Exploration & Production | Quarterly / Earnings Reports | Second Quarter (2Q) Update | Deals - Acquisition, Mergers, Divestitures

Victory Touts First Major Permian Acquisition in 2Q; Talks Well Status

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Victory Energy Corporation reported financial and operating results for the three and six months ended June 30, 2014.

2014 Second Quarter Highlights:

• Revenues increased 47% year-over-year to $237,978.
• $1.2 million of cash and $5.0 million of total assets.
• Successfully completed two (gross) wells with additional wells underway.
• Sold its interest in the Lightnin' property for approximately $4 million in cash and recorded a $2.2 million gain.
• Completed the initial closing on a purchase of a 10% working interest in the Permian Basin Fairway Project from Target Energy for approximately $5 million in cash, growing daily production volumes and adding 4,560 gross acres for future drilling and development.
• Engaged the MZ Group as our new investor relations firm for capital markets development and investor road shows. 
• Engaged Euro Pacific Capital as our Market Maker and stock certificate conversion point.
• Upgraded our stock trading platform from the OTCQB to the more transparent and investor friendly OTCQX.
• Added Dr. Ralph Kehle as a new independent board director effectively July 1, 2014
• Added Fred J. Smith as new CFO to help guide the financial success of the company effective June 2, 2014.
• Identified additional Permian production and development acquisition targets that will continue to increase reserves and cash flow for the remainder of 2014 and into 2015.

Kenny Hill, Victory's CEO, commented: "We made significant progress toward our strategic goals. For the first time in company history, we closed on almost $9 million of transactions in a single quarter. Our divestiture of the Lightnin' Property ($4.0 million proceeds) provided a sound capital foundation for the acquisition of the 4,560 acre, Fairway Project, growing our production and our drilling inventory by at least forty additional well locations. These two transactions complement each other and illustrate our ability to increase shareholder value by increasing proved reserves on a net basis , adding significantly larger development acreage and leveraging our access to capital through our Navitus Energy Group relationship (up to $15M) and the Texas Capital Bank credit facility ($25M)."

Through its partnership interest in Aurora Energy Partners, the company is able to acquire needed capital when ideal projects, with specific capital return and development profiles become available. This capital focused partnership is now complimented by a $25 million credit facility acquired in February 2014. At June 30, 2014, the Company held a working interest in 31 wells.

Operational Updates

In addition to the producing wells included in the Fairway acquisition, five new Fairway wells are now in various stages of drilling and completion. The BOA #4, BOA North #5, Waga-Waga #2, Homar #1 and Ballarat #1 wells are expected to be Wolfberry producers. In addition, we anticipate completion of approximately four more wells and one re-entry well to be completed by year end, funded by a combination of internally generated cash, bank borrowings and Navitus contributions These new wells will grow our production and our reserves.

First Major Permian Acquisition

On June 30, 2014, Aurora signed an agreement to acquire a 10% stake in the proved and producing Permian Basin Fairway Project from Target Energy Corporation for $5.8 million in cash, subject to customary purchase price adjustments. The acquisition had an effective date of May 1, 2014. Due to external delays in completing conveyancing of titles, the purchase and sale agreement closing provisions were split into two parts.

On June 30, 2014 Aurora completed the initial closing of its purchase of a 10% working and 7.5% net revenue interest in the Seller's interest in Darwin, BOA and Wagga Wagga producing leases and one non-producing lease scheduled for future development, for approximately $2.5 million. On July 31, 2014, the Company paid an additional $558 thousand related to the required purchase price adjustments. The assets acquired in the First Closing includes 7 producing wells with 16 BOPD of oil production at the time the acquisition closed and 4 wells completed and awaiting production startup. Revenues for the six months ended June 30, 2014 from assets acquired in the First Closing were approximately $1.4 million. Management believes there are up to 30 additional drilling locations for future development in the First Closing assets acquired.

The second closing will occur once the curative title work is completed in August 2014.

Outlook

Management's strategy is to grow proved reserves through new drilling and acquisitions, while growing the value of those reserves by focusing on oil and liquids rich gas. The Company leverages both internal capabilities and strategic industry relationships to acquire working interest positions in low-to-moderate risk oil and natural gas prospects.

For the remainder of 2014, the company plans to;

1. Grow proved reserves and cash flow by focusing on the development opportunities available at Fairway and other properties.
2. In addition, the company anticipates making at least one more significant prospect acquisition with a focus toward proved producing reserves.
3. Conclude the year with over $10 million in PV10 reserves

Financial Results

Revenues for the three months ended June 30, 2014 increased 47% year-over-year to $237,978 due primarily to higher production from the University 6 #1 and #2 wells in Bootleg Canyon and new production from the Chapman well. Total net production was 46.8 BOE/PD, up 11% from 42 BOE/PD in the first quarter of 2014. This daily rate does not include additional production associated with leases that were excluded from the first closing of the Fairway transaction. 

Cost of production (LOE) for the second quarter of 2014 was $53,964, up 5% from $51,396 a year ago. Net income attributable to Victory Energy was $272,189, or $0.01 per share, for the three months ended June 30, 2014 compared to a loss of ($311,719) and $0.01, respectively, in the second quarter of 2013. Victory recorded a $2,159,592 pretax gain on the sale of its interest in the Lightnin' project in the second quarter of 2014. The weighted average shares outstanding at June 30, 2014 were 27.9 million shares compared to 27.6 million the same period a year ago.

General and administrative expenses were $981,713, up from $421,647 the prior quarter. General and administrative expenses were unusually high because of business growth related expenses associated with our combined acquisition and divestiture of approximately $9 million in property transactions, a significant expansion in our investors relations and capital markets awareness efforts, additional legal and accounting costs associated with public company reporting requirements, transaction fees associated with the move from the OTCQB to the OTCQX stock trading platform and director/employee stock based compensation utilized for key employee acquisition and retention (all noncash). Our share based compensation expense is associated with the shareholder approved 2014 Long Term Incentive Plan. 

Victory had approximately $1.2 million of cash and $5.0 million of total assets at June 30, 2014. Total shareholders' equity was $3.7 million at June 30, 2014. The company cash on hand is a reflection of management's desire to only draw capital from its partner Navitus Energy Group and from the banking credit facility when needed for asset acquisitions or operations. 

On February 24, 2014, Aurora Energy Partners, as borrower, closed a $25 million revolving credit facility with Texas Capital Bank. The credit facility includes a $1.45 million adjustable borrowing base, with the remainder available for acquisitions. The senior facility is secured by all the assets of Aurora Energy Partners, with pricing at prime plus 1%. Total debt outstanding at June 30, 2014 from its credit facility was $800,000. Aurora was in compliance with all related debt covenants at June 30, 2014.