Dune Energy Reports Second Quarter 2011 Financial Results, and Updates Mid-Year Reserves

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Aug 12, 2011, 04:15 ET

HOUSTON, Aug. 12, 2011 /PRNewswire/ -- Dune Energy, Inc. (OTCBB:DUNR) today announced results for the second quarter of 2011 and updated mid-year reserves.

Revenue and Production

Revenue from continuing operations for the second quarter totaled $15.9 million as compared with $16.0 million for the second quarter of 2010. Production volumes in the second quarter were 114 Mbbls of oil and .72 Bcf of natural gas, or 1.4 Bcfe. This compares with 147 Mbbls of oil and .99 Bcf of natural gas, or 1.9 Bcfe for the second quarter of 2010. In the second quarter of 2011, the average sales price per barrel of oil was $108.25 and $4.92 per Mcf for natural gas, as compared with $76.59 per barrel and $4.74 per Mcf, respectively for the second quarter of 2010. The primary reasons behind the decrease in revenue were lower production volumes in the second quarter of 2011 versus the second quarter of 2010. Oil volumes decreased 22% and gas volumes decreased 27% from 2010 levels. However, the average price per Mcfe produced was $11.31 in the second quarter of 2011 compared to $8.51 in the second quarter of 2010 or a 33% increase.

Costs and Expenses

Total lease operating expense from continuing operations for the second quarter totaled $6.9 million versus $6.6 million for the second quarter of 2010. Cash G&A expense totaled $1.8 million for the second quarter of 2011 versus $2.5 million for the second quarter of 2010. The $0.7 million decrease reflects a continued focus on cost controls. Interest financing expense was $10.1 million for the second quarter of 2011 versus the $9.2 million of 2010, primarily associated with payment of 10.5% interest on the $300 million of Senior Secured Notes and higher interest rates applicable to the Credit Agreement. We incurred a gain of $.4 million on hedging during the second quarter of 2010 versus no activity in 2011 due to settling all hedge balances in December 2010.

Earnings

Operating loss for the second quarter of 2011 was $3.7 million versus a $17.5 million operating loss in the second quarter of 2010. Net loss totaled $13.9 million for the second quarter of 2011 and $30.9 million for the second quarter of 2010. Preferred stock dividends were $4.5 million in the second quarter of 2011 versus $5.9 million in the second quarter of 2010. These dividends were paid in kind (PIK) and as such do not represent a cash payment. Net loss per share, both basic and fully diluted, for the quarter was $0.39, based on 48.7 million weighted average shares outstanding as compared with a loss of $.92 per share in the second quarter of 2010 with 40.4 million weighted average shares outstanding. The increased outstanding common shares are associated with the conversion of preferred shares into common shares.

Mid-Year 2011 Reserve Update

Dune’s mid-year reserves were evaluated by DeGolyer and MacNaughton. Based on SEC mandated pricing of the first day of each month for the prior year, total proved reserves were 5.4 million barrels of oil and 46.9 billion cubic feet of gas or 79.3 Bcfe. This compares to 5.7 million barrels of oil and 48.6 billion cubic feet of gas or 82.7 Bcfe at year-end 2010. The production of 3.1 Bcfe for the first six months of the year accounted for the majority of the change in reserves. Present worth at 10% value of these reserves was $228.9 million. Probable and possible reserves accounted for an additional 11.0 Bcfe and $35.5 million of present worth. The unrisked potential value of the intermediate prospects at Garden Island Bay, the Bullfrog prospect at Bateman Lake and the Blue Moon prospect at Leeville would add another 147.7 Bcfe with a present worth at 10% value of $619.2 million. The analysis of the unrisked potential was prepared by company engineers. The volume weighted average price was $93.23 per barrel of oil and $4.54 per million cubic feet of gas.

Based on escalated strip prices, total proved reserves were 5.5 million barrels of oil and 48.4 billion cubic feet of gas or 81.6 Bcfe. This compares to 5.8 million barrels of oil and 49.8 billion cubic feet of gas or 84.4 Bcfe at year end 2010. The production of 3.1 Bcfe for the first six months of the year accounted for the majority of the change in reserves. Present worth at 10% value of these reserves was $306.2 million. Probable and possible reserves accounted for an additional 11.1 Bcfe and $47.5 million of present worth at 10% value. The unrisked potential value of the intermediate prospects at Garden Island Bay, the Bullfrog prospect at Bateman Lake and the Blue Moon prospect at Leeville would add another 147.7 Bcfe with a present worth at 10% value of 744.6 million. The analysis of the unrisked potential was prepared by company engineers. The volume weighted average price was $107.81 per barrel of oil and $6.61 per million cubic feet gas.

2011 Capital Program/Operational Update

During the remainder of 2011, we anticipate allocating capital to converting proved undeveloped (PUD) locations at Garden Island Bay to proved developed reserves. Additionally, drilling activities will be conducted at Live Oak Field, Pearsall, Bateman Lake Field and Leeville Field. Total capital anticipated for 2011 will be approximately $27.7 million. See investor overview for August, 2011 on our website for more details on operations and plans for the remainder of 2011.

James A. Watt, President and Chief Executive Officer stated, “Our challenge for the second half of the year is to implement a restructuring of our debt to allow capital to be dedicated to unlocking value in our reserve base. Such restructuring would in all probability involve a debt for equity exchange with the existing note holders and would be implemented either in an out of court transaction or an in court proceeding.”

Click here for more information: http://www.duneenergy.com/news.html?b=1683&1=1

FORWARD-LOOKING STATEMENTS: This document includes forward-looking statements that are intended to be covered by “forward-looking statements” safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements included in this press release that address activities, events or developments that Dune Energy expects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning estimates of expected drilling and development wells and associated costs, statements relating to estimates of, and increases in, production, cash flows and values, statements relating to the continued advancement of Dune Energy, Inc.'s projects and other statements that are not historical facts. When used in this document, the words such as "could," "plan," "estimate," "expect," "intend," "may," "potential," "should," and similar expressions are forward-looking statements. Although Dune Energy, Inc. believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements include the potential that the Company's projects will experience technological and mechanical problems, geological conditions in the reservoir may not result in commercial levels of oil and gas production, changes in product prices and other risks disclosed in Dune's Annual report on Form 10-K filed with the U.S. Securities and Exchange Commission.

Investor Contact:
Steven J. Craig
Sr. Vice President Investor Relations and Administration
713-229-6300


Dune Energy, Inc.
Consolidated Balance Sheets
(Unaudited)

ASSETS	June 30, 2011	December 31, 2010
Current assets:
Cash	$ 21,829,866	$ 23,670,192
Restricted cash	-	15,753,441
Accounts receivable	7,801,838	9,862,849
Prepayments and other current assets	1,836,186	2,542,624
Total current assets	31,467,890	51,829,106

Oil and gas properties, using successful efforts accounting - proved	530,070,560	526,760,643
Less accumulated depreciation, depletion, amortization and impairment	(299,587,828)	(294,566,739)
Net oil and gas properties	230,482,732	232,193,904

Property and equipment, net of accumulated depreciation of $3,054,074 and $2,817,158	322,493	527,357
Deferred financing costs, net of accumulated amortization of $1,749,794 and $1,456,592	492,885	786,087
Other assets	11,463,914	12,049,829
	12,279,292	13,363,273

TOTAL ASSETS	$ 274,229,914	$ 297,386,283

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$ 4,656,017	$ 6,953,863
Accrued liabilities	13,860,284	13,367,402
Current maturities of long-term debt (see Note 3)	336,755,537	-
Preferred stock dividend payable	1,551,000	2,206,000
Other current liabilities	199,319	1,395,237
Total current liabilities	357,022,157	23,922,502

Long-term debt, net of current maturities (see Note 3)	-	335,218,690
Other long-term liabilities	12,695,342	12,548,062
Total liabilities	369,717,499	371,689,254
Commitments and contingencies	-	-
Redeemable convertible preferred stock, net of discount of $3,789,645 and $4,964,014, liquidation preference of $1,000 per share, 750,000 shares designated, 155,082 and 207,912 shares issued and outstanding	151,292,355	202,947,986

STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, 1,000,000 shares authorized, 250,000 shares undesignated, no shares issued and outstanding	-	-
Common stock, $.001 par value, 300,000,000 shares authorized, 48,949,530 and 41,912,723 shares issued	48,950	41,912
Treasury stock, at cost (128,388 shares)	(62,920)	(62,920)
Additional paid-in capital	133,709,775	81,040,691
Accumulated deficit	(380,475,745)	(358,270,640)
Total stockholders' deficit	(246,779,940)	(277,250,957)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 274,229,914	$ 297,386,283


Dune Energy, Inc.
Consolidated Statements of Operations
(Unaudited)

	Three months ended		Six months ended
	June 30,		June 30,
	2011	2010	2011	2010

Revenues	$ 15,889,731	$ 15,956,295	$ 33,309,395	$ 32,921,516

Operating expenses:
Lease operating expense	6,886,170	6,635,354	13,954,363	14,219,568
Accretion of asset retirement obligation	329,379	459,421	658,758	920,149
Depletion, depreciation and amortization	5,245,062	7,407,283	11,545,033	14,400,953
General and administrative expense	2,026,228	2,902,941	4,165,119	6,348,897
Impairment of oil and gas properties	-	16,071,871	-	16,071,871
Exploration expense	5,183,830	-	5,183,830	-
Total operating expense	19,670,669	33,476,870	35,507,103	51,961,438

Operating loss	(3,780,938)	(17,520,575)	(2,197,708)	(19,039,922)

Other income (expense):
Interest income	16,299	120	36,449	612
Interest expense	(10,099,719)	(9,238,819)	( 20,043,846)	(18,110,452)
Gain on derivative liabilities	-	436,390	-	1,695,264
Total other income (expense)	(10,083,420)	(8,802,309)	(20,007,397)	(16,414,576)

Loss on continuing operations	(13,864,358)	(26,322,884)	(22,205,105)	(35,454,498)
Loss on discontinued operations	-	(4,623,564)	-	(3,410,129)
Net loss	(13,864,358)	(30,946,448)	(22,205,105)	(38,864,627)
Preferred stock dividend	(5,079,046)	(6,468,368)	(9,977,369)	12,871,476)
Net loss available to common shareholders	$ (18,943,404)	$ (37,414,816)	$ (32,182,474)	$ (51,736,103)

Net loss per share:
Basic and diluted from continuing operations	$ (0.39)	$ (0.81)	$ (0.67)	$ (1.20)
Basic and diluted from discontinued operations	-	(0.11)	-	(0.08)
Total basic and diluted	$ (0.39)	$ (0.92)	$ (0.67)	$ (1.28)
Weighted average shares outstanding:
Basic and diluted	48,738,694	40,416,133	47,766,990	40,307,376



Dune Energy, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
	Six months ended
	June 30,
	2011	2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (22,205,105)	$ (38,864,627)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on discontinued operations	-	3,410,129
Depletion, depreciation and amortization	11,545,033	14,400,953
Impairment of oil and gas properties	-	16,071,871
Amortization of deferred financing costs and debt discount	1,855,729	1,841,852
Stock-based compensation	365,491	1,169,997
Accretion of asset retirement obligation	658,758	920,149
Gain on derivative liabilities	-	(1,749,231)
Changes in:
Accounts receivable	2,061,011	4,873,396
Prepayments and other assets	706,438	2,244,591
Payments made to settle asset retirement obligations	(523,941)	(170,555)
Accounts payable and accrued liabilities	(1,792,501)	(9,734,993)
NET CASH USED IN CONTINUED OPERATIONS	(7,329,087)	(5,586,468)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS	-	2,920,768
NET CASH USED IN OPERATING ACTIVITIES	(7,329,087)	(2,665,700)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in proved and unproved properties	(9,547,714)	(2,353,193)
Purchase of furniture and fixtures	(81,283)	(31,189)
Increase (decrease) in restricted cash	15,744,279	(71,426)
Decrease in other assets	595,077	102,629
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - CONTINUED OPERATIONS	6,710,359	(2,353,179)
NET CASH PROVIDED BY INVESTING ACTIVITIES - DISCONTINUED OPERATIONS	-	29,400,348
NET CASH PROVIDED BY INVESTING ACTIVITIES	6,710,359	27,047,169

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt	-	6,000,000
Increase in loan costs	-	(1,131,509)
Payments on short-term debt	(1,221,598)	(31,353,692)
NET CASH USED IN FINANCING ACTIVITIES	(1,221,598)	(26,485,201)

NET CHANGE IN CASH BALANCE	(1,840,326)	(2,103,732)
Cash balance at beginning of period	23,670,192	15,053,570
Cash balance at end of period	$ 21,829,866	$ 12,949,838

SUPPLEMENTAL DISCLOSURES
Interest paid	$ 18,188,117	$ 16,322,703
Income taxes paid	-	-

NON-CASH DISCLOSURES
Common stock issued for conversion of preferred stock	$ 62,288,000	$ 2,448,000
Redeemable convertible preferred stock dividends	8,803,000	11,650,000
Accretion of discount on preferred stock	1,174,369	1,143,737