Yuma Energy, Inc. Announces it is Actively Seeking Strategic Alternatives, Provides an Update to its Liquidity and Operations, and Reports First Quarter 2018 Financial Results

PR Newswire

HOUSTON, May 11, 2018 /PRNewswire/ -- Yuma Energy, Inc. (NYSE American: YUMA) (the "Company" or "Yuma") today announced that it is actively seeking strategic alternatives and provided information related to its liquidity and operations. The Company also reported its financial results for the quarter ended March 31, 2018. 

Strategic Alternatives

Yuma is currently exploring strategic alternatives in order to enhance and maximize shareholder value.  These strategic alternatives may include, but are not limited to, a business combination, a merger, sale of assets, and possible capital market transactions.  Yuma will thoroughly evaluate all opportunities and third-party proposals, if any, and will aggressively pursue options which are intended to add incremental shareholder value relative to its continued standalone activities. 

Liquidity

Due to operating losses the Company sustained during recent quarters, which were partially a result of several events outside the reasonable control of the Company, including the suspension of production from several wells for a period of time and other associated factors, at March 31, 2018, the Company was not in compliance with its total debt to EBITDAX covenant for the trailing four quarter period under its credit facility.  In addition, due to this non-compliance and the Company's anticipated non-compliance at June 30, 2018, the Company classified its bank debt as a current liability in its consolidated financial statements as of and for the three months ended March 31, 2018.  On May 8, 2018, the Company received a waiver from its lenders to its compliance with the fiscal period total debt to EBITDAX for the trailing four quarter period financial ratio covenant for the period ended March 31, 2018, as long as it does not exceed 3.75 to 1.00.

As of March 31, 2018, the Company had outstanding borrowings of $27.05 million under its credit facility, and its total borrowing base was $40.5 million, leaving $13.45 million of undrawn borrowing base.  As of May 8, 2018, the total borrowing base under the credit facility was reduced to $35.0 million.  Since March 31, 2018, the Company has borrowed an additional $7.2 million for working capital, leaving $750,000 of undrawn borrowing base as of the date hereof.

A breach in the future of any of the terms and conditions of the credit facility or a breach of the financial covenants thereunder could result in acceleration of the Company's indebtedness, in which case the debt would become immediately due and payable.  The Company currently anticipates non-compliance with various financial covenants at June 30, 2018.

The Company has initiated several strategic alternatives to remedy its limited liquidity, its debt covenant compliance issues, and to provide it with additional working capital to develop its existing assets.  These may include, but are not limited to, reducing or eliminating capital expenditures previously planned for 2018; entering into commodity derivatives for a significant portion of its anticipated production for 2018; reducing general and administrative expenses; selling non-core assets; seeking merger and acquisition related opportunities; and potentially raising proceeds from capital markets transactions, including the sale of debt or equity securities. There can be no assurance that the exploration of strategic alternatives will result in a transaction.   

The significant risks and uncertainties described above raise substantial doubt about the Company's ability to continue as a going concern. The Company has prepared its consolidated financial statements for the three months ended March 31, 2018 on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The Company's consolidated financial statements for the three months ended March 31, 2018 do not include any adjustments that might result from the outcome of the going concern uncertainty.

Operations Update

In 2017, the Company entered the Permian Basin through a joint venture with two privately held energy companies and established an Area of Mutual Interest ("AMI") covering approximately 33,280 acres in Yoakum County, Texas, located in the Northwest Shelf of the Permian Basin. The primary target within the AMI is the San Andres formation, which has been one of the largest producing formations in Texas to date. As of May 1, 2018, the Company held a 62.5% working interest in approximately 4,823 gross acres (3,014 net acres) within the AMI.  In November, 2017, the Company spudded a salt water disposal well, the Jameson SWD #1. Upon completion of the salt water disposal well, the drilling rig was moved to the Company's State 320 #1H horizontal San Andres well, which was subsequently drilled and completed.  The Company opened the well on March 1, 2018 to begin the dewatering process and establish production. As of May 6, 2018, the well was producing 31 barrels of oil, 89 Mcf of natural gas, and 3,908 barrels of water per day. While significant water production is typical and was expected from the well, early production rates have not met management's pre-drill expectations. The Company will continue to evaluate well performance and the commerciality of the prospect area, but given the well performance to date, the ability to establish commercial production in the prospect area is uncertain at this time.  As of March 31, 2018, the salt water disposal well and the State 320 #1H well were classified as unproved properties within the Company's consolidated financial statements.

First Quarter 2018 Financial Results

Production

The following table presents the net quantities of oil, natural gas and natural gas liquids produced and sold by the Company for the three months ended March 31, 2018 and 2017, and the average sales price per unit sold.


Three Months Ended March 31,


2018


2017

Production volumes:




Crude oil and condensate (Bbls)

47,157


76,397

Natural gas (Mcf)

633,440


899,427

Natural gas liquids (Bbls)

25,243


33,474

     Total (Boe) (1)

177,973


259,776

Average prices realized:




Crude oil and condensate (per Bbl)

$65.02


$49.95

Natural gas (per Mcf)

$2.83


$2.84

Natural gas liquids (per Bbl)

$31.22


$23.15



(1)

Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equal to one barrel of oil equivalent (Boe).

Revenues

The following table presents the Company's revenues for the three months ended March 31, 2018 and 2017.


Three Months Ended March 31,


2018


2017

Sales of natural gas and crude oil:




Crude oil and condensate

$             3,066,258


$             3,815,932

Natural gas

1,791,251


2,553,443

Natural gas liquids

788,027


775,049

   Total revenues

$             5,645,536


$             7,144,424

Expenses

The Company's lease operating expenses ("LOE") and LOE per Boe for the three months ended March 31, 2018 and 2017, are set forth below:


Three Months Ended March 31,


2018


2017

Lease operating expenses

$        1,665,320


$        1,697,908

Severance, ad valorem taxes and marketing

960,448


963,356

     Total LOE

$        2,625,768


$        2,661,264





LOE per Boe

$14.75


$10.24

LOE per Boe without severance, ad valorem taxes and marketing

$9.36


$6.54

Commodity Derivative Instruments

Commodity derivative instruments open as of March 31, 2018 are provided below.  Natural gas prices are NYMEX Henry Hub prices, and crude oil prices are NYMEX West Texas Intermediate.



2018


2019



Settlement


Settlement (1)

NATURAL GAS (MMBtu):





Swaps





Volume


1,245,893


373,906

Price 


$3.00


$3.00






CRUDE OIL (Bbls):





Swaps





Volume


140,818


156,320

Price 


$53.17


$53.77



(1)

Represents volumes through March 2019.

About Yuma Energy, Inc.

Yuma Energy, Inc., a Delaware corporation, is an independent Houston-based exploration and production company focused on acquiring, developing and exploring for conventional and unconventional oil and natural gas resources.  Historically, the Company's operations have focused on onshore properties located in central and southern Louisiana and southeastern Texas where it has a long history of drilling, developing and producing both oil and natural gas assets.  More recently, the Company has begun acquiring acreage in Yoakum County, Texas, with plans to explore and develop oil and natural gas assets in the Permian Basin.  Finally, the Company has operated positions in Kern County, California, and non-operated positions in the East Texas Woodbine and the Bakken Shale in North Dakota.  Its common stock is listed on the NYSE American under the trading symbol "YUMA."

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as "expects," "believes," "intends," "anticipates," "plans," "estimates," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. The forward-looking statements include statements about future operations, and estimates of reserve and production volumes. Forward-looking statements are based on current expectations and assumptions and analyses made by the Company in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform with expectations is subject to a number of risks and uncertainties, including but not limited to: our limited liquidity; the risks of the oil and natural gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas); risks and uncertainties involving geology of oil and natural gas deposits; the uncertainty of reserve estimates; revisions to reserve estimates as a result of changes in commodity prices; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; declines in oil and natural gas prices; inability of management to execute its plans to meet its goals, shortages of drilling equipment, oil field personnel and services, unavailability of gathering systems, pipelines and processing facilities and the possibility that government policies may change.  The Company's annual report on Form 10-K for the year ended December 31, 2017, quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other SEC filings discuss some of the important risk factors identified that may affect its business, results of operations, and financial condition. The Company undertakes no obligation to revise or update publicly any forward-looking statements, except as required by law.

Yuma Energy, Inc.


CONSOLIDATED BALANCE SHEETS

(Unaudited)







March 31,


December 31,


2018


2017





ASSETS 








CURRENT ASSETS:




Cash and cash equivalents 

$           101,850


$           137,363

Accounts receivable, net of allowance for doubtful accounts:




  Trade

3,569,760


4,496,316

  Officer and employees

-


53,979

  Other

536,243


1,004,479

Prepayments

837,877


976,462

Other deferred charges

406,881


347,490





Total current assets

5,452,611


7,016,089





OIL AND GAS PROPERTIES (full cost method):




Proved properties

494,700,559


494,216,531

Unproved properties - not subject to amortization

9,127,056


6,794,372






503,827,615


501,010,903

Less:  accumulated depreciation, depletion and amortization

(423,342,487)


(421,165,400)





Net oil and gas properties

80,485,128


79,845,503





OTHER PROPERTY AND EQUIPMENT:




Land, buildings and improvements

1,600,000


1,600,000

Other property and equipment

2,845,459


2,845,459


4,445,459


4,445,459

Less: accumulated depreciation and amortization

(1,449,769)


(1,409,535)





Net other property and equipment

2,995,690


3,035,924





OTHER ASSETS AND DEFERRED CHARGES:




Deposits

467,592


467,592

Other noncurrent assets

79,997


270,842





Total other assets and deferred charges

547,589


738,434





TOTAL ASSETS 

$      89,481,018


$      90,635,950

 

Yuma Energy, Inc.


CONSOLIDATED BALANCE SHEETS – CONTINUED

(Unaudited)







March 31,


December 31,


2018


2017





LIABILITIES AND EQUITY








CURRENT LIABILITIES:




Current maturities of debt

$      27,424,499


$           651,124

Accounts payable, principally trade

13,778,740


11,931,218

Commodity derivative instruments

1,476,071


903,003

Asset retirement obligations

88,721


277,355

Other accrued liabilities

1,765,817


2,295,438





Total current liabilities

44,533,848


16,058,138





LONG-TERM DEBT

-


27,700,000





OTHER NONCURRENT LIABILITIES:




Asset retirement obligations

10,352,150


10,189,058

Commodity derivative instruments

485,234


336,406

Deferred rent

281,852


290,566

Employee stock awards

239,095


191,110





Total other noncurrent liabilities

11,358,331


11,007,140





COMMITMENTS AND CONTINGENCIES (Notes 2 and 15)








EQUITY




Series D convertible preferred stock




   ($0.001 par value, 7,000,000 authorized, 1,937,262 issued and outstanding as of March 31, 2018, and 1,904,391 issued and outstanding as of December 31, 2017)

1,937


1,904

Common stock




   ($0.001 par value, 100 million shares authorized, 23,230,169 outstanding as of March 31, 2018 and 22,661,758 outstanding as of December 31, 2017)

23,230


22,662

Additional paid-in capital

56,728,467


55,064,685

Treasury stock at cost (369,238 shares as of March 31, 2018 and 13,343 shares as of December 31, 2017)

(434,557)


(25,278)

Accumulated earnings (deficit)

(22,730,238)


(19,193,301)





Total equity

33,588,839


35,870,672





TOTAL LIABILITIES AND EQUITY

$      89,481,018


$      90,635,950

 

Yuma Energy, Inc.


CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



Three Months Ended March 31,


2018


2017





REVENUES:




Sales of natural gas and crude oil

$        5,645,536


$          7,144,424





EXPENSES:




Lease operating and production costs

2,625,768


2,661,264

General and administrative – stock-based compensation

296,293


51,735

General and administrative – other

1,749,237


2,176,002

Depreciation, depletion and amortization

2,217,321


3,140,940

Asset retirement obligation accretion expense

142,940


138,569

Bad debt expense

65,808


-

Total expenses

7,097,367


8,168,510





LOSS FROM OPERATIONS

(1,451,831)


(1,024,086)





OTHER INCOME (EXPENSE):




Net gains (losses) from commodity derivatives

(1,251,260)


3,556,783

Interest expense

(466,292)


(496,091)

Gain on other property and equipment

-


555,642

Other, net

(3,537)


36,408

Total other income (expense)

(1,721,089)


3,652,742





INCOME (LOSS) BEFORE INCOME TAXES

(3,172,920)


2,628,656





Income tax expense

-


26,531





NET INCOME (LOSS)

(3,172,920)


2,602,125





PREFERRED STOCK:




Dividends paid in kind

364,017


339,610





NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

$      (3,536,937)


$          2,262,515





INCOME (LOSS) PER COMMON SHARE:




Basic

($0.16)


$0.19

Diluted

($0.16)


$0.16





WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:




Basic

22,813,130


12,211,256

Diluted

22,813,130


14,056,170

 

Yuma Energy, Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



Three Months Ended March 31,


2018


2017

CASH FLOWS FROM OPERATING ACTIVITIES:




Reconciliation of net income (loss) to net cash provided by (used in) operating activities:




Net income (loss)

$        (3,172,920)


$          2,602,125

Depreciation, depletion and amortization of property and equipment

2,217,321


3,140,940

Amortization of debt issuance costs

184,733


81,843

Deferred rent liability, net

33,117


-

Stock-based compensation expense

296,293


51,735

Settlement of asset retirement obligations

(147,122)


-

Asset retirement obligation accretion expense

142,940


138,569

Bad debt expense

65,808


-

Net (gains) losses from commodity derivatives

1,251,260


(3,556,783)

Gain on sales of fixed assets

-


(555,642)

Loss on write-off of liabilities net of assets

3,631


-

Changes in assets and liabilities:




(Increase) decrease in accounts receivable

879,333


(795,740)

Decrease in prepaids, deposits and other assets

138,585


306,021

(Decrease) increase in accounts payable and other current and non-current liabilities

2,507,831


(461,542)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

4,400,810


951,526





CASH FLOWS FROM INVESTING ACTIVITIES:




Capital expenditures for oil and gas properties

(3,507,005)


(2,053,826)

Proceeds from sale of oil and gas properties

1,000,000


641,056

Derivative settlements

(529,364)


98,700

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(3,036,369)


(1,314,070)





CASH FLOWS FROM FINANCING ACTIVITIES:




Proceeds from borrowings on senior credit facility

6,350,000


-

Repayment of borrowings on senior credit facility

(7,000,000)


-

Repayments of borrowings - insurance financing

(276,625)


(255,026)

Debt issuance costs

-


(76,452)

Shelf registration costs

(64,050)


-

Treasury stock repurchases

(409,279)


(4,170)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

(1,399,954)


(335,648)





NET DECREASE IN CASH AND CASH EQUIVALENTS

(35,513)


(698,192)





CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

137,363


3,625,686





CASH AND CASH EQUIVALENTS AT END OF PERIOD

$             101,850


$          2,927,494





Supplemental disclosure of cash flow information:




Interest payments (net of interest capitalized)

$             145,871


$             264,542

Interest capitalized

$             115,541


$               44,550

Supplemental disclosure of significant non-cash activity:




(Increase) decrease in capital expenditures financed by accounts payable

$             168,934


$        (1,434,132)

 

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SOURCE Yuma Energy, Inc.