isramco-10q93009.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Check One) |
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x |
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2009 |
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or |
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o |
Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 0-12500
ISRAMCO, INC
(Exact Name of registrant as Specified in its Charter)
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Delaware |
13-3145265 |
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(State or other Jurisdiction of Incorporation or Organization) |
I.R.S. Employer Number |
2425 West Loop South, Suite 810, HOUSTON, TX 77027
(Address of Principal Executive Offices)
713-621-5946
(Registrant’s Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) 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 x 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). Yes o 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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company ”in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrant’s Common Stock as of November 10, 2009 was 2,717,691.
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Page |
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PART I - FINANCIAL INFORMATION |
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Item 1. |
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4 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
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11 |
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Item 4T. |
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21 |
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PART II. OTHER INFORMATION |
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Item 1. |
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22 |
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Item 1A. |
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22 |
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Item 2 |
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Item 3. |
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Item 4 |
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Item 5. |
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22 |
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Item 6. |
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23 |
Forward Looking Statements
CERTAIN STATEMENTS MADE IN THIS QUARTERLY REPORT ON FORM 10-Q ARE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS “MAY”, “WILL”, “SHOULD”, “EXPECTS”, “INTENDS”,
“ANTICIPATES”, “BELIEVES”, “ESTIMATES”, “PREDICTS”, OR “CONTINUE” OR THE NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW REGARDING EXPLORATION AND DRILLING PLANS, FUTURE GENERAL AND ADMINISTRATIVE EXPENSES, FUTURE GROWTH, FUTURE EXPLORATION, FUTURE GEOPHYSICAL AND GEOLOGICAL DATA, GENERATION OF ADDITIONAL PROPERTIES, RESERVES, NEW PROSPECTS AND DRILLING LOCATIONS, FUTURE CAPITAL EXPENDITURES,
SUFFICIENCY OF WORKING CAPITAL, ABILITY TO RAISE ADDITIONAL CAPITAL, PROJECTED CASH FLOWS FROM OPERATIONS, OUTCOME OF ANY LEGAL PROCEEDINGS, DRILLING PLANS, THE NUMBER, TIMING OR RESULTS OF ANY WELLS, INTERPRETATION AND RESULTS OF SEISMIC SURVEYS OR SEISMIC DATA, FUTURE PRODUCTION OR RESERVES, LEASE OPTIONS OR RIGHTS, PARTICIPATION OF OPERATING PARTNERS, CONTINUED RECEIPT OF ROYALTIES, AND ANY OTHER STATEMENTS REGARDING FUTURE OPERATIONS, FINANCIAL RESULTS, OPPORTUNITIES, GROWTH, BUSINESS PLANS AND STRATEGY.
BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING
STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL RESULTS.
(In thousands, except share and per share amounts)
(Unaudited)
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As of |
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September 30,
2009 |
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December 31,
2008 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
3,124 |
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$ |
3,141 |
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Accounts receivable, net |
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5,658 |
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5,416 |
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Restricted and designated cash |
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827 |
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|
757 |
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Derivative asset |
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6,044 |
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12,082 |
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Prepaid expenses and other |
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920 |
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592 |
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Total Current Assets |
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16,573 |
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21,988 |
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Property and Equipment, at cost – successful efforts method: |
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Oil and Gas properties |
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220,032 |
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219,945 |
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Other |
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663 |
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450 |
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Total Property and Equipment |
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220,695 |
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220,395 |
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Accumulated depreciation, depletion and amortization |
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(69,243 |
) |
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(56,196 |
) |
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Net Property and Equipment |
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151,452 |
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164,199 |
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Marketable securities, at market |
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3,792 |
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1,799 |
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Debt cost |
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382 |
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572 |
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Derivative asset |
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4,772 |
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10,942 |
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Deferred tax assets and other |
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5,545 |
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3,871 |
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Total assets |
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$ |
182,516 |
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$ |
203,371 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
8,391 |
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$ |
7,712 |
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Short term debt and bank overdraft |
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426 |
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1,544 |
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Current maturities of long-term debt |
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11,000 |
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21,000 |
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Derivative liability |
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735 |
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943 |
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Related Party payable |
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3,961 |
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5,606 |
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Deferred tax liabilities |
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209 |
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2,245 |
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Total current liabilities |
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24,722 |
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39,050 |
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Long-term debt |
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35,150 |
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43,200 |
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Long-term debt - related party |
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88,170 |
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80,354 |
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Asset retirement obligations |
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16,142 |
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15,733 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Common stock $0.0l par value; authorized 7,500,000 shares; issued 2,746,958 shares; outstanding 2,717,691 shares |
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27 |
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27 |
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Additional paid-in capital |
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23,194 |
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23,194 |
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Retained earnings (accumulated deficit) |
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(6,025 |
) |
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2,217 |
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Accumulated other comprehensive income (loss) |
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1,300 |
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(240 |
) |
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Treasury stock, 29,267 shares at cost |
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(164 |
) |
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(164 |
) |
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Total shareholders’ equity |
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18,332 |
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25,034 |
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Total liabilities and shareholders’ equity |
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$ |
182,516 |
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$ |
203,371 |
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ISRAMCO INC.
(in thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended September 30 |
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Nine Months Ended September 30 |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues |
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Oil and gas sales |
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$ |
7,670 |
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$ |
17,855 |
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$ |
21,408 |
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$ |
44,203 |
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Office services to affiliate and other |
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122 |
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11 |
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499 |
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132 |
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Other |
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18 |
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- |
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|
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309 |
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|
|
134 |
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Total revenues |
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7,810 |
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|
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17,866 |
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|
|
22,216 |
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|
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44,469 |
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Operating expenses |
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|
|
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|
|
|
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|
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|
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Lease operating expense, transportation and taxes |
|
|
3,882 |
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|
|
6,435 |
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|
|
11,145 |
|
|
|
15,231 |
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Depreciation, depletion and amortization |
|
|
4,296 |
|
|
|
3,263 |
|
|
|
13,047 |
|
|
|
7,283 |
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Impairment of oil and gas properties |
|
|
- |
|
|
|
3,088 |
|
|
|
- |
|
|
|
3,137 |
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Accretion expense |
|
|
205 |
|
|
|
145 |
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|
|
619 |
|
|
|
300 |
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General and administrative |
|
|
1,491 |
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|
|
659 |
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|
|
3,205 |
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|
|
1,809 |
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Total operating expenses |
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|
9,874 |
|
|
|
13,590 |
|
|
|
28,016 |
|
|
|
27,760 |
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Operating income (loss) |
|
|
(2,064 |
) |
|
|
4,276 |
|
|
|
(5,800 |
) |
|
|
16,709 |
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| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense, net |
|
|
2,288 |
|
|
|
2,828 |
|
|
|
7,091 |
|
|
|
6,713 |
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|
Net loss (gain) on derivative contracts |
|
|
(1,116 |
) |
|
|
(50,124 |
) |
|
|
(145 |
) |
|
|
17,917 |
|
|
Total other expenses |
|
|
1,172 |
|
|
|
(47,296 |
) |
|
|
6,946 |
|
|
|
24,630 |
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| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income (loss) before income taxes |
|
|
(3,236 |
) |
|
|
51,572 |
|
|
|
(12,746 |
) |
|
|
(7,921 |
) |
|
Income tax benefit (expense) |
|
|
1,218 |
|
|
|
(17,084 |
) |
|
|
4,504 |
|
|
|
2,575 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net Income (loss) |
|
$ |
(2,018 |
) |
|
$ |
34,488 |
|
|
$ |
(8,242 |
) |
|
$ |
(5,346 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Profit (loss) per share – basic and diluted: |
|
$ |
(0.74 |
) |
|
$ |
12.69 |
|
|
$ |
(3.03 |
) |
|
$ |
(1.97 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average number of shares outstanding-basic and diluted |
|
|
2,717,691 |
|
|
|
2,717,691 |
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|
|
2,717,691 |
|
|
|
2,717,691 |
|
ISRAMCO INC.
(In thousands)
(Unaudited)
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Nine Months Ended September 30 |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
|
|
|
|
|
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Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,242 |
) |
|
$ |
(5,346 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and impairment |
|
|
13,047 |
|
|
|
10,420 |
|
|
Accretion expense |
|
|
619 |
|
|
|
300 |
|
|
Unrealized and realized gain on marketable securities |
|
|
(250 |
) |
|
|
- |
|
|
Changes in deferred taxes |
|
|
(4,401 |
) |
|
|
(2,618 |
) |
|
Net unrealized loss on derivative contracts |
|
|
12,207 |
|
|
|
8,950 |
|
|
Amortization of debt cost |
|
|
189 |
|
|
|
126 |
|
|
Changes in components of working capital and other assets and liabilities |
|
|
|
|
|
|
|
|
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Accounts receivable |
|
|
(243 |
) |
|
|
(5,107 |
) |
|
Prepaid expenses and other current assets |
|
|
(429 |
) |
|
|
709 |
|
|
Related party payable |
|
|
3,427 |
|
|
|
(161 |
) |
|
Accounts payable and accrued liabilities |
|
|
470 |
|
|
|
5,243 |
|
|
Net cash provided by operating activities |
|
|
16,394 |
|
|
|
12,516 |
|
| |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Addition to property and equipment, net |
|
|
(300 |
) |
|
|
(98,750 |
) |
|
Restricted cash and deposit, net |
|
|
(70 |
) |
|
|
(238 |
) |
|
Purchase of marketable securities |
|
|
(370 |
) |
|
|
- |
|
|
Proceeds from sale of marketable securities |
|
|
752 |
|
|
|
- |
|
|
Net cash provided by (used in) investing activities |
|
|
12 |
|
|
|
(98,988 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from loans – related parties, net |
|
|
2,745 |
|
|
|
48,520 |
|
|
Proceeds from long-term debt |
|
|
- |
|
|
|
54,000 |
|
|
Repayment of long-term debt |
|
|
(18,050 |
) |
|
|
(10,800 |
) |
|
Payments for financing cost |
|
|
- |
|
|
|
(1,015 |
) |
|
Borrowings (repayments) of short - term debt, net |
|
|
(1,118 |
) |
|
|
770 |
|
|
Net cash provided by (used in) financing activities |
|
|
(16,423 |
) |
|
|
91,475 |
|
| |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(17 |
) |
|
|
5,003 |
|
|
Cash and cash equivalents at beginning of period |
|
|
3,141 |
|
|
|
1,212 |
|
|
Cash and cash equivalents at end of period |
|
$ |
3,124 |
|
|
$ |
6,215 |
|
Isramco Inc.
(Unaudited)
Note 1 - Basis of Presentation
As used in these financial statements, the terms “Company” and “Isramco” refer to Isramco, Inc. and its subsidiaries, Jay Petroleum, L.L.C. (“Jay Petroleum”), Jay Management Company L.L.C. (“Jay Management”), IsramTec Inc. (“IsramTec”), Isramco Resources LLC, Isramco
Energy LLC and Field Trucking and Services, LLC (“FTS”).
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the SEC instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Results for the nine-month period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in Isramco’s Annual Report on Form
10-K for the fiscal year ended December 31, 2008.
Certain re-classification of prior period amounts has been made to conform to the current presentation. The reclassification had no impact on shareholders’ equity and comprehensive income (loss) or net income (loss).
Note 2 - Consolidation
The consolidated financial statements include the accounts of Isramco and its wholly-owned subsidiaries: Jay Petroleum, Jay Management, IsramTec , Isramco Resources LLC and Isramco Energy LLC and FTS. Inter-company balances and transactions have been eliminated in consolidation.
Note 3 - New Accounting Pronouncements
In August 2009, the FASB issued Update No. 2009-05, “Fair Value Measurements and Disclosures” (ASU 2009-05). ASU 2009-05 amends Subtopic 820-10, Fair Value Measurements and Disclosures, to provide guidance on the fair value measurement of liabilities. ASU 2009-05 provides clarification for circumstances in which a quoted
price in an active market for the identical liability is not available. ASU 2009-05 is effective for interim and annual periods beginning after August 26, 2009. The Company is currently assessing the impact that the adoption of ASU 2009-05 will have on the Company’s disclosures, consolidated operating results, financial position and cash flows.
In June 2009, the FASB issued Update No. 2009-01, Generally Accepted Accounting Principles (ASU 2009-01). ASU 2009-01 establishes “The FASB Accounting Standards Codification,” or Codification, which became the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. On the effective date,
the Codification superseded all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. ASU 2009-01 is effective for interim and annual periods ending after September 15, 2009. The Company adopted the provisions of ASU 2009-01 for the period ended September 30, 2009. There was no impact on the Company’s consolidated operating results, financial position or cash flows.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC 855) to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 is effective for interim and annual reporting periods ending
after June 15, 2009. The Company adopted the provisions of ASC 855 for the period ended June 30, 2009. There was no impact on the Company’s consolidated operating results, financial position or cash flows.
In April 2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and Accounting Principles Board (APB) 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (ASC 825-10-65) to change the reporting requirements on certain fair value disclosures of financial instruments to include interim reporting periods.
The Company adopted ASC 825-10-65 in the second quarter of 2009. There was no impact on the Company’s operating results, financial position or cash flows; however additional disclosures were added to the accompanying notes to the condensed consolidated financial statements for the Company’s fair value of financial instruments. See Note 8 “Fair Value of Financial Measurements” for more details.
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (ASC 320-10) to amend SFAS No 115, “Accounting for Certain Investments in Debt and Equity Securities” and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit
Organizations”. ASC 320-10 expands other-than-temporary impairment guidance for debt securities to enhance the application of the guidance and improve the presentation and disclosure of other-than temporary impairments on debt and equity securities within the financial statements. The adoption of ASC 320-10 in the second quarter of 2009 did not have a significant impact on the Company’s consolidated operating results, financial position or cash flows.
In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, (ASC 820-10) to amend SFAS No. 157, “Fair Value Measurements”, (ASC 820). ASC 820-10 provides
additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for an asset or liability has significantly decreased. In addition, ASC 820-10 includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of ASC 820-10 in the second quarter of 2009 did not have a significant impact on the Company’s consolidated operating results, financial position or cash flows.
In December 2008, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting,” which amends the oil and gas disclosures for oil and gas producers contained in Regulations S-K and S-X, as well as adding a section to Regulation S-K (Subpart 1200) to codify the revised disclosure requirements in Securities Act
Industry Guide 2, which is being phased out. The goal of Release No. 33-8995 is to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves. Energy companies affected by Release No. 33-8995 will be required to price proved oil and gas reserves using the unweighted arithmetic average of the price on the first day of each month within the 12-month period prior to the end of the reporting period, unless prices are defined by contractual arrangements, excluding escalations
based on future conditions. SEC Release No. 33-8995 is effective beginning January 1, 2010. The Company is currently evaluating what impact Release No. 33-8995 may have on its financial position, results of operations or cash flows.
Note 4 - Supplemental Cash Flow Information
Cash paid for interest and income taxes was as follows for the nine months ended September 30 (in thousands):
| |
Nine Months Ended September 30 |
|
| |
2009 |
|
|
2008 |
|
|
Interest |
|
$ |
4,026 |
|
|
$ |
6,226 |
|
| |
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
- |
|
|
|
80 |
|
Note 5 - Derivative Contracts
At September 30, 2009, the Company had a $10.8 million derivative asset, which $6 million was classified as current. For the nine months ended September 30, 2009, the Company recorded a net derivative gain of $0.14 million ($12.21 million unrealized loss and a $12.35 million gain from net cash proceeds on settled contracts).
At September 30, 2008, the Company had a $18.7 million derivative liability, $5.3 million of which was classified as current. For the nine months ended September 30, 2008, the Company recorded a net derivative loss of $17.9 million ($8.9 million unrealized loss and a $9 million net loss for cash payments on settled contracts).
Natural Gas
At September 30, 2009, the Company had the following natural gas swap positions:
|
Period |
|
Swaps |
|
| |
|
Volume in
MMbtu’s |
|
|
Price /
Price Range |
|
|
Weighted
Average Price |
|
|
October 2009 – December 2009 |
|
|
513,732 |
|
|
$ |
7.77-9.60 |
|
|
$ |
8.25 |
|
|
January 2010 – December 2010 |
|
|
1,785,648 |
|
|
|
7.49-8.32 |
|
|
|
7.88 |
|
|
January 2011 – December 2011 |
|
|
764,820 |
|
|
|
8.22 |
|
|
|
8.22 |
|
|
January 2012 – March 2012 |
|
|
174,222 |
|
|
|
8.65 |
|
|
|
8.65 |
|
Crude Oil
At September 30, 2009, the Company had the following crude oil swap positions:
|
Period |
|
Swaps |
|
| |
|
Volume in
Bbls |
|
|
Price /
Price Range |
|
|
Weighted
Average Price |
|
|
October 2009 – December 2009 |
|
|
68,649 |
|
|
$ |
63.90-104.25 |
|
|
$ |
81.00 |
|
|
January 2010 – December 2010 |
|
|
254,868 |
|
|
|
63.30-101.70 |
|
|
|
79.59 |
|
|
January 2011 – December 2011 |
|
|
240,336 |
|
|
|
79.50-91.05 |
|
|
|
86.55 |
|
|
January 2012 – March 2012 |
|
|
127,473 |
|
|
|
80.20-88.20 |
|
|
|
82.37 |
|
On October 16, 2009 we signed additional swap contracts with a commercial bank for an aggregate volume of 155,400 barrels of crude oil during the 24 month period commencing January 2013.
At November 10, 2009, the Company had the following crude oil swap positions:
|
Period |
|
Swaps |
|
| |
|
Volume in
Bbls |
|
|
Price /
Price Range |
|
|
Weighted
Average Price |
|
|
October 2009 – December 2009 |
|
|
137,298 |
|
|
$ |
63.90-104.25 |
|
|
$ |
81.00 |
|
|
January 2010 – December 2010 |
|
|
254,868 |
|
|
|
63.30-101.70 |
|
|
|
79.59 |
|
|
January 2011 – December 2011 |
|
|
240,336 |
|
|
|
79.50-91.05 |
|
|
|
86.55 |
|
|
January 2012 – March 2012 |
|
|
127,473 |
|
|
|
80.20-88.20 |
|
|
|
82.37 |
|
|
January 2013 – December 2013 |
|
|
89,400 |
|
|
|
85.15 |
|
|
|
85.15 |
|
|
January 2014 – March 2014 |
|
|
66,000 |
|
|
|
86.95 |
|
|
|
86.95 |
|
During the second quarter of 2008, we made the decision to mitigate a portion of our interest rate risk with interest rate swaps. These swap instruments reduce our exposure to market rate fluctuations by converting variable interest rates to fixed interest rates.
Under these swaps, the Company makes payments to, or receives payments from, the counterparties based upon the differential between a specified fixed price and a price related to the one-month London Interbank Offered Rate (“LIBOR”). These interest rate swaps convert a portion of our variable rate interest of our debt to a fixed
rate obligation, thereby reducing the exposure to market rate fluctuations. We have elected to designate these positions for hedge accounting and therefore the unrealized gains and losses are recorded in accumulated other comprehensive income (loss). The Company measures hedge effectiveness by assessing the changes in the fair value or expected future cash flows of the hedged item.
The Company’s open interest rate swap positions, as described above, are as follows:
|
Notional amount (in thousands): |
|
Variable Rate |
|
Period |
|
Weighted-Average
Interest Rate |
|
24,500 |
|
1 Month LIBOR |
|
April 2009 - February 2011 |
|
3.63% |
|
6,000 |
|
1 Month LIBOR |
|
April 2009 - February 2011 |
|
2.90% |
Note 6 - Long-Term Debt
Senior Secured Revolving Credit Agreements
Effective April 1, 2009, the lenders under our Senior Secured Revolving Credit Agreement, dated as of March 2, 2007, as amended and restated as of June 15, 2007 reduced the borrowing base by $6.6 million to $20.4 million.
On July 16, 2009, the lenders under our Senior Secured Revolving Credit Agreement, dated as of March 27, 2008, as amended and restated as of April 28, 2008 reduced the borrowing base by $10 million to $35 million.
At September 30, 2009, the Company was in compliance with all of its debt covenants under its existing Credit Agreements.
Related party Debt
Effective February 1, 2009, each of the loans from I.O.C. – Israel Oil Company, Ltd. and Naphtha Israel Petroleum Corp., Ltd., to the Company was amended and restated to extend the maturity dates by two years.
In July 2009 the Company entered into a loan transaction with I.O.C. Israel Oil Company, Ltd. (“IOC”) pursuant to which the Company borrowed $6 million (the “Loan”). The purpose of the Loan was to provide funds to Isramco Resources, LLC, which in turn paid this amount to Bank of Nova Scotia, as administrative
agent, and Capital One, N.A., as a syndication agent, under the Senior Secured Revolving Credit Agreement, dated as of March 27, 2008 as amended and restated (the “Credit Agreement”). This payment reduced the outstanding balance below the borrowing base and avoided the imposition of additional interest under the Credit Agreement.
Amounts outstanding under the Loan with IOC bear interest at LIBOR plus 6.0%. The IOC loan matures in five years, with accrued interest payable annually on each anniversary date of the loan. The IOC loan may be prepaid at any time without penalty.
Note 7 - Comprehensive Income (loss)
| |
|
Three Months Ended September 30 |
|
|
Nine Months Ended September 30 |
|
| |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Net income (loss) |
|
$ |
(2,018 |
) |
|
$ |
34,488 |
|
|
$ |
(8,242 |
) |
|
$ |
(5,346 |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities, net of taxes |
|
|
405 |
|
|
|
(1,039 |
) |
|
|
1,403 |
|
|
|
(2,182 |
) |
|
Change in unrealized gains on hedging instruments, net of taxes |
|
|
96 |
|
|
|
(167 |
|
|
|
137 |
|
|
|
(135 |
) |
|
Comprehensive income loss |
|
$ |
(1,517 |
) |
|
$ |
33,282 |
|
|
$ |
(6,702 |
) |
|
$ |
(7,663 |
) |
Note 8 - Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. Pursuant to ASC 820, the Company’s determination of fair value incorporates not only the credit standing of the counterparties involved in transactions
with the Company resulting in receivables on the Company’s consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its liabilities.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority
to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
|
· |
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments
such as exchange-traded derivatives, marketable securities and listed equities. |
|
· |
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that
consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally
include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. |
|
· |
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2009 and December 31, 2008. As required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest
level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
| |
|
September 30, 2009 |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
3,792 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,792 |
|
|
Commodity derivatives |
|
|
— |
|
|
|
10,816 |
|
|
|
— |
|
|
|
10,816 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,792 |
|
|
$ |
10,816 |
|
|
$ |
— |
|
|
$ |
14,608 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
— |
|
|
$ |
735 |
|
|
$ |
— |
|
|
$ |
735 |
|
| |
|
December 31, 2008 |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
1,799 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,799 |
|
|
Commodity derivatives |
|
|
— |
|
|
|
23,024 |
|
|
|
— |
|
|
|
23,024 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,799 |
|
|
$ |
23,024 |
|
|
$ |
— |
|
|
$ |
24,823 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
$ |
— |
|
|
$ |
943 |
|
|
$ |
— |
|
|
$ |
943 |
|
Marketable securities listed above are carried at fair value. The Company is able to value its marketable securities based on quoted fair values for identical instruments, which resulted in the Company reporting its marketable securities as Level 1.
Derivatives listed above include swaps are carried at fair value. The Company records the net change in the fair value of these positions in “Net loss on derivative contracts” in the Company’s consolidated statements of operations, in case of commodity derivatives, and in “Other comprehensive income (loss)”,
in case of interest rate derivatives. The Company is able to value these assets and liabilities based on observable market data for similar instruments, which resulted in the Company reporting its derivatives as Level 2. This observable data includes the forward curve for commodity prices based on quoted market prices and prospective volatility factors related to changes in the forward curves.
As of September 30, 2009 and December 31, 2008, the Company’s derivative contracts were with major financial institutions with investment grade credit ratings which are believed to have a minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative
contracts discussed above; however, the Company does not anticipate such nonperformance. Each of the counterparties to the Company’s derivative contracts is a lender in the Company’s Senior Credit Agreement. The Company did not post collateral under any of these contracts as they are secured under the Senior Credit Agreements.
Note 9 – Subsequent Events
The Company has evaluated subsequent events through November 10, 2009 which is the date the consolidated financial statements were issued.
THE FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS REPORT ON FORM 10-Q. THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME
CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “PLAN,” “ANTICIPATE,” “BELIEVE,” “ESTIMATE,” “PREDICT,” “POTENTIAL,” “INTEND,” OR “CONTINUE,” AND SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER “RISK FACTORS” AND ELSEWHERE IN THIS REPORT ON FORM 10-Q. ISRAMCO INC. DISCLAIMS ANY OBLIGATION TO UPDATE SUCH FORWARD LOOKING STATEMENTS.
Overview
Isramco, Inc. (“”Isramco” or “we”) is an independent oil and natural gas company engaged in the exploration, development and production of oil and natural gas properties located onshore in the United States. Our properties are primarily located in Texas, New Mexico and Oklahoma. We also act as an operator of
certain of these properties. Historically, we have grown through acquisitions, with a focus on properties within our core operating areas that we believe have significant development and exploration opportunities and where we can apply our technical experience and economies of scale to increase production and proved reserves while lowering lease operating costs.
Our financial results depend upon many factors, but are largely driven by the volume of our oil and natural gas production and the price we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire additional properties
with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, as impacted by overall economic activity, weather, pipeline capacity constraints, inventory storage levels, basis differentials and other factors, and secondarily upon our commodity price hedging activities. Accordingly, finding and developing oil and natural gas reserves at economical costs is critical to our long-term success. Our future drilling
plans are subject to change based upon various factors, some of which are beyond our control, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints and regulatory approvals. To the extent these factors lead to reductions in our drilling plans and associated capital budgets in future periods, our financial position, cash flows and operating
results could be adversely impacted.
On July 7, 2009, Noble Energy, Inc. published results from the Tamar-2 appraisal well, drilled to a total depth of 16,680 feet in 5,530 feet of water, offshore Israel in the Matan license. The purpose of the Tamar-2 was to confirm the interpretation of the reservoir discovered by the Tamar – 1. According to Noble, the
results were “extremely positive” and led to a 26% increase in the projected gross mean resources estimate for the Tamar, to 6.3 trillion cubic feet (“TCF”).
On August 11, 2009, Netherland, Sewell & Associates, Inc. (NSAI) submitted their reserve report for the Tamar field. NSAI estimates the projected gross mean resources to be 7.3 TCF, of which 6.0 TCF are categorized as proved reserves, subject to the development of the field. Noble and its partners are moving forward
with development plans, which contemplate first production by 2012. Isramco has a 1.4375% overriding royalty interest in the Tamar gas field, before payout. After payout, the overriding royalty interest increases to 2.7375%.
Liquidity and Capital Resources
Our primary source of cash during the nine months ended September 30, 2009 was cash flows from operating activities. The capital markets, as they relate to us, have been adversely impacted by the current financial crisis, concerns about overall deflation and its effect on commodity prices, the possibility of a deepening world recession
that may extend for a long period into the future, a lack of liquidity in the banking system and the unavailability and cost of credit. Continued volatility in the capital markets could adversely impact our ability to replace our reserves, and eventually, our production levels.
Our future capital resources and liquidity may depend, in part, on our success in developing the leasehold interests that we acquired. Cash is required to fund capital expenditures necessary to offset inherent declines in production and proven reserves, which is typical in the capital-intensive oil and gas industry. Future success
in growing reserves and production will be highly dependent on the capital resources available and the success of finding and acquiring additional reserves. We expect to fund our future capital requirements through internally generated cash flows and borrowings under revolving credit facilities with commercial banking institutions. Long-term cash flows are subject to a number of variables including the level of production and prices, our commodity price hedging activities as well as various economic conditions
that have historically affected the oil and natural gas industry. If oil and natural gas prices remain at their current levels for a prolonged period or if natural gas prices continue to decline, our ability to fund our capital expenditures, reduce debt, meet our financial obligations and become profitable may be materially impacted.
Debt
| |
|
As of September 30, |
|
As of December 31, |
|
| |
|
2009 |
|
|
2008 |
|
|
Revolving Credit Facility |
|
$ |
35,150 |
|
|
$ |
43,200 |
|
|
Long – term debt – related party |
|
|
88,170 |
|
|
|
80,354 |
|
|
Current maturities of long-term debt, short-term debt and bank overdraft |
|
|
11,426 |
|
|
|
22,544 |
|
|
Total debt |
|
|
134,746 |
|
|
|
146,098 |
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
18,332 |
|
|
|
25,034 |
|
| |
|
|
|
|
|
|
|
|
|
Debt to capital ratio |
|
|
88.0 |
% |
|
|
85.4 |
% |
During the nine month period ended September 30, 2009, our credit availability under the revolving credit facilities in place between our wholly owned subsidiaries and two commercial banking lenders was reduced from $81,000 thousand to $56,400 thousand (for both facilities together) as a result of the reduction in the relevant borrowing
base. The reduction is primarily due to the dramatic decline in commodity prices year-over-year. Under the reduced facility available, we can borrow up to a maximum of $56,400 thousand, of which approximately $46,150 thousand is currently outstanding. Management currently believes that the reduced availability continues to provide the liquidity needed to meet our expected working capital needs for the balance of fiscal 2009.
At September 30, 2009, the Company was in compliance with all of its debt covenants under its existing Credit Agreements.
At September 30, 2009, our total debt was $134,746 thousand compared to total debt of $146,098 thousand at year-end 2008. As of September 30, 2009, current debt included $11,000 thousand as current maturities of the Revolving Credit Facilities. However, the Company is not obligated to repay this facility prior to the due date, except
for such payments as may be required under the Credit Agreements in the event of a redetermination and reduction of the borrowing base. The entire $11,000 thousand that was recorded as due as of September 30, 2009 is attributable to management’s decision to further reduce the debt under the credit facilities below the borrowing base. As of December 31, 2008, current debt included $21,000 thousand as current maturities, which $19,750 thousand was due to management’s decision to continue
payments to reduce debt below the borrowing base.
Cash Flow
Our long-term cash flows are subject to a number of variables including our level of production and commodity prices, as well as various economic conditions that have historically affected the oil and natural gas industry. If oil and natural gas prices remain at their current levels for a prolonged period or if natural gas prices continue
to decline, our ability to fund our capital expenditures, reduce debt, meet our financial obligations and maintain operations as presently conducted and ultimately become profitable may be materially adversely impacted.
| |
|
Nine months Ended September 30, |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
(In thousands) |
|
|
Cash flows provided by operating activities |
|
$ |
16,394 |
|
|
$ |
12,516 |
|
|
Cash flows provided by (used in) investing activities |
|
|
12 |
|
|
|
(98,988 |
) |
|
Cash flows provided by (used in) financing activities |
|
|
(16,423 |
) |
|
|
91,475 |
|
|
Net increase (decrease) in cash |
|
$ |
(17 |
) |
|
$ |
5,003 |
|
Net cash provided by operating activities increased in 2009 primarily due to the acquisition of oil and gas interests in March 2008 from GFB Acquisition –I, L.P. (“GFB”) and our commodity price hedging activities which was in turn partially offset by the declines in oil and natural gas revenues, which were primarily attributable
to lower average oil and gas prices for the quarter ended September 30, 2009 of $52.08/bbl and $3.38/mcf, compared to $115.73/bbl and $9.58/mcf for the period ended September 30, 2008.
Investing Activities, Net cash flows provided by (used in) investing activities for the nine months ended September 30, 2009 and 2008 were $12 thousand and ($98,988) thousand, respectively. Net cash flows used in investing
activities in 2008 were primarily attributable to the GFB acquisition
Financing Activities, Net cash flows provided by (used in) financing activities were $(16,423) thousand and $91,475 thousand for the nine months ended September 30, 2009 and 2008, respectively.
The primary component of cash used in financing activities in 2009 is repayments made in respect of the Senior Credit Agreements in the amount of $18,050 thousand. The primary component of cash provided by financing activities in 2008 is proceeds from long-term loans obtained from related parties of $48,359 thousand and from the Senior
Credit Agreements in the amount of $54,000 thousand.
Results of Operations
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
| |
|
Three Months Ended September 30, |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
(In thousands except per share
and MBOE amounts) |
|
|
Financial Results |
|
|
|
|
|
|
|
Oil and Gas sales |
|
$ |
7,670 |
|
|
$ |
17,855 |
|
|
Other |
|
|
140 |
|
|
|
11 |
|
|
Total revenues and other |
|
|
7,810 |
|
|
|
17,866 |
|
| |
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
9,874 |
|
|
|
13,590 |
|
|
Other expense (income) |
|
|
1,172 |
|
|
|
(47,296 |
) |
|
Income tax expense (benefit) |
|
|
(1,218 |
) |
|
|
17,084 |
|
|
Net income (loss) |
|
|
(2,018 |
) |
|
|
34,488 |
|
|
Earnings per common share – basic and diluted |
|
$ |
(0.74 |
) |
|
$ |
12.69 |
|
|
Weighted average number of shares outstanding-basic and diluted |
|
|
2,717,691 |
|
|
|
2,717,691 |
|
| |
|
|
|
|
|
|
|
|
|
Operating Results |
|
|
|
|
|
|
|
|
|
Adjusted EBITDAX (1) |
|
$ |
5,801 |
|
|
$ |
6,310 |
|
|
Sales volumes (MMBOE) |
|
|
228 |
|
|
|
239 |
|
| |
|
|
|
|
|
|
|
|
|
Average cost per MBOE: |
|
|
|
|
|
|
|
|
|
Production (including transportation and taxes) |
|
$ |
17.06 |
|
|
$ |
26.92 |
|
|
General and administrative |
|
$ |
6.55 |
|
|
$ |
2.76 |
|
|
Depletion |
|
$ |
18.88 |
|
|
$ |
13.45 |
|
|
(1) |
See Adjusted EBITDAX for a description of Adjusted EBITDAX, which is not a Generally Accepted Accounting Principles (GAAP) measure, and a reconciliation of Adjusted EBITDAX to income from operations before income taxes, which is presented in accordance with GAAP. |
Financial Results
Loss from continuing Operations, In the three months ended September 30, 2009, Isramco’s income from continuing operations was ($2,018) thousand, or ($0.74) per share, compared to gain from continuing operations of $34,488 thousand, or $12.69 per share, for the same corresponding
period in 2008.
This decrease was primarily due to the impact of derivatives, sustained lower natural gas, oil and NGLs sales revenues due to lower prices and higher depreciation, depletion and amortization expenses which were partially offset by lower lease operating expenses.
Revenues, Volumes and Average Prices
Sales Revenues
| |
|
Three Months Ended September 30, |
|
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
|
Gas sales |
|
$ |
2,202 |
|
|
$ |
6,962 |
|
|
|
(68 |
)% |
|
Oil sales |
|
|
4,516 |
|
|
|
9,053 |
|
|
|
(50 |
) |
|
Natural gas liquid sales |
|
|
952 |
|
|
|
1,840 |
|
|
|
(48 |
) |
|
Total |
|
$ |
7,670 |
|
|
$ |
17,855 |
|
|
|
(57 |
)% |
Our sales revenues for the three months ended September 30, 2009 decreased by 57% when compared to same period of 2008 due to lower natural gas, oil and condensate and NGLs commodity prices.
Volumes and Average Prices
| |
|
Three Months Ended September 30, |
|
| |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
|
Natural Gas |
|
|
|
|
|
|
|
|
|
|
Sales volumes Mmcf |
|
|
734.08 |
|
|
|
742.35 |
|
|
|
(1 |
)% |
|
Average Price per Mcf (1) |
|
$ |
3.00 |
|
|
$ |
9.38 |
|
|
|
(68 |
) |
|
Total gas sales revenues (thousands) |
|
$ |
2,202 |
|
|
$ |
6,962 |
|
|
|
(68 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes MBbl |
|
|
71.13 |
|
|
|
79.43 |
|
|
|
(10 |
)% |
|
Average Price per Bbl (1) |
|
$ |
63.50 |
|
|
$ |
113.98 |
|
|
|
(44 |
) |
|
Total oil sales revenues (thousands) |
|
$ |
4,517 |
|
|
$ |
9,053 |
|
|
|
(50 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes MBbl |
|
|
34.06 |
|
|
|
35.88 |
|
|
|
(5 |
)% |
|
Average Price per Bbl (1) |
|
$ |
27.94 |
|
|
$ |
51.28 |
|
|
|
(46 |
) |
|
Total natural gas liquids sales revenues (thousands) |
|
$ |
952 |
|
|
$ |
1,840 |
|
|
|
(48 |
)% |
|
(1) |
Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting |
The company’s natural gas sales volumes decreased by 1%, crude oil sales volumes by 10% and natural gas liquids sales volumes by 5% for the three months ended September 30, 2009 compared to the same period of 2008 due primarily to a natural decline in production.
Our average natural gas price for the three months ended September 30, 2009 decreased by 68% or $6.38 per Mcf when compared to the same period of 2008. Our average crude oil price for the three months ended September 30, 2009 decreased by 44% or $50.48 per Bbl when compared to the same period of 2008. Our average natural gas liquids price
for the three months ended September 30, 2009 decreased by 46% or $23.34 per Bbl when compared to the same period of 2008.
Analysis of Oil and Gas Operations Sales Revenues
The following table provides a summary of the effects of changes in volumes and prices on Isramco’s sales revenues for the three months ended September 30, 2009 compared to the same period of 2008.
|
In thousands |
|
Natural Gas |
|
|
Oil |
|
|
Natural gas liquids |
|
|
2008 sales revenues |
|
$ |
6,962 |
|
|
$ |
9,053 |
|
|
$ |
1,840 |
|
|
Changes associated with sales volumes |
|
|
(77 |
) |
|
|
(946 |
) |
|
|
(93 |
) |
|
Changes in prices |
|
|
(4,683 |
) |
|
|
(3,591 |
) |
|
|
(795 |
) |
|
2009 sales revenues |
|
$ |
2,202 |
|
|
$ |
4,516 |
|
|
$ |
952 |
|
Operating Expenses
| |
|
Three Months Ended September 30, |
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
Lease operating expense, transportation and taxes |
|
$ |
3,882 |
|
|
$ |
6,435 |
|
|
|
(40 |
)% |
|
Depreciation, depletion and amortization |
|
|
4,296 |
|
|
|
3,263 |
|
|
|
32 |
|
|
Impairments of oil and gas assets |
|
|
- |
|
|
|
3,088 |
|
|
|
(100 |
) |
|
Accretion expense |
|
|
205 |
|
|
|
145 |
|
|
|
41 |
|
|
General and administrative |
|
|
1,491 |
|
|
|
659 |
|
|
|
126 |
|
| |
|
$ |
9,874 |
|
|
$ |
13,590 |
|
|
|
(27 |
)% |
During three months ended September 30, 2009, our operating expenses decreased by 27% when compared to the same period of 2008due to the following factors:
|
· |
Lease operating expense, transportation and taxes decreased by 40%, or $2,553 thousand, in 2009 when compared to 2008 due to lower lease operating expenses and lower commodity prices that affected the taxes paid during 2009. |
|
· |
Depreciation, Depletion &Amortization (DD&A) of the cost of proved oil and gas properties is calculated using the unit-of-production method. Our DD&A rate and expense are the composite of numerous individual field calculations. There are several factors that can impact our composite DD&A rate and expense, including but not
limited to field production profiles, drilling or acquisition of new wells, disposition of existing wells, and reserve revisions (upward or downward) primarily related to well performance and commodity prices, and impairments. Changes to these factors may cause our composite DD&A rate and expense to fluctuate from period to period. DD&A increased by 32%, or $1,033 thousand, in 2009 when compared to 2008 primarily due to lower commodity prices that impacted the estimated total reserves, which
are the basis for the depletion calculation, which partially offset by the impact of 2008 impairment of $22,093 thousand on the depletable base used to calculate DD&A |
|
· |
Accretion expense for asset retirement obligations increased by 41%, or $60 thousand in 2009 when compared to 2008. The increase reflects the impact of the increase in the revised abandonment costs at year end 2008. |
|
· |
General and administrative expenses increased by 126%, or $832 thousand, in 2009 when compared to 2008 primarily due to increases in compensation and benefit expenses associated with hiring additional employees required as a result of the GFB acquisition and assuming operation of approximately 350 additional wells in October 2008. The GFB acquisition also increased the volume of the activities and, as a result, the indirect expenses of the activities. |
Other expenses
| |
|
Three Months Ended September 30, |
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
|
Interest expense, net |
|
$ |
2,288 |
|
|
$ |
2,828 |
|
|
|
(19 |
)% |
|
Net gain on derivative contracts |
|
|
(1,116 |
) |
|
|
(50,124 |
) |
|
|
(98 |
) |
| |
|
$ |
1,172 |
|
|
$ |
(47,296 |
) |
|
|
(102 |
)% |
Interest expense. Isramco’s interest expense decreased by 19%, or $540 thousand, for the three month ended September 30, 2009 compared to the same period of 2008. This decrease is primarily due to the lower average outstanding balance of loans which
we obtained to fund the Five States acquisition in 2007 and the GFB acquisition in 2008 and decreases in average LIBOR rates in 2009. The decrease was partially offset by the payments on interest rate swaps.
Net gain on derivative contracts. We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with the prior year, we have elected not to designate any positions as cash flow
hedges for accounting purposes. Accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the consolidated statement of operations.
At September 30, 2009, the Company had a $10.8 million derivative asset, which $6 million was classified as current. For the three months ended September 30, 2009, the Company recorded a net derivative gain of $1.12 million ($2.25 million unrealized loss and a $3.37 million gain from net cash proceeds on settled contracts).
At September 30, 2008, the Company had a $18.7 million derivative liability, $5.3 million of which was classified as current. For the three months ended September 30, 2008, the Company recorded a net derivative gain of $50.1 million ($54.6 million unrealized gain and a $4.5 million net loss for cash payments on settled contracts).
Adjusted EBITDAX.
To assess the operating results of Isramco, management analyzes income from operations before income taxes, interest expense, exploration expense, unrealized gain (loss) on derivative contracts and DD&A expense and impairments (“Adjusted EBITDAX”). EBITDAX is not a GAAP measure. Isramco’s definition of Adjusted EBITDAX
excludes exploration expense because exploration expense is not an indicator of operating efficiency for a given reporting period, but rather is monitored by management as a part of the costs incurred in exploration and development activities. Similarly, Isramco excludes DD&A expense and impairments from Adjusted EBITDAX as a measure of segment operating performance because capital expenditures are evaluated at the time capital costs are incurred. The Company’s definition of Adjusted EBITDAX also excludes
interest expense to allow for assessment of segment operating results without regard to Isramco’s financing methods or capital structure. Adjusted EBITDAX is a widely accepted financial indicator of a company’s ability to incur and service debt and fund capital expenditures and make payments on its long term loans and Management believes that the presentation of Adjusted EBITDAX provides information useful in assessing the Company’s financial condition and results of operations.
However, Adjusted EBITDAX, as defined by Isramco, may not be comparable to similarly titled measures used by other companies. Therefore, Isramco’s consolidated Adjusted EBITDAX should be considered in conjunction with income (loss) from operations and other performance measures prepared in accordance with GAAP, such as operating income
or cash flow from operating activities. Adjusted EBITDAX has important limitations as an analytical tool because it excludes certain items that affect income from continuing operations and net cash provided by operating activities. Adjusted EBITDAX should not be considered in isolation or as a substitute for an analysis of Isramco’s results as reported under GAAP. Below is a reconciliation of consolidated Adjusted EBITDAX to income (loss) from operations before income taxes.
| |
|
Three Months Ended September 30, |
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
Income from operations before income taxes |
|
$ |
(3,236 |
) |
|
$ |
51,572 |
|
|
Depreciation, depletion, amortization and impairment expense |
|
|
4,296 |
|
|
|
6,351 |
|
|
Interest expense |
|
|
2,288 |
|
|
|
2,828 |
|
|
Unrealized gain on derivative contract |
|
|
2,248 |
|
|
|
(54,586 |
) |
|
Accretion Expenses |
|
|
205 |
|
|
|
145 |
|
|
Other nonrecurring items - amortization of Inventory |
|
|
- |
|
|
|
- |
|
|
Consolidated Adjusted EBITDAX |
|
$ |
5,801 |
|
|
$ |
6,310 |
|
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
| |
|
September 30, |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
(In thousands except per share
and MBOE amounts) |
|
|
Financial Results |
|
|
|
|
|
|
|
Oil and Gas sales |
|
$ |
21,408 |
|
|
$ |
44,203 |
|
|
Other |
|
|
808 |
|
|
|
266 |
|
|
Total revenues and other |
|
|
22,216 |
|
|
|
44,469 |
|
| |
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
28,016 |
|
|
|
27,760 |
|
|
Other expense |
|
|
6,946 |
|
|
|
24,630 |
|
|
Income tax benefit |
|
|
(4,504 |
) |
|
|
(2,575 |
) |
|
Net loss |
|
|
(8,242 |
) |
|
|
(5,346 |
) |
|
Earnings per common share – basic and diluted |
|
$ |
(3.03 |
) |
|
$ |
(1.97 |
) |
|
Weighted average number of shares outstanding-basic and diluted |
|
|
2,717,691 |
|
|
|
2,717,691 |
|
| |
|
|
|
|
|
|
|
|
|
Operating Results |
|
|
|
|
|
|
|
|
|
Adjusted EBITDAX (1) |
|
$ |
20,218 |
|
|
$ |
19,543 |
|
|
Sales volumes (MMBOE) |
|
|
682 |
|
|
|
585 |
|
| |
|
|
|
|
|
|
|
|
|
Average cost per MBOE: |
|
|
|
|
|
|
|
|
|
Production (including transportation and taxes) |
|
$ |
16.34 |
|
|
$ |
26.04 |
|
|
General and administrative |
|
$ |
4.70 |
|
|
$ |
3.09 |
|
|
Depletion |
|
$ |
19.13 |
|
|
$ |
12.45 |
|
|
(1) |
See Adjusted EBITDAX for a description of Adjusted EBITDAX, which is not a Generally Accepted Accounting Principles (GAAP) measure, and a reconciliation of Adjusted EBITDAX to income from operations before income taxes, which is presented in accordance with GAAP. |
Financial Results
Loss from continuing Operations, in the nine months ended September 30, 2009, Isramco’s loss from continuing operations was ($8,242) thousand, or ($3.03) per share. This compared to loss from continuing operations of ($5,346) thousand, or ($1.97) per share, for the same period
of 2008.
This decrease was primarily due to sustained lower natural gas, oil and NGLs sales revenues due to lower prices, the impact of derivatives, higher depreciation, depletion and amortization expenses and higher interest expense due to the above referenced acquisition which were partially offset by increases in sales volumes of natural
gas, oil and natural gas liquids (“NGL”) due to the GFB acquisition in March 2008, lower lease operating expenses and tax benefit.
Revenues, Volumes and Average Prices
Sales Revenues
| |
|
Nine Months Ended September 30, |
|
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
|
Gas sales |
|
$ |
6,979 |
|
|
$ |
17,744 |
|
|
|
(61 |
)% |
|
Oil sales |
|
|
11,493 |
|
|
|
21,336 |
|
|
|
(46 |
) |
|
Natural gas liquid sales |
|
|
2,936 |
|
|
|
5,123 |
|
|
|
(43 |
) |
|
Total |
|
$ |
21,408 |
|
|
$ |
44,203 |
|
|
|
(52 |
)% |
Our sales revenues for the nine months ended September 30, 2009 decreased by 52% when compared to same period of 2008 due to lower natural gas, oil and condensate and NGLs commodity prices. This decrease was partially offset by increases in sales volumes of natural gas, oil and natural gas liquids due to the GFB acquisition.
Volumes and Average Prices
| |
|
Nine Months Ended September 30, |
|
| |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
|
Natural Gas |
|
|
|
|
|
|
|
|
|
|
Sales volumes Mmcf |
|
|
2,067.22 |
|
|
|
1,852.68 |
|
|
|
12 |
% |
|
Average Price per Mcf (1) |
|
$ |
3.38 |
|
|
$ |
9.58 |
|
|
|
(65 |
) |
|
Total gas sales revenues (thousands) |
|
$ |
6,979 |
|
|
$ |
17,744 |
|
|
|
(61 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes MBbl |
|
|
220.71 |
|
|
|
184.36 |
|
|
|
20 |
% |
|
Average Price per Bbl (1) |
|
$ |
52.08 |
|
|
$ |
115.73 |
|
|
|
(55 |
) |
|
Total oil sales revenues (thousands) |
|
$ |
11,494 |
|
|
$ |
21,336 |
|
|
|
(46 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas liquids |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes MBbl |
|
|
116.69 |
|
|
|
91.72 |
|
|
|
27 |
% |
|
Average Price per Bbl (1) |
|
$ |
25.16 |
|
|
$ |
55.85 |
|
|
|
(55 |
) |
|
Total natural gas liquids sales revenues (thousands) |
|
$ |
2,936 |
|
|
$ |
5,123 |
|
|
|
(43 |
)% |
|
(1) |
Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting |
The company’s natural gas sales volumes increased by 12%, crude oil sales volumes by 20% and natural gas liquids sales volumes by 27% for the nine months ended September 30, 2009 compared to the same period of 2008 primarily due to GFB acquisition.
Our average natural gas price for the nine months ended September 30, 2009 decreased by 65% or $6.20 per Mcf when compared to the same period of 2008. Our average crude oil price for the nine months ended September 30, 2009 decreased by 55% or $63.66 per Bbl when compared to the same period of 2008. Our average natural gas liquids price
for the nine months ended September 30, 2009 decreased by 55% or $30.69 per Bbl when compared to the same period of 2008.
Analysis of Oil and Gas Operations Sales Revenues
The following table provides a summary of the effects of changes in volumes and prices on Isramco’s sales revenues for the nine months ended September 30, 2009 compared to the same period of 2008.
|
In thousands |
|
Natural Gas |
|
|
Oil |
|
|
Natural gas liquids |
|
|
2008 sales revenues |
|
$ |
17,744 |
|
|
$ |
21,336 |
|
|
$ |
5,123 |
|
|
Changes associated with sales volumes |
|
|
2,055 |
|
|
|
4,207 |
|
|
|
1,395 |
|
|
Changes in prices |
|
|
(12,820 |
) |
|
|
(14,050 |
) |
|
|
(3,582 |
) |
|
2009 sales revenues |
|
$ |
6,979 |
|
|
$ |
11,493 |
|
|
$ |
2,936 |
|
Operating Expenses
| |
|
Nine Months Ended September 30, |
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
Lease operating expense, transportation and taxes |
|
$ |
11,145 |
|
|
$ |
15,231 |
|
|
|
(27 |
)% |
|
Depreciation, depletion and amortization |
|
|
13,047 |
|
|
|
7,283 |
|
|
|
79 |
|
|
Impairments of oil and gas assets |
|
|
- |
|
|
|
3,137 |
|
|
|
(100 |
) |
|
Accretion expense |
|
|
619 |
|
|
|
300 |
|
|
|
106 |
|
|
General and administrative |
|
|
3,205 |
|
|
|
1,809 |
|
|
|
77 |
|
| |
|
$ |
28,016 |
|
|
$ |
27,760 |
|
|
|
1 |
% |
During nine months ended September 30, 2009, our operating expenses increased by 1% when compared to the same period of 2008due to the following factors:
|
· |
Lease operating expense, transportation and taxes decreased by 27%, or $4,086 thousand, in 2009 when compared to 2008 due to lower lease operating expenses and lower commodity prices that affected the taxes paid during 2009 which was partially offset by approximately $1,600 thousand in additional operating expenses, transportation and taxes
attributable to the properties acquired in the GFB acquisition. |
|
· |
Depreciation, Depletion &Amortization (DD&A) of the cost of proved oil and gas properties is calculated using the unit-of-production method. Our DD&A rate and expense are the composite of numerous individual field calculations. There are several factors that can impact our composite DD&A rate and expense, including but not
limited to field production profiles, drilling or acquisition of new wells, disposition of existing wells, and reserve revisions (upward or downward) primarily related to well performance and commodity prices, and impairments. Changes to these factors may cause our composite DD&A rate and expense to fluctuate from period to period. DD&A increased by 79%, or $5,764 thousand, in 2009 when compared to 2008 primarily due to approximately $2,720 thousand DD&A which was related to the oil
and gas properties acquired in GFB acquisition and lower commodity prices that impacted the estimated total reserves, which are the basis for the depletion calculation, which partially offset by the impact of 2008 impairment of $22,093 thousand on the depletable base used to calculate DD&A |
|
· |
Accretion expense for asset retirement obligations increased by 106%, or $319 thousand in 2009 when compared to 2008. The increase reflects the impact of the increase in the revised abandonment costs at year end 2008 and due to the GFB acquisition. |
|
· |
General and administrative expenses increased by 77%, or $1,396 thousand, in 2009 when compared to 2008 primarily due to increases in compensation and benefit expenses associated with hiring additional employees required as a result of the GFB acquisition and assuming
operation of approximately 350 additional wells in October 2008. The GFB acquisition also increased the volume of the activities and, as a result, the indirect expenses of the activities. |
Other expenses
| |
|
Nine Months Ended September 30, |
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
D vs. 2008 |
|
|
Interest expense, net |
|
$ |
7,091 |
|
|
$ |
6,713 |
|
|
|
6 |
% |
|
Net loss (gain) on derivative contracts |
|
|
(145 |
) |
|
|
17,917 |
|
|
|
(101 |
) |
| |
|
$ |
6,946 |
|
|
$ |
24,630 |
|
|
|
(72 |
)% |
Interest expense. Isramco’s interest expense increased by 6%, or $378 thousand, for the nine month period ended September 30, 2009 compared to the same period of 2008. This increase is primarily attributable to interest on loans we obtained from banks and
related parties for funding the GFB acquisition and payments on interest rate swaps. The increase was partially offset by the lower average outstanding balance of the loans which we obtained to fund the Five States acquisition in 2007 and decreases in average LIBOR rates in 2009.
Net loss (gain) on derivative contracts. We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with the prior year, we have elected not to designate any positions as cash
flow hedges for accounting purposes. Accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the consolidated statement of operations.
At September 30, 2009, the Company had a $10.8 million derivative asset, which $6 million was classified as current. For the nine months ended September 30, 2009, the Company recorded a net derivative gain of $0.14 million ($12.21 million unrealized loss and a $12.35 million gain from net cash proceeds on settled contracts).
At September 30, 2008, the Company had a $18.7 million derivative liability, $5.3 million of which was classified as current. For the nine months ended September 30, 2008, the Company recorded a net derivative loss of $17.9 million ($8.9 million unrealized loss and a $9 million net loss for cash payments on settled contracts).
Adjusted EBITDAX.
To assess the operating results of Isramco, management analyzes income from operations before income taxes, interest expense, exploration expense, unrealized gain (loss) on derivative contracts and DD&A expense and impairments (“Adjusted EBITDAX”). EBITDAX is not a GAAP measure. Isramco’s definition of Adjusted EBITDAX
excludes exploration expense because exploration expense is not an indicator of operating efficiency for a given reporting period, but rather is monitored by management as a part of the costs incurred in exploration and development activities. Similarly, Isramco excludes DD&A expense and impairments from Adjusted EBITDAX as a measure of segment operating performance because capital expenditures are evaluated at the time capital costs are incurred. The Company’s definition of Adjusted EBITDAX also excludes
interest expense to allow for assessment of segment operating results without regard to Isramco’s financing methods or capital structure. Adjusted EBITDAX is a widely accepted financial indicator of a company’s ability to incur and service debt and fund capital expenditures and make payments on its long term loans and Management believes that the presentation of Adjusted EBITDAX provides information useful in assessing the Company’s financial condition and results of operations.
However, Adjusted EBITDAX, as defined by Isramco, may not be comparable to similarly titled measures used by other companies. Therefore, Isramco’s consolidated Adjusted EBITDAX should be considered in conjunction with income (loss) from operations and other performance measures prepared in accordance with GAAP, such as operating income
or cash flow from operating activities. Adjusted EBITDAX has important limitations as an analytical tool because it excludes certain items that affect income from continuing operations and net cash provided by operating activities. Adjusted EBITDAX should not be considered in isolation or as a substitute for an analysis of Isramco’s results as reported under GAAP. Below is a reconciliation of consolidated Adjusted EBITDAX to income (loss) from operations before income taxes.
| |
|
Nine Months Ended September 30, |
|
In thousands except percentages |
|
2009 |
|
|
2008 |
|
|
Income from operations before income taxes |
|
$ |
(12,746 |
) |
|
$ |
(7,921 |
) |
|
Depreciation, depletion, amortization and impaiment expense |
|
|
13,047 |
|
|
|
10,420 |
|
|
Interest expense |
|
|
7,091 |
|
|
|
6,713 |
|
|
Unrealized gain on derivative contract |
|
|
12,207 |
|
|
|
8,950 |
|
|
Accretion Expenses |
|
|
619 |
|
|
|
300 |
|
|
Other nonrecurring items - amortization of Inventory |
|
|
- |
|
|
|
1,081 |
|
|
Consolidated Adjusted EBITDAX |
|
$ |
20,218 |
|
|
$ |
19,543 |
|
Evaluation of Disclosure Controls and Procedures.
Disclosure controls and procedures are controls and other procedures of a registrant designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is properly recorded, processed, summarized, and reported, within the time periods specified in the Securities
and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to a registrant’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.
As described in our Annual Report on Form 10-K for the year ended December 31, 2008, under “Evaluation of Disclosure Controls and Procedures”, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2008, as required by Rule 13a-15 of the Exchange Act,
and management concluded that our disclosure controls and procedures were not effective for the reasons specified therein. We again evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009, as required by Rule 13a-15 of the Exchange Act, and again management concluded that our disclosure controls and procedures were not effective for the same reasons. As of September 30, 2009, material weaknesses were identified in our internal control
over financial reporting, relating primarily to the shortage of support and resources in our accounting. Based on the evaluation described above, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2009, our disclosure controls and procedures were not effective to ensure (i) that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the
SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We are currently in the process of implementing the remediation initiatives discussed under “Remediation Initiatives” described in our Annual Report on Form 10-K for the
year ended December 31, 2008.
Changes in Internal Controls Over Financial Reporting
As described in our Annual Report on Form 10-K for the year ended December 31, 2008, under “Management’s Report on Internal Control Over Financial Reporting,” we identified material weaknesses as of such date. Other than as described above, no material change in our internal control over financial reporting
(as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are currently in the process of implementing the remediation initiatives discussed under “Remediation Initiatives” described in our Annual Report on Form 10-K for the year ended December 31, 2008.
|
PART II - Other Information |
| |
|
|
|
Legal Proceedings |
Without providing prior notice of their claims or any demand, two putative shareholder derivative actions were filed by individual shareholders on June 1, 2009 and June 12, 2009, respectively, in the District Court of Harris County, Texas, naming certain of our officers and directors as defendants. The complaints, which are similar,
purport to assert derivative claims for the benefit of the Company to redress injuries allegedly suffered by the Company as a result of alleged breaches of fiduciary duties by the named defendants in connection with the Company’s entry into an Amended and Restated Agreement with Goodrich Global Ltd., a company owned and controlled by our Chairman and Chief Executive Officer, Haim Tsuff. In particular, the plaintiffs objected to a provision in such agreement whereby Goodrich Global is allegedly
entitled to receive an amount in cash equal to 5% of our pre-tax recorded profit. The complaints seek unspecified money damages, disgorgement of any proceeds from the restated agreement, voiding of the agreement, other equitable relief, and costs and disbursements, including attorneys’ fees.
On July 10, 2009, Haim Tsuff and Goodrich removed both lawsuits from State to Federal court, with the consent of the Company and the other defendant directors. Subsequently, the Company, Tsuff and Goodrich filed Motions to Dismiss, which are pending. The plaintiffs requested that the cases be remanded back to
State courts in which the cases were originally filed, and this request was granted. Management believes that these cases have no merit and will vigorously defend the actions.
None
|
|
Change in Securities & Use of Proceeds |
None
|
|
Default Upon Senior Securities |
None
|
|
Submission of Matters to a Vote of Security Holders |
None
|
Exhibits |
|
|
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. .
| |
ISRAMCO, INC |
|
| |
|
|
|
|
Date: NOVEMBER 10, 2009 |
By: |
/s/ HAIM TSUFF |
|
| |
|
HAIM TSUFF |
|
| |
|
CHIEF EXECUTIVE OFFICER |
|
| |
|
(PRINCIPAL EXECUTIVE OFFICER) |
|
| |
|
|
| |
|
|
|
|
Date: NOVEMBER 10, 2009 |
By: |
/s/ EDY FRANCIS |
|
| |
|
EDY FRANCIS |
|
| |
|
CHIEF FINANCIAL OFFICER |
|
| |
|
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) |
|