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| LEI > SEC Filings for LEI > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere in this report, and should be read in conjunction with management's discussion and analysis contained in Lucas' Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and related discussion of our business and properties contained therein. The terms "Company", "Lucas Energy"," "Lucas", "we", "us", and "our" refer to Lucas Energy, Inc.
OVERVIEW
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters. We identify forward-looking statements by use of terms such as "may," "will," "expect," "anticipate," "estimate," "hope," "plan," "believe," "predict," "envision," "intend," "will," "continue," "potential," "should," "confident," "could" and similar words and expressions, although some forward-looking statements may be expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements.
These risks and uncertainties, many of which are beyond our control, include:
* the sufficiency of existing capital resources and our ability to raise
additional capital to fund cash requirements for future operations;
* uncertainties involved in the rate of growth of our business and acceptance of
any products or services;
* volatility of the stock market, particularly within the energy sector; and
* general economic conditions.
Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.
All forward-looking statements included in this report and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made, other than as required by law, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
NATURE OF OPERATIONS
Lucas is an independent oil and gas company based in Houston, Texas with approximately 15,000 gross and 12,000 net acres of oil and gas leases in South Texas primarily in the Gonzales County, Texas area. Our strategy is to acquire underperforming oil and gas properties in which we believe we can restore, revitalize or increase production. We currently operate 22 producing wells that produce approximately 100 - 135 barrels of oil per day ("BOPD"), gross. We control another 16 shut-in or plugged wellbores. As of June 30, 2009 we owned 100% working interests in all but one of our operated wells, and we have non-operating interests in three wells. Our average daily production, net to our interest, from our oil and gas properties totaled approximately 94 barrels of oil equivalent ("boe") per day for the three months ended June 30, 2009.
On July 28, 2009 we announced the kick-off of our LEI 2009-II capital program which is being conducted through a joint venture with two partners. One partner is a foreign entity that bought into and acquired an 80% working interest (before payout) in six existing wellbores that are currently shut-in or plugged and abandoned, and who has committed to fund their 80% share of the drilling and completion capital expenditures required to re-enter the six wells and restore production. The other partner acquired a 10% working interest in the six wells. We retained a 10% working
Crude oil represents approximately 93% of our total production, while approximately 98% of our revenues are derived from the sale of crude oil production. Oil sales are made on a month-to-month basis and our monthly cash flows are positively or negatively affected with upward and downward movements in crude oil price postings. Actual prices realized from our sales of crude oil for the three months ended June 30, 2009 ranged from a low of $46.70 per barrel in April 2009 to a high of $66.35 per barrel for June 2009. Over the past 15 months the average prices realized from our crude oil production sales ranged from an average of $123.00 per barrel during the quarter ended June 30, 2008 to an average of $54.00 per barrel in the quarter ended June 30, 2009, respectively.
Acquisitions of shut-in wells, plugged and abandoned wells or wells with marginal production are core to our growth strategy; in that we target wells that our assessment indicate have a high probability of additional recovery of reserves through our revitalization process or through the drilling of new horizontal laterals. We actively seek out opportunities to acquire wells located in mature oil fields that we believe are underdeveloped or have potential to recover significant oil reserves that are still in place. Most of the acquisition prospects that we conduct initial screening on are sourced directly by our senior management or specialized third-party consultants with local area knowledge.
RESULTS OF OPERATIONS
The following table sets forth the revenue and production data for continuing operations for the three months ended June 30, 2009 and 2008.
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Oil and Gas Revenue
The $882,340 decrease in our oil and gas net sales was primarily attributable to a decline of $67.92 per barrel (-56%) in the price realized for oil sales and a 2,699 barrel (-25%) decrease in oil production sold. The decrease in oil volumes is due to having several wells down for workovers during the period. Sales of natural gas production increased during the three months which was offset entirely with an approximately 77% decline in price.
Lease Operating Expenses
Lease operating expenses increased $78,251 during the three months ended June 30, 2009 as compared to the prior year period principally due to higher workover and treatment costs for the current period.
General and Administrative Expenses
General and administrative expenses increased $106,191 for the three months ended June 30, 2009 as compared to the prior period primarily due to $35,338 in stock based compensation in the current period while there was no stock based compensation in the prior year period; increases in a) expenditures related to building investor awareness, b) higher field supervision and administrative charges and c) office expenditures; and reductions in i) payroll, and ii) travel and entertainment.
Interest Expense
Interest expense increased by $60,602 due to interest and commitment fees associated with the Amegy Credit Facility executed in October 2008.
Unrealized and Realized Losses
Unrealized gain on investments for the three months ended June 30, 2009 totaling $220,444 is due to the mark-to-market for shares held by the Company in Bonanza Oil and Gas, Inc. resulting from an increase in quoted price on the OTC between March 31, 2009 ($0.08 per share) and June 30, 2009 ($0.15 per share). For the three month period ended June 30, 2008, Lucas recognized an unrealized gain on Bonanza common stock of $1,645,315, and subsequently the fair value of the shares of Bonanza common stock declined sharply resulting in the Company reporting an unrealized loss totaling $2,095,019 in its statement of operations for the fiscal year ended March 31, 2009. On July 1, 2009 the Company sold 1,000,000 shares of Bonanza common stock for $81,296 net of commissions.
Interest Income
Interest income decreased $1,774 for the three months ended compared to the prior year period due to a decrease in the average cash on hand as cash raised in the sale of common stock in the fiscal year 2008 was expended.
Income tax expense decreased due primarily to net losses incurred in the current fiscal year and the associated reduction in deferred income taxes.
Net Income (Loss)
The $1,698,856 decrease in net income is primarily attributable to the $1,424,871 reduction in the unrealized gain on Bonanza shares of common stock between the current three month period and the prior year three month period, and the $882,340 reduction in revenues from oil and gas sales partially offset with the $717,640 reduction in deferred income taxes due to the net loss for the current three month period.
Liquidity and Capital Resources
Between June 30, 2009 and the end of our prior fiscal year of March 31, 2009, we had a reduction in net cash of $89,091 with cash on hand of $47,750. Negative working capital at June 30, 2009 totaled $689,409 as compared to $513,240 at March 31, 2009. During the three months ended June 30, 2009 we funded our cash for operating activities, capital expenditures on our oil and gas properties and principal reductions on our Amegy credit facility through subscription advances on our private equity raise, the sale of certain non-core marginally economic wells and cash on hand at March 31, 2009.
We anticipate that cash flow from operations combined with cash on hand is sufficient to cover our operating and general and administrative requirements for our fiscal year 2010. Since our quarter end June 30, 2009 we have raised approximately $1.0 million through the LEI 2009-II capital program joint venture and private equity placement. In order to fully execute our capital program over the next twelve months we intend to seek additional financing in the form of common equity, convertible preferred or convertible debt, and joint venture partners. An acceleration of acquisitions or our planned drilling operations would require that we secure additional financing more quickly. We have no definitive agreements or arrangements for additional funding. Additional financing, if needed, through partnering, public or private equity financings, lease transactions or other financing sources may not be available on acceptable terms, or at all. Additional equity financings could result in significant dilution to our stockholders.
Cash flow from operating activities
For the three months ended June 30, 2009, net cash used in operating activities was $71,187 compared to net cash provided from operating activities of $443,329 for the three months ended June 30, 2008. The $514,516 decrease in net cash provided from operating activities is primarily due to the reduction in net income for the current period partially offset with an increase in accounts payables during the current period.
Cash flow from investing activities
For the three months ended June 30, 2009 net cash used in investing activities was $10,404 compared to net cash used in investing activities for the prior year period of $1,072,858. Cash used in investment activities declined to due to a scaling back and reduction in capital expenditures associated with our oil and gas properties as the price for crude oil declined.
Cash flow from financing activities
For the three months ended June 30, 2009, net cash flow used in financing activities was $7,500 was comprised of $75,000 reduction in the outstanding principal balance on the Amegy Credit Facility and stock subscription advances of $67,500 during the three month period. For the three months ended June 30, 2008 the Company did not have any financing activities.
Hedging
We did not hedge any of our oil or natural gas production during fiscal 2009 and have not entered into any such hedges from June 30, 2009 through the date of this filing.
None
Off-Balance Sheet Arrangements
None.
Related Party Transactions
None.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115." This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. SFAS 159 becomes effective as of the beginning of the first fiscal year that begins after November 15, 2007, with early adoption permitted. However, entities may not retroactively apply the provisions of SFAS 159 to fiscal years preceding the date of adoption. We are currently evaluating the impact that SFAS 159 may have on our financial position, results of operations or cash flows.
In December 2008, the SEC released Final Rule, " Modernization of Oil and Gas
Reporting ." The new disclosure requirements include provisions that permit the
use of new technologies to determine proved reserves if those technologies have
been demonstrated empirically to lead to reliable conclusions about reserve
volumes. The new requirements also will allow companies to disclose their
probable and possible reserves to investors. In addition, the new disclosure
requirements require that companies 1) report the independence and
qualifications of its reserves preparer or auditor, 2) file reports when a third
party is relied upon to prepare reserves estimates or conduct a reserves audit,
3) report oil and gas reserves using an average price based upon the prior
12-month period rather than year-end prices. The new disclosure requirements are
effective for financial statements for fiscal years ending on or after December
31, 2009. Early adoption is not permitted. We are currently assessing the
impact, if any, that the adoption of the pronouncement will have on our
operating results, financial position or cash flows.
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