FX Energy Inc., Salt Lake City, (Nasdaq: FXEN) reported financial results for its first quarter ended March 31, 2011. The company reported first quarter net earnings of $6.5 million, or $0.14 per share. This compares to net income of $0.9 million, or $0.02 per share, for the first quarter of 2010. Included in the company's quarterly results were non-cash foreign exchange gains of $6.8 million in 2011 and non-cash foreign exchange losses of $1.0 million in 2010.
Strong Balance Sheet Supports an Increased Capital Budget
Increasing revenues and cash flow have added to the company's balance sheet liquidity over recent months. More importantly, a registered direct offering of 6.9 million shares of common stock in early March 2011 netted proceeds of $45.2 million. As a result, the company repaid all amounts outstanding under its $55 million credit facility. At March 31, 2011, the company's cash and investments were $29.6 million, with working capital of $27.7 million.
Clay Newton, FX's vice president of finance, remarked, "Our balance sheet is stronger than ever before. With almost $30 million in cash, no debt, existing credit capacity, and expected record production, revenues and cash flow, we expect 2011 to be an exciting year, both financially and operationally. We are on track to see the largest capital spending in our history. Our anticipated total capital expenditures for the year are in the $60 to $70 million range. Also, our capital structure is sufficiently robust that we could finance even larger capital expenditures should economic opportunities be available."
Increased Production and Prices Drive Revenues Higher
Record first quarter production and higher product prices were the largest contributors to the company's results. Total net oil and gas production was 1,060 million cubic feet equivalent (Mmcfe) during the first quarter of 2011, compared to 1,014 Mmcfe during the 2010 quarter. Net gas production increased from 918 million cubic feet in 2010 to 975 million cubic feet in 2011. Total revenues increased to $7.1 million during the first quarter of 2011 from $6.2 million during the same quarter of 2010. The production increase was due to natural gas production in Poland from the company's Sroda-4 well, which began producing in December 2010.
Gas prices during the first quarter of 2011 averaged $6.12 per Mcf, compared to $5.39 per Mcf during the same quarter of 2010, an increase of 14%. Zloty denominated gas prices were higher in the 2011 first quarter than in the same quarter of 2010 due to two tariff increases during the second half of 2010. Exchange rates from quarter to quarter were essentially flat. Oil prices increased 20% over the year, averaging $81.69 per barrel in the first quarter of 2011, compared to $68.02 per barrel in the same quarter of 2010.
Production Gains Expected in Second Half
The company expects production to begin at its two Kromolice wells in Poland during the second quarter of 2011. The two wells should produce at a gross rate of approximately 10.5 million cubic feet per day, or approximately 5.1 million cubic feet per day net to the company. Once on line, this will increase the company's net production to approximately 17 million cubic feet equivalent per day.
Operating Cash Flow Sets First Quarter Record; Non-cash Charges Continue to Vary
Net cash provided from operating activities of $4.7 million during the 2011 quarter increased 89% from the $2.5 million of cash provided by operating activities during the first quarter of 2010. The 2011 increase takes into account exploration costs that were $2.5 million greater than those of 2010.
The non-cash foreign exchange gain of $6.8 million and the foreign exchange loss of $1.0 million for the first quarters of 2011 and 2010, respectively, are included in other income and expense. The gains and losses come primarily from recognition of gains and losses on U.S. dollar denominated intercompany loans from FX Energy, Inc., to FX Poland, its wholly-owned subsidiary. These are non-cash gains and losses only, and could vary greatly depending upon future exchange rate changes.
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