[X]
|
Quarterly
Report Pursuant To Section 13 or 15(d) of The Securities Exchange
Act of
1934
|
Delaware
|
43-2083519
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
717
Texas, Suite 2800, Houston, TX
|
77002
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (713)
335-4000
|
3
|
||
22
|
||
30
|
||
30
|
||
32
|
||
32
|
||
33
|
||
36
|
||
36
|
||
36
|
||
36
|
||
37
|
||
38
|
||
39
|
||
|
||
|
||
|
September
30,
2006
|
December
31,
2005
|
||||||
Assets
|
(Unaudited)
|
||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
78,743
|
$
|
99,724
|
|||
Restricted
cash
|
15,000
|
-
|
|||||
Accounts
receivable
|
34,751
|
40,051
|
|||||
Derivative
instruments
|
23,591
|
1,110
|
|||||
Deferred
income taxes
|
-
|
10,962
|
|||||
Income
tax receivable
|
-
|
6,000
|
|||||
Other
current assets
|
9,696
|
9,411
|
|||||
Total
current assets
|
161,781
|
167,258
|
|||||
Oil
and natural gas properties, full cost method, of which $51.0 million
at
September 30,
2006
and $30.6 million at December 31, 2005 were excluded from amortization
|
1,134,754
|
973,185
|
|||||
Other
|
3,868
|
2,912
|
|||||
|
1,138,622
|
976,097
|
|||||
Accumulated
depreciation, depletion, and amortization
|
(117,186
|
)
|
(40,161
|
)
|
|||
Total
property and equipment, net
|
1,021,436
|
935,936
|
|||||
Deferred
loan fees
|
3,670
|
4,555
|
|||||
Deferred
income taxes
|
-
|
8,594
|
|||||
Other
assets
|
3,458
|
2,926
|
|||||
7,128
|
16,075
|
||||||
Total
assets
|
$
|
1,190,345
|
$
|
1,119,269
|
|||
Liabilities
and Stockholders' Equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
16,604
|
$
|
13,442
|
|||
Accrued
liabilities
|
42,604
|
28,397
|
|||||
Royalties
payable
|
13,479
|
15,511
|
|||||
Derivative
instruments
|
-
|
29,957
|
|||||
Prepayment
on gas sales
|
10,599
|
14,528
|
|||||
Deferred
income taxes
|
8,965
|
-
|
|||||
Total
current liabilities
|
92,251
|
101,835
|
|||||
Long-term
liabilities:
|
|||||||
Derivative
instruments
|
7,952
|
52,977
|
|||||
Long-term
debt
|
240,000
|
240,000
|
|||||
Asset
retirement obligation
|
9,698
|
9,034
|
|||||
Deferred
income taxes
|
28,179
|
-
|
|||||
Total
liabilities
|
378,080
|
403,846
|
|||||
Commitments
and contingencies (Note 10)
|
|||||||
Stockholders'
equity:
|
|
||||||
Common
stock, $0.001 par value, 150,000,000 shares authorized; 50,380,475
issued
|
50
|
50
|
|||||
Additional
paid-in capital
|
754,002
|
748,569
|
|||||
Treasury
stock, at cost; 83,881 and no shares at September 30, 2006 and
December
31, 2005, respectively
|
(1,526
|
)
|
-
|
||||
Accumulated
other comprehensive income (loss)
|
10,792
|
(50,731
|
)
|
||||
Retained
earnings
|
48,947
|
17,535
|
|||||
Total
stockholders' equity
|
812,265
|
715,423
|
|||||
Total
liabilities and stockholders' equity
|
$
|
1,190,345
|
$
|
1,119,269
|
|||
Successor-Consolidated
|
Successor-Consolidated
|
Predecessor-Combined
|
||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
Six
Months Ended June 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||||
Revenues:
|
||||||||||||||
Natural
gas sales
|
$
|
61,366
|
$
|
51,661
|
$
|
171,783
|
$
|
13,713
|
||||||
Oil
sales
|
9,831
|
6,204
|
27,339
|
8,166
|
||||||||||
Oil
and natural gas sales to affiliates
|
-
|
-
|
-
|
81,952
|
||||||||||
Total
revenues
|
71,197
|
57,865
|
199,122
|
103,831
|
||||||||||
Operating
Costs and Expenses:
|
||||||||||||||
Lease
operating expense
|
9,449
|
8,849
|
27,330
|
16,629
|
||||||||||
Depreciation,
depletion, and amortization
|
27,906
|
21,720
|
77,574
|
30,679
|
||||||||||
Exploration
expense
|
-
|
-
|
-
|
2,355
|
||||||||||
Dry
hole costs
|
-
|
-
|
-
|
1,962
|
||||||||||
Treating
and transportation
|
317
|
552
|
2,043
|
1,998
|
||||||||||
Affiliated
marketing fees
|
-
|
-
|
-
|
913
|
||||||||||
Marketing
fees
|
526
|
678
|
1,634
|
-
|
||||||||||
Production
taxes
|
2,153
|
1,946
|
5,476
|
2,755
|
||||||||||
General
and administrative costs
|
8,316
|
6,880
|
24,645
|
9,677
|
||||||||||
Total
operating costs and expenses
|
48,667
|
40,625
|
138,702
|
66,968
|
||||||||||
Operating
income
|
22,530
|
17,240
|
60,420
|
36,863
|
||||||||||
Other
(income) expense
|
||||||||||||||
Interest
expense with affiliates, net of interest capitalized
|
-
|
-
|
-
|
6,995
|
||||||||||
Interest
expense, net of interest capitalized
|
4,557
|
4,077
|
13,060
|
-
|
||||||||||
Interest
(income) expense
|
(1,099
|
)
|
(874
|
)
|
(3,351
|
)
|
(516
|
)
|
||||||
Other
(income) expense, net
|
(171
|
)
|
153
|
6
|
207
|
|||||||||
Total
other expense
|
3,287
|
3,356
|
9,715
|
6,686
|
||||||||||
Income
before provision for income taxes
|
19,243
|
13,884
|
50,705
|
30,177
|
||||||||||
Provision
for income taxes
|
7,321
|
5,677
|
19,293
|
11,496
|
||||||||||
Net
income
|
$
|
11,922
|
$
|
8,207
|
$
|
31,412
|
$
|
18,681
|
||||||
Earnings
per share:
|
||||||||||||||
Basic
|
$
|
0.24
|
$
|
0.16
|
$
|
0.63
|
$
|
0.37
|
||||||
Diluted
|
$
|
0.24
|
$
|
0.16
|
$
|
0.62
|
$
|
0.37
|
||||||
Weighted
average shares outstanding:
|
||||||||||||||
Basic
|
50,282
|
50,000
|
50,211
|
50,000
|
||||||||||
Diluted
|
50,426
|
50,160
|
50,384
|
50,160
|
Successor-Consolidated
|
Successor-Consolidated
|
Predecessor-Combined
|
|||||||||
Nine
Months Ended September 30,
|
Three
Months Ended September 30,
|
Six
Months Ended June 30,
|
|||||||||
2006
|
2005
|
2005
|
|||||||||
Cash
flows from operating activities
|
|||||||||||
Net
income
|
$
|
31,412
|
$
|
8,207
|
$
|
18,681
|
|||||
Adjustments
to reconcile net income to net cash from operating
activities
|
|||||||||||
Depreciation,
depletion and amortization
|
77,574
|
21,720
|
30,679
|
||||||||
Affiliate
interest expense
|
-
|
-
|
(6,995
|
)
|
|||||||
Deferred
income taxes
|
18,991
|
3,406
|
2,874
|
||||||||
Amortization
of deferred loan fees recorded as interest expense
|
885
|
-
|
-
|
||||||||
Income
from unconsolidated investments
|
(168
|
)
|
(112
|
)
|
(161
|
)
|
|||||
Stock
compensation expense
|
4,348
|
1,710
|
-
|
||||||||
Other
non-cash charges
|
-
|
-
|
99
|
||||||||
Change
in operating assets and liabilities:
|
|||||||||||
Accounts
receivable
|
5,300
|
(33,570
|
)
|
2,378
|
|||||||
Accounts
receivable from affiliates
|
-
|
-
|
6,298
|
||||||||
Income
taxes receivable
|
6,000
|
-
|
-
|
||||||||
Other
assets
|
1,070
|
(5,412
|
)
|
2,563
|
|||||||
Accounts
payable
|
2,494
|
24,098
|
(4,494
|
)
|
|||||||
Accrued
liabilities
|
(324
|
)
|
8,019
|
241
|
|||||||
Royalties
payable
|
(5,961
|
)
|
32,913
|
(1,406
|
)
|
||||||
Income
taxes payable
|
-
|
2,271
|
8,622
|
||||||||
Net
cash provided by operating activities
|
141,621
|
63,250
|
59,379
|
||||||||
Cash
flows from investing activities
|
|||||||||||
Acquisition,
net of cash acquired
|
-
|
(910,064
|
)
|
-
|
|||||||
Purchases
of property and equipment
|
(147,243
|
)
|
(26,507
|
)
|
(32,202
|
)
|
|||||
Disposals
of property and equipment
|
36
|
-
|
1,447
|
||||||||
Deposits
|
50
|
(201
|
)
|
-
|
|||||||
Investment
in non-affiliated subsidiary
|
-
|
(820
|
)
|
-
|
|||||||
Increase
in restricted cash
|
(15,000
|
)
|
-
|
-
|
|||||||
Other
|
(4
|
)
|
-
|
110
|
|||||||
Net
cash used in investing activities
|
(162,161
|
)
|
(937,592
|
)
|
(30,645
|
)
|
|||||
Cash
flows from financing activities
|
|||||||||||
Equity
offering proceeds
|
-
|
800,000
|
-
|
||||||||
Equity
offering transaction fees
|
268
|
(53,540
|
)
|
-
|
|||||||
Borrowings
on term loan
|
-
|
100,000
|
-
|
||||||||
Payments
on term loan
|
-
|
(25,000
|
)
|
-
|
|||||||
Borrowings
on revolving credit facility
|
-
|
225,000
|
-
|
||||||||
Payments
on revolving credit facility
|
-
|
(60,000
|
)
|
-
|
|||||||
Loan
fees
|
-
|
(5,145
|
)
|
-
|
|||||||
Notes
payable to affiliates
|
-
|
-
|
(27,239
|
)
|
|||||||
Proceeds
from issuances of common stock
|
515
|
-
|
-
|
||||||||
Stock-based
compensation excess tax benefit
|
302
|
-
|
-
|
||||||||
Purchases
of treasury stock
|
(1,526
|
)
|
-
|
-
|
|||||||
Net
cash (used in) provided by financing activities
|
(441
|
)
|
981,315
|
(27,239
|
)
|
||||||
Net
(decrease) increase in cash
|
(20,981
|
)
|
106,973
|
1,495
|
|||||||
Cash
and cash equivalents, beginning of period
|
99,724
|
-
|
-
|
||||||||
Cash
and cash equivalents, end of period
|
$
|
78,743
|
$
|
106,973
|
$
|
1,495
|
|||||
Supplemental
non-cash disclosures:
|
|||||||||||
Capital
expenditures included in accrued liabilities
|
$
|
3,783
|
(1,670
|
)
|
-
|
||||||
Accrued purchase price adjustment | 11,400 |
(1)
|
Organization
and Operations of the
Company
|
(2)
|
Acquisition
of Calpine Oil and Natural Gas
Business
|
Cash
from equity offering
|
$
|
725,000
|
||
Proceeds
from revolver
|
225,000
|
|||
Proceeds
from term loan
|
100,000
|
|||
Other
purchase price costs
|
(53,389
|
)
|
||
Transaction
adjustments (purchase price adjustments)
|
(11,556
|
)
|
||
Transaction
adjustments (non-consent properties)
|
(74,991
|
)
|
||
Initial
purchase price
|
$
|
910,064
|
||
Current
assets
|
$
|
1,794
|
||
Non-current
assets
|
5,087
|
|||
Properties,
plant and equipment
|
925,141
|
|||
Current
liabilities
|
(14,390
|
)
|
||
Long-term
liabilities
|
(7,568
|
)
|
||
$
|
910,064
|
|||
Nine
Months Ended
September
30, 2005
|
||||
(In
thousands, except per share amounts)
|
||||
(Unaudited)
|
||||
Revenues
|
$
|
152,262
|
||
Net
income
|
17,109
|
|||
Basic
earnings per common share
|
0.34
|
|||
Diluted
earnings per common share
|
$
|
0.34
|
(3)
|
Summary
of Significant Accounting
Policies
|
(4)
|
Restricted
Cash
|
(5)
|
Property,
Plant and Equipment
|
September
30,
2006
|
December
31,
2005
|
||||||
(In
thousands)
|
|||||||
Proved
properties
|
$
|
1,103,302
|
$
|
951,968
|
|||
Unproved
properties
|
31,452
|
21,217
|
|||||
Other
|
3,868
|
2,912
|
|||||
Total
|
1,138,622
|
976,097
|
|||||
Less:
Accumulated depreciation, depletion, and amortization
|
(117,186
|
)
|
(40,161
|
)
|
|||
$
|
1,021,436
|
$
|
935,936
|
||||
September
30,
2006
|
December
31,
2005
|
||||||
Onshore:
|
(In
thousands)
|
||||||
Development
cost
|
$
|
13,796
|
$
|
1,716
|
|||
Exploration
cost
|
3,939
|
5,212
|
|||||
Acquisition
cost of undeveloped acreage
|
25,696
|
19,684
|
|||||
Capitalized
interest
|
1,691
|
555
|
|||||
Total
|
45,122
|
27,167
|
|||||
Offshore:
|
|||||||
Development
cost
|
$
|
1,779
|
$
|
-
|
|||
Exploration
cost
|
-
|
2,407
|
|||||
Acquisition
cost of undeveloped acreage
|
3,954
|
950
|
|||||
Capitalized
interest
|
111
|
28
|
|||||
Total
|
5,844
|
3,385
|
|||||
Total
costs excluded from depreciation, depletion, and
amortization
|
$
|
50,966
|
$
|
30,552
|
|||
(6)
|
Commodity
Hedging Contracts and Other Derivatives
|
Settlement
Period
|
Derivative
Instrument
|
Hedge
Strategy
|
Notional
Daily Volume
MMBtu
|
Total
of Notional Volume
MMBtu
|
Average
Underlying Prices
MMBtu
|
Total
of Proved Natural Gas Production Hedged (1)
|
Fair
Market Value
Gain/(Loss)
(In
thousands)
|
|||||||||||||||
2006
|
Swap
|
Cash
flow
|
45,000
|
4,140,000
|
$
|
7.92
|
46
|
%
|
$
|
11,176
|
||||||||||||
2007
|
Swap
|
Cash
flow
|
45,341
|
16,549,500
|
7.87
|
41
|
%
|
7,593
|
||||||||||||||
2008
|
Swap
|
Cash
flow
|
39,909
|
14,606,616
|
7.63
|
35
|
%
|
(2,060
|
)
|
|||||||||||||
2009
|
Swap
|
Cash
flow
|
26,141
|
9,541,465
|
6.99
|
26
|
%
|
(4,398
|
)
|
|||||||||||||
44,837,581
|
$
|
12,311
|
||||||||||||||||||||
Settlement
Period
|
Derivative
Instrument
|
Hedge
Strategy
|
Notional
Daily Volume
MMBtu
|
Total
of Notional Volume
MMBtu
|
Average
Floor Price
MMBtu
|
Average
Ceiling Price
MMBtu
|
Fair
Market Value
Gain/(Loss)
(In
thousands)
|
|||||||||||||||
2006
|
Costless
Collar
|
Cash
flow
|
10,000
|
920,000
|
$
|
8.83
|
$
|
14.00
|
$
|
3,175
|
||||||||||||
2007
|
Costless
Collar
|
Cash
flow
|
10,000
|
3,650,000
|
7.19
|
$
|
10.03
|
1,922
|
||||||||||||||
4,570,000
|
$
|
5,097
|
||||||||||||||||||||
Three
Months Ended September 30, 2006
|
Nine
Months Ended September 30, 2006
|
||||||
Natural
Gas
|
|||||||
Quantity
settled (MMBtu)
|
5,060,000
|
15,015,000
|
|||||
Increase
in natural gas sales revenue (In thousands)
|
$
|
9,114
|
$
|
19,804
|
(7)
|
Accrued
Liabilities
|
September
30, 2006
|
December
31, 2005
|
||||||
(In
thousands)
|
|||||||
Accrued
capital costs
|
$
|
19,201
|
$
|
17,607
|
|||
Accrued Calpine settlement | 11,400 | - | |||||
Accrued
lease operating expense
|
7,658
|
3,202
|
|||||
Accrued
payroll and employee incentive expense
|
2,181
|
2,696
|
|||||
Other
|
2,164
|
4,892
|
|||||
Total
|
$
|
42,604
|
$
|
28,397
|
|||
(8)
|
Asset
Retirement Obligation
|
Nine
Months Ended September 30, 2006
|
||||
(In
thousands)
|
||||
ARO
as of January 1, 2006
|
$
|
9,467
|
||
Liabilities
incurred during period
|
115
|
|||
Liabilities
settled during period
|
(15
|
)
|
||
Accretion
expense
|
587
|
|||
Other
Adjustments
|
(4
|
)
|
||
ARO
as of September 30, 2006
|
$
|
10,150
|
||
(9)
|
Long-Term
Debt
|
(10)
|
Commitment
and Contingencies
|
·
|
Calpine’s
conveyance of the Non-Consent Properties to the
Company;
|
·
|
Calpine’s
execution of all documents and performance of all tasks required
under
“further assurances” provisions of the Purchase Agreement with respect to
certain of the oil and natural gas properties for which the Company
has
already paid Calpine; and
|
·
|
Resolution
of the final amounts the Company is to pay Calpine, which the Company
has
concluded is approximately $79 million, consisting of roughly $68
million
for the Non-Consent Properties and approximately $11 million in other
true-up payment obligations.
|
·
|
In
response to an objection filed by the Department of Justice and asserted
by the California State Lands Commission that the Debtors’ Motion to
Assume Non-Residential Leases and Set Cure Amounts (the “Motion”), did not
allow adequate time for an appropriate response, Calpine withdrew
from the
list of Oil and Gas Leases that were the subject of the Motion those
leases issued by the United States (and managed by the Minerals Management
Service of the United States Department of Interior) (the “MMS Oil and Gas
Leases”) and the State of California (and managed by the California State
Lands Commission) (the “CSLC Leases”). Calpine and both the Department of
Justice and the State of California agreed to an extension of the
existing
deadline to November 15, 2006 to assume or reject the MMS Oil and
Gas
Leases and CSLC Leases under Section 365 of the Bankruptcy Code,
to the
extent the MMS Oil and Gas Leases and CSLC Leases are leases subject
to
Section 365. The effect of these actions was to render the objection
of
the Company inapplicable at that time;
and
|
·
|
The
Court also encouraged Calpine and the Company to arrive at a business
solution to all remaining issues including approximately $68 million
payable to Calpine for conveyance of the Non-Consent Properties.
|
(11)
|
Comprehensive
Income
|
Three
Months Ended
September
30, 2006
|
Three
Months Ended
September
30, 2005
|
Nine
Months Ended
September
30, 2006
|
|||||||||||||||||
(In
thousands)
|
|||||||||||||||||||
Accumulated
other comprehensive loss - beginning of period
|
$
|
(11,852
|
)
|
$
|
-
|
$
|
(50,731
|
)
|
|||||||||||
Net
income
|
11,922
|
8,207
|
31,412
|
||||||||||||||||
Change
in fair value of derivative hedging instruments
|
45,638
|
(109,392
|
)
|
119,036
|
|||||||||||||||
Hedge
settlements reclassed to income
|
(9,114
|
)
|
2,221
|
(19,804
|
)
|
||||||||||||||
Tax
provision related to hedges
|
(13,880
|
)
|
40,725
|
(37,709
|
)
|
||||||||||||||
Total
other comprehensive income (loss)
|
22,644
|
22,644
|
(66,446
|
)
|
(66,446
|
)
|
61,523
|
61,523
|
|||||||||||
Comprehensive
income
|
34,566
|
(58,239
|
)
|
92,935
|
|||||||||||||||
Accumulated
other comprehensive income (loss)
|
|
$
|
10,792
|
|
$
|
(66,446
|
)
|
|
$
|
10,792
|
|||||||||
(12)
|
Stock-Based
Compensation
|
Three
Months Ended September 30, 2005
|
||||
(In
thousands)
|
||||
Net
income, as reported
|
$
|
8,207
|
||
Deduct:
stock-based employee compensation expense determined under
the
fair value method for all awards, net of related tax
effects
|
(288
|
)
|
||
Pro
forma net income
|
$
|
7,919
|
||
Net
income per share:
|
||||
Basic,
as reported
|
$
|
0.16
|
||
Basic,
pro forma
|
$
|
0.16
|
||
Diluted,
as reported
|
$
|
0.16
|
||
Diluted,
pro forma
|
$
|
0.16
|
Successor
|
Successor
|
Predecessor
|
|||||||||
Nine
Months Ended
September
30, 2006
|
Three
Months Ended
September
30, 2005
|
Six
Months Ended
June
30, 2005
|
|||||||||
Expected
option term (years)
|
6.5
|
6.5
|
2.5
|
||||||||
Expected
volatility
|
56.65
|
%
|
56.65
|
%
|
58.00
|
%
|
|||||
Expected
dividend rate
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
|||||
Risk
free interest rate
|
4.33%
- 5.15
|
%
|
4.03%
- 4.33
|
%
|
3.62
|
%
|
Shares
|
Weighted
Average Exercise Price
Per
Share
|
Weighted
Average Remaining Contractual Term
(In
years)
|
Aggregate
Intrinsic Value
(In
thousands)
|
||||||||||
Outstanding
at the December 31, 2005
|
706,550
|
$
|
16.28
|
||||||||||
Granted
|
245,950
|
17.83
|
|||||||||||
Exercised
|
(32,000
|
)
|
16.10
|
||||||||||
Forfeited
|
(59,875
|
)
|
16.38
|
||||||||||
Outstanding
at September 30, 2006
|
860,625
|
$
|
16.73
|
9.00
|
$
|
747
|
|||||||
Options
Exercisable at September 30, 2006
|
349,649
|
$
|
16.29
|
8.87
|
$
|
393
|
|||||||
Shares
|
Weighted
Average Grant Date Fair Value
|
||||||
Non-vested
shares outstanding at December 31, 2005
|
581,900
|
$
|
16.27
|
||||
Granted
|
129,800
|
17.70
|
|||||
Vested
|
(344,975
|
)
|
16.11
|
||||
Forfeited
|
(35,125
|
)
|
16.18
|
||||
Non-vested
shares outstanding at September 30, 2006
|
331,600
|
$
|
17.00
|
||||
(13)
|
Earnings
Per Share
|
Successor
|
Successor
|
Predecessor
|
||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended September 30
|
Six
Months Ended
June
30,
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||||
Basic
weighted average number of shares outstanding
|
50,282
|
50,000
|
50,211
|
50,000
|
||||||||||
Dilution
effect of stock option and awards at the end of
the
period
|
144
|
160
|
173
|
160
|
||||||||||
Diluted
weighted average number of shares outstanding
|
50,426
|
50,160
|
50,384
|
50,160
|
||||||||||
Stock
awards and shares excluded from diluted earnings
per
share due to anti-dilutive effect
|
179
|
-
|
229
|
-
|
||||||||||
(14)
|
Operating
Segments
|
Successor
|
Successor
|
Predecessor
|
||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended September 30,
|
Six
Months Ended June 30,
|
||||||||||||
2006
(1)
|
2005
(1)
|
2006
(1)
|
2005
|
|||||||||||
Oil
and Natural Gas Revenue
|
(In thousands)
|
|||||||||||||
California
|
$
|
18,820
|
$
|
20,893
|
$
|
54,921
|
$
|
43,385
|
||||||
Lobo
|
21,009
|
18,888
|
50,090
|
26,474
|
||||||||||
Perdido
|
4,939
|
5,712
|
21,722
|
12,380
|
||||||||||
State
Waters
|
1,750
|
2,964
|
7,039
|
2,345
|
||||||||||
Other
Onshore
|
8,205
|
4,267
|
20,381
|
7,662
|
||||||||||
Gulf
of Mexico
|
6,172
|
6,463
|
22,093
|
10,542
|
||||||||||
Rockies
|
591
|
126
|
1,555
|
161
|
||||||||||
Mid-Continent
|
596
|
767
|
1,506
|
842
|
||||||||||
Other
|
1
|
6
|
11
|
40
|
||||||||||
$
|
62,083
|
$
|
60,086
|
$
|
179,318
|
$
|
103,831
|
|||||||
(1)
|
Excludes
the effects of hedging.
|
Successor
|
|||||||
September
30,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Oil
and Natural Gas Properties (2)
|
(In
thousands)
|
||||||
California
|
$
|
430,819
|
$
|
386,513
|
|||
Lobo
|
398,754
|
368,276
|
|||||
Perdido
|
43,890
|
25,983
|
|||||
State
Waters
|
21,894
|
12,067
|
|||||
Other
Onshore
|
100,308
|
75,737
|
|||||
Gulf
of Mexico
|
95,375
|
77,416
|
|||||
Rockies
|
35,038
|
21,224
|
|||||
Mid-Continent
|
8,676
|
5,969
|
|||||
Other
|
3,868
|
2,912
|
|||||
$
|
1,138,622
|
$
|
976,097
|
||||
(2)
|
Oil
and natural gas properties at September 30, 2006 and December 31,
2005 are
reported gross. Under the full cost method of accounting for oil
and
natural gas properties, depreciation, depletion and amortization
is not
allocated to properties.
|
·
|
The
timing and extent of changes in commodity prices, particularly natural
gas;
|
·
|
Various
drilling and exploration risks that may delay or prevent commercial
operation of new wells;
|
·
|
Economic
slowdowns that can adversely affect consumption of oil and natural
gas by
businesses and consumers;
|
·
|
Resources
expended in connection with Calpine’s bankruptcy including our increased
costs for lawyers, consultant experts and related expenses, as well
as the
lost opportunity costs associated with our internal resources dedicated
to
these matters;
|
·
|
Uncertainties
that actual costs may be higher than estimated;
|
·
|
Factors
that impact the exploration of oil or natural gas resources, such
as the
geology of a resource, the total amount and costs to develop recoverable
reserves, and legal title, regulatory, natural gas administration,
marketing and operational factors relating to the extraction of oil
and
natural gas;
|
·
|
Uncertainties
associated with estimates of oil and natural gas reserves;
|
·
|
Our
ability to access the capital markets on attractive terms or at
all;
|
·
|
Refusal
by or inability of our current or potential counterparties or vendors
to
enter into transactions with us or fulfill their obligations to us;
|
·
|
Our
inability to obtain credit or capital in desired amounts or on favorable
terms;
|
·
|
Present
and possible future claims, litigation and enforcement actions;
|
·
|
Effects
of the application of regulations, including changes in regulations
or the
interpretation thereof;
|
·
|
Availability
of processing and transportation;
|
·
|
Potential
for disputes with mineral lease and royalty owners regarding calculation
and payment of royalties, including basis of pricing, adjustment
for
quality, measurement and allowable costs and expenses;
|
·
|
Developments
in oil-producing and natural gas-producing countries;
|
·
|
Competition
in the oil and natural gas industry; and
|
·
|
Adverse
weather conditions, hurricanes, tropical storms, earthquakes, mud
slides,
flooding and other natural disasters which may occur in areas of
the
United States in which we have operations, including the Federal
waters of
the Gulf of Mexico, as well as new energy package insurance coverage
limitations related to any single named windstorm; and uncertainty
with
respect to potential environmental, health and safety
liabilities.
|
·
|
Calpine,
its creditors or interest holders may challenge the fairness of some
or
all of the Acquisition. For a number of reasons, including our
understanding of the process which Calpine followed in allowing market
forces to set the purchase price for the Acquisition, we believe
that it
is unlikely that any challenge to the fairness of the Acquisition
would be
successful;
|
·
|
The
bankruptcy proceeding may prevent, frustrate or delay our ability
to
receive record legal title to certain properties originally listed
as
determined to be Non-Consent Properties which we are entitled to
obtain
under the Purchase Agreement;
|
·
|
Additionally,
the bankruptcy proceeding may prevent, frustrate or delay our ability
to
receive corrective documentation from Calpine for certain properties
that
we bought from Calpine and paid for, in cases where Calpine delivered
incomplete documentation, including documentation related to certain
ministerial governmental approvals;
and
|
·
|
Calpine’s
conveyance of the Non-Consent Properties to
us;
|
·
|
Calpine’s
execution of all documents and performance of all tasks required
under
“further assurances” provisions of the Purchase Agreement with respect to
certain of the oil and natural gas properties for which we have already
paid Calpine; and
|
·
|
Resolution
of the final amounts we are to pay Calpine, which we have concluded
is
approximately $79 million, consisting of roughly $68 million for
the
Non-Consent Properties and approximately $11 million in other true-up
payment obligations.
|
·
|
In
response to an objection filed by the Department of Justice and asserted
by the California State Lands Commission that the Debtors’ Motion to
Assume Non-Residential Leases and Set Cure Amounts (the “Motion”), did not
allow adequate time for an appropriate response, Calpine withdrew
from the
list of Oil and Gas Leases that were the subject of the Motion those
leases issued by the United States (and managed by the Minerals Management
Service of the United States Department of Interior) (the “MMS Oil and Gas
Leases”) and the State of California (and managed by the California State
Lands Commission) (the “CSLC Leases”). Calpine and both the Department of
Justice and the State of California agreed to an extension of the
existing
deadline to November 15, 2006 to assume or reject the MMS Oil and
Gas
Leases and CSLC Leases under Section 365 of the Bankruptcy Code,
to the
extent the MMS Oil and Gas Leases and CSLC Leases are leases subject
to
Section 365. The effect of these actions was to render our objection
inapplicable at that time; and
|
·
|
The
Court also encouraged Calpine and us to arrive at a business solution
to
all remaining issues including approximately $68 million payable
to
Calpine for conveyance of the Non-Consent Properties.
|
Successor-Consolidated
|
Successor-Consolidated
|
Predecessor-Combined
|
||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
Six
Months Ended June 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||||
(In thousands, except per unit amounts)
|
||||||||||||||
Total
revenues
|
$
|
71,197
|
$
|
57,865
|
$
|
199,122
|
$
|
103,831
|
||||||
Production:
|
||||||||||||||
Gas
(Bcf)
|
7.9
|
6.4
|
21.9
|
14.5
|
||||||||||
Oil
(MBbls)
|
143.5
|
103.0
|
414.3
|
163.8
|
||||||||||
Total
Equivalents (Bcfe)
|
8.7
|
7.1
|
24.4
|
15.5
|
||||||||||
$
per unit:
|
||||||||||||||
Avg.
Gas Price per Mcf
|
$
|
7.77
|
$
|
8.03
|
$
|
7.84
|
$
|
6.59
|
||||||
Avg.
Gas Price per Mcf excluding Hedging
|
6.61
|
8.38
|
6.94
|
-
|
||||||||||
Avg.
Oil Price per Bbl
|
68.51
|
60.03
|
65.99
|
49.86
|
||||||||||
Avg.
Revenue per Mcfe
|
$
|
8.18
|
$
|
8.20
|
$
|
8.16
|
$
|
6.70
|
Successor-Consolidated
|
Successor-Consolidated
|
Predecessor-Combined
|
||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
Six
Months Ended June 30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||||
(In thousands, except per unit amounts)
|
||||||||||||||
Lease
operating expense
|
$
|
9,449
|
$
|
8,849
|
$
|
27,330
|
$
|
16,629
|
||||||
Depreciation,
depletion and amortization
|
27,906
|
21,720
|
77,574
|
30,679
|
||||||||||
General
and administrative costs
|
$
|
8,316
|
$
|
6,880
|
$
|
24,645
|
$
|
9,677
|
||||||
$
per unit:
|
||||||||||||||
Avg.
lease operating expense per Mcfe
|
$
|
1.09
|
$
|
1.25
|
$
|
1.12
|
$
|
1.08
|
||||||
Avg.
DD&A per Mcfe
|
3.21
|
3.08
|
3.18
|
1.98
|
||||||||||
Avg.
G&A per Mcfe
|
$
|
0.96
|
$
|
0.83
|
$
|
1.01
|
$
|
0.63
|
·
|
Lease
Operating Expense.
Lease operating expense increased $0.6 million from the three months
ended
September 30, 2005 to the three months ended September 30, 2006.
The
overall increase is due to an increase in lease expense and ad valorem
tax
of $2.3 million offset by a decrease in work over expense of $1.7
million
primarily due to insurance reimbursement for claims submitted as
a result
of Hurricane Rita. The average lease operating expense decreased
to $1.09
per Mcfe for the three months ended September 30, 2006 from $1.25
per Mcfe
for the comparable period in the prior year.
|
·
|
Depreciation,
Depletion, and Amortization.
Depreciation, depletion, and amortization expense increased by $6.2
million from the three months ended September 30, 2005 as compared
to the
three months ended September 30, 2006 due to increased production
volumes
and a higher rate. The depletion rate increased from $2.97 per Mcfe
to
$3.13 per Mcfe.
|
·
|
General
and Administrative Costs.
General and administrative costs for the three months ended September
30,
2006
|
Successor
|
Successor
|
Predecessor
|
|||||||||
Nine
months ended September 30,
|
Three
months ended September 30,
|
Six
months ended June 30,
|
|||||||||
2006
|
2005
|
2005
|
|||||||||
(In
thousands)
|
|||||||||||
Cash
flows provided by operating activities
|
$
|
141,621
|
$
|
63,250
|
$
|
59,379
|
|||||
Cash
flows used in investing activities
|
(162,161
|
)
|
(937,592
|
)
|
(30,645
|
)
|
|||||
Cash
flows provided by (used in) financing activities
|
(441
|
)
|
981,315
|
(27,239
|
)
|
||||||
Net
(decrease) increase in cash and cash equivalents
|
$
|
(20,981
|
)
|
$
|
106,973
|
$
|
1,495
|
||||
a)
|
We
did not have a sufficient compliment of permanent personnel to have
an
appropriate accounting and financial reporting organizational structure
to
support the activities of the Company. Specifically, we did not have
permanent personnel with an appropriate level of accounting knowledge,
experience and training in the selection, application and implementation
of generally accepted accounting principles and financial reporting
commensurate with our financial reporting requirements;
and
|
b)
|
We
did not have effective controls as it relates to the identification
and
documentation of accounting policies, including selection and application
of generally accepted accounting principles used for accounting for
select
transactions and other activities. This deficiency resulted in a
reduced
ability to ensure the timely and accurate recording of certain
transactions and activities primarily relating to accounting for
derivatives and debt modifications. As a result, we did not have
sufficient procedures to ensure significant underlying select transactions
were appropriately and timely accounted for in the general
ledger.
|
1.
|
We
employed a certified public accountant from one of the top tier Accounting
Firms to be the manager of financial
reporting;
|
2.
|
We
employed a person to fill the position of manager of internal audit
to
review and audit our internal control environment and make recommendations
for improvement;
|
3.
|
We
have replaced our manager of fixed assets and accounts payable with
a more
highly credentialed person having a masters degree in business
administration who is also a certified public accountant and have
authorized the hiring of a senior fixed asset
accountant;
|
4.
|
We
employed a certified public accountant with specific expertise in
accounting software systems to evaluate and implement further enhancements
to our software and related procedures to improve our accounting
control;
|
5.
|
We
employed two supervisory level accountants who have extensive industry
experience; and
|
6. | We have made substantial progress on the establishment and documentation of our accounting policies and procedures. |
·
|
Calpine’s
conveyance of the Non-Consent Properties to
us;
|
·
|
Calpine’s
execution of all documents and performance of all tasks required
under
“further assurances” provisions of the Purchase Agreement with respect to
certain of the oil and natural gas properties for which we have
already paid Calpine; and
|
·
|
Resolution
of the final amounts we are to pay Calpine, which we have concluded
are
approximately $79 million, consisting of roughly $68 million for
the
Non-Consent Properties and approximately $11 million in other true-up
payment obligations.
|
·
|
In
response to an objection filed by the Department of Justice and asserted
by the California State Lands Commission that the Debtors’ Motion to
Assume Non-Residential Leases and Set Cure Amounts (the “Motion”), did not
allow adequate time for an appropriate response, Calpine withdrew
from the
list of Oil and Gas Leases that were the subject of the Motion those
leases issued by the United States (and managed by the Minerals Management
Service of the United States Department of Interior) (the “MMS Oil and Gas
Leases”) and the State of California (and managed by the California State
Lands Commission) (the “CSLC Leases”). Calpine and both the Department of
Justice and the State of California agreed to an extension of the
existing
deadline to November 15, 2006 to assume or reject the MMS Oil and
Gas
Leases and CSLC Leases under Section 365 of the Bankruptcy Code,
to the
extent the MMS Oil and Gas Leases and CSLC Leases are leases subject
to
Section 365. The effect of these actions was to render our objection
inapplicable at that time; and
|
·
|
The
Court also encouraged Calpine and us to arrive at a business solution
to
all remaining issues including approximately $68 million payable
to
Calpine for conveyance of the Non-Consent Properties.
|
·
|
Transferred
its domestic oil and natural gas business to us with the intent of
hindering, delaying or defrauding its current or future creditors;
or
|
·
|
As
of July 7, 2005 (the date of the closing of the Acquisition),
(a) received less than reasonably equivalent value for the business,
and (b) was insolvent, became insolvent as a result of such transfer,
was engaged in a business or transaction or was about to engage in
a
business or transaction for which any property remaining was unreasonably
small, or intended to incur or believed it would incur debts that
would be
beyond its ability to pay as such debts matured.
|
·
|
Well
blowouts;
|
·
|
Cratering;
|
·
|
Explosions;
|
·
|
Uncontrollable
flows of oil, natural gas or well
fluids;
|
·
|
Fires;
|
·
|
Hurricanes,
tropical storms, earthquakes, mud slides, and
flooding;
|
·
|
Pollution;
and
|
·
|
Releases
of toxic gas.
|
·
|
Well
drilling or workover, operation and
abandonment;
|
·
|
Waste
management;
|
·
|
Land
reclamation;
|
·
|
Financial
assurance under the Oil Pollution Act of 1990;
and
|
·
|
Controlling
air, water and waste emissions.
|
Period
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or
Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares that May yet Be
Purchased
Under the Plans or Programs
|
|||||||||
July
1 - July 31
|
14,169
|
$
|
16.22
|
-
|
-
|
||||||||
August
1 - August 31
|
1,532
|
17.11
|
-
|
-
|
|||||||||
September
1 - September 30
|
1,349
|
17.50
|
-
|
-
|
(1)
|
All
of the shares repurchased were surrendered by employees to pay tax
withholding upon the vesting of restricted stock awards. These repurchases
were not part of a publicly announced program to repurchase shares
of our
common stock, nor do we have a publicly announced program to repurchase
shares of our common stock.
|
Rosetta Resources Inc. | ||
|
|
|
Date: November 14, 2006 | By: | /s/ Michael J. Rosinski |
Michael J. Rosinski |
||
Executive Vice President and Chief Financial Officer | ||
(Duly Authorized Officer and Principal Financial Officer) |
Exhibit
Number
|
Description
|
|
31.1
|
Certification
of Periodic Financial Reports by B. A. Berilgen in satisfaction
of Section
302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of Periodic Financial Reports by Michael J. Rosinski in satisfaction
of
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of Periodic Financial Reports by B. A. Berilgen and Michael J.
Rosinski in
satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and
18
U.S.C. Section 1350
|