Saratoga Resources Inc.

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Saratoga Resources, Inc. Reports Fourth Quarter and 2013 Financial Results

HOUSTON--(BUSINESS WIRE)-- Saratoga Resources, Inc. (NYSE MKT: SARA; the “Company” or “Saratoga”) today announced financial and operating results for the quarter and year-ended December 31, 2013.

Key Financial Results

Year-Ended 2013

  • Production of 803,400 barrels of oil equivalent, or 2,201 barrels of oil equivalent per day, for 2013, down 28% from 2012;
  • Oil and gas revenues of $68.7 million for 2013 compared to $82.5 million for 2012;
  • Discretionary cash flow of $9.1 million, or $0.29 per fully diluted share, for 2013 compared to $29.3 million, or $1.00 per fully diluted share, for 2012;
  • EBITDAX of $28.7 million for 2013 compared to $45.7 million for 2012;
  • Operating income of $3.7 million, or $0.12 per fully diluted shares, for 2013 compared to operating income of $12.3 million, or $0.42 per fully diluted share, for 2012; and
  • Net loss of $(26.4) million, or $(0.85) per fully diluted share, as compared to $(3.7) million, or $(0.13) per fully diluted share, for 2012.

Fourth Quarter

  • Oil and gas revenues of $14.5 million for fourth quarter 2013 compared to $22.9 million for fourth quarter 2012;
  • Discretionary cash flow of $(0.7) million, or $(0.02) per fully diluted share, for fourth quarter 2013 compared to discretionary cash flow of $9.7 million, or $0.31 per fully diluted share, for fourth quarter 2012;
  • EBITDAX of $4.3 million for fourth quarter 2013 compared to $13.8 million for fourth quarter 2012; and
  • Net loss of $(17.3) million, or $(0.56) per fully diluted share, for fourth quarter 2013 compared to $(2.9) million, or $(0.09) per fully diluted share, for fourth quarter 2012.

Discretionary cash flow, EBITDAX, net asset value per share, and PV-10 are non-GAAP financial measures and are defined and reconciled to the most directly comparable GAAP measure under “Non-GAAP Financial Measures” below.

The net loss for the year reflects the substantial decline in production volumes together with non-cash charges totaling $11.7 million, or $0.38 per share, consisting of hedging losses of $1.0 million, an impairment loss of $2.2 million and a tax provision of $8.5 million as a result of fully reserving against the net deferred tax asset. The hedging loss for the quarter and year totaled $1.7 million and included $1.0 million in non-cash charges attributable to the failure of certain hedges (HLS and LLS production hedged against Brent pricing) to satisfy U.S. GAAP requirements for correlation between product pricing and benchmark prices. The impairment loss was a non-cash charge related to the expiration of the Little Bay lease which was required to be recognized under GAAP despite the fact that substantially the same acreage was subsequently re-leased, recouping substantially all associated reserves, shortly after the lease expiration at a cost of less than $100,000. The tax provision reflected the determination to fully reserve against a net deferred tax asset in the amount of $13.8 million. Net operating losses totaling $73.9 million remain available for use against future taxable income.

The change in revenues for the 2013 quarter and year reflects a decrease in production volumes (down 28.0% year over year) partially offset by higher average realized oil and natural gas prices. The decrease in production reflects a 10.8% decline in oil volumes and a 54.6% decline in natural gas volumes. The decline in production was attributable to multiple field operating issues, principally arising from low gas volumes available for gas lift in Grand Bay and Main Pass 25 fields, flow line restrictions and facility repairs in Main Pass 46 Field and third party product handling issues and platform shut-ins due to construction projects in Main Pass 25 Field; all, partially offset by production from new drills during 2013.

For the full year, the decline in operating income and profitability was partially offset by a decline in operating expenses, reflecting, among other items, (i) decreased workover expense (down $1.4 million, or 35.3%), reflecting decreased workover activity; (ii) decreased loss on plugging and abandonment (down $1.8 million, or 71.6%), reflecting a lower level of P&A expenses in excess of estimates during 2013; (iii) lower depreciation, depletion and amortization expense (down $10.1 million, or 37%), reflecting lower production volumes during 2013; and (iv) decreased severance taxes (down $0.5 million, or 6.4%), resulting from lower production volumes; all partially offset by (v) increased lease operating expenses (up $2.4 million, or 12.3%), reflecting one-time non-recurring expenses associated with the salvage of a barge in Little Bay, regulatory compliance charges relating to Grand Bay and cleaning of a flowline in Main Pass 46; (vi) increased exploration expense (up $0.4 million, or 64.5%), reflecting increased delay rentals associated with the acquisition of Gulf of Mexico leases and field study expense in the Gulf of Mexico and Grand Bay; (vii) increased accretion expense (up $1.0 million, or 69%), reflecting an upward revision in asset retirement obligation (“ARO”) recorded during 2012; and (viii) increased general and administrative expense (up $0.7 million, or 7.8%), reflecting increased contract and reserve engineering fees, legal costs and employee recruiting fees partially offset by lower stock based compensation and bonuses.

Operational Highlights

Operational highlights for 2013 included:

  • 4 development wells, 17 recompletions and 9 workovers successfully completed;
  • completion of first horizontal well;
  • 90 gross (89 net) wells in production at December 31, 2013;
  • acquisition of 19,814 acres of Gulf of Mexico leases, including 2,740 Mboe of proved reserves; and
  • 52,103 gross/net acres in 12 fields under lease at December 31, 2013.

During 2013, Saratoga drilled 4 successful development wells, the “Buddy” well in Grand Bay Field, the “Roux Toux” well in Main Pass 47 Field, and the “Rocky” and “Zeke” wells in Breton Found 32 Field. The Rocky well was Saratoga’s first horizontal well.

Saratoga also undertook 22 recompletions and 10 workovers during the year. Seventeen of the 22 recompletions and 9 of the 10 workovers were successful.

Production Highlights

  • Oil and gas production of 142.5 thousand barrels of oil (“MBO”) and 138.2 million cubic feet of gas (“MMCFG”), or 165.6 thousand barrels of oil equivalent (“MBOE”) (86% oil) in Q4 2013, and 603.6 MBO and 1,198.8 MMCFG, or 803.4 MBOE (75% oil) for 2013, down 28% from 1,116.3 MBOE in 2012.

The decrease in production during 2013 reflects operating issues across multiple fields. During Q4 and continuing into Q1 2014, a bottom up review of field operations was commenced to diagnose and remedy field operating issues weighing on production. Saratoga brought in outside consultants and Saratoga’s CEO spent a substantial amount of time in the field observing first hand operations. That review confirmed some of management’s original beliefs regarding operational issues in the field and revealed a few issues that were previously unknown. Most notable among the issues identified were an ongoing inadequacy of gas lift gas to support production in the field and certain personnel issues that have directly impacted run times. As a result of such review, Saratoga focused much of its recompletion and workover program in Q4 and into Q1 2014 on restoring gas production levels to provide an adequate supply of gas to support gas lift needs. Management believes that by the end of Q1 2014 gas supplies had been increased to a level adequate to support gas lift requirements. On the personnel front, Saratoga has made numerous personnel changes in the field and is continuing to evaluate performance of select personnel to assure that field personnel have both the requisite expertise and commitment to maintain optimal well performance across all fields. As a result of increased gas lift supply and personnel changes in the field, by late Q1 2014, run times in the field had increased and production levels had stabilized and begun to climb.

Reserve Highlights

  • Year-end 2013 SEC proved reserves consisted of 9.239 million barrels of oil (“MMBO”) and 47.997 billion cubic feet of gas (“BCFG”), or 17.239 million barrels of oil equivalent (“MMBOE”), up marginally from 17.226 MMBOE of proved reserves at year-end 2012;
  • Oil represents 53.6% of year-end 2013 1P reserves;
  • Year-end 2013 PV10 of $410.8 million, up 0.9% from $407 million at year-end 2012;
  • Proved developed reserves comprised 25.5% of year-end 2013 proved reserves;
  • Year-end 2013 probable reserved totaled 6.9 MMBO and 59.5 BCFG, or 16.8 MMBOE;
  • Year-end 2013 possible reserves totaled 19.0 MMBO and 124.4 BCFG, or 39.7 MMBOE;
  • Year-end 2013 3P reserves totaled 73.739 MMBOE.

Year-end 2013 reserves reflect production of 803.4 Mboe during the year as well as the addition of 3,503.5 Mboe of proved undeveloped reserves associated with the acquisition of new leases in the state waters of Louisiana and in the Gulf of Mexico and the reclassification of 2,439.0 MBoe of reserves out of the proved undeveloped category to the probable category pursuant to the SEC 5-year rule wherein reserves cannot be maintain in the proved undeveloped category for more than 5 years. The reclassified reserves in question were primarily gas, are associated with leases held by production and may at a future date be reclassified to the proved category once more.

Development Plans

  • Low risk recompletions, thru-tubing plugbacks and workovers from inventory of 53 proved developed non-producing (“PDNP”) opportunities in 33 wellbores in 6 fields;
  • Development of proved undeveloped (“PUD”) reserves from inventory of 88 PUD opportunities in 24 wellbores in 7 fields; and
  • Strategic partnerships and joint ventures for risk-sharing on exploratory drilling of deep and ultra-deep prospects at Grand Bay, Vermilion 16 and in Central Gulf of Mexico leases.

Near term development plans are focused on proved undeveloped opportunities and conversion of PDNP opportunities. At December 31, 2013, an exhaustive review of prospects was underway to identify, prioritize and bring forward the most promising prospects. With added depth and quality of professional staff, Saratoga has identified, and intends to focus development drilling plans on, a pool of high impact prospects, the first of which is expected to be a second horizontal well planned for Q2 2014. Present development plans are expected to be similar to those undertaken during 2013 in terms of both number of wells and capex.

In order to advance development plans with respect to its inventory of deep and ultra-deep prospects, including advancing discussions with potential partners beyond general discussions, Saratoga has additionally tasked its expanded professional staff with developing exhaustive analyses and marketing materials to support a full professional marketing plan to identify, and secure, potential drilling partners. Those efforts are expected to lead to commencement of a formal marketing plan to potential partners during Q2 2014.

Financial Position and CAPEX Highlights

  • $32.5 million of cash on hand at December 31, 2013, up from $32.3 million at December 31, 2012;
  • $37.3 million of shareholders’ equity at December 31, 2013;
  • $25.3 million of new debt raised during 2013;
  • $27.3 million of debt refinanced during 2013, lowering interest from 12½% to 10% and eliminating prepayment premiums;
  • $31.4 million of CAPEX for 2013;
  • 2014 CAPEX budget expected to be fully funded by cash on hand and projected operating cash flow;
  • Working capital adjusted debt to trailing twelve month EBITDAX of 5.5 times; and
  • Net asset value per share (based on working capital adjusted PV-10) of approximately $8.11.

Saratoga supplemented its liquidity through the sale of $27.3 million of 10% senior first lien notes with no prepayment premiums. Supplemented by proceeds of the 2013 debt offering, Saratoga expects to fully fund its 2014 development budget through cash on hand and projected operating cash flow. The 2014 CAPEX budget is expected to be roughly equal to that of 2013. Saratoga also issued an additional $27.3 million of 10% senior first lien notes to retire a like amount of outstanding 12½% secured notes which included prepayment premiums that were eliminated in the refinancing.

Management Comments

Thomas Cooke, Chairman and CEO, commented, “2013 saw some exciting developments for Saratoga as well as challenging issues at the field operating level. The net result of such developments was disappointing financial performance for the year but, we believe, tangible progress in addressing difficult and lingering issues in the field which we expect will allow us to improve run times in the field and renew stable and growing production levels.

Highlighting our efforts during 2013 were the drilling of our first horizontal well, Rocky, and our first high angle well, Zeke. 2013 also saw success in lease acquisitions with the addition of 19,814 acres in the Gulf of Mexico including four identified prospects containing 2,740.0 Mboe of proved reserves and 1,070 acres in state waters of Louisiana including two prospects containing 763.0 Mboe of proved reserves.

We also are excited about a number of additions to our professional staff as well as personnel changes at the field level. We are seeing positive results from those additions in terms of improving field performance and upgraded capabilities in prospect analysis, selection and planning. We expect those additions, along with other initiatives to result in ongoing improvements in the field and improved performance in our development drilling program.

I personally have spent substantial time in the field in recent months to observe first hand performance and issues that have resulted in production being below expected levels. With the addition of gas lift supplies to meet our needs for the foreseeable future and personnel changes in the field, we are beginning to see improved run times and resulting stabilization and increases in production rates that we expect to see flow through our operating results by the second quarter of 2014.

With expected improvements in production and operating results and cash on hand to support our development plans, we are optimistic that initiatives taken in recent months will produce improved performance in 2014.”

Conference Call Information

The company will host a conference call to discuss these results on April 1, 2014 at 10:30 AM EDT (9:30 AM CDT, 7:30 AM PDT) and interested parties in the U.S. can participate in the call by dialing (866) 501-1535. Interested international parties can participate in the call by dialing (216) 672-5582. The participant passcode for both the U.S. and international call is 17109721. Alternatively, the audio content of the call can be accessed on the Company’s web site at www.saratogaresources.com. The call will be archived on the Company web site for parties who are unable to listen to the live call.

About Saratoga Resources

Saratoga Resources is an independent exploration and production company with offices in Houston, Texas and Covington, Louisiana. Principal holdings cover 52,103 gross/net acres, mostly held by production, located in the transitional coastline and protected in-bay environment on parish and state leases of south Louisiana and in the shallow Gulf of Mexico Shelf. Most of the company’s large drilling inventory has multiple pay objectives that range from as shallow as 1,000 feet to the ultra-deep prospects below 20,000 feet in water depths ranging from less than 10 feet to a maximum of approximately 80 feet. For more information, go to Saratoga's website at www.saratogaresources.com and sign up for regular updates by clicking on the Updates button.

Forward-Looking Statements

This press release includes certain estimates and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, but not limited to, statements regarding future ability to fund the company’s development program and grow reserves, production, revenues and profitability, ability to reach and sustain target production levels, ability to secure commitments to participate in exploration of deep shelf prospects, ability to secure leases and the ultimate outcome of such efforts. Words such as "expects”, "anticipates", "intends", "plans", "believes", "assumes", "seeks", "estimates", "should", and variations of these words and similar expressions, are intended to identify these forward-looking statements. While we believe these statements are accurate, forward-looking statements are inherently uncertain and we cannot assure you that these expectations will occur and our actual results may be significantly different. These statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. Important factors that could cause actual results to differ from those in the forward-looking statements include the factors described in the "Risk Factors" section of the Company's filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.

Saratoga Resources, Inc.
CONSOLIDATED BALANCE SHEETS
 
  December 31,
2013   2012
ASSETS
Current assets:
Cash and cash equivalents $ 32,547,380 $ 32,302,313
Accounts receivable 6,758,572 12,430,158
Prepaid expenses and other 1,056,350 1,268,971
Other current assets   150,000     150,000  
Total current assets 40,512,302 46,151,442
 
Property and equipment:
Oil and gas properties - proved (successful efforts method) 286,441,663 260,916,084
Other   892,694     795,138  
287,334,357 261,711,222
Less: Accumulated depreciation, depletion and amortization   (101,088,696 )   (81,640,272 )
Total property and equipment, net 186,245,661 180,070,950
 
Deferred tax asset, net - 8,499,575
Other assets, net   21,665,830     19,929,394  
Total assets $ 248,423,793   $ 254,651,361  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,391,648 $ 7,259,244
Revenue and severance tax payable 3,754,812 6,129,867
Accrued liabilities 9,807,935 10,787,044
Derivative liabilities – short term 837,758 171,086
Short-term notes payable 338,512 373,360
Asset retirement obligation – current   -     256,200  
Total current liabilities 20,130,665 24,976,801
 
Long-term liabilities
Asset retirement obligation 12,649,458 16,815,736
Long-term debt, net of discount of $1,603,016 and $2,104,106, respectively 178,196,984 150,395,894
Derivative liabilities   182,174     -  
Total long-term liabilities 191,028,616 167,211,630
 
Commitment and contingencies (see notes)
 
Stockholders' equity:
Common stock, $0.001 par value; 100,000,000 shares authorized 30,946,601 and 30,905,101 shares issued and outstanding at December 31, 2013 and 2012, respectively 30,947 30,905
Additional paid-in capital 78,165,364 77,140,451
Accumulated other comprehensive loss - (171,086 )
Retained earnings   (40,931,799 )   (14,537,340 )
 
Total stockholders' equity   37,264,512     62,462,930  
 
Total liabilities and stockholders' equity $ 248,423,793   $ 254,651,361  
 
Saratoga Resources, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
 
  For the Year Ended
December 31,
2013   2012
Revenues:
Oil and gas revenues $ 68,696,055 $ 82,528,932
Oil and gas hedging (1,701,569 ) 72,078
Other revenues   420,429     1,411,465  
 
Total revenues 67,414,915 84,012,475
 
Operating Expense:
Lease operating expense 21,685,103 19,317,283
Workover expense 2,475,541 3,828,197
Exploration expense 900,255 547,192
Loss on plugging and abandonment 701,241 2,468,969
Dry hole costs - 93,353
Depreciation, depletion and amortization 17,269,349 27,407,700
Impairment expense 2,179,075 401,752
Accretion expense 2,552,381 1,510,165
Gain on revision of asset retirement obligations (564,719 ) (245,007 )
General and administrative 9,253,600 8,584,486
Severance taxes   7,274,808     7,768,426  
 
Total operating expenses   63,726,634     71,682,516  
 
Operating income 3,688,281 12,329,959
 
Other income (expense):
Interest income 16,197 32,433
Interest expense (21,466,162 ) (17,651,496 )
Financing expense   -     (7,527 )
 
Total other expense   (21,449,965 )   (17,626,590 )
 
Net income (loss) before reorganization expenses and income taxes (17,761,684 ) (5,296,631 )
Reorganization expenses   2,319     161,416  
Net income (loss) before income taxes (17,764,003 ) (5,458,047 )
Income tax provision (benefit)   8,630,456     (1,750,418 )
Net income (loss) $ (26,394,459 ) $ (3,707,629 )
 
Other Comprehensive income(loss)
Unrealized gain (loss) on derivative instruments   171,086     (171,086 )
Total comprehensive income (loss) $ (26,223,373 ) $ (3,878,715 )
 
Net income (loss) per share:
Basic $ (0.85 ) $ (0.13 )
Diluted $ (0.85 ) $ (0.13 )
 
Weighted average number of common shares outstanding:
Basic   30,932,541     29,378,542  
Diluted   30,932,541     29,378,542  
 
Saratoga Resources, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
 
      Additional   Net   Other   Total
Common Stock Paid-in Income Comprehensive Stockholders’
Shares Amount Capital (Loss) (Loss) Equity (Deficit)
 
Balance, December 31, 2011 26,714,815 $ 26,714 $ 52,674,252 $ (10,829,711 ) $ - $ 41,871,255
 
Common stock options exercised 208,599 209 405,047 - - 405,256
 
Common stock warrants exercised 892,327 892 4,460,743 - - 4,461,635
 
Common stock issued in private placement 3,089,360 3,090 18,394,490 - - 18,397,580
 
Stock-based employee compensation - - 1,205,919 - - 1,205,919
 
Other comprehensive loss - - - - (171,086 ) (171,086 )
 
Net loss -   -   -   (3,707,629 )   -     (3,707,629 )
 
Balance, December 31, 2012 30,905,101 30,905 77,140,451 (14,537,340 ) (171,086 ) 62,462,930
 
Common stock options exercised 6,500 7 9,938 - - 9,945
 
Common stock warrants exercised 35,000 35 13,815 - - 13,850
 
Stock-based employee compensation - - 1,001,160 - - 1,001,160
 
Other comprehensive income - - - - 171,086 171,086
 
Net loss -   -   -   (26,394,459 )   -     (26,394,459 )
 
Balance, December 31, 2013 30,946,601 $ 30,947 $ 78,165,364 $ (40,931,799 ) $ -   $ 37,264,512  
 
Saratoga Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
  For the Year Ended
December 31,
2013   2012
Cash flows from operating activities:
Net income (loss) $ (26,394,459 ) $ (3,707,629 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, depletion, amortization and impairment 19,448,424 27,809,452
Accretion expense 2,552,381 1,510,165
Amortization of debt issuance costs and debt discount 1,959,218 1,304,362
Unrealized (gain)loss on hedges 1,019,932 -
Dry hole costs - 93,353
Stock-based compensation 1,001,160 1,205,919
Loss on plugging and abandonment 701,241 2,468,969
Gain on revision of asset retirement obligations (564,719 ) (245,007 )
Deferred tax provision (benefit) 8,499,575 (1,951,613 )
Changes in operating assets and liabilities:
Accounts receivable 5,671,586 (1,890,401 )
Prepaids and other 1,735,926 1,605,661
Accounts payable (3,419,534 ) 180,923
Revenue and severance tax payable (2,375,055 ) 420,094
Payments to settle asset retirement obligations (1,229,042 ) (3,062,625 )
Accrued liabilities   (1,058,909 )   2,002,499  
Net cash provided (used) by operating activities 7,547,725 27,744,122
 
Cash flows from investing activities:
Additions to oil and gas property (29,776,182 ) (57,096,363 )
Additions to other property and equipment (97,556 ) (137,025 )
Other assets   (1,157,161 )   944,305  
Net cash used by investing activities (31,030,899 ) (56,289,083 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock 23,795 23,264,470
Proceeds from long term debt 27,300,000 24,645,000
Repayment of short-term notes payable (1,558,152 ) (1,656,122 )
Debt issuance costs of long term debt   (2,037,402 )   (1,280,754 )
Net cash provided (used) by financing activities   23,728,241     44,972,594  
 
Net increase (decrease) in cash and cash equivalents 245,067 16,427,633
Cash and cash equivalents - beginning of period   32,302,313     15,874,680  
Cash and cash equivalents - end of period $ 32,547,380   $ 32,302,313  
 
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 130,881 $ 201,195
Cash paid for interest 19,815,440 8,011,117
 
Non-cash investing and financing activities:
Unrealized gain(loss) on derivative instruments $ 171,086 $ (171,086 )
Accounts payable for oil and gas additions 1,551,937 2,479,787
Accrued liabilities for oil and gas additions 79,800 332,891
Revisions to asset retirement obligations (6,509,866 ) 4,572,244
Asset retirement obligations acquired 62,808 181,318
Prepaid insurance financed with debt 1,523,305 1,685,226
Senior secured notes exchanged for first lien notes 27,300,000 -
 

Proved Oil and Gas Reserves

 
  Gas (Mcf)   Oil (Bbls)   Boe
For the year ended December 31, 2012
Beginning of year 65,961,600 7,975,000 18,968,602
Acquisition of reserves - - -
Discoveries and extensions - - -
Improved recovery - - -
Revisions (10,403,800 ) 1,108,000 (625,968 )
Production (2,639,500 ) (676,400 ) (1,116,317 )
End of year 52,918,300 8,406,600 17,226,317
Proved developed reserves
Beginning of year 10,101,000 2,580,600 4,264,100
End of year 9,159,500 2,809,200 4,335,783
 
For the year ended December 31, 2013
Beginning of year 52,918,300 8,406,600 17,226,317
Acquisition of reserves 8,834,500 1,268,000 2,740,417
Discoveries and extensions 3,011,500 261,200 763,116
Improved recovery - - -
Revisions (15,569,000 ) (92,900 ) (2,687,733 )
Production (1,198,800 ) (603,600 ) (803,400 )
End of year 47,996,500   9,239,300   17,238,717  
Proved developed reserves
Beginning of year 9,159,500 2,809,200 4,335,783
End of year 6,880,800 3,245,700 4,392,500
 

Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows from our estimated proved oil and gas reserves is as follows:

(dollars in thousands)   2013   2012   2011
Future cash inflows $ 1,213,823 $ 1,102,848 $ 1,210,125
Future production costs (297,786) (258,251) (281,429)
Future development costs   (255,309)   (232,806)   (226,552)
Future net cash flows before income taxes 660,728 611,791 702,144
Future income tax expense   (181,935)   (171,671)   (207,555)
Future net cash flows before 10% discount 478,793 440,120 494,589
10% annual discount for estimating timing of cash flows   (178,003)   (147,435)   (163,705)
Standardized measure of discounted future net cash flows $ 300,790 $ 292,685 $ 330,884
 

Set forth in the table below is a summary of the changes in the standardized measure of discounted future net cash flows for our proved oil and gas reserves:

(dollars in thousands)   2013   2012   2011
Beginning of year $ 292,685 $ 330,884 $ 235,657
Sales of oil and gas produced, net of production costs (37,261) (51,615) (49,945)
Net change in prices and production costs 33,720 (2,218) 108,942
Extension, discoveries, and improved recovery, less related costs 18,639 - 16,128
Development costs incurred during the year 8,230 20,993 7,088
Net change in estimated future development costs 13,418 (19,437) 7,493
Revisions of previous quantity estimates (87,642) (20,211) 37,107
Net change from acquisitions of minerals in place 37,224 - 16,861
Net change in income taxes 4,235 19,232 (53,119)
Accretion of discount 40,688 46,431 31,597
Changes in timing and other   (23,146)   (31,374)   (26,925)
End of year $ 300,790 $ 292,685 $ 330,884
 

Non-GAAP Financial Measures

Discretionary Cash Flow is a non-GAAP financial measure.

The company defines Discretionary Cash Flow as net income (loss) before income tax expense (benefit), interest expense and depreciation, depletion and amortization excluding interest income, realized gains on out-of-period derivative contract settlements, (gain) loss on the sale of assets, acquisition costs, settlements for prior claims, other various non-cash items (including asset impairments, income from equity investments, stock-based compensation, unrealized (gain) loss on derivative contracts and provision for doubtful accounts), exploration and dry hole costs and costs associated with the company’s bankruptcy.

Discretionary Cash Flow is a supplemental financial measure used by the company’s management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company’s ability to internally fund exploration and development activities. Discretionary cash flow should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (“GAAP”). Discretionary cash flow excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company’s Discretionary Cash Flow may not be comparable to similarly titled measures used by other companies.

The table below reconciles the most directly comparable GAAP financial measure to Discretionary Cash Flow.

  For the Three Months Ended   For the Twelve Months Ended
December 31, December 31,
2013   2012 2013   2012
 
 
Net income (loss) as reported $ (17,293,687) $ (2,873,847) $ (26,394,459) $ (3,707,629)
Depreciation, depletion and amortization 1,478,895 13,237,168 17,269,349 27,407,700
Impairment expense - 357,476 2,179,075 401,752
Income tax expense (benefit) 12,794,728 (1,550,947) 8,499,575 (1,951,613)
Exploration expense 153,290 177,773 900,255 547,192
Loss on plugging and abandonment (25,798) - 701,241 2,468,969
Dry hole costs - - - 93,353
Accretion expense 638,090 (156,347) 2,552,381 1,510,165
Gain on revision of asset retirement obligation (564,719) (245,007) (564,719) (245,007)
Stock based compensation 231,734 165,792 1,001,160 1,205,919
Debt issuance costs and discount 586,270 363,385 1,959,218 1,304,362
Unrealized (gain) loss on hedges 1,310,600 - 1,019,932 -
Other income – prior acquisition adj. - 225,900 - 225,900
Discretionary Cash Flow $ (690,597) $ 9,701,346 $ 9,123,008 $ 29,261,063
 

EBITDAX is a non-GAAP financial measure.

The company defines EBITDAX as net income (loss) before income tax expense (benefit), interest expense and depreciation, depletion and amortization excluding interest income, realized gains on out-of-period derivative contract settlements, (gain) loss on the sale of assets, acquisition costs, settlements for prior claims, other various non-cash items (including asset impairments, income from equity investments, non-controlling interest, stock-based compensation, unrealized (gain) loss on derivative contracts and provision for doubtful accounts), exploration and dry hole costs and costs associated with the company’s bankruptcy.

EBITDAX is a supplemental financial measure used by the company’s management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company’s ability to internally fund exploration and development activities and to service or incur additional debt. The company also uses this measure because EBITDAX allows the company to compare its operating performance and return on capital with those of other companies without regard to financing methods and capital structure. EBITDAX should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (“GAAP”). EBITDAX excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company’s EBITDAX may not be comparable to similarly titled measures used by other companies.

The table below reconciles the most directly comparable GAAP financial measure to EBITDAX:

  For the Three Months Ended   For the Twelve Months Ended
December 31, December 31,
2013   2012 2013   2012
 
Net income (loss) as reported $ (17,293,687) $ (2,873,847) $ (26,394,459) $ (3,707,629)
Depreciation, depletion and amortization 1,478,895 13,237,168 17,269,349 27,407,700
Impairment expense - 357,476 2,179,075 401,752
Income tax expense (benefit) 12,827,370 (1,536,522) 8,630,456 (1,750,418)
Exploration expense 153,290 177,773 900,255 547,192
Loss on plugging and abandonment (25,798) - 701,241 2,468,969
Dry hole costs - - - 93,353
Accretion expense 638,090 (156,347) 2,552,381 1,510,165
Gain on revision of asset retirement obligation

(564,719)

(245,007)

(564,719)

(245,007)

Stock based compensation 231,734 165,792 1,001,160 1,205,919
Interest expense, net 5,571,509 4,588,458 21,449,965 17,626,590
Reorganization costs - 39,888 2,319 161,416
Unrealized (gain) loss on hedges   1,310,600   -   1,019,932   -
EBITDAX $ 4,327,284 $ 13,754,832 $ 28,746,955 $ 45,720,002
 

Net Asset Value is a non-GAAP financial measure.

The company defines Net Asset Value per Share, NAV, as the per share value of the PV-10 value of its reserves plus working capital less long-term debt. Net Asset Value Per Share is a supplemental financial measure used by the company’s management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company’s net value of its tangible assets less liabilities. Net Asset Value per Share assumes no future re-investment to find or acquire new reserves and that a company stops operating once its reserves are depleted. Net Asset Value Per Share should not be considered as a substitute for any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (“GAAP”). Net Asset Value per Share excludes certain intangible and other assets and certain liabilities that may affect the realized in the event of liquidation. Therefore, the company’s Net Asset Value per Share may not be comparable to similarly titled measures used by other companies.

  12/31/2013
In Thousands
(except per share amount)
PV-10 $ 410,754
Working capital 20,382
Long-term Debt (179,800 )
Net Asset Value 251,336
 
Shares Outstanding, Fully Diluted 30,981
 
Net Asset Value per share $ 8.11
 

PV10 is the estimated present value of the future net revenues from proved oil and natural gas reserves before income taxes, discounted using a 10% discount rate. PV10 is considered a non-GAAP financial measure under SEC regulations because it does not include the effects of future income taxes, as is required in computing the standardized measure of discounted future net cash flows. Saratoga believes that PV10 is an important measure that can be used to evaluate the relative significance of its oil and natural gas properties and that PV10 is widely used by security analysts and investors when evaluating oil and natural gas companies. Because many factors that are unique to each individual company impact the amount of future income taxes to be paid, the use of a pre-tax measure provides greater comparability of assets when evaluating companies. Saratoga believes that most other companies in the oil and natural gas industry calculate PV10 on the same basis. PV10 is computed on the same basis as the standardized measure of discounted future net cash flows, but without deducting income taxes.

Saratoga Resources, Inc.
Brad Holmes, 713-654-4009
Investor Relations
Andrew Clifford, 713-458-1560
President
John Ebert, 985-809-9292
Vice President – Finance and Business Development
www.saratogaresources.com

Source: Saratoga Resources, Inc.

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