| | 2004
Public Offering and 2005 Private Placement of Common Stock In
the first quarter of 2004, we completed the public offering of 6,485,000 shares
of our common stock at $7.00 per share. The offering included 3,655,500 newly
issued shares offered by us and 2,829,500 shares offered by certain selling shareholders.
Our net proceeds of approximately $23.4 million from this offering were used:
(1) to accelerate our drilling program, (2) to retain larger interests in portions
of our drilling prospects that we otherwise would sell down (or for which we would
seek joint partners), (3) to fund a portion of our activities in the Barnett Shale
area and (4) for general corporate purposes. We did not receive any proceeds from
the shares sold by the selling shareholders.
In the second quarter of 2005, we sold 1.2 million shares of our common stock
(or approximately 5% of the fully diluted shares outstanding before the offering)
to institutional investors at a price of $15.25 per share in a private placement
(the “Private Placement”), a 4.7% discount to the close price on the Nasdaq stock
market for our common stock the day prior to pricing. The net proceeds from the
Private Placement, after the placement agents’ fees but before offering expenses,
were approximately $17.0 million. We used the proceeds from the Private Placement
to fund a portion of our 2005 capital expenditure program, including our drilling
programs in the Barnett Shale and onshore Gulf Coast areas. In connection with
the Private Placement, we were required to file a resale shelf registration statement
to register the resale of the shares sold under the Securities Act. We filed such
registration statement and are required to cause it to become and be kept effective
for resale of shares for two years from the date of their original sale. In certain
situations, we are required to indemnify the investors in the Private Placement,
including without limitation, for certain liabilities under the Securities Act.
Barnett Shale Area In
mid-2003, we became active in the Barnett Shale play located in Tarrant and Parker
counties in Northeast Texas. Our activity accelerated as a result of the acquisition
on February 27, 2004 of working interests and acreage in certain oil and gas wells
located in the Newark East Field in Denton County, Texas in the Barnett Shale
trend for $8.2 million (the “Barnett Shale Acquisition”). This acquisition included
non-operated working interests in properties ranging from 12.5% to 45% over 3,800
gross acres, or an average working interest of 39%. The acquisition included 21
existing gross wells (6.7 net) and interests in approximately 1,500 net acres.
In April 2005, we acquired leases and producing wells
in the Barnett Shale for approximately $4.1 million which consisted of approximately
600 net acres and working interests in 14 existing gross wells (7.3 net) with
an estimated 5.4 MMcfe of proved reserves, based upon our internal estimates.
All of the interests in the wells acquired related to wells in which we already
had an interest. The consideration paid for this acquisition was $2.3 million
in cash and 112,697 shares of our common stock. Initially,
we financed our Barnett Shale activities with our available cash on hand. We financed
a portion of our 2004 capital expenditure program for the Barnett Shale area with
funds from the October 2004 issuance of the 10% Senior Subordinated Secured Notes.
In June and July 2005, we completed the Private Placement and entered into the
Second Lien Credit Facility (see “2004 Public Offering and 2005 Private Placement
Common Stock” above and “Financing Arrangements - Second Lien Credit Facility
and Refinancing,” below), a portion of the net proceeds of which were used to
partially fund our ongoing capital expenditure program, including our drilling
programs in the Barnett Shale and onshore Gulf Coast areas. In
the Barnett Shale area, we drilled 33 gross wells (13.7 net) in 2004 and 37 gross
wells (22.1 net) in 2005, all of which were successful. We plan to drill 49 gross
wells (35.0 net) in this area in 2006. We may seek to finance a portion of our
remaining 2006 Barnett Shale activities with borrowings under our First Lien Credit
Facility. In particular we may need to seek other financing alternatives if the
future borrowing base under the First Lien Credit Facility is insufficient in
partially funding our drilling program. We may not be able to obtain such financing
on terms acceptable to us or at all. At the end of 2005 our net production had
risen to approximately 11.0 MMcfe/d with 61 gross wells on line and another 26
gross wells in various stages of testing, completion and awaiting pipeline hookup.
As of March 22, 2006, our estimated net production was 15.0 MMcfe/d. In
addition to our drilling activity, we have continued to expand our Barnett Shale
acreage position, growing our net leasehold acreage from approximately 30,700
to 80,300 acres, at the end of 2004 and 2005, respectively. Similarly, we have
increased our estimated number of developmental locations from 40 to 58 horizontal
locations, at the end of 2004 and 2005, respectively, and we have increased our
estimated number of exploratory drilling locations (horizontal) in the Barnett
Shale area from 152 to 432 locations, at the end of 2004 and 2005, respectively.
Pinnacle Gas Resources, Inc. During
the second quarter of 2001, we acquired interests in natural gas and oil leases
in Wyoming and Montana in areas prospective for coalbed methane and subsequently
began to drill wells on those leases. During the second quarter of 2003, we (through
CCBM, our wholly-owned subsidiary) contributed our interests in certain of these
leases to a newly formed company, | |
