SEC Filing Summary
Filing identity and period: The supplied Form 10-Q identifies the registrant as EnerJex Resources, Inc., not Ageagle Aerial Systems Inc. It covers the quarter and nine months ended September 30, 2013, and was filed November 14, 2013. The filing describes a domestic onshore oil and natural gas acquisition, development, exploration, and production business focused on Colorado, Nebraska, Eastern Kansas, and South Texas.
Financial Results and Position
| Metric | Three months ended September 30, 2013 | Three months ended September 30, 2012 | Nine months ended September 30, 2013 | Nine months ended September 30, 2012 |
|---|---|---|---|---|
| Oil revenue | $2.695 million | $2.253 million | $7.229 million | $6.205 million |
| Income from operations | $0.670 million | $0.356 million | $1.436 million | $0.761 million |
| Net income (loss) | $(0.620) million | $(1.296) million | $0.117 million | $0.684 million |
| Net income (loss) per share | $(0.01) | $(0.02) | $0.00 | $0.01 |
| Operating margin | 24.9% | 15.8% | 19.9% | 12.3% |
- Oil revenue increased 19.6% for the quarter and 16.5% for the nine months. Management attributed the nine-month increase to higher production and oil prices.
- Net production was 25,933 barrels for the quarter and 76,327 barrels for the nine months, compared with 26,038 and 68,986 barrels, respectively, in the prior-year periods. Average oil prices increased to $103.90 per barrel for the quarter and $94.70 for the nine months, versus $86.52 and $89.94.
- Nine-month direct operating costs rose to $2.451 million from $2.162 million, while salaries increased to $0.571 million from $0.356 million. Professional fees declined to $0.890 million from $1.037 million.
- Derivative losses were $1.161 million in the quarter and $0.993 million for the nine months, compared with losses of $1.529 million and a gain of $0.161 million in the respective prior-year periods. The filing attributes the nine-month deterioration primarily to higher oil prices.
- At September 30, 2013, total assets were $68.263 million, including $59.295 million of net oil properties. Current assets were $5.738 million and current liabilities were $7.196 million, producing negative working capital of $1.459 million.
- Cash and cash equivalents were $0.991 million, plus $0.229 million of restricted cash. The cash flow statement reported ending cash of $1.220 million, which includes restricted cash.
- Nine-month operating cash flow was $1.803 million, compared with $0.837 million in 2012. Investing cash outflow was $3.972 million, including $4.963 million of oil and gas property additions. Financing cash inflow was $2.621 million, including $4.000 million of borrowings, offset by preferred-stock dividends and other financing payments.
- Long-term debt was $29.556 million, and current note payable was $0.225 million. The $0.225 million remaining promissory-note principal was due by December 31, 2013.
Material Changes Versus Prior Comparable Period
- Quarterly net loss improved by $0.676 million, primarily because of stronger operating income and a smaller derivative loss. Nine-month net income declined by $0.567 million, as higher operating costs, salaries, interest expense, and derivative losses more than offset revenue growth.
- The company drilled 19 oil wells and 15 water-injection wells in the Mississippian Project and 29 oil wells and 21 water-injection wells in the Cherokee Project during the first nine months.
- Oil properties increased from $33.203 million at December 31, 2012 to $59.295 million at September 30, 2013. Fixed assets increased to $2.412 million from $0.310 million.
- On September 27, 2013, EnerJex completed its merger with Black Raven Energy, Inc. Black Raven shareholders received $0.207 million in cash and 41.329 million EnerJex shares, representing approximately 38% of the combined voting stock at closing. Black Raven’s balance sheet was consolidated at September 30, but its operating results were not included in the reported 2013 periods.
- On September 30, 2013, the senior secured credit facility was amended to increase the borrowing base to $38.0 million, expand the bank’s principal commitment to $100.0 million, add Black Raven and Adena as borrowers, add collateral, and reduce the current interest rate to 3.30%. Borrowings were $29.5 million, leaving stated excess liquidity of $8.5 million under the borrowing base.
Outlook, Risks, Contingencies, and Unusual Items
- Management expected to fund near-term obligations through operating cash flow and additional financing under the Texas Capital Bank credit facility. It stated that historical funding sources were expected to provide adequate liquidity for the 2013 operations and capital program, but the company had negative working capital.
- The facility matures October 3, 2015, unless extended. Failure to satisfy debt obligations or covenants could materially affect liquidity. Interest expense increased to $0.393 million for the nine months from $0.259 million.
- Commodity swaps and collars had aggregate fair value of $(1.868) million at September 30, 2013. Hedging reduces exposure to falling prices but limits gains from rising prices and creates counterparty and valuation risk.
- Asset retirement obligations increased to $2.626 million, including $1.252 million assumed from Black Raven. The liability depends on estimates of abandonment costs, inflation, and discount rates.
- The company reported no impairment from its quarterly full-cost ceiling tests through September 30, 2013. Future oil-price declines could reduce reserve values, borrowing capacity, and the carrying value of oil properties.
- A $50,000 irrevocable letter of credit was outstanding in favor of the Texas Railroad Commission. The filing reported no material pending legal proceedings other than litigation against former attorneys alleging approximately $50 million of economic damages and seeking recovery of legal fees. Trial was scheduled for December 2, 2013, and the outcome was uncertain.
- Key stated risks include oil-price volatility, reserve estimates, access to development capital, secured-debt defaults, regulatory approvals, weather and operational disruptions, higher borrowing costs, and the ability to acquire leases and execute development plans.
- The filing contains no formal production, revenue, earnings, or commodity-price guidance. Management stated that no significant product research and development was anticipated and that normal purchases of production and field-service equipment were expected.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for EnerJex Resources, Inc., although the request names Ageagle Aerial Systems Inc.
- Reconcile reported cash of $1.220 million in the cash flow statement with unrestricted cash of $0.991 million and restricted cash of $0.229 million on the balance sheet.
- Assess liquidity after the $0.225 million note maturity, preferred-stock dividends, ongoing drilling expenditures, and the company’s $1.459 million negative working capital.
- Review the Black Raven merger accounting, 41.329 million shares issued, assumed asset-retirement obligations, added debt collateral, and the exclusion of Black Raven operating results from 2013 reported operations.
- Evaluate the $1.868 million derivative liability and the effect of hedging contracts on future revenue and earnings under different oil-price scenarios.
- Review the borrowing-base calculation, debt covenants, maturity terms, and the company’s stated $8.5 million of excess liquidity.
- Monitor the attorney litigation, including the approximately $50 million damages claim, disputed fees, legal costs, and uncertain recovery.