Filing Scope and Business Context
The supplied filing is EnerJex Resources, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed April 11, 2016. It does not appear to be a filing for Ageagle Aerial Systems Inc.; investors should verify the issuer and ticker before relying on this summary.
EnerJex was an independent oil and gas company acquiring, developing, exploring and producing domestic onshore properties in Kansas, Colorado, Nebraska and Texas. Net proved reserves were 2.6 million BOE at year-end, 59% oil, with approximately 39.0% proved developed producing, 32.9% proved developed non-producing and 28.1% proved undeveloped.
Financial and Operating Metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $4.9 million | $14.3 million |
| Operating income (loss) | $(53.1) million | $0.7 million |
| Net income (loss) | $(51.9) million | $4.6 million |
| Loss attributable to common stockholders | $(53.7) million | $3.2 million |
| Basic and diluted EPS | $(6.50) | $0.42 |
| Cash flow from operations | $(0.1) million | $2.6 million |
| Cash and cash equivalents | $3.1 million | $0.8 million |
| Working capital | $3.0 million | $3.3 million |
| Total debt | $18.6 million | $23.0 million |
| Net proved reserves | 2.6 million BOE | 4.4 million BOE |
| Reserve PV10 | $8.8 million | $64.3 million |
Crude oil revenue declined 66% to $4.5 million, reflecting a 48% decrease in realized oil prices to $44.24 per barrel and lower production. Natural gas revenue declined to $0.4 million as realized prices fell to $1.88 per Mcf. Net production was 96,244 barrels of crude oil, 6,045 barrels of natural gas liquids and 188,408 Mcf of natural gas.
Direct operating costs were $4.5 million, and total production expenses were $54.5 million, including $48.9 million of oil and gas property impairments. The impairment charge consisted of quarterly ceiling-test write-downs of $16.4 million, $11.4 million, $9.7 million and $11.4 million. Interest expense was $1.3 million.
Investing cash flow was positive $4.0 million, primarily from $2.9 million of oil and gas property-sale proceeds and a $1.4 million distribution from Oakridge Energy. Capital additions to oil and gas properties were approximately $0.3 million. Financing cash flow was negative $1.6 million after $4.6 million of equity proceeds, $4.9 million of debt repayments and $1.8 million of preferred dividends paid.
Material Changes Versus 2014
- Revenue decreased approximately 66%, driven by lower oil and gas prices and reduced production volumes.
- The company moved from $4.6 million of net income to a $51.9 million net loss.
- Oil and gas property impairments increased from zero to $48.9 million because of quarterly full-cost ceiling tests.
- Proved reserves declined approximately 41% to 2.6 million BOE, primarily because lower commodity prices caused negative reserve revisions; production accounted for a smaller portion of the decline.
- Reserve PV10 fell approximately 86% to $8.8 million.
- Development activity was sharply reduced. No development or recompletion wells were completed in 2015, compared with 52 development wells and 19 recompletions in 2014. Two exploratory wells were drilled and plugged and abandoned.
- The company sold its Cherokee Kansas assets for approximately $2.8 million and used proceeds in part to repay debt.
- The company issued common stock, Series B convertible preferred stock and warrants in March 2015, and raised approximately $2.3 million from a Series A preferred-stock offering in May 2015.
Guidance, Outlook, Risks and Unusual Items
Management reduced capital spending to preserve liquidity and intended to meet near-term obligations through operating cash flow, asset sales and monetization of derivative contracts. No formal production or earnings guidance was provided. Management stated that development activity would depend substantially on a recovery in oil prices.
The financial statements include a going-concern uncertainty. The company failed to make a mandatory borrowing-base reduction payment on April 1, 2016, although it made a quarterly interest payment on April 6 and entered into a 30-day forbearance agreement with its bank on April 7. Management was pursuing strategic alternatives and warned that failure to obtain relief, refinancing or restructuring could lead to debt acceleration, asset foreclosure or a Chapter 11 filing.
The senior secured credit facility was fully drawn at $18.6 million against an $18.6 million borrowing base at December 31, 2015, bore approximately 4.3% interest during 2015 and matured October 3, 2018. The debt was secured by substantially all company assets and was subject to restrictive covenants and borrowing-base reductions.
The company suspended the monthly dividend on its 10% Series A preferred stock beginning November 2015. Unpaid dividends accumulate; after six missed monthly periods, the dividend rate increases to 12% and holders obtain rights to elect two directors. Preferred dividends accrued or paid during 2015 totaled approximately $2.2 million, while $0.4 million was recorded as payable at year-end.
Commodity hedges produced approximately $2.5 million of net realized and unrealized gains for 2015, although the statement of operations separately reported a $2.2 million mark-to-market loss and $4.7 million of other income, including a $4.7 million realized derivative-clearing gain. The company had a $2.5 million current derivative receivable at year-end and hedge contracts covering portions of 2016 production.
Additional risks include continued oil and gas price volatility, borrowing-base reductions, reserve-estimate uncertainty, further impairment charges, lease expirations, environmental and abandonment obligations, dependence on a limited number of purchasers and potential NYSE MKT delisting if the stock remained below applicable price requirements.
Important Facts for Investors to Verify
- Verify that this EnerJex Resources filing corresponds to the requested company, Ageagle Aerial Systems Inc., because the supplied document names a different registrant.
- Review the audited financial statements and the auditor’s going-concern paragraph, including the April 2016 payment default and forbearance agreement.
- Confirm current debt balances, borrowing-base availability, covenant waivers, lender remedies and any subsequent restructuring or bankruptcy developments.
- Reconcile the $48.9 million impairment charge with the substantial reduction in proved reserves and PV10.
- Assess the collectability and timing of the $2.5 million derivative receivable and the performance of hedge counterparties.
- Review cumulative unpaid Series A preferred dividends, the potential increase to a 12% dividend rate and associated director-election rights.
- Verify post-filing commodity prices, production levels, lease status and the company’s ability to fund development and abandonment obligations.