Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update

ZaZa Ups Revenues; Grows Eagle Ford, Eaglebine JVs in 1Q

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   |    Wednesday,May 14,2014

ZaZa Energy Corporation has reported results for its first quarter ended March 31, 2014.

2014 First Quarter Results

For the quarter ended March 31, 2014, the Company reported total revenues and other income of $3.0 million, an increase of 7.1% as compared to $2.8 million reported for the comparable 2013 period. This increase is primarily due to the acquisition of producing properties through the Company’s joint venture in East Texas, offset by the divestiture of non-core assets in South Texas.

Operating costs and expenses for the first quarter ended March 31, 2014 were $6.4 million as compared to $8.6 million in the comparable 2013 period, a decline of 25.6%. The decrease in operating costs and expenses is primarily attributable to a $0.7 million decline in general and administrative expenses, as well as a $4.1 million gain associated with asset divestitures in the 2014 period. Offsetting these declines were higher lease operating costs of approximately $0.6 million, and a $0.3 million increase in depreciation, depletion, amortization and accretion. Additionally, the Company recorded impairment charges of $1.6 million related to shorter remaining lease terms in South Texas. There were no impairments in the first quarter of 2013.

The Company reported an operating loss of $3.4 million for the three months ended March 31, 2014 as compared to an operating loss of $5.9 million for the three months ended March 31, 2013, an improvement of $2.5 million. Net loss from continuing operations was $1.4 million, as compared to a net loss from continuing operations of $2.3 million, for the three months ended March 31, 2014 and March 31, 2013, respectively. During the 2014 first quarter, the Company recorded an income tax benefit of $1.2 million as compared to $4.7 million for the comparable 2013 period. Additionally, the Company reported a loss from discontinued operations, net of income taxes, of $0.6 million in the 2013 first quarter and there were no gains or losses reported for discontinued operations in the comparable 2014 period. As a result, ZaZa reported a net loss of $1.4 million as compared to a net loss of $2.9 million, or a loss per basic and diluted share of $0.01 and $0.03 for the three months ended March 31, 2014 and March 31, 2013, respectively.

South Texas Eagle Ford

In September 2013, ZaZa entered into an agreement with Sabine South Texas LLC, for the joint development of a prospect in the Eagle Ford shale formation located in Lavaca and DeWitt Counties, Texas. Under this agreement, Sabine agreed to jointly develop with ZaZa up to approximately 7,600 net acres that ZaZa owned and that comprised a portion of the Company’s interest in South Texas. Sabine agreed to bear 100% of the drilling and completion costs of two commitment wells and up to $750,000 of construction costs related to gathering and infrastructure in order to earn a 75% working interest in 7,600 acres in the Sweet Home prospect, and a well that ZaZa refers to as the “Boening well”.

Sabine completed the first commitment well on February 14, 2014 and ZaZa transferred to Sabine a 75% working interest in approximately 3,200 net acres and the Boening well. Sabine completed the second commitment well on March 11, 2014 and ZaZa transferred to Sabine a 75% working interest in the remaining net acres. Participating interests in any additional wells drilled or lease acreage acquired in the Sweet Home prospect will be shared 75% by Sabine and 25% by ZaZa under an AMI that will expire on September 15, 2015 (assuming affirmative elections to participate in such lease acreage acquisition(s)).

 East Texas Eaglebine

During the 2014 first quarter, the Company entered into a further amendment to the Joint Exploration and Development Agreement with its joint venture partner in East Texas. Under this amendment, ZaZa assigned to its counterparty approximately 9,600 net acres, which represents a 75% working interest in its remaining Phase III acreage, in exchange for cash consideration of approximately $4.7 million plus the carry by the counterparty of ZaZa’s share of future drilling and completion costs in an aggregate up to approximately $9.2 million. The counterparty also committed to drill two additional test wells, with drilling on the first of such wells to commence by July 1, 2014.

Additionally, pursuant to this amendment, the JEDA will now govern the joint development of the leases previously covered by our Participation Agreement with Range Texas Production, LLC. Range’s rights and obligations under the Participation Agreement were previously assigned to, and assumed by, the JEDA counterparty in December 2013.

Recently and ongoing, we also have elected into new acreage acquisitions inside our East Texas area of mutual interest (AMI) alongside our JV partner. The Joint Venture continues to grow, with total net acreage of approximately 140,000 and approximately 35,000 net to ZaZa (in both cases, upon completion of previously elected assignments).

The Company has also acquired approximately 5,000 net acres in Houston County and Southeastern Leon County in its core East Texas stacked pay focus area. This acreage was acquired through a grass roots leasing effort and is currently held 100% by ZaZa.

Results of Operations

Our production exit rate for the month ended March 31, 2014 was approximately 682 barrels of oil equivalent (BOE) per day.