Dune Energy Reports Second Quarter 2014 Financial And Operating Results

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Aug 14, 2014, 05:15 ET

HOUSTON, Aug. 14, 2014 /PRNewswire/ -- Dune Energy, Inc. (OTCBB: DUNR) today announced results for the second quarter of calendar year 2014.

Revenue and Production

Revenue for the second quarter of 2014 totaled $13.1 million as compared with $16.8 million for the second quarter of 2013. Production volumes in the second quarter were 107 Mbbls of oil and 0.43 Bcf of natural gas, or 179 Mboe. This compares with 135 Mbbls of oil and 0.62 Bcf of natural gas, or 238 Mboe for the second quarter of 2013. In the second quarter of 2014, the average sales price per barrel of oil was $102.45 and $4.93 per Mcf for natural gas, as compared with $104.26 per barrel and $4.40 per Mcf, respectively for the second quarter of 2013. Production decreased 25% in the second quarter of 2014 as compared to the second quarter of 2013. Oil prices decreased 2% and gas prices increased 12% from 2013 levels. During the second quarter of 2014 oil accounted for 60% of the total production volumes on an equivalent basis; however, oil revenue accounted for 84% of the total revenue.

Costs and Expenses

Total lease operating expense was $5.8 million for the second quarter of 2014 as compared to $7.8 million for the second quarter of 2013, or $32.32 and $32.97 per Boe produced, respectively. DD&A expense was $4.0 million for the second quarter of 2014, or $22.36 per Boe. G&A expense totaled $2.7 million for the second quarter of 2014 compared to $3.1 million in the second quarter of 2013. Interest and financing expense increased $0.4 million between quarters amounting to under $2.9 million.

Earnings

Net loss totaled $33.2 million for the second quarter of 2014. This compares with a loss of $1.3 million in 2013. This increase primarily reflects the impact of the $29.4 million impairment of oil and gas properties in the Live Oak and North Broussard fields.

Mid-Year Reserves

Mid-year 2014 proved reserves were as follows:

	6/30/14

Reserve Categories	Oil	Gas	Total	PV 10%

Proved	(Mbbls)	(Mmcf)	(Mboe)	$ (000's)
Developed producing	1,934	12,583	4,031	79,022
Developed nonproducing	1,386	15,482	3,966	62,812
Undeveloped	2,378	17,809	5,346	122,054
Total proved reserves	5,698	45,874	13,343	263,888

Probable
Developed nonproducing	108	399	175	5,982
Undeveloped	3,409	15,817	6,045	176,552
Total probable reserves	3,517	16,216	6,220	182,534

Possible
Undeveloped	5,495	18,351	8,554	188,883
Total possible reserves	5,495	18,351	8,554	188,883

This compares with year-end 2013 proved reserves which were as follows:

	12/31/13

Reserve Categories	Oil	Gas	Total	PV 10%

Proved	(Mbbls)	(Mmcf)	(Mboe)	$ (000's)
Developed producing	2,171	10,929	3,993	78,518
Developed nonproducing	1,822	14,167	4,183	65,737
Undeveloped	3,170	25,042	7,344	167,401
Total proved reserves	7,163	50,138	15,520	311,656

Probable
Developed nonproducing	106	391	171	5,533
Undeveloped	3,144	15,751	5,769	173,724
Total probable reserves	3,250	16,142	5,940	179,257

Possible
Undeveloped	4,488	17,242	7,362	202,510
Total possible reserves	4,488	17,242	7,362	202,510

Degolyer and MacNaughton, the Company's independent reservoir engineering consultant prepared the mid-year report of reserves, while the year-end reserves were prepared by the Company's reservoir engineering staff.

The primary decrease was related to the removal of PUD reserves at Live Oak, Bateman Lake and North Broussard fields which had been classified as PUD's on the Company books for the maximum allowed time under SEC guidelines of five years. The Company's capital shortage has not allowed drilling these opportunities.

Liquidity and Capital Resources

During the first six months of 2014 compared to the first six months of 2013, net cash flow used in operating activities reflected a decrease of $6.8 million to $4.2 million. This decrease primarily results from a reduction of accounts payable and accrued liabilities of $3.7 million and an increase in prepayments and other assets of $2.7 million.

Our current assets were $15.7 million on June 30, 2014. Cash on hand comprised approximately $6.2 million of this amount. This compared to $3.3 million in cash at December 31, 2013 and $16.2 million at the end of the second quarter of 2013. Accounts payable have decreased from $10.1 million at December 31, 2013 to $7.9 million at June 30, 2014. Accounts payable were $10.4 million at June 30, 2013. This decrease in payables reflects the impact of reduced capital spending in the second quarter of 2014.

Our capital investments and exploration costs year-to-date reflect our limited liquidity in investing in ongoing drilling and facilities upgrade program which amounted to $14.5 million during the first six months of 2014, down from $27.1 million spent during the same period of 2013. The decreased spending reflected efforts to balance our capital program to our liquidity. Drilling operations will be curtailed until the liquidity issues facing the Company are resolved.

Our primary sources of liquidity are cash provided by operating activities, debt financing, sales of non-core properties and access to capital markets. On July 15, 2014, Bank of Montreal notified the Company that Lenders had completed their interim redetermination of the Company's borrowing base. Such notification provided that, effective as of July 1, 2014, the Company's borrowing base will be reduced by $2.5 million, and thereafter will be further reduced by $2.5 million on the first business day of each month (each a "Reduction Date") until October 1, 2014, at which time, the borrowing base will be $37.5 million.

The Total Debt to EBITDAX covenant in our Credit Agreement controls access to the "undrawn" amount of borrowing availability from quarter to quarter and is based on the trailing 12 month total. On June 30, 2014, and thereafter, the ratio of Total Debt to EBITDAX must be less than 4.0 to 1.0. We determined that we did not meet the Total Debt to EBITDAX ratio as of June 30, 2014 as required by the financial covenants in the Credit Agreement, and we have triggered an event of default. Bank of Montreal, at the request of the majority Lenders, may terminate the commitments under the Credit Agreement and cause all of our obligations under the Credit Agreement to immediately become due and payable, upon notice to the Company.

As we are no longer in compliance with the financial covenant of the Credit Agreement, additional borrowings may not permitted, and the outstanding revolver loans may become due and payable upon notice to us by the Bank of Montreal. Absent relief from the Credit Agreement Lenders, the restructuring of a material portion of the Notes or the emergence of a new lender, our ability to meet our obligations in due course is threatened. Management is currently in discussions with all parties and seeking new credit providers or other strategic alternatives in an effort to resolve this liquidity stalemate.

These and other factors raise substantial doubt about our ability to continue as a going concern for the next twelve months. Our liquidity issues may force us to further curtail existing operations, reduce or delay capital expenditures or sell assets to meet our operating and debt service obligations, and we may be forced to take other actions, including a restructuring of our existing indebtedness and capital structure to address our ongoing liquidity issues. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flows or other sources of capital sufficient to repay or refinance our indebtedness, continue our operations and fund our long-term capital needs. There can be no assurance that the Company will be able to resolve the default under our Credit Agreement, to engage in a strategic transaction, sell properties or realize enough proceeds from the sale of our properties in order to fund operations or to resolve the Company's liquidity issues.

James A. Watt, President and CEO of the company stated, "Since mid-2013, the Company has been seeking a merger/sale arrangement or alternate financing to continue operations within our asset base. To date these discussions have not resulted in either a merger/sale arrangement or new financing. We are working diligently with our lenders and our financial advisor seeking a near term solution to this liquidity issue."

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

FORWARD-LOOKING STATEMENTS: This document includes 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 which 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, 2014	December 31, 2013
Current assets:
Cash	$ 6,245,851	$ 3,251,371
Accounts receivable	7,480,009	7,258,425
Current derivative asset	-	7,544
Prepayments and other current assets	1,942,468	1,398,947
Total current assets	15,668,328	11,916,287
Oil and gas properties, using successful efforts accounting - proved	308,257,886	293,745,839
Less accumulated depreciation, depletion and amortization	(98,061,800)	(61,927,723)
Net oil and gas properties	210,196,086	231,818,116
Property and equipment, net of accumulated depreciation of $269,087 and $227,207	114,056	152,903
Deferred financing costs, net of accumulated amortization of $2,029,023 and $1,586,904	1,517,255	1,835,743
Other assets	3,975,400	3,783,312
	5,606,711	5,771,958
TOTAL ASSETS	$ 231,471,125	$ 249,506,361

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 7,865,073	$ 10,139,205
Accrued liabilities	8,846,875	9,895,057
Current derivative liability	375,041	-
Current maturities on long-term debt	38,366,341	994,895
Total current liabilities	55,453,330	21,029,157
Long-term debt	65,848,608	84,180,940
Other long-term liabilities	21,731,034	21,449,651
Total liabilities	143,032,972	126,659,748
Commitments and contingecies	-	-
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 1,000,000 shares authorized, 250,000 shares undesignated, no shares issued and outstanding	-	-
Common stock, $.001 par value, 4,200,000,000 shares authorized, 74,008,952 and 72,644,643 shares issued	74,009	72,645
Treasury stock, at cost (223,760 and 145,270 shares)	(298,154)	(223,821)
Additional paid-in capital	179,187,242	177,832,574
Accumulated deficit	(90,524,944)	(54,834,785)
Total stockholders' equity	88,438,153	122,846,613
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 231,471,125	$ 249,506,361

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



	Three months	Three months	Six months	Six months
	ended	ended	ended	ended
	June 30, 2014	June 30, 2013	June 30, 2014	June 30, 2013
Revenues:
Oil and gas revenues	$ 13,093,311	$ 16,783,479	$ 25,082,321	$ 28,905,142
Other revenues	-	-	-	963,150
Total revenues	13,093,311	16,783,479	25,082,321	29,868,292
Operating expenses:
Lease operating expense and production taxes	5,786,749	7,848,003	11,300,311	14,709,404
Accretion of asset retirement obligation	546,684	402,732	1,093,368	805,464
Depletion, depreciation and amortization	4,002,960	4,793,818	6,804,005	7,961,704
General and administrative expense	2,657,465	3,129,377	5,308,750	5,717,459
Impairment of oil and gas properties	29,351,000	-	29,351,000	-
Loss (gain) on settlement of asset retirement obligation liabliity	761,464	(22,920)	761,464	-
Total operating expense	43,106,322	16,151,010	54,618,898	29,194,031
Operating income (loss)	(30,013,011)	632,469	(29,536,577)	674,261
Other income (expense):
Other income	10,033	90	10,493	692
Interest expense	(2,877,542)	(2,484,209)	(5,598,474)	(4,919,188)
Gain (loss) on derivative instruments	(315,617)	510,288	(565,601)	(307,302)
Total other income (expense)	(3,183,126)	(1,973,831)	(6,153,582)	(5,225,798)
Net loss	$ (33,196,137)	$ (1,341,362)	$ (35,690,159)	$ (4,551,537)

Net loss per share:
Basic and diluted	$ (0.45)	$ (0.02)	$ (0.49)	$ (0.07)
Weighted average shares outstanding:
Basic and diluted	73,816,311	63,238,696	73,385,130	61,156,848

Dune Energy, Inc.
Consolidated Statements of Cash Flows
(Unaudited)


	Six months ended	Six months ended
	June 30, 2014	June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (35,690,159)	$ (4,551,537)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depletion, depreciation and amortization	6,804,005	7,961,704
Amortization of deferred financing costs	442,119	396,454
Stock-based compensation	1,356,032	1,288,589
Loss on settlement of asset retirement obligation liability	761,464	-
Accretion of asset retirement obligation	1,093,368	805,464
Impairment of oil and gas properties	29,351,000	-
Unrealized loss on derivative instruments	382,585	332,000
Changes in:
Accounts receivable	(200,632)	(1,693,865)
Prepayments and other assets	1,082,450	3,817,168
Payments made to settle asset retirement obligations	(330,985)	(196,314)
Accounts payable and accrued liabilities	(897,110)	2,805,040
NET CASH PROVIDED BY OPERATING ACTIVITIES	4,154,137	10,964,703

CASH FLOWS FROM INVESTING ACTIVITIES
Cash investment in proved and unproved properties	(14,512,047)	(27,143,528)
Purchase of furniture and fixtures	(3,033)	(145,477)
Increase in other assets	(192,088)	(516,684)
NET CASH USED IN INVESTING ACTIVITIES	(14,707,168)	(27,805,689)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock	-	20,000,000
Proceeds from short-term debt	15,000,000	-
Purchase of treasury stock	(74,333)	-
Common stock issuance costs	-	(219,513)
Payments on short-term debt	(1,254,525)	(1,391,607)
Increase in long-term debt issuance costs	(123,631)	(105,522)
Payments on long-term debt	-	(8,000,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES	13,547,511	10,283,358

NET CHANGE IN CASH BALANCE	2,994,480	(6,557,628)
Cash balance at beginning of period	3,251,371	22,793,916
Cash balance at end of period	$ 6,245,851	$ 16,236,288

SUPPLEMENTAL DISCLOSURES
Interest paid	$ 1,419,189	$ 1,226,811
Income taxes paid	-	-
NON-CASH INVESTING AND FINANCIAL DISCLOSURES
Accrued interest converted to long-term debt	$ 3,667,669	$ 3,269,464
Prepaid insurance financed with debt	$ 1,625,971	$ -
Non-cash investment in proved and unproved properties in accounts payable	-	1,904,486