On March 1, 2012, GMX Resources Inc. (NYSE: GMXR) announced its financial and operating results for Q4’11 and the fiscal year-ended December 31, 2011.

GMXR reported a Q4’11 net loss of $79.8 million, or a loss of $1.39 per share, compared to a net loss of $149.0 million, or a loss of $5.27 per share, during the same period in 2010. Oil and gas sales during Q4’11 totaled $26.1 million compared to $27.2 million during Q4’10. Production rates for Q4’11 averaged 52.3 MMcfe/d, 9% lower than the company averaged during the same period in 2010 because of the company’s VPP sale in December 2011 which decreased production 450 MMcfe for December.

During fiscal year 2011, the company reported a net loss of $218.6 million, or a loss of $4.12 per share, compared to a net loss of $146.0 million, or a loss of $5.18 per share, during fiscal year 2010. Oil and gas sales for 2011 totaled $116.7 million compared to $96.5 million in 2010. The company’s total production for 2011 averaged 64.4 MMcfe/d, an increase of 35% over 2010.

OAG360 Comments:

GMXR spent 2011 transitioning from a natural gas-weighted company to an oil-weighted company and raising liquidity to fulfill capital spending. In Q4’11 alone, GMXR’s average production from oil and natural gas liquids (NGLs) increased 35% to 1.5 MBOEPD while production from natural gas decreased 15% to 43.3 MMcfe/d compared to the same period in 2010. The company purchased 35,524 net acres the Williston Basin and 40,191 net acres prospective for the Niobrara formation, providing the company with 150 potential drilling units (1,280 acre-spacing) and 146 drilling units (640-acre spacing) for the Bakken and Niobrara formations, respectively. The company is further along with its evaluation of its Bakken acreage. In Wyoming the majority of the Company’s 204-square mile Chugwater 3D seismic shoot that encompasses GMX’s Platte, Laramie and Goshen Counties, Wyoming leases was completed and is currently in processing.

While the company only grew oil and NGL reserves to 4% of total reserves in 2011, up from 2% of total reserves in 2010, its oil drilling program for the Bakken has just begun and with success we could see the company’s oil cut continue to increase as it delineates its Bakken acreage.

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The company’s first two operated wells, Wock 21-2-1H (100% WI) and Frank 31-4-1H (52% WI), were both in Stark County, North Dakota, and underperformed expectations with IP rates of 450 BOEPD gross and 240 BOEPD gross. The company achieved stronger completions on its first two non-operated Bakken wells, Marsh 21-16TFH (Whiting operated; 2% WI) and Taboo 1-25-36H (Slawson operated; 25% WI), which flowed back at average IP rates of 2,694 BOEPD gross and 1,436 BOEPD gross, respectively. Moving forward, the company will focus the drill bit on developing its Bakken acreage in McKenzie and Billings Counties, North Dakota. GMXR’s first Billings County completion, Evoniuk 21-2-1H (76% WI) IP’d at 637 BOEPD gross, making it the company’s best Bakken completion to date.

GMXR’s next Bakken completion is Lange 11-30-1H (89% WI) which is a direct offset to the Slawson operated Taboo well (IP rate: 1,436 BOEPD) and will be a measuring stick for the company’s progress as an operator in the Bakken. The Lange well will be a catalyst for the company’s stock which has performed well as of late (see graph below). Since closing at a 52-week low of $0.88 on January 31, 2012, GMXR’s share price has increased 93% to $1.70 as of market close March 1, 2012.

2012 Capital Expenditures, Liquidity.

GMXR’s Board approved a $97 million (including capitalized interest expense and G&A) 2012 CAPEX, $68 million of which will be allocated to drilling 7.1 net wells in the Bakken. The company expects to fund its budget using cash-on-hand ($106.8 million as of 12/31/11), cash flow from operations ($50.6 million generated in 2011) and proceeds from its anticipated Niobrara acreage sale in 2012.

GMXR is currently taking a “wait and see approach” with respect to its capital allocation to the Niobrara in 2012. The company participated as a non-operator in one Niobrara well in 2011, Newton Ranches 14-3444H (29% WI), operated by Devon Energy Corp. (NYSE: DVN) and did not disclose completion results. GMXR will participate as a non-operator in a second DVN well in 2012, Newton Ranches #3-2635H (5.9% WI), which will spud in the summer. The company will monitor completion results from these two wells as well as results from other DVN wells before determining how much capital it will allocate to the Niobrara in 2012. Management said in its year-end news release: “We are continuing to solve for additional liquidity. Based off the activity of other operators in the DJ Basin and new interest in our Niobrara acreage sale we remain optimistic in completing a partial sale.”


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