GEOMET, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2010 2009 2010 2009 ---------- ---------- ---------- ---------- Revenues: Gas sales $ 7,661 $ 6,838 $ 17,545 $ 16,290 Operating fees and other 71 77 145 175 ---------- ---------- ---------- ---------- Total revenues 7,732 6,915 17,690 16,465 Expenses: Total production expenses 4,176 4,954 8,495 11,339 Depreciation, depletion and amortization 1,450 1,982 3,096 5,018 Impairment of gas properties -- 27,582 -- 167,295 General and administrative 1,315 2,181 2,793 5,154 Terminated transaction costs 1,403 -- 1,403 -- Realized gains on derivative contracts (2,211) (2,734) (3,671) (5,457) Unrealized losses (gains) on derivative contracts 2,974 2,144 (4,668) 1,958 ---------- ---------- ---------- ---------- Total operating expenses 9,107 36,109 7,448 185,307 Operating (loss) income (1,375) (29,194) 10,242 (168,842) Other expenses & interest, net (1,418) (1,404) (2,654) (2,378) ---------- ---------- ---------- ---------- (Loss) income before income taxes (2,793) (30,598) 7,588 (171,220) Income tax benefit (expense) 1,031 11,212 (3,323) 64,108 ---------- ---------- ---------- ---------- Net (loss) income $ (1,762) $ (19,386) $ 4,265 $ (107,112) ========== ========== ========== ========== (Loss) income per share: Net (loss) income Basic $ (0.04) $ (0.50) $ 0.11 $ (2.75) ========== ========== ========== ========== Diluted $ (0.04) $ (0.50) $ 0.11 $ (2.75) ========== ========== ========== ========== Weighted average number of common shares: Basic 39,241 39,123 39,200 39,024 ========== ========== ========== ========== Diluted 39,241 39,123 39,291 39,024 ========== ========== ========== ========== GEOMET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 2010 2009 ------------ ------------ Assets: Current assets $ 11,854 $ 9,054 Properties and equipment, net of accumulated depreciation, depletion, amortization and impairment of gas properties 100,530 98,698 Deferred income taxes 49,712 51,805 Other assets 2,162 1,371 ------------ ------------ Total assets $ 164,258 $ 160,928 ============ ============ Liabilities and stockholders' equity: Current liabilities $ 11,033 $ 9,089 Long-term debt 116,406 119,996 Other long-term liabilities 5,184 4,935 ------------ ------------ Total liabilities 132,623 134,020 ------------ ------------ Total stockholders' equity 31,635 26,908 ------------ ------------ Total liabilities and stockholders' equity $ 164,258 $ 160,928 ============ ============ GEOMET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended June 30, ---------------- 2010 2009 ------- ------- Net cash provided by operating activities $ 8,475 $ 3,243 Net cash used in investing activities (4,061) (9,302) Net cash (used in) provided by financing activities (4,906) 5,173 Effect of exchange rates changes on cash 12 10 ------- ------- Decrease in cash and cash equivalents (480) (876) Cash and cash equivalents at beginning of period 974 2,097 ------- ------- Cash and cash equivalents at end of period $ 494 $ 1,221 ======= ======= GEOMET, INC. OPERATING STATISTICS Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2010 2009 2010 2009 --------- -------- --------- --------- Net sales volumes (MMcf) 1,824 1,903 3,644 3,790 Per Mcf data ($/Mcf): Average natural gas sales price $ 4.20 $ 3.59 $ 4.81 $ 4.30 Differential to NYMEX (1) $ 0.11 $ (0.04) $ 0.12 $ 0.04 Average natural gas sales price realized (2) $ 5.41 $ 5.03 $ 5.82 $ 5.74 Adjusted lease operating expense (3)(4) $ 1.50 $ 1.72 $ 1.58 $ 2.04 Compression expenses $ 0.42 $ 0.50 $ 0.40 $ 0.47 Transportation expense $ 0.17 $ 0.22 $ 0.18 $ 0.27 Production taxes $ 0.16 $ 0.13 $ 0.14 $ 0.16 Total production expenses, as adjusted (3) $ 2.25 $ 2.57 $ 2.30 $ 2.94 Depletion $ 0.72 $ 0.96 $ 0.78 $ 1.24 Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2010 2009 2010 2009 --------- -------- --------- --------- POND CREEK FIELD Net sales volumes (MMcf) 1,319 1,312 2,614 2,603 Per Mcf data ($/Mcf): Lease operating expense $ 1.27 $ 1.14 $ 1.30 $ 1.44 Compression expense $ 0.42 $ 0.41 $ 0.38 $ 0.36 Transportation expense $ 0.23 $ 0.31 $ 0.24 $ 0.38 Production taxes $ 0.15 $ 0.10 $ 0.16 $ 0.13 Total production expenses $ 2.07 $ 1.96 $ 2.08 $ 2.31 GURNEE FIELD Net sales volumes (MMcf) 466 537 941 1,109 Per Mcf data ($/Mcf): Adjusted lease operating expense (3)(4) $ 2.12 $ 2.60 $ 2.05 $ 2.75 Compression expense $ 0.38 $ 0.58 $ 0.38 $ 0.52 Production taxes (5) $ 0.20 $ 0.18 $ 0.06 $ 0.59 Total production expenses, as adjusted (3) $ 2.70 $ 3.36 $ 2.49 $ 3.86 (1) The difference between the average natural gas price for the period, before the impact of gain and losses on derivative contract, and the final average settlement price for natural gas contracts on the New York Mercantile Exchange ("NYMEX") for each month during the applicable period weighted by gas sales volumes. (2) Average realized price includes the effects of realized gains on derivative contracts. (3) Produced water disposal fees are recorded as operating fees and other on the Statement of Operations. Lease operating expense per Mcf has been adjusted for produced water disposal fees because the fees serve to offset operating expenses. See Reconciliation of Adjusted Lease Operating Expense. (4) The decrease in adjusted lease operating expense since prior year is primarily due to a company-wide cost reduction strategy implemented in April 2009. (5) The decrease in production taxes per Mcf for the six months ended June 30, 2010 was due to a refund received in March 2010 for production taxes related to our Gurnee field. GEOMET, INC. CONSOLIDATED DERIVATIVE CONTRACT POSITIONS At June 30, 2010, the Company had the following natural gas collar positions: Volume Sold Bought Sold Period (MMBtu) Ceiling Floor Floor --------- --------- --------- --------- July through October 2010 492,000 $ 6.80 $ 5.50 $ 3.50 July through October 2010 492,000 $ 6.35 $ 5.50 - November 2010 through March 2011 604,000 $ 7.45 $ 6.50 - --------- 1,588,000 ========= At June 30, 2010, the Company had the following natural gas swap positions: Volume Period (MMBtu) Price --------- --------- July through October 2010 492,000 $ 5.70 July through October 2010 369,000 $ 6.30 November 2010 through March 2011 604,000 $ 6.67 November 2010 through March 2011 906,000 $ 7.27 April 2011 through October 2011 856,000 $ 6.37 April 2011 through October 2011 856,000 $ 5.37 April 2011 through October 2011 856,000 $ 5.43 November 2011 through March 2012 608,000 $ 7.12 November 2011 through March 2012 608,000 $ 6.12 April 2012 through October 2012 856,000 $ 5.73 November 2012 through March 2013 604,000 $ 6.42 --------- 7,615,000 $ 6.42 ========= At June 30, 2010, the Company had the following interest rate swap positions: Effective Designated Fixed Notional Description date maturity date rate(1) amount ---------- ------------ ---------- ------------ Floating-to-fixed swap 12/14/2007 12/14/2010 3.86% $ 15,000,000 Floating-to-fixed swap 1/6/2009 1/6/2011 1.38% $ 5,000,000 ------------ $ 20,000,000 ============ (1) The floating rate paid by the counterparty is the British Bankers' Association LIBOR rate. GEOMET, INC. RECONCILIATION OF ADJUSTED EBITDA TO NET (LOSS) INCOME (In thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2010 2009 2010 2009 -------- --------- ------- ---------- Net (loss) income $ (1,762) $ (19,386) $ 4,265 $ (107,112) Add: Interest expense, net of interest income and amounts capitalized 1,419 1,413 2,637 2,386 Add (Deduct): Other (income) expense (1) (9) 17 (8) Add (Deduct): Income tax (benefit) expense (1,031) (11,212) 3,323 (64,108) Add : Depreciation, depletion and amortization 1,450 1,982 3,096 5,018 Add: Impairment of gas properties -- 27,582 -- 167,295 Add: Unrealized losses (gains) on derivative contracts 2,974 2,144 (4,668) 1,958 Add: Stock based compensation 90 189 80 501 Add: Accretion expense 121 105 241 213 -------- --------- ------- ---------- Adjusted EBITDA $ 3,260 $ 2,808 $ 8,991 $ 6,143 ======== ========= ======= ==========The table above reconciles net (loss) income to Adjusted EBITDA. Adjusted EBITDA is defined as net (loss) income before net interest expense, other non-operating income, income taxes, depreciation, depletion and amortization before unrealized losses (gains) on derivative contracts, stock-based compensation and accretion expense. Although Adjusted EBITDA is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), management believes that it is useful to GeoMet and to an investor in evaluating our company because it is a widely used measure to evaluate a company's operating performance.
GEOMET, INC. RECONCILIATION OF ADJUSTED NET INCOME (LOSS) TO NET (LOSS) INCOME (In thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2010 2009 2010 2009 -------- --------- ------- ---------- Net (loss) income $ (1,762) $ (19,386) $ 4,265 $ (107,112) Impairment of gas properties -- 27,582 -- 167,295 Unrealized losses (gains) on derivative contracts, net of tax 2,974 2,144 (4,668) 1,958 Terminated transaction costs 1,403 -- 1,403 -- Effect of income taxes (1,672) (11,164) 1,247 (63,952) -------- --------- ------- ---------- Adjusted Net Income (Loss) $ 943 $ (824) $ 2,247 $ (1,811) ======== ========= ======= ==========The table above reconciles net (loss) income to Adjusted Net Income (Loss). Adjusted Net Income (Loss) is calculated by eliminating unrealized losses (gains) on derivative contracts from net (loss) income, impairments to our gas properties, terminated transaction costs, and their related tax effects to arrive at Adjusted Net Income (Loss). The tax effects are determined by calculating the tax provision for GAAP net (loss) income and comparing the results to the tax provision for Adjusted Net Income (Loss), which excludes the adjusting items. The difference in the tax provision calculations represents the effect of income taxes. The calculation is performed at the end of each quarter and, as a result, the tax rates for each discrete period are different. Although Adjusted Net Income (Loss) is a non-GAAP measure, we believe it is useful information for investors because the unrealized losses (gains) relate to derivative contracts that hedge our production in future months. The gains associated with derivative contracts that hedge current production are recognized in net (loss) income and are not eliminated in determining Adjusted Net Income (Loss). The adjustment better matches losses (gains) on derivative contracts with the period when the underlying hedged production occurs.
GEOMET, INC. RECONCILIATION OF ADJUSTED LEASE OPERATING EXPENSE (In thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2010 2009 2010 2009 --------- --------- --------- --------- Lease operating expense $ 2,813 $ 3,348 $ 5,920 $ 7,918 Deduct: Produced water disposal fees 71 77 145 175 --------- --------- --------- --------- Adjusted lease operating expense $ 2,742 $ 3,271 $ 5,775 $ 7,743 ========= ========= ========= =========The table above reconciles lease operating expense to adjusted lease operating expense. Adjusted lease operating expense is calculated by eliminating the produced water disposal fees from lease operating expense to arrive at adjusted lease operating expense. Although adjusted lease operating expense is a non-GAAP measure, we believe it is useful information for investors because produced water disposal fees are recorded as operating fees and other on the Statement of Operations. Lease operating costs per Mcf are adjusted for produced water disposal fees because the fees serve to offset operating expenses. The adjustment better matches lease operating expense with the natural gas sales revenues it is associated with.
Contact Information: For more information please contact: Stephen M. Smith (713) 287-2251 John Baldissera BPC Financial (800) 368-1217 Or visit our website at www.geometinc.com