue as a going concern; however, as reflected in notes accompanying our financial statements, our losses from operations and our working capital deficiency raise substantial doubt about our ability to continue as a going concern.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources for 2009 are cash on hand, short-term cash equivalent investments, internally generated cash flows from operations, committed credit facilities and any additional or replacement credit facilities we are able to arrange. On October 1, 2007, we entered into a $20 million Credit Agreement with Wells Fargo Foothill, Inc. as arranger and administrative agent (the "Credit Agreement"). This Credit Agreement was retired in full and terminated on January 30, 2009, using a portion of the proceeds from our January 28, 2009 liquidation of our hedge positions.
As of March 31, 2009, our current liabilities exceeded our current assets by approximately $130 million, primarily due to the fact that all of our debt is classified as current. Also as of March 31, 2009, we held approximately $1.5 million of cash on hand, and had no access to additional credit facilities. We were required to pay interest of $4.29 million (including cash interest of $3.8 million) on our Senior Secured Notes on April 1, 2009. We incurred an Event of Default under the indenture (as amended) governing our Senior Secured Notes on May 1, 2009 for failing to make this interest payment, and additionally incurred an Event of Default on May 9, 2009 for failing to meet a financial covenant (minimum ratio of PV10 to senior secured indebtedness) under the amended indenture. As a result of these uncured Events of Default, holders of at least 25% of the aggregate outstanding principal amount of the Senior Secured Notes are entitled to declare the principal amount of the Senior Secured Notes, together with any accrued and unpaid
As disclosed previously, we have engaged a financial advisor to advise the Company on courses of action available to us, including without limitation, available financing and capital restructuring alternatives, targeted cost reductions, the sale of assets and the sale or merger of the Company. If we are not able to successfully implement one or more of these strategies, or in order for us to implement one or more of these strategies, we may voluntarily seek protection under the U.S. Bankruptcy Code.
Results of Operations
Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008
We produced 62.4 thousand barrels of oil and 257.8 million cubic feet of natural gas during the first quarter of 2009, and received an average price of $38.37 per barrel and $4.58 per thousand cubic feet respectively. This resulted in total oil and gas sales revenue for the quarter of $3.6 million, before the effects of hedging. Oil and gas hedging revenue totaled $1.5 million during the quarter, of which cash settlements received from our counterparties under our commodity price hedging contracts totaled $633 thousand. We produced 62.9 thousand barrels of oil and 309.2 million cubic feet of natural gas during the first quarter of 2008, and received an average price of $96.40 per barrel and $9.15 per thousand cubic feet respectively. This resulted in revenue from oil and natural gas production activities during the period of $8.9 million, before the effects of hedging. Hedge revenue for the first quarter of 2008 was ($2.5 million), including cash settlements paid to hedge counterparties of ($1.3 million).
Our production expenses totaled $2.0 million during the first quarter of 2009, of which lease operating expenses comprised $1.7 million, production taxes comprised $199 thousand and ad valorem taxes represented $133 thousand. Our production expenses equaled $3.14 per mcfe during the first quarter, of which lease operating expenses were $2.62 per mcfe. Our production expenses totaled $2.2 million during the first quarter of 2008, of which $1.6 million was comprised of lease operating expenses and $492 thousand was paid for severance taxes.
General and administrative expenses totaled $1.7 million during the first quarter of 2009, including professional and consulting fees of $667 thousand, salaries and labor of $635 thousand, loan fees of $241 thousand and office expenses of $180 thousand. All told, general and administrative expenses equaled $2.73 per mcfe for the period. By comparison, our general and administrative expenses were $1.1 million during the first quarter of 2008. The major components of this total included salaries and benefits at $496 thousand (including $161 thousand of non-cash stock based compensation), consulting and professional fees at $325 thousand and office expenses of $197 thousand.
Our interest expense totaled $6.2 million during the first quarter of 2009, of which $4.5 million represented accrued interest on our Senior Secured Notes (New Notes and Old Notes). The remaining $1.6 million was comprised of amortization of debt discounts and debt issuance costs related to the Senior Secured Notes. Our interest expenses totaled $6.0 million during the first quarter of 2008, of which $5.3 million was comprised of interest on our Senior Secured Notes ($3.6 million, paid in cash) and our since-retired Convertible Notes ($1.7 million, paid-in-kind). The remaining $705 thousand consisted of amortization of debt discounts and issuance costs for these two bond issues.
During the first quarter of 2009, we spent $1.9 million on drilling, workovers and equipment, including $908 thousand on production and well equipment, $714 thousand on well recompletions and $323 thousand on drilling and completion operations. During the first quarter of 2008, we spent $2.3 million on drilling and workovers, comprised of $1.0 million for drilling and completion activities, $787 thousand for well recompletions and $477 thousand for production and well equipment.
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