GEOI Georesources, Inc. (MM)

GeoResources, Inc., (NASDAQ:GEOI), today announced its financial results for the three and six months ended June 30, 2009.

For the three months ended June 30, 2009, the Company reported total revenues of $19.3 million and net income of $3.5 million, or $0.22 per diluted common share. Oil production totaled 212 MBbls for the second quarter of 2009, an increase of 15% over the second quarter of 2008. Natural gas production totaled 1,087 MMcf in the second quarter of 2009, an increase of 51% over the comparable period in 2008. The production increases were a result of the Company’s acquisition and drilling activities; prior year production included fields that were sold as part of the Company’s divestiture strategy. The average realized price of oil, net of hedges, for the second quarter of 2009 was $59.28 per barrel compared to $97.66 per barrel in the second quarter of 2008, a decrease of 39%. The average realized price of natural gas, net of hedges, was $3.89 per Mcf for the second quarter of 2009, compared to $9.74 per Mcf or 60% less than the second quarter of 2008. For the second quarter of 2008, revenues totaled $28.2 million and net income was $7.8 million, or $0.50 per diluted common share.

For the first half of 2009, revenues totaled $33.8 million and net income was $4.0 million or $0.24 per diluted common share. Oil production totaled 389 MBbls, an increase of 1% over the 385 MBbls produced for the first half of 2008. Natural gas production totaled 1,752 MMcf in the first half of 2009, an increase of 15% over the comparable period in 2008. The production increases were a result of the Company’s acquisition and drilling activities; prior year production included fields that were sold as part of the Company’s divestiture strategy. The average realized price of oil, net of hedges, was $56.87 per barrel for the first half of 2009 or 36% less than the first half of the prior year. The average realized price of natural gas was $4.01 per Mcf or 54% less than the first half of 2008. For the first half of 2008, revenues totaled $52.2 million and net income was $12.0 million, or $0.79 per diluted common share.

Earnings before interest, income taxes, depreciation, depletion and amortization, and exploration expense and impairments (“EBITDAX”) totaled $12.0 million for the second quarter, 2009 compared to $17.7 million in the prior year’s similar quarter, representing a decrease of 32%. EBITDAX for the first six months of 2009 totaled $18.2 million compared to $30.0 million in the prior year’s first half, representing a decrease of 39%. The following table reconciles reported net income to EBITDAX for the periods indicated (in thousands, except per share information):

    Three Months Ended June 30, 2009   2008     Net income (loss) $ 3,499 $ 7,790 Add back: Interest expense 1,144 1,314 Income tax 2,216 4,546 Depreciation, depletion and amortization 4,725 3,573 Exploration and impairments   416     502   EBITDAX (1) $ 12,000   $ 17,725      

 Six Months Ended June 30, 

2009   2008     Net income (loss) $ 3,976 $ 12,014 Add back: Interest expense 1,963 2,883 Income tax 2,576 7,142 Depreciation, depletion and amortization 9,193 7,450 Exploration and impairments   496     502   EBITDAX (1) $ 18,204   $ 29,991

(1) Earnings before interest, income taxes, depreciation, depletion and amortization, and exploration expense and impairments. EBITDAX should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with, nor superior to, generally accepted accounting principles, but provides additional information for evaluation of our operating performance.

Severance Taxes

The reported earnings include the impacts of severance tax credits related to the Company’s Austin Chalk drilling program. During the second quarter of 2009, the Company received certain tax exemptions from the State of Texas. As a result, we qualify for significant refunds; future production from qualified wells will be exempt from severance taxes for up to ten years. The second quarter earnings reflect an amount of $599,000 shown as a reduction of severance tax expense and $1.3 million reported as partnership income representing our share of partnership tax refunds. In addition, the Company recorded an additional $2.5 million as a reduction to the acquisition price of recent property acquisitions closed in May.

CommentsFrank Lodzinski, CEO and President commented, “Our results for the second quarter are in line with our expectations and begin to reflect the earnings and cash flows of our continued drilling and development programs and significant acquisitions closed during May. We realized substantial net income and EBITDAX, for the second quarter, in the amounts of $3.5 million and $12.0 million, respectively. Despite divestitures, which are an important ingredient of our business strategy to high-grade our portfolio, production for both the three and six month periods ended June 30, 2009 increased over the prior year. The State of Texas severance tax exemptions are significant in that they will further enhance the economics of our drilling programs and result in future positive earnings impacts. Excluding the non-recurring portion of the severance tax refunds, our second quarter earnings and EBITDAX would have been $2.3 million and $10.0 million, respectively. We expect our future earnings to benefit from natural gas hedges, and lower per-unit lease operating expenses. The Company hedged a total of 3,420,000 Mmbtu of natural gas at $5.16 and $5.20 per Mmbtu over an 18 month period commencing July 1, 2009. In addition, lease operating costs are declining on a unit-of-production basis. This reduction not only reflects declines in costs of services and supplies but is also a direct result of our field re-engineering and development drilling activities. We will continue to focus on cash flow and our bottom line while we pursue our business plan.”

Lodzinski further commented, “On July 13, 2009, the Company increased its first secured credit facility to $250 million with a term extending to October 16, 2012 and a borrowing base of $135 million. The participating banks include, Wachovia Bank, Comerica Bank, BBVA Compass, U.S. Bank, Frost National Bank, Bank of Texas and Natixis. Our strong cash flows, working capital and liquidity, in our debt capacity, position us favorably to continue our growth.”

About GeoResources, Inc.GeoResources, Inc. is an independent oil and gas company engaged in the acquisition and development of oil and gas reserves through an active and diversified program which includes purchases of reserves, re-engineering, and development and exploration activities primarily focused in three core areas – the Southwest, Gulf Coast, and the Williston Basin. For more information, visit our website at www.georesourcesinc.com.

Forward-Looking Statements

Information herein contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as "may," "will," "expect," "anticipate," "estimate" or "continue," or comparable words. All statements other than statements of historical facts that address activities that the Company expects or anticipates will or may occur in the future are forward-looking statements. Readers are encouraged to read our 10-K/A for the year ended December 31, 2008 and the other SEC reports of the Company and any and all other documents filed with the SEC regarding information about GeoResources for meaningful cautionary language in respect of the forward-looking statements herein. Interested persons are able to obtain free copies of filings containing information about GeoResources, without charge, at the SEC’s Internet site (http://www.sec.gov).

GEORESOURCES, INC and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)    

   June 30,   

December 31, 2009 2008 ASSETS (unaudited)   Current assets:   Cash $ 7,670 $ 13,967 Accounts receivable Oil and gas revenues 11,038 11,439 Joint interest billings and other 14,200 7,172 Affiliated partnerships 2,374 2,905 Notes receivable 120 120 Derivative financial instruments 2,385 8,200 Income taxes receivable 3,139 2,165 Prepaid expenses and other 3,722 3,923     Total current assets   44,648     49,891     Oil and gas properties, successful efforts method:   Proved properties 268,686 204,536 Unproved properties 7,310 2,409 Office and other equipment 763 1,025 Land   96     96   276,855 208,066   Less accumulated depreciation, depletion and amortization (34,946 ) (26,486 )     Net property and equipment   241,909     181,580       Equity in oil and gas limited partnerships 3,442 3,266   Derivative financial instruments 346 6,409   Deferred financing costs and other   1,606     2,388     $ 291,951   $ 243,534     GEORESOURCES, INC and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)    

   June 30,  

December 31, 2009 2008 (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities:   Accounts payable $ 6,314 $ 10,750 Accounts payable to affiliated partnerships 8,333 10,310 Revenue and royalties payable 14,189 11,701 Drilling advances 239 2,169 Accrued expenses 1,506 1,506 Derivative financial instruments 3,483 1,572     Total current liabilities   34,064     38,008   Long-term debt 98,000 40,000   Deferred income taxes 16,078 17,868   Asset retirement obligations 5,624 5,418   Derivative financial instruments 502 1,245   Stockholders' equity:

Common stock, par value $0.01 per share; authorized 100,000,000 shares; issued and outstanding: 16,241,717

162 162 Additional paid-in capital 113,184 112,523 Accumulated other comprehensive (loss) income (666 ) 7,283 Retained earnings 25,003 21,027     Total stockholders' equity   137,683     140,995   $ 291,951   $ 243,534   GEORESOURCES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share and per share amounts) (unaudited)         Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008   Revenue: Oil and gas revenues $ 16,829 $ 25,118 $ 29,129 $ 47,581 Partnership management fees 398 522 696 834 Property operating income 456 357 914 671 Gain on sale of property and equipment 89 1,551 1,488 1,961 Partnership income 1,455 429 1,460 655 Interest and other   35   228     140     450   Total revenue 19,262 28,205 33,827 52,152   Expenses: Lease operating expense 4,417 5,789 8,807 11,580 Severance taxes 568 2,428 1,362 4,317 Re-engineering and workovers 315 984 1,296 1,682 Exploration expense 288 502 368 502 Impairment of oil and gas properties 128 - 128 - General and administrative expense 1,930 1,861 4,025 3,645 Depreciation, depletion and amortization 4,725 3,573 9,193 7,450 Hedge ineffectiveness 26 (582 ) 75 937 Loss on derivative contracts 6 - 58 - Interest   1,144   1,314     1,963     2,883   Total expense 13,547 15,869 27,275 32,996   Income before income taxes 5,715 12,336 6,552 19,156   Income tax expense (benefit): Current 202 1,330 (532 ) 2,759 Deferred   2,014   3,216     3,108     4,383 2,216 4,546 2,576 7,142         Net income $ 3,499 $ 7,790   $ 3,976   $ 12,014   Net income per share (basic) $ 0.22 $ 0.51   $ 0.24   $ 0.80   Net income per share (diluted) $ 0.22 $ 0.50   $ 0.24   $ 0.79   Weighted average shares outstanding: Basic   16,241,717   15,214,494     16,241,717     14,958,939   Diluted   16,241,717   15,504,668     16,241,717     15,145,777   GEORESOURCES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) (unaudited)       Six Months Ended June 30, Cash flows from operating activities: 2009 2008 Net income $ 3,976 $ 12,014

Adjustments to reconcile net income to net cash providedby operating activities:

Depreciation, depletion and amortization 9,193 7,450 Unproved property impairments - 483 Proved property impairments 128 - Gain on sale of property and equipment (1,488 ) (1,961 ) Accretion of asset retirement obligations 177 216 Unrealized gain on derivative contracts (119 ) - Amortization of loss on canceled hedge contract 243 - Hedge ineffectiveness loss 75 937 Partnership income (1,460 ) (655 ) Partnership distributions 1,284 194 Deferred income taxes 3,108 4,383 Non-cash compensation 661 298 Changes in assets and liabilities: Increase in accounts receivable (7,070 ) (13,534 ) Decrease in notes receivable 215 480 Decrease (increase) in prepaid expense and other 862 (623 ) Increase (decrease) in accounts payable and accrued expense   (5,855 )   17,006   Net cash provided by operating activities 3,930 26,688   Cash flows from investing activities: Proceeds from sale of property and equipment 1,991 20,432 Additions to property and equipment (70,218 ) (33,311 ) Investment in oil and gas limited partnership   -     (978 ) Net cash used in investing activities (68,227 ) (13,857 )   Cash flows from financing activities: Issuance of common stock - 32,317 Issuance of long-term debt 58,000 - Reduction of long-term debt   -     (46,000 ) Net cash provided by (used in) financing activities 58,000 (13,683 )     Net decrease in cash and cash equivalents   (6,297 )   (852 )   Cash and cash equivalents at beginning of period 13,967 24,430     Cash and cash equivalents at end of period $ 7,670   $ 23,578     Supplementary information: Interest paid $ 1,650 $ 2,831 Income taxes paid $ 478 $ 4,210