Company Quick10K Filing
Resolute Energy
Price37.52 EPS-1
Shares23 P/E-27
MCap869 P/FCF6
Net Debt707 EBIT-10
TEV1,576 TEV/EBIT-159
TTM 2018-09-30, in MM, except price, ratios
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-03-13
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-03-07
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-05
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-10
10-Q 2013-09-30 Filed 2013-11-05
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-05-06
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-08
10-Q 2011-09-30 Filed 2011-11-07
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-11
10-K 2009-12-31 Filed 2010-03-30
8-K 2019-03-01
8-K 2019-02-22
8-K 2019-02-14
8-K 2019-02-11
8-K 2018-11-19
8-K 2018-11-18
8-K 2018-10-11
8-K 2018-09-30
8-K 2018-09-14
8-K 2018-06-30
8-K 2018-06-19
8-K 2018-06-11
8-K 2018-05-15
8-K 2018-05-09
8-K 2018-04-05
8-K 2018-03-31
8-K 2018-03-16
8-K 2018-03-12
8-K 2018-02-26
8-K 2018-02-13
8-K 2018-02-08
8-K 2018-01-01

REN 10Q Quarterly Report

Part 1 - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Nature of Business
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Note 3 - Asset Retirement Obligation
Note 4 - Earnings per Share
Note 5 - Long Term Debt
Note 6 - Income Taxes
Note 7 - Stockholders' Equity and Equity Based Awards
Note 8 - Derivative Instruments
Note 9 - Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitive and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. (Removed and Reserved)
Item 5. Other Information
Item 6. Exhibits
EX-10.1 c23884exv10w1.htm
EX-31.1 c23884exv31w1.htm
EX-31.2 c23884exv31w2.htm
EX-32.1 c23884exv32w1.htm

Resolute Energy Earnings 2011-09-30

Balance SheetIncome StatementCash Flow
1.71.30.90.40.0-0.42013201520172019
Assets, Equity
0.20.10.0-0.0-0.1-0.22013201520172019
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42013201520172019
Ops, Inv, Fin

10-Q 1 c23884e10vq.htm FORM 10-Q Form 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-34464
 
RESOLUTE ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
     
Delaware
(State or other Jurisdiction of Incorporation or Organization)
  27-0659371
(I.R.S. Employer Identification Number)
     
1675 Broadway, Suite 1950 Denver, CO
(Address of Principal Executive Offices)
  80202
(Zip Code)
(303) 534-4600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o No þ
As of October 31, 2011, 61,065,148 shares of the Registrant’s $0.0001 par value Common Stock were outstanding.
 
 

 

 


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, expected future production, expenses and cash flows in 2011 and beyond, the nature, timing and results of capital expenditure projects, amounts of future capital expenditures, our plans with respect to future acquisitions, our future debt levels and liquidity, future derivative activities and future compliance with covenants under our revolving credit facility. Although we believe that the expectations reflected in such forward-looking statements are reasonable, those expectations may prove to be incorrect. Disclosure of important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are included under the heading “Risk Factors.” All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report, in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011 and our Annual Report on Form 10-K for the year ended December 31, 2010, and such things as:
    volatility of oil and gas prices, including reductions in prices that would adversely affect our revenue, income, cash flow from operations, liquidity and reserves;
    discovery, estimation and development of, and our ability to replace, oil and gas reserves;
    our future cash flow, liquidity and financial position;
    the success of our business and financial strategy, derivative strategies and plans;
    the amount, nature and timing of our capital expenditures, including future development costs;
    a lack of available capital and financing on acceptable terms;
    the effectiveness and results of our CO2 flood program;
    the success of the development plan and production from our oil and gas properties, particularly our Aneth Field Properties;
    the timing and amount of future production of oil and gas;
    the completion, timing and success of exploratory drilling;
    availability of, or delays related to, drilling, completion and production personnel, supplies and equipment;
    the effect of third party activities on our oil and gas operations, including our dependence on gas gathering and processing systems;
    inaccuracy in reserve estimates and expected production rates;
    our operating costs and other expenses;
    our success in marketing oil and gas;
    competition in the oil and gas industry;
    operational problems, or uninsured or underinsured losses affecting our operations or financial results;
    the impact and costs related to compliance with or changes in laws or regulations governing our oil and gas operations, including the potential for increased regulation of underground injection operations;
    our relationship with the Navajo Nation, the local community in the area where we operate, and Navajo Nation Oil and Gas Company, as well as the timing of when certain purchase rights held by Navajo Nation Oil and Gas Company become exercisable;
    the impact of weather and the occurrence of disasters, such as fires, explosions, floods and other events and natural disasters;
    environmental liabilities;
    anticipated CO2 supply, which is currently sourced exclusively from Kinder Morgan CO2 Company, L.P.;
    risks related to our level of indebtedness;
    developments in oil and gas producing countries;
    loss of senior management or key technical personnel;

 

 


Table of Contents

    timing of issuance of permits and rights of way;
    timing of installation of gathering infrastructure in areas of new exploration and development;
    potential breakdown of equipment and machinery relating to Aneth compression facility;
    acquisitions and other business opportunities (or the lack thereof) that may be presented to and pursued by us;
    risk factors discussed or referenced in this report; and
    other factors, many of which are beyond our control.

 

 


 

TABLE OF CONTENTS
         
 
       
       
 
       
    1  
 
       
    12  
 
       
    16  
 
       
    18  
 
       
       
 
       
    19  
 
       
    19  
 
       
    19  
 
       
    19  
 
       
    19  
 
       
    19  
 
       
    20  
 
       
    21  
 
       
 Exhibit 10.1
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

 


Table of Contents

PART 1 —   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
RESOLUTE ENERGY CORPORATION
Condensed Consolidated Balance Sheets (UNAUDITED)
(in thousands, except share and per share amounts)
                 
    September 30,     December 31,  
    2011     2010  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 178     $ 1,844  
Accounts receivable
    54,796       45,154  
Deferred income taxes
    5,516       11,954  
Derivative instruments
    4,458       4,745  
Prepaid expenses and other current assets
    1,719       1,596  
 
           
Total current assets
    66,667       65,293  
 
           
Property and equipment, at cost:
               
Oil and gas properties, full cost method of accounting Unproved
    66,022       37,235  
Proved
    828,298       689,021  
Other property and equipment
    3,929       2,869  
Accumulated depletion, depreciation and amortization
    (97,692 )     (57,564 )
 
           
Net property and equipment
    800,557       671,561  
 
           
Other assets:
               
Restricted cash
    16,601       14,781  
Derivative instruments
    3,074       3,098  
Deferred financing costs
    2,636       3,281  
Other assets
    5,829       2,509  
 
           
Total assets
  $ 895,364     $ 760,523  
 
           
 
               
Liabilities and Stockholders’ Equity
               
 
               
Current liabilities:
               
Accounts payable and accrued expenses
  $ 77,043     $ 58,144  
Asset retirement obligations
    2,813       3,072  
Derivative instruments
    11,760       31,193  
 
           
Total current liabilities
    91,616       92,409  
 
           
Long term liabilities:
               
Long term debt
    145,500       127,900  
Asset retirement obligations
    11,345       11,693  
Derivative instruments
    21,645       51,279  
Deferred income taxes
    94,691       73,376  
 
           
Total liabilities
    364,797       356,657  
 
           
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity:
               
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding
           
Common stock, $0.0001 par value; 225,000,000 shares authorized; issued and outstanding 61,071,720 and 54,717,571 shares at September 30, 2011 and December 31, 2010, respectively
    6       5  
Additional paid-in capital
    517,029       436,794  
Retained earnings (accumulated deficit)
    13,532       (32,933 )
 
           
Total stockholders’ equity
    530,567       403,866  
 
           
Total liabilities and stockholders’ equity
  $ 895,364     $ 760,523  
 
           
See notes to condensed consolidated financial statements

 

- 1 -


Table of Contents

RESOLUTE ENERGY CORPORATION
Condensed Consolidated Statements of Operations (UNAUDITED)
(in thousands, except per share data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Revenue:
                               
Oil
  $ 48,245     $ 36,824     $ 150,683     $ 108,416  
Gas
    4,491       4,121       14,534       12,732  
Other
    1,288       883       2,771       2,454  
 
                       
Total revenue
    54,024       41,828       167,988       123,602  
 
                       
Operating expenses:
                               
Lease operating
    14,752       13,144       42,664       38,558  
Production and ad valorem taxes
    7,591       5,802       23,616       17,938  
Depletion, depreciation, amortization, and asset retirement obligation accretion
    14,230       11,991       40,891       33,924  
General and administrative
    5,468       5,242       14,573       11,729  
 
                       
Total operating expenses
    42,041       36,179       121,744       102,149  
 
                       
Income from operations
    11,983       5,649       46,244       21,453  
 
                       
Other income (expense):
                               
Interest expense, net
    (897 )     (1,285 )     (2,783 )     (3,632 )
Realized and unrealized gains (losses) on derivative instruments
    49,017       (17,002 )     30,687       7,434  
Other income
    18       18       69       64  
 
                       
Total other income (expense)
    48,138       (18,269 )     27,973       3,866  
 
                       
Income (loss) before income taxes
    60,121       (12,620 )     74,217       25,319  
Income tax (expense) benefit
    (22,551 )     5,560       (27,752 )     (8,608 )
 
                       
Net income (loss)
  $ 37,570     $ (7,060 )   $ 46,465     $ 16,711  
 
                       
 
                               
Net income (loss) per common share:
                               
Basic
  $ 0.64     $ (0.14 )   $ 0.81     $ 0.33  
Diluted
  $ 0.59     $ (0.14 )   $ 0.70     $ 0.33  
Weighted average common shares outstanding:
                               
Basic
    59,138       49,905       57,097       49,905  
Diluted
    64,039       49,905       66,697       50,949  
See notes to condensed consolidated financial statements

 

- 2 -


Table of Contents

RESOLUTE ENERGY CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity (UNAUDITED)
(in thousands)
                                         
                    Additional     Accumulated        
    Common Stock     Paid-in     (Deficit)/Retained     Stockholders’  
    Shares     Amount     Capital     Earnings     Equity  
 
                                       
Balance as of January 1, 2011
    54,718     $ 5     $ 436,794     $ (32,933 )   $ 403,866  
Issuance of stock, restricted stock and equity-based compensation
    667             5,863             5,863  
Redemption of restricted stock for employee income tax and restricted stock forfeitures
    (37 )           (45 )           (45 )
Exercise of warrants
    5,724       1       74,417             74,418  
Net income
                      46,465       46,465  
 
                             
Balance as of September 30, 2011
    61,072     $ 6     $ 517,029     $ 13,532     $ 530,567  
 
                             
See notes to condensed consolidated financial statements

 

- 3 -


Table of Contents

RESOLUTE ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows (UNAUDITED)
(in thousands)
                 
    Nine Months Ended  
    September 30,  
    2011     2010  
Operating activities:
               
Net income
  $ 46,465     $ 16,711  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depletion, depreciation, amortization and asset retirement obligation accretion
    40,891       33,924  
Amortization of deferred financing costs
    776       505  
Equity-based compensation, net
    5,711       4,011  
Unrealized gain on derivative instruments
    (48,755 )     (11,818 )
Deferred income taxes
    27,752       8,587  
Change in operating assets and liabilities:
               
Accounts receivable
    (9,489 )     (4,167 )
Other current assets
    (123 )     261  
Accounts payable and accrued expenses
    5,650       (3,402 )
 
           
Net cash provided by operating activities
    68,878       44,612  
 
           
Investing activities:
               
Oil and gas acquisition, exploration and development expenditures
    (114,814 )     (48,874 )
Purchase of proved oil and gas properties
    (49,481 )      
Proceeds from sale of oil and gas properties and other `
    4,721       243  
Purchase of other property and equipment
    (1,060 )     (380 )
Increase in restricted cash
    (1,820 )     (1,817 )
Other noncurrent assets
    68       66  
 
           
Net cash used in investing activities
    (162,386 )     (50,762 )
 
           
Financing activities:
               
Proceeds from bank borrowings
    320,200       154,976  
Repayments of bank borrowings
    (302,600 )     (143,250 )
Payment of financing costs
    (131 )     (4,039 )
Redemption of restricted stock for employee income taxes and restricted stock forfeitures
    (45 )     (167 )
Proceeds from exercise of warrants
    74,418       1  
 
           
Net cash provided by financing activities
    91,842       7,521  
 
           
Net increase (decrease) in cash and cash equivalents
    (1,666 )     1,371  
Cash and cash equivalents at beginning of period
    1,844       455  
 
           
Cash and cash equivalents at end of period
  $ 178     $ 1,826  
 
           
 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest, net of amounts capitalized
  $ 2,282     $ 3,084  
 
           
 
Supplemental schedule of non-cash investing and financing activities:
               
Asset retirement obligations sold
  $ 1,307     $  
 
           
See notes to condensed consolidated financial statements

 

- 4 -


Table of Contents

RESOLUTE ENERGY CORPORATION
Notes to Condensed Consolidated Financial Statements
Note 1 — Organization and Nature of Business
Resolute Energy Corporation (“Resolute” or the “Company”), a Delaware corporation incorporated on July 28, 2009, is an independent oil and gas company engaged in the acquisition, exploration, development, and production of oil, gas and natural gas liquids. The Company conducts all of its activities in the United States of America.
Note 2 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and Regulation S-X for interim financial reporting. Except as disclosed herein, there has been no material change in our basis of presentation from the information disclosed in the notes to Resolute’s consolidated financial statements for the year ended December 31, 2010. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation of the interim financial information have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. All intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.
In connection with the preparation of the condensed consolidated financial statements, Resolute evaluated events that occurred subsequent to the balance sheet date.
Significant Accounting Policies
The significant accounting policies followed by Resolute are set forth in Resolute’s consolidated financial statements for the year ended December 31, 2010. These unaudited condensed consolidated financial statements are to be read in conjunction with the consolidated financial statements appearing in Resolute’s Annual Report on Form 10-K and related notes for the year ended December 31, 2010.
Assumptions, Judgments and Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenues and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events. Accordingly, actual results could differ from amounts previously established.
Significant estimates with regard to the condensed consolidated financial statements include the estimate of proved oil and gas reserve volumes and the related present value of estimated future net cash flows and the ceiling test applied to capitalized oil and gas properties, the estimated cost and timing related to asset retirement obligations, the estimated fair value of derivative assets and liabilities, the estimated expense for share-based compensation and depletion, depreciation, and amortization.
Note 3 — Asset Retirement Obligation
Asset retirement obligations relate to future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage and returning such land to its original condition. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period and the capitalized cost is depleted on a units-of-production basis as part of the full cost pool. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.
Restricted cash of $16.6 million is contractually restricted for the purpose of settling certain asset retirement obligations of Resolute Aneth, LLC (“Aneth”), which is a wholly owned subsidiary of the Company.
Resolute’s estimated asset retirement obligation liability is based on estimated economic lives, estimates as to the cost to abandon the wells in the future, and federal and state regulatory requirements. The liability is discounted using a credit- adjusted risk-free rate estimated at the time the liability is incurred or revised. Revisions to the liability could occur due to changes in estimated abandonment costs or well economic lives, or if federal or state regulators enact new requirements regarding the abandonment of wells. Asset retirement obligations are valued utilizing Level 3 fair value measurement inputs.

 

- 5 -


Table of Contents

The following table provides a reconciliation of Resolute’s asset retirement obligations for the nine months ended September 30, (in thousands):
                 
    2011     2010  
 
               
Asset retirement obligations at beginning of period
  $ 14,765     $ 10,438  
Additional liability incurred
    93       4  
Accretion expense
    762       587  
Liabilities settled
    (1,462 )     (2,238 )
Revisions to previous estimates
          17  
 
           
Asset retirement obligations at end of period
    14,158       8,808  
Less: current asset retirement obligations
    (2,813 )     (216 )
 
           
Long-term asset retirement obligations
  $ 11,345     $ 8,592  
 
           
Liabilities settled include $1.3 million of asset retirement obligations transferred with the sale of non-strategic oil and gas properties during the second quarter of 2011.
Note 4 — Earnings per Share
The Company computes basic net income (loss) per share using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock and, if dilutive, potential shares of common stock outstanding during the period. Potentially dilutive shares consist of the incremental shares issuable under the outstanding warrants, which entitle the holder to purchase one share of the Company’s common stock at a price of $13.00 per share and expire on September 25, 2014, and incremental shares issuable under the Company’s 2009 Performance Incentive Plan (the “Incentive Plan”). The treasury stock method is used to measure the dilutive impact of potentially dilutive shares.
The following table details the potential weighted average dilutive and anti-dilutive securities for the periods presented (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
 
                               
Dilutive warrants
    42,676             43,483        
Dilutive restricted stock
    1,277             1,405       1,150  
Anti-dilutive securities
          35,750             34,600  
The following table sets forth the computation of basic and diluted net income per share of common stock (in thousands, except per share amounts):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
 
                               
Net income (loss)
  $ 37,570     $ (7,060 )   $ 46,465     $ 16,711  
 
                       
 
                               
Basic weighted average common shares outstanding
    59,138       49,905       57,097       49,905  
Add: dilutive effect of non-vested restricted stock
    1,197             1,246       1,044  
Add: dilutive effect of outstanding warrants
    3,704             8,354        
 
                       
Diluted weighted average common shares outstanding
    64,039       49,905       66,697       50,949  
 
                       
 
                               
Basic net income (loss) per common share
  $ 0.64     $ (0.14 )   $ 0.81     $ 0.33  
Diluted net income (loss) per common share
  $ 0.59     $ (0.14 )   $ 0.70     $ 0.33  

 

- 6 -


Table of Contents

Note 5 — Long Term Debt
Resolute’s credit facility is with a syndicate of banks led by Wells Fargo Bank, National Association (the “Credit Facility”) with Resolute as the borrower. The Credit Facility specifies a maximum borrowing base as determined by the lenders. The determination of the borrowing base takes into consideration the estimated value of Resolute’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. On March 30, 2010, the Company entered into an amended and restated Credit Facility agreement. Under the terms of the restated agreement, the borrowing base was established at $260.0 million and the maturity date was extended to March 2014.
During April of 2011, the Company entered into two additional amendments to the amended and restated Credit Facility agreement. Under the terms of the amendments, the Company is permitted to use proceeds received from the exercise of outstanding warrants to repurchase equity securities, the borrowing base was increased from $260.0 million to $300.0 million and, at Resolute’s option, the outstanding balance under the Credit Facility accrues interest at either (a) the London Interbank Offered Rate, plus a margin which varies from 1.75% to 2.75% or (b) the Alternative Base Rate defined as the greater of (i) the Administrative Agent’s Prime Rate, (ii) the Federal Funds Effective Rate plus 0.5%, or (iii) an adjusted London Interbank Offered Rate plus 1%, plus a margin which ranges from 0.75% to 1.75%. Each such margin is based on the level of utilization under the borrowing base. As of September 30, 2011, the weighted average interest rate on the outstanding balance under the Credit Facility was 2.38%. The recorded value of the Credit Facility approximates its fair market value. The Company capitalized $0.4 million and $0.8 million of interest expense during the three and nine months ended September 30, 2011, respectively.
The borrowing base is redetermined semi-annually, and the amount available for borrowing could be increased or decreased as a result of such redeterminations. Under certain circumstances, either Resolute or the lenders may request an interim redetermination. As of September 30, 2011, outstanding borrowings were $145.5 million and unused availability under the borrowing base was $151.2 million. The borrowing base availability had been reduced by $3.3 million in conjunction with letters of credit issued to vendors at September 30, 2011. To the extent that the borrowing base, as adjusted from time to time, exceeds the outstanding balance, no repayments of principal are required prior to maturity. The Credit Facility is guaranteed by all of Resolute’s subsidiaries and is collateralized by substantially all of the proved oil and gas assets of Aneth and Resolute Wyoming, Inc., which are wholly-owned subsidiaries of the Company.
The Credit Facility includes terms and covenants that place limitations on certain types of activities, the payment of dividends, and require satisfaction of certain financial tests. Resolute was in compliance with all terms and covenants of the Credit Facility at September 30, 2011.
Note 6 — Income Taxes
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the three and nine month periods ended September 30, 2011 and 2010, differ from the amount that would be provided by applying the statutory U.S. federal income tax rate of 35% to income before income taxes. This difference relates primarily to state income taxes and estimated permanent differences.
The following table summarizes the components of the provision for income taxes (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Current income tax (expense) benefit
  $     $ 87     $     $ (21 )
Deferred income tax (expense) benefit
    (22,551 )     5,473       (27,752 )     (8,587 )
 
                       
Total income tax (expense) benefit
  $ (22,551 )   $ 5,560     $ (27,752 )   $ (8,608 )
 
                       
The Company had no reserve for uncertain tax positions as of September 30, 2011 or December 31, 2010.
The Company is subject to the following material taxing jurisdictions: U.S. federal, Colorado, Utah, North Dakota and Texas. The tax years that remain open to examination by the Internal Revenue Service (“IRS”) are the years 2007 through 2010. Certain tax returns of subsidiaries of the Company are currently under examination by the IRS for the years 2008 and 2009. The tax years that remain open to examination by state taxing authorities are 2006 through 2010.

 

- 7 -


Table of Contents

Note 7 — Stockholders’ Equity and Equity Based Awards
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred stock, par value $0.0001, with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. No shares were issued and outstanding as of September 30, 2011 or December 31, 2010.
Common Stock
The authorized common stock of the Company consists of 225,000,000 shares. The holders of the common shares are entitled to one vote for each share of common stock. In addition, the holders of the common stock are entitled to receive dividends when and if declared by the Board of Directors. At September 30, 2011 and December 31, 2010, the Company had 61.1 million and 54.7 million shares of common stock issued and outstanding, respectively. During the first quarter of 2011, 3,250,000 “Earnout Shares” vested. Earnout Shares are shares of the Company’s common stock that were issued at the time of the merger between the Company and Hicks Acquisition Company I, Inc. in September 2009. These shares had voting rights and were transferable, but were not registered for resale and were not able to participate in dividends until the trading price of the Company’s common stock exceeded $15.00 per share for 20 consecutive trading days. This target was met and the Earnout Shares vested on February 2, 2011.
During the nine months ended September 30, 2011, 5.7 million warrants were exercised for proceeds to the Company of $74.4 million. At September 30, 2011, 42.7 million warrants remain outstanding.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with FASB ASC Topic 718, Stock Compensation.
On July 31, 2009, the Company adopted the 2009 Performance Incentive Plan (“Incentive Plan”), providing for long-term share-based awards intended as a means for the Company to attract, motivate, retain and reward directors, officers, employees and other eligible persons through the grant of awards and incentives for high levels of individual performance and improved financial performance of the Company. The share-based awards are intended to further align the interests of award recipients and the Company’s stockholders. The maximum number of common shares that may be issued under the Incentive Plan was increased from 2,657,744 to 9,157,744 pursuant to an amendment to the Incentive Plan that received shareholder approval at the Company’s Annual Meeting on June 2, 2011.
During the nine months ended September 30, 2011, the Company granted 666,962 shares of restricted stock to employees and directors, pursuant to the Incentive Plan. Shares of restricted stock issued to employees generally vest in four year increments at specified dates based on continued employment and the satisfaction of certain market performance metrics.
Generally, two-thirds of each grant of restricted stock is time-based and will vest with continued employment in four equal tranches. The compensation expense to be recognized for the time-based awards was measured based on the Company’s traded stock price on the dates of grant, utilizing estimated forfeiture rates between 0% and 9%.
The remaining one-third of each grant is subject to the satisfaction of pre-established market performance targets. The performance-based shares will generally vest in equal tranches beginning on December 31st of the year of the grant if there has been a 10% annual appreciation in the trading price of the Company’s common stock, compounded annually, from the twenty trading day average stock price ended on December 31st of the year prior to the grant (which was $11.134 for 2010 grants and $14.227 for 2011 grants). At the end of each year, the twenty trading day average stock price will be measured, and if the 10% threshold is met, the stock subject to the performance criteria will vest. If the 10% threshold is not met, shares that have not vested will be carried forward to the following year. In that way, an underperforming year can be offset by an over-performing year.
The compensation expense to be recognized for the performance-based awards incorporates forfeiture rates and was measured based on the estimated fair value at the date of grant using a binomial lattice model that incorporates a Monte Carlo simulation.
The valuation model for the performance-based awards used the following assumptions:
                     
Grant Year   Average Expected Volatility   Expected Dividend Yield   Risk-Free Interest Rate  
 
             
2010
  70.5% – 72.1%     0%       1.65% – 1.75%  
2011
  71.4% – 74.5%     0%       0.64% – 1.77%  

 

- 8 -


Table of Contents

For the three and nine months ended September 30, 2011, the Company recorded $2.2 million and $5.7 million of stock based compensation expense, respectively. For the three and nine months ended September 30, 2010 the Company recorded $2.4 million and $4.0 million, respectively, of stock based compensation expense. There was unrecognized compensation expense for all awards of restricted stock under the Incentive Plan of approximately $16.8 million at September 30, 2011, which is expected to be recognized over a weighted-average period of 2.6 years. The following table summarizes changes in non-vested restricted stock for the nine month period ended September 30, 2011:
                 
            Weighted Average  
            Grant Date Fair  
    Shares     Value  
 
               
Non-vested, beginning of period
    1,321,599     $ 11.40  
Granted
    666,962     $ 16.24  
Vested
    (24,608 )   $ 13.41  
Forfeited
    (34,312 )   $ 13.34  
 
           
Non-vested, end of period
    1,929,641     $ 12.79  
 
           
Note 8 — Derivative Instruments
Resolute enters into commodity derivative contracts to manage its exposure to oil and gas price volatility. Resolute has not elected to designate derivative instruments as hedges under the provisions of FASB ASC Topic 815, Derivatives and Hedging. As a result, these derivative instruments are marked to market at the end of each reporting period and changes in the fair value are recorded in the accompanying condensed consolidated statements of operations. Realized and unrealized gains and losses from Resolute’s price risk management activities are recognized in other income (expense), with realized gains and losses recognized in the period in which the related production is sold. The cash flows from derivatives are reported as cash flows from operating activities unless the derivative contract is deemed to contain a financing element. Derivatives deemed to contain a financing element are reported as financing activities in the condensed consolidated statement of cash flows. Commodity derivative contracts may take the form of futures contracts, swaps or options.
The table below summarizes the location and amount of commodity derivative instrument gains (losses) reported in the condensed consolidated statements of operations (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Other income (expense):
                               
Realized losses
  $ (7,353 )   $ (833 )   $ (18,068 )   $ (4,384 )
Unrealized gains (losses)
    56,370       (16,169 )     48,755       11,818  
 
                       
Total gains (losses) on derivative instruments
  $ 49,017     $ (17,002 )   $ 30,687     $ 7,434  
 
                       
As of September 30, 2011, Resolute had entered into certain commodity collar contracts. The following table represents Resolute’s commodity collars.
                         
            (NYMEX WTI)  
Year   Bbl per Day     Floor Price     Ceiling Price  
2011
    3,750     $ 66.67     $ 94.67  
2012
    1,375     $ 71.64     $ 102.45  
2013
    775     $ 80.00     $ 105.00  
2014
    1,500     $ 65.00     $ 110.00  
As of September 30, 2011, Resolute had entered into certain commodity swap contracts. The following table represents Resolute’s commodity swaps through 2013:
                                 
            Oil (NYMEX             Gas (NYMEX HH)  
            WTI) Weighted             Weighted Average  
            Average Hedge     MMBtu per     Hedge Price per  
Year   Bbl per Day     Price per Bbl     Day     MMBtu  
2011
    750     $ 70.58       2,750     $ 9.32  
2012
    2,750     $ 69.40       2,100     $ 7.42  
2013
    2,000     $ 60.47       1,900     $ 7.40  

 

- 9 -


Table of Contents

Resolute also uses basis swaps in connection with gas swaps in order to fix the price differential between the NYMEX Henry Hub price and the index price at which the gas production is sold. The table below sets forth Resolute’s outstanding basis swaps as of September 30, 2011.
                     
                Weighted Average  
                Hedged Price  
                Differential per  
Year   Index   MMBtu per Day     MMBtu  
2011 – 2013
  Rocky Mountain NWPL     1,800     $ 2.100  
2011
  Rocky Mountain CIG     1,500     $ 0.570  
2012
  Rocky Mountain CIG     1,000     $ 0.575  
2013
  Rocky Mountain CIG     500     $ 0.590  
2014
  Rocky Mountain CIG     1,000     $ 0.590  
Credit Risk and Contingent Features in Derivative Instruments
Resolute is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts discussed above. All counterparties are lenders under Resolute’s Credit Facility. Accordingly, Resolute is not required to provide any credit support to its counterparties other than cross collateralization with the properties securing the Credit Facility. Resolute’s derivative contracts are documented with industry standard contracts known as a Schedule to the Master Agreement and International Swaps and Derivative Association, Inc. Master Agreement (“ISDA”). Typical terms for each ISDA include credit support requirements, cross default provisions, termination events and set-off provisions. Resolute has set-off provisions with its lenders that, in the event of counterparty default, allow Resolute to set-off amounts owed under the Credit Facility or other general obligations against amounts owed for derivative contract liabilities.
The following is a listing of Resolute’s assets and liabilities required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of September 30, 2011 and December 31, 2010 (in thousands):
                 
    Level 2  
Description   September 30, 2011     December 31, 2010  
Assets
               
Commodity swaps
  $ 3,239     $ 4,745  
Commodity collar
    1,219        
 
           
Current assets: derivative instruments
  $ 4,458     $ 4,745  
 
           
 
               
Commodity swaps
  $ 2,266     $ 3,098  
Commodity collar
    808        
 
           
Other assets: derivative instruments
  $ 3,074     $ 3,098  
 
           
 
               
Liabilities
               
Commodity swaps
  $ 10,064     $ 585  
Commodity collars
    1,696       30,608  
 
           
Current liabilities: derivative instruments
  $ 11,760     $ 31,193  
 
           
 
               
Commodity swaps
  $ 19,440     $ 50,793  
Commodity collars
    2,205       486  
 
           
Long term liabilities: derivative instruments
  $ 21,645     $ 51,279  
 
           
Note 9 — Commitments and Contingencies
CO2 Take-or-Pay Agreements
Resolute is party to a take-or-pay purchase agreement with Kinder Morgan CO2 Company, L.P., under which Resolute has committed to buy specified volumes of CO2. The purchased CO2 is for use in Resolute’s enhanced tertiary recovery projects in Aneth Field. Resolute is obligated to purchase a minimum daily volume of CO2 or pay for any deficiencies at the price in effect when delivery was to have occurred. The CO2 volumes planned for use on the enhanced recovery projects generally exceed the minimum daily volumes provided in these take-or-pay purchase agreements. Therefore, Resolute expects to avoid any payments for deficiencies.
In October 2010, Resolute entered into an amendment of the contract effective September 1, 2010. The amendment extended the term of the contract to December 31, 2020, and allows the Company flexibility to adjust the minimum purchase commitments; therefore, these yearly commitments may change. The Company entered into an additional amendment, effective January 2012, which amended the yearly minimum purchase commitments but not the aggregate volume commitment.

 

- 10 -


Table of Contents

Future minimum CO2 purchase commitments as of September 30, 2011 under this purchase agreement, based on prices in effect on September 30, 2011, are as follows (in thousands):
         
    CO2 Purchase  
Year   Commitments  
2011
  $ 5,003  
2012
    20,591  
2013
    19,850  
2014
    16,428  
2015
    12,663  
Thereafter
    30,668  
 
     
Total
  $ 105,203  
 
     
In October 2011, Resolute entered into an amendment of this contract effective January 1, 2012, modifying the annual, but not the aggregate, contract volumes. Future minimum CO2 purchase commitments under this amendment as of September 30, 2011, are as follows (in thousands):
         
    CO2 Purchase  
Year   Commitments  
2011
  $ 5,003  
2012
    16,473  
2013
    17,797  
2014
    17,454  
2015
    13,690  
Thereafter
    34,786  
 
     
Total
  $ 105,203  
 
     

 

- 11 -


Table of Contents

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as well as the accompanying financial statements and related notes contained elsewhere in this report. References to the “Company,” “us” or “we” refer to Resolute Energy Corporation (“Resolute”) and its subsidiaries.
Overview
Resolute is an independent oil and gas company engaged in the exploration, exploitation and development of oil and gas properties located in Utah, Wyoming, North Dakota and Texas. Approximately 88% of our revenue is generated from the sale of oil production. Our main focus is on increasing reserves and production from our properties located in Utah (“Aneth Field Properties”), from our properties located in Wyoming (“Wyoming Properties”), drilling and developing our properties in the Bakken trend of the Williston Basin in North Dakota (“Bakken Properties”) and in the Permian Basin of West Texas (“Texas Properties”), and improving efficiency and controlling costs in our operations. We have completed a number of exploitation projects that have increased our proved developed reserve base, and have plans for additional expansion and enhancement projects. We plan to further expand our reserve base through a focused acquisition strategy by looking to acquire properties that have upside potential through development drilling and exploitation projects and through the acquisition, exploration and exploitation of acreage that appears to contain relatively low risk and repeatable drilling opportunities. Also, we seek to reduce the effect of short-term commodity price fluctuations on our cash flow through the use of various derivative instruments.
Resolute focuses its efforts on increasing reserves and production while controlling costs at a level that is appropriate for long-term operations. Resolute’s future earnings and cash flow from existing operations are dependent on a variety of factors including commodity prices, exploitation and recovery activities and its ability to manage its overall cost structure at a level that allows for profitable production.
Resolute’s management uses a variety of financial and operational measurements to analyze its operating performance. These measurements include: (i) production levels, trends and prices, (ii) reserve and production volumes and trends, (iii) operating expenses and general and administrative expenses, (iv) operating cash flow and (v) Adjusted EBITDA. The analysis of these measurements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Resolute’s Annual Report on Form 10-K for the year ended December 31, 2010.
Aneth Field Properties
Our largest asset, constituting 92% of our proved reserves, is our ownership of working interests in Greater Aneth Field, a mature, long-lived oil producing field located in the Paradox Basin on the Navajo Reservation in southeast Utah. We own a majority of the working interests in, and are the operator of, three federal production units covering approximately 43,000 gross acres. These are the Aneth Unit, in which we own a 62% working interest, the McElmo Creek Unit, in which we own a 75% working interest, and the Ratherford Unit, in which we own a 59% working interest.
Wyoming Properties
Resolute’s Wyoming Properties are largely located in the Powder River Basin of Wyoming and constitute approximately 7% of Resolute’s proved reserves at December 31, 2010. Hilight Field, anchoring the Wyoming production and reserves, produces oil and gas from the Muddy and Mowry formations as well as shallow coalbed methane. Additionally at September 30, 2011, the Company has acquired two gross (and net) wells and is drilling one gross (and net) well in the Big Horn Basin of Wyoming.
Bakken Properties
Resolute’s Bakken Properties are in Williams and McKenzie counties, North Dakota. These leaseholds are located within the Bakken shale trend of the Williston Basin. Although the Middle Bakken formation is the primary objective, secondary objectives include the Three Forks, Madison and Red River formations. During the nine months ended September 30, 2011, the Company participated in the drilling of eight gross (2.3 net) wells. At September 30, 2011, the Company has an interest in five gross (1.3 net) wells awaiting completion operations.
Texas Properties
Resolute’s Texas Properties were acquired in 2011 and are located in Reeves, Howard and Martin Counties, in the Permian Basin. The Company owns, and is operator of, 18,400 gross acres (7,900 net acres) in the oil-prone Wolfbone play in the Delaware Basin of West Texas and has drilled 4 gross (2 net) wells of which 3 gross (1.5 net) wells were awaiting completion operations as of September 30, 2011. During the third quarter of 2011, the Company acquired seven gross (and net) producing wells in the Wolfberry and Mississipian trends in the Midland Basin of West Texas with a number of additional proved and probable development opportunities.

 

- 12 -


Table of Contents

Factors That Significantly Affect Resolute’s Financial Results
Revenue, cash flow from operations and future growth depend substantially on factors beyond Resolute’s control, such as economic, political and regulatory developments and competition from other sources of energy. Crude oil prices have historically been volatile and may fluctuate widely in the future. Sustained periods of low prices for crude oil could materially and adversely affect Resolute’s financial position, its results of operations, the quantities of oil and gas that it can economically produce, and its ability to obtain capital.
Like all businesses engaged in the exploration for and production of oil and gas, Resolute faces the challenge of natural production declines. As initial reservoir pressures are depleted, oil and gas production from a given well decreases. Thus, an oil and gas exploration and production company depletes part of its asset base with each unit of oil or gas it produces. Resolute attempts to overcome this natural decline by implementing secondary and tertiary recovery techniques and by developing and acquiring more reserves than it produces. Resolute’s future growth will depend on its ability to enhance production levels from existing reserves and to continue to add reserves in excess of production through exploration, development and acquisition. Resolute will maintain its focus on costs necessary to produce its reserves as well as the costs necessary to add reserves through production enhancement, drilling and acquisitions. Resolute’s ability to make capital expenditures to increase production from existing reserves and to acquire more reserves is dependent on availability of capital resources, and can be limited by many factors, including the ability to obtain capital in a cost-effective manner and on economic terms and to timely obtain permits and regulatory approvals.
Results of Operations
For the purposes of Management’s Discussion and Analysis of the Results of Operations of Resolute, management has analyzed the Company’s operational results for the three and nine months ended September 30, 2011 and September 30, 2010. The following table reflects the components of the Company’s sales volumes and sets forth its sales prices, costs and expenses on a barrel of oil equivalent (“Boe”) basis for the periods indicated.
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Net Sales:
                               
Total sales (MBoe)
    729       702       2,165       1,999  
Average daily sales (Boe/d)
    7,920       7,628       7,931       7,321  
 
                               
Average Sales Price ($/Boe):
                               
Average sales price (excluding derivative settlements)
  $ 74.15     $ 59.60     $ 77.59     $ 61.84  
 
                               
Operating Expenses ($/Boe):
                               
Lease operating
  $ 20.25     $ 18.73     $ 19.71     $ 19.29  
Production and ad valorem taxes
    10.42       8.27       10.91       8.98  
General and administrative
    7.50       7.47       6.73       5.87  
General and administrative (excluding non-cash compensation expense)
    4.73       4.26       4.24       3.97  
Depletion, depreciation, amortization and accretion
    19.53       17.09       18.89       16.97  
Comparison of Quarter Ended September 30, 2011 to Quarter Ended September 30, 2010
Revenue. Revenue from oil and gas activities increased by 29% to $54.0 million during 2011, from $41.8 million during 2010. Of the $12.2 million increase in revenue, approximately $10.6 million was attributable to higher commodity prices, while $1.6 million was attributable to increased production. Average sales price for the quarter, excluding derivative settlements, increased from $59.60 per Boe in 2010 to $74.15 per Boe in 2011, primarily as a function of increased commodity pricing. Sales volumes increased 4% during 2011 as compared to 2010, from 702 MBoe to 729 MBoe. The increase is due to production from the Texas Properties, wells drilled in the Bakken Properties and success in the Aneth Field Properties related to the well re-completion program and continued response from the Company’s CO2 flood projects in 2011. These increases are offset by decreased production in Wyoming due to the sale of non-strategic properties that were producing in the third quarter of 2010, well mechanical issues and limited service rig availability.
Operating Expenses. Lease operating expenses include direct labor, contract services, field office rent, production and ad valorem taxes, vehicle expenses, supervision, transportation, minor maintenance, tools and supplies, workover expenses, utilities and other customary charges. Resolute assesses lease operating expenses in part by monitoring the expenses in relation to production volumes and the number of wells operated.
Lease operating expenses increased to $14.8 million during 2011, from $13.1 million during 2010. The $1.7 million, or 12%, increase was attributable to higher service and supply costs and rates resulting in increases in equipment and maintenance costs, contract and company labor, utilities and fuel and increased workover expense related to well repairs in the Aneth Field Properties, offset by decreases in compression and gathering costs.

 

- 13 -


Table of Contents

Production and ad valorem taxes increased by 31% to $7.6 million in 2011, versus $5.8 million in 2010, mainly due to the increase in commodity pricing and production over 2010. Production and ad valorem taxes were 14% of total revenue in 2011 and 2010.
Depletion, depreciation, amortization and accretion expenses increased to $14.2 million during 2011, as compared to $12.0 million during 2010. The $2.2 million, or 19%, increase is principally due to an increase in the depletion, depreciation and amortization rate from $17.09 per Boe in 2010 to $19.54 per Boe in 2011.
General and administrative expenses include the costs of employees and executive officers, related benefits, share-based compensation, office leases, professional fees, general corporate overhead and other costs not directly associated with field operations. Resolute monitors its general and administrative expenses carefully, attempting to balance the cash effect of incurring general and administrative costs against the related benefits with a focus on hiring and retaining highly qualified staff who can add value to the Company’s asset base.
General and administrative expenses for Resolute increased to $5.5 million during 2011, as compared to $5.2 million during 2010. The $0.3 million, or 4%, increase in general and administrative expenses mainly resulted from $0.7 million of increased salaries and wages due to additional hiring to meet the demand of increasing operations, offset by $0.2 million in decreased stock based compensation expense and decreased professional service fees.
Other Income (Expense). All of our oil and gas derivative instruments are accounted for under mark-to-market accounting rules, which provide for the fair value of the contracts to be reflected as either an asset or a liability on the balance sheet. The change in the fair value during an accounting period is reflected in the income statement for that period. During 2011, the gain on oil and gas derivatives was $49.0 million, consisting of $56.4 million of unrealized gains and $7.4 million of realized losses, including $5.0 million of partial terminations of certain derivative contracts, on derivative settlements. During 2010, the loss on oil and gas derivatives was $17.0 million, consisting of $16.2 million of unrealized losses and $0.8 million of realized losses on derivative settlements.
Interest expense in 2011 decreased to $0.9 million from the $1.3 million recorded in 2010 as a result of lower average interest rates during 2011.
Income Tax Benefit (Expense). Income tax expense recognized during 2011 was $22.6 million, or 37.6% of income before income taxes, as compared to an income tax benefit of $5.6 million, or 44.1% of the loss before income taxes for Resolute in 2010. The 44.1% effective rate for 2010 reflects permanent differences and revisions in estimated annual effective tax rates during the quarter.
Comparison of Nine Months Ended September 30, 2011 to Nine Months Ended September 30, 2010
Revenue. Revenue from oil and gas activities increased to $168.0 million during 2011, from $123.6 million during 2010. Of the $44.4 million increase in revenue, approximately $34.1 million was attributable to higher commodity prices, while $10.3 million was attributable to increased production. Average sales price for the quarter, excluding derivative settlements, increased from $61.84 per Boe in 2010 to $77.59 per Boe in 2011, primarily as a function of increased commodity pricing. Sales volumes increased 8% during 2011 as compared to 2010, from 1,999 MBoe to 2,165 MBoe. The 2010 well re-completion program and increased response from the Company’s CO2 flood projects in the Aneth Field Properties were the primary drivers of the production increase. The additional increase was due to the production related to the Bakken Properties in 2011, as the Company did not begin drilling activities in North Dakota until the end of the third quarter of 2011, and the production attributable to the Texas Properties beginning in August of 2011.
Operating Expenses. Lease operating expenses increased to $42.7 million during 2011, from $38.6 million during 2010 and increased from $19.29 per Boe in 2010, to $19.71 per Boe in 2011. The $4.1 million, or 11%, increase was attributable to higher service and supply costs and rates resulting in increases in contract labor, equipment and maintenance costs, utilities and fuel and the well work-overs in the Aneth Field Properties discussed above. This overall increase was offset by decreases in company labor and compression and gathering costs.
Production and ad valorem taxes increased by 32% to $23.6 million in 2011, over $17.9 million in 2010, mainly due to the increase in commodity pricing and production versus 2010. Production and ad valorem taxes were 14.1% and 14.5% of total revenue in 2011 and 2010, respectively.
Depletion, depreciation, amortization and accretion expenses increased to $40.9 million during 2011, as compared to $33.9 million during 2010. The $7.0 million, or 21%, increase is principally due to an increase in the depletion, depreciation and amortization rate from $16.97 per Boe in 2010 to $18.89 per Boe in 2011.

 

- 14 -


Table of Contents

General and administrative expenses for Resolute increased to $14.6 million during 2011, as compared to $11.7 million during 2010. The $2.9 million, or 24%, increase in general and administrative expenses mainly resulted from $1.5 million of increased cost related to the Company’s short term incentive compensation plan, which is being accrued ratably over the full year in 2011, but which did not occur until the last four months of 2010, $0.4 million of increases in salaries and wages due to additional hiring to meet the demands of increased operations and $1.6 million in increased stock based compensation expense. The Company recognized nine months of stock based compensation expense in 2011 related to awards granted in May 2010 under the Incentive Plan versus five months of recognition in 2010 and made additional restricted stock awards in 2011. These increases were offset by decreased professional service fees and increased overhead billings.
Other Income (Expense). During 2011, the gain on oil and gas derivatives was $30.7 million, consisting of $48.8 million of unrealized gains and $18.1 million of realized losses on derivative settlements. During 2010, the gain on oil and gas derivatives was $7.4 million, consisting of unrealized gains of $11.8 million offset by $4.4 million of realized losses, including $5.0 million of partial terminations of certain derivative contracts.
Interest expense was $2.8 million and $3.6 million during 2011 and 2010, respectively, due to generally lower average outstanding debt balances and interest rates during 2011.
Income Tax Benefit (Expense). Income tax expense recognized during 2011 was $27.8 million, or 37.4% of income before income taxes, as compared to income tax expense of $8.6 million, or 34.0% of income before income taxes for Resolute in 2010.
Liquidity and Capital Resources
Resolute’s primary sources of liquidity are cash generated from operations, amounts available under its revolving Credit Facility (as defined below), proceeds from warrant exercises and proceeds from sales of non-strategic oil and gas properties. For the purposes of Management’s Discussion and Analysis of Liquidity and Capital Resources, management has analyzed the cash flows and capital resources for the nine months ended September 30, 2011 and September 30, 2010.
                 
    Nine Months  
    Ended September 30,  
    2011     2010  
    (in thousands)  
Cash provided by operating activities
  $ 68,878     $ 44,612  
Cash used in investing activities
    (162,386 )     (50,762 )
Cash provided by financing activities
    91,842       7,521  
Net cash provided by operating activities was $68.9 million for the first nine months of 2011 compared to $44.6 million for the 2010 period, which reflects increased production and commodity prices realized in 2011.
Resolute plans to reinvest a sufficient amount of its cash flow in its development operations in order to maintain its production over the long term, and plans to use external financing sources as well as cash flow from operations and cash reserves to increase its production.
Net cash used in investing activities was $162.4 million in 2011 compared to $50.8 million in 2010. The primary investing activity in 2011 was cash used for capital expenditures of $164.3 million, consisting of $114.8 million of acquisition, exploration and development expenditures and $49.5 million of proved oil and gas properties expenditures. The primary investing activity in 2010 was capital expenditures of $48.9 million. The 2011 capital expenditures were comprised of $50.2 million in compression and facility related projects, $11.9 million in CO2 acquisition, $72.5 million in acquisition and leasehold costs and $7.1 million in drilling activities in the Delaware Basin of West Texas, $25.5 million in drilling and completion activities in the Bakken trend of North Dakota, and $7.9 million in recompletion and drilling activities in the Company’s Wyoming properties. A portion of these capital costs are accrued and not paid at period end. The 2010 capital expenditures were comprised of $22.1 million in leasehold costs in North Dakota, $9.4 million in CO2 acquisition and $11.5 million in other capital expenditures. Through September 30, 2011 we continue to be in line with our capital expenditure guidance directed to properties that pre-date our Permian Basin acquisitions.
Net cash provided by financing activities was $91.8 million in 2011 compared to $7.5 million in 2010. The primary financing activities in 2011 were $17.6 million in net borrowings under the Credit Facility and receipt of proceeds of $74.4 million from warrants exercised. Primary financing activities in 2010 were $11.7 million in net borrowings under the Credit Facility and $4.0 million in deferred financing costs related to the amended credit agreement entered into by the Company on March 30, 2010. The Company is unable to predict the amount or timing of future warrant exercises.

 

- 15 -


Table of Contents

If cash flow from operating activities does not meet its needs, Resolute may reduce its expected level of capital expenditures and/or fund a portion of its capital expenditures using borrowings under its Credit Facility, issuances of debt and equity securities or from other sources, such as asset sales. The Company has in place an effective universal shelf registration statement pursuant to which an aggregate amount of $500 million of any such equity or debt securities could be issued. There can be no assurance that needed capital will be available on acceptable terms or at all. Resolute’s ability to raise funds through the incurrence of additional indebtedness could be limited by the covenants in its Credit Facility. If Resolute is unable to obtain funds when needed or on acceptable terms, it may not be able to complete acquisitions that could be favorable to it or finance the capital expenditures necessary to maintain production or proved reserves.
Resolute plans to continue its practice of hedging a significant portion of its production through the use of various derivative transactions. Resolute’s existing derivative transactions do not qualify as cash flow hedges, and the Company anticipates that future transactions will receive similar accounting treatment. Derivative arrangements are generally settled within five days of the end of the month. As is typical in the oil and gas industry, however, Resolute does not generally receive the proceeds from the sale of its crude oil production until the 20th day of the month following the month of production. As a result, when commodity prices increase above the fixed price in the derivative contacts, Resolute will be required to pay the derivative counterparty the difference between the fixed price in the derivative contract and the market price before receiving the proceeds from the sale of the hedged production. If this occurs, Resolute may use Credit Facility borrowings to fund its operations.
Revolving Credit Facility
Resolute’s credit facility is with a syndicate of banks led by Wells Fargo Bank, National Association (the “Credit Facility”) with Resolute as the borrower. The Credit Facility specifies a maximum borrowing base as determined by the lenders. The determination of the borrowing base takes into consideration the estimated value of Resolute’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. On March 30, 2010, the Company entered into an amended and restated Credit Facility agreement. Under the terms of the restated agreement, the borrowing base was established at $260.0 million and the maturity date was extended to March 2014.
During April 2011, the Company entered into two additional amendments to the amended and restated Credit Facility agreement. Under the terms of the amendments, the Company is permitted to use proceeds received from the exercise of outstanding warrants to repurchase equity securities, the borrowing base was increased from $260.0 million to $300.0 million, and at Resolute’s option, the outstanding balance under the Credit Facility accrues interest at either (a) the London Interbank Offered Rate, plus a margin which varies from 1.75% to 2.75% or (b) the Alternative Base Rate defined as the greater of (i) the Administrative Agent’s Prime Rate, (ii) the Federal Funds Effective Rate plus 0.5%, or (iii) an adjusted London Interbank Offered Rate plus 1%, plus a margin which ranges from 0.75% to 1.75%. Each such margin is based on the level of utilization under the borrowing base. As of September 30, 2011, the weighted average interest rate on the outstanding balance under the Credit Facility was 2.38%.
The borrowing base is redetermined semi-annually, and the amount available for borrowing could be increased or decreased as a result of such redeterminations. Under certain circumstances, either Resolute or the lenders may request an interim redetermination. As of September 30, 2011, outstanding borrowings were $145.5 million and unused availability under the borrowing base was $151.2 million. The borrowing base availability had been reduced by $3.3 million in conjunction with letters of credit issued to vendors at September 30, 2011. To the extent that the borrowing base, as adjusted from time to time, exceeds the outstanding balance, no repayments of principal are required prior to maturity. The Credit Facility is collateralized by substantially all of the proved oil and gas assets of Aneth and Resolute Wyoming, Inc., and is guaranteed by Resolute’s subsidiaries.
The Credit Facility includes terms and covenants that place limitations on certain types of activities, the payment of dividends, and require satisfaction of certain financial tests. Resolute was in compliance with all terms and covenants of the Credit Facility at September 30, 2011.
Off Balance Sheet Arrangements
Resolute does not have any off-balance sheet financing arrangements other than operating leases. Resolute has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
ITEM 3.   QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk and Derivative Arrangements
Resolute’s major market risk exposure is in the pricing applicable to oil and gas production. Realized pricing on Resolute’s unhedged volumes of production is primarily driven by the spot market prices applicable to oil production and the prevailing price for gas. Pricing for oil production has been volatile and unpredictable for several years, and Resolute expects this volatility to continue in the future. The prices Resolute receives for unhedged production depends on many factors outside of Resolute’s control.

 

- 16 -


Table of Contents

Resolute periodically hedges a portion of its oil and gas production through swaps, puts, calls, collars and other such agreements. The purpose of the hedges is to provide a measure of stability to Resolute’s cash flows in an environment of volatile oil and gas prices and to manage Resolute’s exposure to commodity price risk.
Under the terms of Resolute’s Credit Facility, the form of derivative instruments to be entered into is at Resolute’s discretion, not to exceed 85% of its anticipated production from proved developed producing properties, utilizing economic parameters specified in its Credit Facility.
By removing the price volatility from a significant portion of Resolute’s oil production, Resolute has mitigated, but not eliminated, the potential effects of changing prices on the cash flow from operations for those periods. While mitigating negative effects of falling commodity prices, certain of these derivative contracts also limit the benefits Resolute would receive from increases in commodity prices. It is Resolute’s policy to enter into derivative contracts only with counterparties that are major, creditworthy financial institutions deemed by management as competent and competitive market makers, all of which are members of Resolute’s Credit Facility bank syndicate at September 30, 2011.
As of September 30, 2011, Resolute had entered into certain commodity collar contracts. The following table represents Resolute’s commodity collars with respect to its oil and production:
                         
            (NYMEX WTI)  
Year   Bbl per Day     Floor Price     Ceiling Price  
2011
    3,750     $ 66.67     $ 94.67  
2012
    1,375     $ 71.64     $ 102.45  
2013
    775     $ 80.00     $ 105.00  
2014
    1,500     $ 65.00     $ 110.00  
As of September 30, 2011, Resolute had entered into certain commodity swap contracts. The following table represents Resolute’s commodity swaps with respect to its oil and gas production through 2013:
                                 
            Oil (NYMEX WTI)             Gas (NYMEX HH)  
            Weighted Average             Weighted Average  
Year   Bbl per Day     Hedge Price per Bbl     MMBtu per Day     Hedge Price per MMBtu  
2011
    750     $ 70.58       2,750     $ 9.32  
2012
    2,750     $ 69.40       2,100     $ 7.42  
2013
    2,000     $ 60.47       1,900     $ 7.40  
Resolute also uses basis swaps in connection with gas swaps in order to fix the price differential between the NYMEX Henry Hub price and the index price at which the gas production is sold. The table below sets forth Resolute’s outstanding basis swaps as of September 30, 2011:
                     
                Weighted Average  
                Hedged Price  
Year   Index   MMBtu per Day     Differential per MMBtu  
2011 – 2013
  Rocky Mountain NWPL     1,800     $ 2.100  
2011
  Rocky Mountain CIG     1,500     $ 0.570  
2012
  Rocky Mountain CIG     1,000     $ 0.575  
2013
  Rocky Mountain CIG     500     $ 0.590  
2014
  Rocky Mountain CIG     1,000     $ 0.590  
Interest Rate Risk
At September 30, 2011, Resolute has $145.5 million of outstanding debt. Interest is calculated under the terms of the agreement based generally on a LIBOR spread. A 10% increase in LIBOR would result in a less than $0.1 million increase in annual interest expense. Resolute does not currently intend to enter into any derivative arrangements to protect against fluctuations in interest rates applicable to its outstanding indebtedness.
Credit Risk and Contingent Features in Derivative Instruments
Resolute is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts discussed above. All counterparties are also lenders under Resolute’s Credit Facility. For these contracts, Resolute is not required to provide any credit support to its counterparties other than cross collateralization with the properties securing the Credit Facility. Resolute’s derivative contracts are documented with industry standard contracts known as a Schedule to the Master Agreement and International Swaps and Derivative Association, Inc. Master Agreement (“ISDA”). Typical terms for the ISDAs include credit support requirements, cross default provisions, termination events, and set-off provisions. Resolute has set-off provisions with its lenders that, in the event of counterparty default, allow Resolute to set-off amounts owed under the Credit Facility or other general obligations against amounts owed for derivative contract liabilities.

 

- 17 -


Table of Contents

ITEM 4.   CONTROLS AND PROCEDURES
Our management, with the participation of Nicholas J. Sutton, our Chief Executive Officer, and Theodore Gazulis, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011. Based on the evaluation, those officers have concluded that:
    our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
    our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has not been any change in the Company’s internal control over financial reporting that occurred during the quarterly period ended September 30, 2011, that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

 

- 18 -


Table of Contents

PART II OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS
Resolute is not a party to any material pending legal or governmental proceedings, other than ordinary routine litigation incidental to its business. While the ultimate outcome and impact of any proceeding cannot be predicted with certainty, Resolute’s management believes that the resolution of any of its pending proceedings will not have a material adverse effect on its financial condition or results of operations.
ITEM 1A.   RISK FACTORS
Information about material risks related to Resolute’s business, financial condition and results of operations for the quarter ended September 30, 2011, does not materially differ from those set out in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2010 and the quarterly report for the quarter ended March 31, 2011 on Form 10-Q. These risks are not the only risks facing the Company.
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4.   (REMOVED AND RESERVED)
ITEM 5.   OTHER INFORMATION
Not applicable.

 

- 19 -


Table of Contents

ITEM 6.   EXHIBITS
         
Exhibit
Number
  Description of Exhibits
  10.1    
Amendment No. 4 to Product Sale and Purchase Contract Dated July 1, 2007 by and between Resolute Natural Resources Company, LLC and Kinder Morgan CO2 Company, L.P.
  31.1    
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
  31.2    
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith)
  32.1    
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  101    
The following materials from the Resolute Energy Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language) include (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text. The information in Exhibit 101 is “furnished” and not “filed”, as provided in Rule 402 of Regulation S-T.

 

- 20 -


Table of Contents

SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
Signature   Capacity   Date
 
       
/s/ Nicholas J. Sutton
 
Nicholas J. Sutton
   Chief Executive Officer
(Principal Executive Officer)
  November 7, 2011
 
       
/s/ Theodore Gazulis
 
Theodore Gazulis
   Chief Financial Officer
(Principal Financial Officer)
  November 7, 2011

 

- 21 -