HOUSTON, Nov. 7, 2008 (GLOBE NEWSWIRE) -- Rosetta Resources Inc. (Nasdaq:ROSE) ("Rosetta" or the "Company") today announced financial and operating results for the third quarter 2008. Highlights include natural gas and crude oil production of 140 MMcfe/d, up 11 percent over the same period in 2007 and revenues of $130.0 million, an increase of 45 percent from third quarter 2007.
For the third quarter ended September 30, 2008, Rosetta reported a net loss of $99.4 million, or $1.96 per diluted share, a decrease of $112.1 million from net income of $12.7 million, or $0.25 per diluted share, for the same period in 2007. These results include the impact of a previously announced charge of $129.1 million, net of tax, for impairment of oil and gas properties. Excluding this charge, net income would have been $29.7 million, or $0.58 per diluted share.
Production and revenues for the third quarter of 2008 were 140 MMcfe/d and $130.0 million, respectively. Production for the third quarter of 2008 reflects a reduction of a quarterly average of approximately 6 MMcfe/d related to Hurricane Ike downtime. The increase in revenues was attributable to both higher commodity prices and higher production. Total revenue was reduced by $12.1 million due to the effect of natural gas hedging.
Total lease operating expense ("LOE"), which includes direct LOE, workovers, ad valorem taxes and insurance, was $12.9 million or $1.00 per Mcfe during the third quarter. Direct LOE was $8.8 million or $0.68 per Mcfe, workover costs were $1.1 million or $0.09 per Mcfe, ad valorem taxes were $2.8 million or $0.22 per Mcfe and insurance was $0.2 million or $0.01 per Mcfe. Production taxes were $2.3 million or $0.18 per Mcfe and treating and transportation and marketing charges were $2.6 million or $0.21 per Mcfe. Base depreciation, depletion and amortization was $47.0 million, based on a DD&A rate of $3.64 per Mcfe. In addition, Rosetta took a $205.7 million pre-tax charge for impairment of oil and gas properties.
General and administrative costs were $15.4 million for the third quarter including $1.4 million in non-cash stock compensation expense and $4.5 million of legal costs associated with the Calpine lawsuit.
For the nine months ended September 30, 2008, Rosetta reported a net loss of $32.6 million, or $0.64 per diluted share, a decrease of $72.4 million from net income of $39.8 million, or $0.79 per diluted share, for the same period in 2007. These results include the impact of a previously announced charge of $129.1 million, net of tax, for impairment of oil and gas properties. Excluding this charge, net income would have been $96.5 million, or $1.89 per diluted share.
Production and revenues for the first nine months of 2008 were 149 MMcfe/d and $412.8 million, respectively. Revenue increases were attributable to higher commodity prices and production. Total revenue was reduced by $29.4 million due to the effect of natural gas hedging.
For the nine months ended September 30, 2008, LOE was $40.5 million or $0.99 per Mcfe. Direct LOE was $25.9 million or $0.63 per Mcfe, workover costs were $4.7 million or $0.12 per Mcfe, ad valorem taxes were $8.5 million or $0.21 per Mcfe and insurance was $1.4 million or $0.03 per Mcfe. Production taxes were $11.5 million or $0.28 per Mcfe and treating and transportation and marketing charges were $7.2 million or $0.17 per Mcfe. Base depreciation, depletion and amortization was $150.1 million, based on a DD&A rate of $3.68 per Mcfe. Third quarter expenses also included the pre-tax impairment charge of $205.7 million.
General and administrative costs were $41.0 million for the nine months ended September 30, 2008 including $5.0 million in non-cash stock compensation expense and $10.6 million of legal costs associated with the Calpine lawsuit.
Randy L. Limbacher, Rosetta's President and Chief Executive Officer, commented, "Our third quarter was a very busy, but productive, quarter for Rosetta. Our core programs continue to perform and we made great progress on building our organization. Rosetta employees rose to the challenge of Hurricane Ike, and though we sustained downtime from the storm, our field personnel are diligently supporting efforts to bring production back. Shortly after the quarter ended we announced that our Calpine lawsuit had been resolved, which clears the way for us to implement our business plan unabated by the distraction and constraint of that litigation."
OPERATIONS UPDATE
During the third quarter, the Company drilled 41 gross and 35 net wells with a net success rate of 88%. The majority of this drilling activity took place in South Texas and the Rockies. Year to date through the third quarter, the Company has drilled 112 gross and 95 net wells with a net success rate of 86%.
In South Texas, Rosetta drilled 17 wells in the third quarter, with 14 being productive for an 82% success rate. Net production from this region, including both the Lobo and Perdido trends, was 55 MMcfe/d for the quarter.
In the Rockies, the Company drilled 18 wells in the third quarter, of which 17 were successful. Net production from the area was 12 MMcfe/d for the third quarter.
In the Sacramento Basin, the Company drilled four wells which were all successful. Average net production from the Basin was 40 MMcfe/d for the quarter.
As previously reported, the Company sustained damage to its Sabine Lake and East Cameron 88/89 production facilities as a result of Hurricane Ike. Repairs at Sabine Lake have now been completed, and production resumed on October 28th. All critical long-lead equipment and materials have been secured for the commencement of repairs at the East Cameron facility and production is anticipated to resume there before the end of the year.
As also previously announced, the Company, in conjunction with its independent reserve engineers, recently completed a preliminary review of a portion of its proved reserves. Based upon this review, Rosetta expects to recognize a write-down of 50 - 60 Bcfe of proved reserves, 30 Bcfe of which are located in the Sacramento Basin in the low pressure Emigh and Hamilton plays. The remainder of the write-down is from the Company's other existing properties including the South Texas Lobo play. The Company's final reserve determination will be completed by year end.
Commented Limbacher, "These reserve findings, while disappointing, reflect our ongoing comprehensive evaluation of Rosetta's asset base. Our stated goal is to continue to identify upside and inventory from our existing positions by testing several unconventional opportunities and concepts. Our technical teams are advancing several field studies toward this goal. Over the next couple of quarters, we hope to test several of these evolving concepts."
CALPINE SETTLEMENT
As earlier announced, on October 22, 2008 Rosetta signed a settlement agreement with Calpine. Under the terms of the settlement agreement, Rosetta agreed with Calpine to effect a lump sum global settlement consisting of cash and other contractual consideration, subject to bankruptcy court approval. The settlement is comprised of $12.4 million in cash payable to Calpine to resolve all outstanding legal disputes regarding various matters, including Calpine's fraudulent conveyance lawsuit. This settlement resolves all disputes between the parties, whether relating to the oil and gas property purchase, Rosetta's proofs of claim in the bankruptcy and its counter claims, or otherwise.
In addition, Rosetta will pay $84.6 million to close the original acquisition transaction of the producing properties that were the subject of the lawsuit. This $84.6 million is comprised of $67.6 million which was withheld by Rosetta from the purchase price related to properties that were not originally conveyed to Rosetta, as well as $17.0 million for routine post-closing adjustments.
To close the original transaction, Calpine will assume the parties' Purchase and Sale Agreement, as amended, to exclude certain disputed preferential rights properties. The parties will otherwise complete the original acquisition of Calpine's oil and gas business excluding these disputed preferential rights properties. Calpine will convey to Rosetta all of the remaining oil and gas assets that were owned by Calpine as of May 1, 2005.
Calpine's conveyance of these properties includes properties for which consents had not been obtained prior to closing. As a result of the agreement, Rosetta will, in connection with these non-consent properties, retain the $35.2 million of estimated net revenues from these properties that it had earlier placed in suspense. Rosetta will also add approximately 13 BCFE of proved reserves and 4 MMcfe/d of production. Closing of this transaction is subject to bankruptcy court approval.
Rosetta and Calpine have also agreed in the settlement to convert Calpine's ten-year right to match third party offers to a ten year extension to the existing market-based gas purchase contract for the dedicated Sacramento Basin production. The parties' existing marketing agreement will expire per its terms.
2008 OUTLOOK
The Company expects to spend approximately $290.0 million of capital in 2008. This includes approximately $30.0 million for the previously announced San Juan Basin producing property acquisition and $32.0 million net for the non-consent properties acquired from Calpine. Including the anticipated impact of storm-related downtime in Sabine Lake and offshore properties, Rosetta's 2008 production guidance also remains unchanged at an annual average of 140-150 MMcfe/d.
The Company's hedge position is unchanged with 67,892 MMBtu/d hedged for the balance of 2008 at an average price $7.75 per MMBtu. For 2009, 52,141 MMBtu/d are hedged at an average price of $7.65 per MMBtu, along with 10,000 MMBtu/d for 2010 at an average price of $8.31 per MMBtu. The Company has also entered into costless collar transactions covering 5,000 MMBtu/d of the Company's 2008 and 2009 production. The costless collars have an average floor price of $8.00 per MMBtu and an average ceiling price of $10.15 per MMBtu.
The Company is in the process of establishing its 2009 capital spending plans. Preliminarily, the Company expects to set a capital budget that can be internally funded and that maintains essentially flat annual production. Details of the 2009 programs will be provided at the time of Rosetta's year-end disclosure.
"While we are in the early stages of setting our forward plans, we believe Rosetta is in a unique position," noted Limbacher. "At gas prices in the $7.00/Mcf range, we believe we can internally fund a capital program that not only keeps production about flat, but also funds some indentified incremental organic and inorganic opportunities. We are highly mindful of the ongoing need to be disciplined in this environment, but we do not expect to dramatically curtail the performance we have been delivering as a Company. We are positioning Rosetta for a bright future and looking forward to 2009."
For more information, visit www.rosettaresources.com.
The Rosetta Resources Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3139
All statements, other than statements of historical fact, included in this press release are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the intent, belief or current expectations of Rosetta Resources Inc. and its subsidiaries (the "Company") and its management. These forward-looking statements are based upon current expectations and are subject to a number of risks, uncertainties and assumptions including Rosetta's ability to successfully meet its production guidance and the successful completion and commercial operation of future drilling prospects. Recipients are cautioned that these forward-looking statements are not guarantees of future performance. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release, including securing settlement approval from the bankruptcy court, Rosetta's finalization of year-end 2008 proved reserves, further declines in oil and natural gas prices, and full-cost accounting ceiling limitations. Please refer to Company's risks, uncertainties and assumptions as it discloses from time to time in the Company's reports and registration statements filed with the SEC, including the risk factors identified in its Annual Report on Form 10-K for the year ended December 31, 2007, which can also be found on the Company's website at www.rosettaresources.com. The Company undertakes no duty to update the information contained herein except as required by law.
Rosetta Resources Inc.
Consolidated Balance Sheet
(In thousands, except share amounts)
September 30, December 31,
2008 2007
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 135,183 $ 3,216
Accounts receivable 53,504 55,048
Derivative instruments 4,623 3,966
Prepaid expenses 5,550 10,413
Other current assets 4,068 4,249
------------ ------------
Total current assets $ 202,928 $ 76,892
------------ ------------
Oil and natural gas properties, full cost
method, of which $32.0 million at
September 30, 2008 and $40.9 million at
December 31, 2007 were excluded from
amortization 1,752,569 1,566,082
Other fixed assets 7,738 6,393
------------ ------------
1,760,307 1,572,475
Accumulated depreciation, depletion, and
amortization and impairment (649,007) (295,749)
------------ ------------
Total property and equipment, net 1,111,300 1,276,726
Deferred loan fees 1,310 2,195
Other assets 1,567 1,401
------------ ------------
Total other assets 2,877 3,596
------------ ------------
Total assets $ 1,317,105 $ 1,357,214
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 36,995 $ 33,949
Accrued liabilities 54,078 64,216
Royalties payable 24,065 18,486
Derivative instruments 518 2,032
Prepayment on gas sales 23,078 20,392
Deferred income taxes 1,529 720
------------ ------------
Total current liabilities 140,263 139,795
Long-term liabilities:
Derivative instruments 3,371 13,508
Long-term debt 245,000 245,000
Asset retirement obligation 25,858 18,040
Deferred income taxes 46,730 67,916
------------ ------------
Total liabilities 461,222 484,259
Stockholders' equity:
Preferred stock, $0.001 par value;
authorized 5,000,000 shares; no shares
issued in 2008 or 2007 -- --
Common stock, $0.001 par value; authorized
150,000,000 shares; issued 50,987,406
shares and 50,542,648 shares at
September 30, 2008 and December 31, 2007,
respectively 50 50
Additional paid-in capital 771,471 762,827
Treasury stock, at cost; 151,476 and
109,303 shares at September 30, 2008 and
December 31, 2007, respectively (2,876) (2,045)
Accumulated other comprehensive income
(loss) 461 (7,225)
Retained earnings 86,777 119,348
------------ ------------
Total stockholders' equity 855,883 872,955
------------ ------------
Total liabilities and stockholders'
equity $ 1,317,105 $ 1,357,214
============ ============
Rosetta Resources Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Revenues:
Natural gas sales $ 114,308 $ 79,061 $ 362,894 $ 225,658
Oil sales 15,728 10,657 49,941 26,730
--------- --------- --------- ---------
Total revenues 130,036 89,718 412,835 252,388
Operating Costs and
Expenses:
Lease operating expense 12,857 11,912 40,445 33,274
Depreciation, depletion,
and amortization 46,951 38,186 150,103 105,079
Impairment of oil and gas
properties 205,659 -- 205,659 --
Treating and
transportation 1,780 1,412 4,624 3,057
Marketing fees 840 518 2,602 1,850
Production taxes 2,336 1,243 11,528 3,428
General and administrative
costs 15,419 12,032 41,042 29,999
--------- --------- --------- ---------
Total operating costs and
expenses 285,842 65,303 456,003 176,687
--------- --------- --------- ---------
Operating (loss) income (155,806) 24,415 (43,168) 75,701
Other (income) expense
Interest expense, net of
interest capitalized 3,186 4,332 11,209 13,382
Interest income (586) (240) (1,141) (1,469)
Other (income) expense,
net (40) (105) (170) (287)
--------- --------- --------- ---------
Total other expense 2,560 3,987 9,898 11,626
--------- --------- --------- ---------
(Loss) Income before
provision for income
taxes (158,366) 20,428 (53,066) 64,075
Provision for income taxes (58,991) 7,715 (20,495) 24,280
--------- --------- --------- ---------
Net (loss) income $ (99,375) $ 12,713 $ (32,571) $ 39,795
========= ========= ========= =========
Earnings per share: --------- --------- --------- ---------
Basic $ (1.96) $ 0.25 $ (0.64) $ 0.79
========= ========= ========= =========
Diluted $ (1.96) $ 0.25 $ (0.64) $ 0.79
========= ========= ========= =========
Weighted average shares
outstanding:
Basic 50,813 50,409 50,636 50,363
Diluted 50,813 50,570 50,636 50,572
Rosetta Resources Inc.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2008 2007
--------- ---------
Cash flows from operating activities
Net (loss) income $ (32,571) $ 39,795
Adjustments to reconcile net (loss) income to
net cash from operating activities
Depreciation, depletion and amortization 150,103 105,079
Impairment of oil and gas properties 205,659 --
Deferred income taxes (24,939) 24,195
Amortization of deferred loan fees recorded as
interest expense 885 885
Income from unconsolidated investments (418) (117)
Stock compensation expense 4,975 4,090
Change in operating assets and liabilities:
Accounts receivable 1,544 84
Other current assets 5,044 (11,417)
Other assets 192 331
Accounts payable 3,046 12,267
Accrued liabilities 4,516 3,636
Royalties payable 8,265 4,725
--------- ---------
Net cash provided by operating activities 326,301 183,553
--------- ---------
Cash flows from investing activities
Acquisition of oil and gas properties (29,570) (38,656)
Purchases of property and equipment (167,629) (205,310)
Disposals of property and equipment 27 1,104
Other 0 25
--------- ---------
Net cash used in investing activities (197,172) (242,837)
--------- ---------
Cash flows from financing activities
Borrowing from revolving credit facility -- 10,000
Proceeds from stock options exercised 3,669 571
Purchases of treasury stock (831) (411)
--------- ---------
Net cash provided by financing activities 2,838 10,160
--------- ---------
Net increase (decrease) in cash 131,967 (49,124)
Cash and cash equivalents, beginning of period 3,216 62,780
--------- ---------
Cash and cash equivalents, end of period $ 135,183 $ 13,656
========= =========
Supplemental non-cash disclosures:
Capital expenditures included in accrued
liabilities $ 23,316 $ 28,575