Synergy Resources Corporation (SYRG)

SYRG 
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Synergy Resources Corporation (SYRG)

Q2 2013 Earnings Conference Call

April 9, 2013 12:00 PM ET

Executives

Edward Holloway - President and CEO

Monty Jennings - CFO

William E. Scaff Jr. - EVP, Secretary and Treasurer

Craig Rasmuson - VP, Operations and Production

Analysts

Irene Haas - Wunderlich Securities

Welles Fitzpatrick - Johnson Rice & Company, LLC

Stephen Berman - Canaccord Genuity

Jared Lewis - Northland Securities

Kim Pacanovsky - MLV & Company

Joel Musante - Euro Pacific Capital

Jack Aydin – KeyBank Markets

Richard Dearnley - Longport Partners

Presentation

Operator

Good morning, everyone, and thank you for joining us to discuss Synergy Resources’ Second Quarter Results for the period ended February 28, 2013.

With us today are Synergy Resources’ President and CEO, Ed Holloway; the Company’s Executive Vice President, William Scaff, Jr.; and CFO, Monty Jennings; Vice President of Operations, Craig Rasmuson will be available to answer questions during the Q&A session.

Following the prepared remarks, we’ll open the call to your questions. Then before the conclusion of today’s call, I’ll provide the necessary precautions regarding forward-looking statements made by management during this call. I’d like to remind everyone that today’s audio conference call will be available for replay through May 9, 2013. The webcast replay will also be available via the Company's website at www.syrginfo.com.

I’d now like to turn the call over to the President and CEO of Synergy Resources, Mr. Ed Holloway. Sir, please proceed.

Edward Holloway

Thank you, Ruya, and good afternoon everyone. Thank you for joining us today. We issued the press release this morning announcing our financial results for our fiscal second quarter, which ended February 28th. We’ve also filed a 10-Q today, which will be available via our investor relations section of our website.

As we reported in the release earlier this morning, we continue to execute on our vertical drilling program in the Wattenberg Field, which drove strong production growth and record revenue this quarter. We achieved a 76% increase in revenue over the year-ago quarter, totaling a record $10.921 million. This drove our operating income up more than 56% to $4.5 million and generated net income of $2.7 million or $0.05 per share.

During the quarter, our oil and natural gas production increased 87% over the same year a year-ago to a total of $186,039 BOEs for the quarter, this equates an average of 2,067 BOEs per day during the quarter versus a daily average of 1,091 BOEs per day a year-ago and an increase of 90%.We also achieved sequential production growth with average daily production increasing 25% versus last quarter.

We continue to drill rapidly in the pace of persistent takeaway issues as our midstream partners upgrade the existing gathering and processing systems. We believe these midstream issues will continue into the foreseeable future as the pace of activity of horizontal drilling by other operators has accelerated across the Wattenberg Field. In late February we brought online the final 16 vertical wells that were drilled earlier this fiscal year. This increased the total number of wells we’ve drilled as operators since inception to 134. All of these wells are now in production. As of the end of the second quarter, we had completed, acquired, participated in a total of 280 for oil and gas wells including six wells that were in progress. We are working with our reserve engineer Ryder Scott to update our PV-10 reserve report.

I’d like to now turn the call over to our CFO, Monty Jennings, to take us through the details of our financial results for the quarter. After Monty’s remarks, Bill Scaff will discuss additional highlights in the quarter and then finally we will open up the calls to your questions. Monty?

Monty Jennings

Thank you, Ed and good day to everyone. Now turning to our income statement, as Ed mentioned, our revenues totaled to $10.9 million in the second fiscal quarter of 2013. This represented a sequential increase of 31% from the previous quarter and up 76% from the same quarter a year-ago. The year-over-year improvement was due to the 87% increase in production. This increase was primarily attributed to the new wells that have come online and the acquisition of the Orr wells, which was partially offset by a slight decrease in our realized average selling price per BOE.

During fiscal Q2, 2013, our average sales price was $84.20 per barrel of oil and $4.77 per Mcf of gas as compared to $92.33 and $4.09 for the year-ago quarter. Our operating income increased 26% from the previous quarter to $4.5 million and increased 56% from the first quarter of last year.

Net income increased 22% from the previous quarter totaling $2.73 million or $0.05 per basic and diluted share. Net income was down 55% from the first quarter a year ago. It’s important to note that net income in the second quarter of 2013 was burdened with income tax expense at an effective rate of 37%. One year ago the second quarter included a one-time tax benefit of $3.2 million to recognize the value of our net operating loss carry forward. This difference between tax expense of $1.6 million compared to a tax benefit of $3.2 million is $4.8 million, which equates to nearly $0.09 per average share outstanding. If you exclude the impact of deferred tax items and look at pre-tax income, the 2013 quarter increased to $4.3 million almost $0.08 per share, an increase of 50% from the 2012 quarter of $2.9 million or $0.06 per share.

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