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Synergy Resources Corporation (SYRG)
F4Q13 Earnings Conference Call
November 5, 2013 11:00 AM ET
Edward Holloway - President and CEO
Frank (Monty) Jennings - CFO
William Scaff, Jr. - EVP, Secretary and Treasurer
Craig Rasmuson - VP, Operations and Production
Irene Haas - Wunderlich Securities, Inc.
Welles Fitzpatrick - Johnson Rice & Co.
Ipsit Mohanty - Cannacord Genuity
Ryan Oatman - SunTrust Robinson Humphrey
Joel Musante - Euro Pacific Equities
Jared Lewis - Northland Capital Markets
David Beard - Iberia Capital Partners
Jack Aydin - Key Banc
Good morning everyone and thank you for joining us to discuss Synergy Resources' Fourth Quarter Results for the period ended August 31, 2013.
Previous Statements by SYRG
» Synergy Resources' CEO Discusses Q3 2013 Results - Earnings Call Transcript
» Synergy Resources' CEO Discusses Q2 2013 Results - Earnings Call Transcript
» Synergy Resources' CEO Discusses Q1 2013 Results - Earnings Call Transcript
» Synergy Resources' CEO Discusses F4Q12 Results - Earnings Call Transcript
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 would like to remind everyone that today's audio conference call will be available for replay through November 19, 2013. The webcast replay will also be available via the company's website at www.syrginfo.com.
I would now like to turn the call over to the President and CEO of Synergy Resources, Mr. Ed Holloway. Sir, please proceed.
Thank you, Manny, and thanks everyone for joining us today. We issued a press release this morning announcing our financial results for our fiscal fourth quarter and full year 2013, which ended on August 31. This past fiscal year was highlighted by our transition to horizontal development over our assets in the Wattenberg Field, combined with continued production growth from our vertical wells, has resulted in a record revenue this year of $46 million, compared to $25 million in revenues for 2012.
Our operating income grew to $19.5 million in 2013 versus $11.8 million in 2012. During the year, our oil and natural gas production increased 84% over last year, to a total of 772,532 BOEs. This equates to an average of 2,117 BOEs per day, compared to 1,149 BOEs per day a year ago. We also achieved 10% production growth in the fourth quarter over the third quarter, and we reduced our LOE expense to $4.67 per BOE in the fourth quarter versus $5.05 per BOE in the third quarter.
We remain focused on controlling our costs, while continuing to grow our production. In the fourth quarter, we completed drilling five operated horizontal wells on our Renfroe pad. Began drilling the first two wells of six horizontal wells planned on the Leffler pad. The initial horizontal development of our assets, based on the Wattenberg Field has gone according to plan and is under budget. Our participation in non-operated horizontal wells also increased during the year to 21 gross wells, compared to five gross wells in the prior year.
Going forward, production from the horizontal wells will be our primary growth driver. With the remaining liquidity on our 150 credit facility, the $79 million in cash on the balance sheet and the continued exercising of our $6 warrants, we are well positioned to execute on our 2014 capital expenditure budget.
I would like to now turn the call over to our CFO, Monty Jennings, to take us through the details of our financial results for the fourth quarter and full fiscal year. Monty?
Frank (Monty) Jennings
Thanks Ed and good day to everyone. Looking first at our quarterly income statement, revenues rose to $14.7 million in the fourth fiscal quarter of 2013. This represented a sequential increase of 19% from the previous quarter, and compared to the fourth fiscal quarter of 2012, was up 117%.
The year-over-year improvement was mostly due to the 95% increase in average daily production. For Q4 2013, average production was 2,479 BOEs per day. Average production during Q4 of 2012 was 1,270 BOEs per day, an 11% increase in our realized average selling price per BOE contributed to the revenue increase.
During fiscal Q4 2013, our average sales prices were $92.38 per barrel of oil, and $5.06 per MCF of gas, as compared to $82.89 and $2.82 for the year ago quarter. Increased revenues drove a 95% increase in operating income, which totaled $6.7 million during the fourth quarter.
Net income for the quarter was $996,000, a decrease of 49% from the year ago quarter. Net income absorbed significant non-cash charges in the forms of an unrealized loss on commodity derivatives of $3 million, and deferred income tax of $2.3 million, as the value of net deferred tax liabilities was adjusted to reflect the reversal of deferred tax assets recorded for stock based compensation.
Since non-cash charges are not meaningful to management of our daily operations, we often use an analysis of adjusted EBITDA, a non-GAAP term, to focus on cash flow. Adjusted EBITDA increased to $10.6 million in the fourth quarter, an increase of 114% from the $5 million reported a year ago. We continue to generate a ratio of EBITDA-to-revenue in excess of 70%. Please refer to a more detailed discussion about our use of adjusted EBITDA, and it's reconciliation to GAAP in the earnings release, which can be found in the news section of our website.
We designed our commodity derivative activity to protect our cash flow during periods of oil price declines, using swaps and collars, we have hedged 340,000 of future production, covering the remainder of calendar year 2013, all of 2014, and the first six months of 2015. The average price of our swap position is approximately $96.21 per barrel for 2013; $92.13 per barrel in 2014; and $86.25 per barrel for 2015. High oil prices during the fourth quarter produced realized losses of $413,000 and an unrealized loss of $3 million.