GEOMET, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Revenues: Gas sales $ 6,838 $ 20,701 $ 16,290 $ 36,282 Operating fees and other 77 203 175 501 ---------- ---------- ---------- ---------- Total revenues 6,915 20,904 16,465 36,783 Expenses: Total production expenses 4,954 5,280 11,339 10,495 Depreciation, depletion and amortization 1,982 2,489 5,018 4,949 Impairment of gas properties 27,582 -- 167,295 -- General and administrative 2,181 2,887 5,154 5,380 Realized (gains) losses on derivative contracts (2,734) 1,493 (5,457) 631 Unrealized losses on derivative contracts 2,144 12,098 1,958 20,745 ---------- ---------- ---------- ---------- Total operating expenses 36,109 24,247 185,307 42,200 ---------- ---------- ---------- ---------- Operating loss (29,194) (3,343) (168,842) (5,417) Other expenses & interest, net (1,404) (1,069) (2,378) (2,371) ---------- ---------- ---------- ---------- Loss before income taxes (30,598) (4,412) (171,220) (7,788) Income tax benefit 11,212 1,235 64,108 2,469 ---------- ---------- ---------- ---------- Net loss $ (19,386) $ (3,177) $ (107,112) $ (5,319) ========== ========== ========== ========== Loss per share: Net loss Basic $ (0.50) $ (0.08) $ (2.75) $ (0.14) ========== ========== ========== ========== Diluted $ (0.50) $ (0.08) $ (2.75) $ (0.14) ========== ========== ========== ========== Weighted average number of common shares: Basic 39,123 39,271 39,024 39,140 ========== ========== ========== ========== Diluted 39,123 39,271 39,024 39,140 ========== ========== ========== ========== GEOMET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 2009 2008 ------------ ------------ Assets: Current assets $ 12,044 $ 17,938 Properties and equipment, net of accumulated depreciation, depletion, amortization and impairment of gas properties 191,711 358,299 Other assets 20,077 1,363 ------------ ------------ Total assets $ 223,832 $ 377,600 ============ ============ Liabilities and stockholders' equity: Current liabilities $ 10,518 $ 19,379 Long-term debt 122,285 117,118 Other long-term liabilities 4,890 48,671 ------------ ------------ Total liabilities 137,693 185,168 ------------ ------------ Total stockholders' equity 86,139 192,432 ------------ ------------ Total liabilities and stockholders' equity $ 223,832 $ 377,600 ============ ============ GEOMET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended June 30, ------------------ 2009 2008 -------- -------- Net cash provided by operating activities $ 3,243 $ 17,574 Net cash used in investing activities (9,302) (18,549) Net cash provided by (used in) financing activities 5,173 3,482 Effect of exchange rates changes on cash 10 (11) -------- -------- (Decrease) increase in cash and cash equivalents (876) 2,496 Cash and cash equivalents at beginning of period 2,097 1,540 -------- -------- Cash and cash equivalents at end of period $ 1,221 $ 4,036 ======== ======== GEOMET, INC. OPERATING STATISTICS Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2009 2008 2009 2008 ------- -------- -------- -------- Net sales volumes (MMcf) 1,903 1,856 3,790 3,727 Per Mcf data ($/Mcf): Average natural gas sales price $ 3.59 $ 11.15 $ 4.30 $ 9.73 Differential to NYMEX (1) $ (0.04) $ 0.23 $ 0.04 $ 0.25 Average natural gas sales price realized (2) $ 5.03 $ 10.35 $ 5.74 $ 9.57 Adjusted lease operating expense (3) $ 1.72 $ 1.85 $ 2.04 $ 1.85 Compression expenses $ 0.50 $ 0.40 $ 0.47 $ 0.38 Transportation expense $ 0.22 $ 0.14 $ 0.27 $ 0.17 Production taxes $ 0.13 $ 0.34 $ 0.16 $ 0.29 Total production expenses, as adjusted (3) $ 2.57 $ 2.73 $ 2.94 $ 2.68 Depreciation, depletion and amortization $ 1.04 $ 1.31 $ 1.32 $ 1.31 Three Months Six Months Ended Ended June 30, June 30, ---------------- ----------------- 2009 2008 2009 2008 ------- -------- -------- -------- POND CREEK FIELD Net sales volumes (MMcf) 1,312 1,223 2,603 2,446 Per Mcf data ($/Mcf): Lease operating expense $ 1.14 $ 1.53 $ 1.44 $ 1.57 Compression expense $ 0.41 $ 0.35 $ 0.36 $ 0.36 Transportation expense $ 0.31 $ 0.22 $ 0.38 $ 0.25 Production taxes $ 0.10 $ 0.17 $ 0.13 $ 0.12 Total production expenses $ 1.96 $ 2.27 $ 2.31 $ 2.30 GURNEE FIELD Net sales volumes (MMcf) 537 550 1,094 1,109 Per Mcf data ($/Mcf): Adjusted lease operating expense (3) $ 2.60 $ 2.85 $ 2.79 $ 2.75 Compression expense $ 0.58 $ 0.56 $ 0.59 $ 0.52 Production taxes $ 0.18 $ 0.66 $ 0.25 $ 0.59 Total production expenses, as adjusted (3) $ 3.36 $ 4.07 $ 3.63 $ 3.86 (1) The difference between the average natural gas price for the period, before the impact of gain and losses on derivative contract, and the final average settlement price for natural gas contracts on the New York Mercantile Exchange ("NYMEX") for each month during the applicable period weighted by gas sales volumes. (2) Average realized price includes the effects of realized gains on derivative contracts. (3) Produced water disposal fees are recorded as operating fees and other on the Statement of Operations. Lease operating expense per Mcf has been adjusted for produced water disposal fees because the fees are not reflected in the net gas sales volumes. See Reconciliation of Adjusted Lease Operating Expense. GEOMET, INC. CONSOLIDATED DERIVATIVE CONTRACT POSITIONS At June 30, 2009, the Company had the following natural gas collar positions: Volume Sold Bought Sold Period (MMBtu) Ceiling Floor Floor --------- -------- --------- -------- July through October 2009 738,000 $ (1) $ 7.50 $ 5.25 July through October 2009 738,000 $ (1) $ 8.50 $ 6.50 July through October 2009 (1) 1,476,000 $ 4.50 $ 3.70 $ (1) November 2009 through March 2010 906,000 $ 11.20 $ 9.50 $ 7.00 November 2009 through March 2010 604,000 $ 6.65 $ 5.50 $ 3.50 April through October 2010 856,000 $ 6.80 $ 5.50 $ 3.50 (1) In connection with the July through October 2009 natural gas collar related to natural gas volumes of 1,476,000 MMBtu/day denoted above, the Company eliminated the existing $10.00 sold ceilings with respect to all three-way-collars through October 2009. At June 30, 2009, the Company had the following natural gas swap position: Volume Period (MMBtu) Price --------- --------- July through October 2009 492,000 $ 4.47 At June 30, 2009, the Company had the following interest rate swap positions: Designated Effective maturity Fixed Notional Description date date rate (2) Amount ------------ ------------ ----------- ------------ Floating-to-fixed swap 12/14/2007 12/14/2010 3.86% $ 15,000,000 Floating-to-fixed swap 1/3/2008 1/4/2010 3.95% $ 10,000,000 Floating-to-fixed swap 3/25/2008 3/25/2010 2.38% $ 10,000,000 Floating-to-fixed swap 5/13/2008 5/13/2010 3.07% $ 5,000,000 Floating-to-fixed swap 1/6/2009 1/6/2011 1.38% $ 5,000,000 (2) The floating rate paid by the counterparty is the British Bankers' Association LIBOR rate. GEOMET, INC. RECONCILIATION OF ADJUSTED EBITDA TO NET LOSS (In thousands) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Net loss $ (19,386) $ (3,177) $ (107,112) $ (5,319) Add: Interest expense, net of interest income and amounts capitalized 1,413 1,104 2,386 2,400 (Deduct): Other income (9) (35) (8) (29) (Deduct): Income tax benefit (11,212) (1,235) (64,108) (2,469) Add: Depreciation, depletion and amortization 1,982 2,489 5,018 4,949 Add: Impairment of gas properties 27,582 -- 167,295 -- Add: Unrealized losses on derivative contracts 2,144 12,098 1,958 20,745 Add: Stock based compensation 189 196 501 384 Add: Accretion expense 105 84 213 168 ---------- ---------- ---------- ---------- Adjusted EBITDA $ 2,808 $ 11,524 $ 6,143 $ 20,829 ========== ========== ========== ========== The table above reconciles net loss to Adjusted EBITDA. Adjusted EBITDA is defined as net loss before net interest expense, other non-operating income, income taxes, depreciation, depletion and amortization, and minority interest before unrealized losses on derivative contracts, stock-based compensation and accretion expense. Although Adjusted EBITDA is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), management believes that it is useful to GeoMet and to an investor in evaluating our company because it is a widely used measure to evaluate a company's operating performance. GEOMET, INC. RECONCILIATION OF ADJUSTED NET (LOSS) INCOME TO NET LOSS (In thousands) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Net loss $ (19,386) $ (3,177) $ (107,112) $ (5,319) Impairment of gas properties 27,582 -- 167,295 -- Unrealized losses on derivative contracts, net of tax 2,144 12,098 1,958 20,745 Effect of income taxes (11,164) (3,387) (63,952) (6,577) ---------- ---------- ---------- ---------- Adjusted Net (Loss) Income $ (824) $ 5,534 $ (1,811) $ 8,849 ========== ========== ========== ========== The table above reconciles net loss to Adjusted Net (Loss) Income. Adjusted Net (Loss) Income is calculated by eliminating unrealized losses on derivative contracts from net loss, non-cash impairments to our gas properties, and their related tax effects to arrive at Adjusted Net (Loss)Income. The tax effects are determined by calculating the tax provision for GAAP net loss and comparing the results to the tax provision for Adjusted Net (Loss) Income, which excludes the adjusting items. The difference in the tax provision calculations represents the effect of income taxes. The calculation is performed at the end of each quarter and, as a result, the tax rates for each discrete period are different. Although Adjusted Net (Loss) Income is a non-GAAP measure, we believe it is useful information for investors because the unrealized losses relate to derivative contracts that hedge our production in future months. The losses associated with derivative contracts that hedge current production are recognized in net loss and are not eliminated in determining Adjusted Net (Loss) Income. The adjustment better matches losses on derivative contracts with the period when the underlying hedged production occurs. GEOMET, INC. RECONCILIATION OF ADJUSTED LEASE OPERATING EXPENSE (In thousands) Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2009 2008 2009 2008 -------- -------- -------- -------- Lease operating expense $ 3,348 $ 3,640 $ 7,918 $ 7,391 Deduct: Produced water disposal fees 77 203 175 501 -------- -------- -------- -------- Adjusted lease operating expense $ 3,271 $ 3,437 $ 7,743 $ 6,890 ======== ======== ======== ======== The table above reconciles lease operating expense to adjusted lease operating expense. Adjusted lease operating expense is calculated by eliminating the produced water disposal fees from lease operating expense to arrive at adjusted lease operating expense. Although adjusted lease operating expense is a non-GAAP measure, we believe it is useful information for investors because produced water disposal fees are recorded as operating fees and other on the Statement of Operations. Lease operating costs per Mcf are adjusted for produced water disposal fees because the fees are not reflected in the net gas sales price. The adjustment better matches lease operating expense with the natural gas sales revenues it is associated with.
Contact Information: For more information please contact: Stephen M. Smith (713) 287-2251 John Baldissera BPC Financial (800) 368-1217 or visit our website at www.geometinc.com