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American Eagle Energy Corp (AMZGQ) SEC Filing 10-Q Quarterly report for the period ending Tuesday, September 30, 2014

American Eagle Energy Corp

CIK: 1282613 Ticker: AMZGQ

 

Exhibit 99.1

 

 

American Eagle Energy Announces Operations Update and

Reports Results for Second Quarter 2014

 

DENVER, CO—August 4, 2014—American Eagle Energy Corporation (NYSE MKT: AMZG)

(“American Eagle” or the “Company”), announces an operational update and discussion of its financial results for the second quarter ended June 30, 2014, along with an update of its mid-year 2014 estimated proved reserves. The Company intends to file its Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission today.

 

Highlights

·American Eagle added 8 gross (4.0 net) operated wells to production during the quarter;
·Production of 182,522 barrels of oil equivalent (“BOE”), or an average of 2,006 BOEPD:
oyear-over-year increase of 56% from the 1,288 BOEPD (117,164 BOE)
osequential quarterly increase of 22% from 1,645 BOEPD (148,048 BOE)
·Second quarter 2014 oil and gas sales of $16.5 million:
oa year-over-year increase of 59%
oa sequential quarterly increase of 31%
·Adjusted EBITDA* of $9.6 million;
·Adjusted Cash Flow* of $6.7 million or $0.22 per diluted share;
·Adjusted Net Income* of $2.3 million or $0.07 per diluted share; and
·American Eagle’s mid-year proved reserves engineered by Ryder Scott Company, L.P. (“Ryder Scott”) were estimated at 15.4 million barrels of oil equivalent (“MMBoe”) (89% oil) with an associated Pre-Tax PV-10 of $336 million

* Non-GAAP financial measure. Please see Adjusted EBITDA, Adjusted Cash Flow and Adjusted Net Income descriptions and tables later in this earnings release for a reconciliation of these measures to their nearest comparable GAAP measure.

 

Management Comments

 

Brad Colby, President and CEO of American Eagle, said, “We are excited about the opportunities in front of us as we prepare to complete and bring onto production our 4-well pad that has an average working interest of 88% and is located in an area where we have had very good recent well results, most notably from the Murielle, Taylor and Bryce wells. The 4-well pad should add significant production and showcase our potential to realize cost savings relating to continued pad development. Continued drilling efficiency will allow us to drill more wells without increasing rig count and improved weather conditions should provide an opportunity to decrease well completion costs. We anticipate that our current development program will allow us to add to our proved reserve base during the second half of 2014 and position us for significant reserve growth in 2015.”

 


The following information was filed by American Eagle Energy Corp (AMZGQ) on Monday, August 4, 2014 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014.

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                                                      to                                                    

 

Commission File Number:  000-50906

  

 

 

AMERICAN EAGLE ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada 20-0237026
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

2549 West Main Street, Suite 202, Littleton, Colorado

80120

(Address of principal executive offices)

(Zip Code)

 

(303) 798-5235
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

(Check one):

 

Large accelerated filer o Accelerated filer o
   
Non-accelerated filer o Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

30,448,714 shares of common stock issued and outstanding at October 31, 2014.

 

 
 

  

INDEX

 

A Note About Forward Looking Statements 2
   
PART I - FINANCIAL INFORMATION  
   
Item 1 – Condensed Consolidated Financial Statements (Unaudited) 3
   
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited) 5
   
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013 (Unaudited) 6
   
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2014 and 2013 (Unaudited) 8
   
Notes to the Condensed Consolidated Financial Statements (Unaudited) 9
   
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
   
Item 4 – Controls and Procedures 35
   
PART II – OTHER INFORMATION
   
Item 6 – Exhibits 36
   
Signatures 41

 

 
 

 

A Note About Forward Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations.  These statements may be identified by their use of words like “plans,” “expect,” “aim,” “believe,” “projects,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other expressions that indicate future events and trends.  All statements that address expectations or projections about the future, including statements about our business strategy, expenditures, and financial results, are forward-looking statements.  We believe that the expectations reflected in such forward-looking statements are accurate.  However, we cannot assure the reader that such expectations will occur.

 

Actual results could differ materially from those in the forward-looking statements due to a number of uncertainties including, but not limited to, those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations.  Factors that could cause future results to differ from these expectations include general economic conditions; further changes in our business direction or strategy; competitive factors; market uncertainties; and an inability to attract, develop, or retain consulting or managerial agents or independent contractors.  As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment.  To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements.  No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.  The reader should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report.  Except as required by law, we are not obligated to release publicly any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

 

2
 

  

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

American Eagle Energy Corporation

 

Condensed Consolidated Financial Statements

 

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

3
 

 

American Eagle Energy Corporation

Index to the Financial Statements

 

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited) 5
   
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013 (Unaudited) 6
   
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2014 and 2013 (Unaudited) 8
   
Notes to the Condensed Consolidated Financial Statements (Unaudited) 9

 

4
 

 

American Eagle Energy Corporation

Condensed Consolidated Balance Sheets - (Unaudited)

(In Thousands, except for Per Share Data)

 

   September 30,   December 31, 
   2014   2013 
Current assets:          
Cash  $48,784   $31,850 
Trade receivables   17,785    17,920 
Income tax receivable   25    - 
Prepaid expenses   38    68 
Derivative asset   466    211 
Total current assets   67,098    50,049 
           
Equipment and leasehold improvements, net of accumulated depreciation and amortization of $445 and $322, respectively   252    174 
Oil and gas properties, full-cost method – subject to amortization, net of accumulated depletion of $26,271 and $12,849, respectively   293,685    155,145 
Oil and gas properties, full-cost method – not subject to amortization   2,487    2,487 
Marketable securities   1,162    1,050 
Noncurrent derivative asset   155    - 
Other assets   7,894    7,503 
Total assets  $

372,733 

   $216,408 
           
Current liabilities:          
Accounts payable and accrued liabilities  $73,099   $41,841 
Derivative liability   3    276 
Current portion of notes payable   -    3,000 
Total current liabilities   73,102    45,117 
           
Asset retirement obligation   1,352    1,060 
Noncurrent portion of notes payable       105,000 
Bonds payable, net of discount of $1,615 and $0, respectively   173,385    - 
Noncurrent derivative liability   -    750 
Deferred taxes   -    5,386 
Total liabilities   247,839    157,313 
           
Stockholders’ equity:          
Common stock, $.001 par value, 48,611 shares authorized, 30,449 and 17,712 shares outstanding   30    18 
Additional paid-in capital   146,888    67,198 
Accumulated other comprehensive income (loss)   (243)   (6)
Accumulated deficit   (21,781)   (8,115)
Total stockholders’ equity   124,894    59,095 
Total liabilities and stockholders’ equity  $372,733   $216,408 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5
 

 

American Eagle Energy Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - (Unaudited)

(In Thousands, except for Per Share Data)

 

   For the Three-Month Period   For the Nine-Month Period 
   Ended September 30,   Ended September 30, 
   2014   2013   2014   2013 
Oil and gas sales  $17,091   $11,639   $46,099   $29,638 
                     
Operating expenses:                    
Oil and gas production costs   5,621    3,055    14,475    7,657 
General and administrative   2,110    1,812    5,790    4,380 
Depletion, depreciation and amortization   6,154    2,524    15,497    5,915 
Impairment of oil and gas properties, subject to amortization   -    -    -    1,525 
                     
Total operating expenses   13,885    7,391    35,762    19,477 
                     
Total operating income   3,206    4,248    10,337    10,161 
                     
Interest and dividend income   28    19    56    57 
Interest expense   (4,163)   (1,316)   (10,628)   (2,149)
Loss on early extinguishment of debt   (11,894)   (3,714)   (11,894)   (3,714)
Loss on sale of oil & gas properties   (12)   -    (12)   - 
Gains (losses) on settlement of derivatives   (7,113)   115    (7,455)   115 
Change in fair value of derivatives   8,641    (934)   618    (775)
                     
Total other income (expense)   (14,513)   (5,830)   (29,315)   (6,466)
                     
Income (loss) before taxes   (11,307)   (1,582)   (18,978)   3,695 
                     
Income tax expense (benefit)   (2,569)   (646)   (5,311)   1,639 
                     
Net income (loss)  $(8,738)  $(936)  $(13,667)  $2,056 
                     
Net income (loss) per common share:                    
Basic  $(0.29)  $(0.07)  $(0.52)  $0.16 
Diluted  $(0.29)  $(0.07)  $(0.52)  $0.16 
                     
Weighted average number of shares outstanding -                    
Basic   30,448    13,224    26,524    12,741 
Diluted   30,448    13,224    26,524    13,225 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

6
 

 

American Eagle Energy Corporation

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - (Unaudited)

(In Thousands, except for Per Share Data)

 

   For the Three-Month Period   For the Nine-Month Period 
   Ended September 30,   Ended September 30, 
   2014   2013   2014   2013 
Net income (loss)  $(8,738)  $(936)  $(13,667)  $2,056 
                     
Other comprehensive income (loss), net of tax:                    
Unrealized foreign exchange gains (losses)   (10)   2    (126)   15 
Unrealized gains (losses) on securities   (283)   27    (111)   (6)
Total other comprehensive income (loss), net of tax   (293)   29    (237)   9 
                     
Comprehensive income (loss)  $(9,031)  $(907)  $(13,904)  $2,065 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

7
 

 

American Eagle Energy Corporation

Condensed Consolidated Statements of Cash Flows – (Unaudited)

(In Thousands)

 

   For the nine-month periods 
   ended September 30, 
   2014   2013 
Cash flows provided by operating activities:          
Net income (loss)  $(13,667)  $2,056 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Non-cash transactions:          
Stock-based compensation   1,344    827 
Depletion, depreciation and amortization   15,497    5,915 
Accretion of discount on asset retirement obligation   60    36 
Amortization of deferred financing costs   1,158    274 
Amortization of debt discount   32    - 
Provision for deferred income tax expense (benefit)   (5,325)   1,662 
Loss on early extinguishment of debt   11,894    3,714 
Impairment of oil and gas properties   -    1,525 
Change in fair value of derivatives   (1,432)   653 
Foreign currency transaction gains   -    2 
Changes in operating assets and liabilities:          
Prepaid expense   30    (2)
Trade receivables   (6,271)   (3,032)
Income taxes receivable   (25)   (33)
Accounts payable and accrued liabilities   17,292    11,654 
Net cash provided by operating activities   20,587    25,251 
           
Cash flows used for investing activities:          
Additions to oil and gas properties   (135,234)   (80,432)
Proceeds from sale of oil and gas properties   1,824    - 
Additions to equipment and leasehold improvements   (201)   (15)
Purchases of marketable securities   (222)   - 
Decrease in amounts due to Carry Agreement partner   -    (4,957)
Net cash used for investing activities   (133,833)   (85,404)
           
Cash flows provided by financing activities:          
Proceeds from issuance of stock   78,298    13,877 

Proceeds from issuance of notes payable

   -    

68,000

 
Proceeds from issuance of bonds   167,257    - 

Payment of other deferred financing costs

   

(1,882

)   

(651

)
Repayment of long-term debt   (113,465)   (21,131)
Net cash provided by financing activities   130,208    60,095 
Effect of exchange rate changes on cash   (28)   38 
Net change in cash   16,934    (20)
Cash - beginning of period   31,850    19,058 
Cash - end of period  $48,784   $19,038 
           
Supplemental non-cash disclosure;          

Direct financing of prepayment and other penalties

   $

5,465

    $- 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

8
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

1.Description of Business

 

American Eagle Energy Corporation (the “Company”) was incorporated in the state of Nevada in March 2003 under the name Golden Hope Resources Corp. In July 2005, the Company changed its name to Eternal Energy Corp. In December 2011, the Company changed its name to American Eagle Energy Corporation, in connection with its acquisition of, and merger with, American Eagle Energy Inc.

 

The Company engages in the acquisition, exploration and development of oil and gas properties, and is primarily focused on extracting proved oil reserves from those properties. As of September 30, 2014, the Company had entered into participation agreements related to oil and gas exploration and development projects in the Spyglass Area, located in Divide County, North Dakota, and Sheridan County, Montana. In addition, the Company owns working interests in mineral leases located in Richland, Roosevelt and Toole Counties in Montana.

 

2.Summary of Significant Accounting Policies

 

Interim Financial Information

The unaudited condensed consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles for interim financial statements in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2014 are not necessarily indicative of results that may be expected for the year ended December 31, 2014. The condensed, consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2013. The December 31, 2013 condensed consolidated balance sheet was derived from audited financial statements.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, AMZG, Inc., EERG Energy ULC (Canadian) and AEE Canada Inc. (Canadian). All material intercompany accounts, transactions and profits have been eliminated.

 

9
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

Certain reclassifications have been made to prior year balances to conform to the current year’s presentation. Such reclassifications had no effect on the Company’s net income for the prior period.

 

3.Marketable Securities and Fair Value of Financial Instruments

 

The Company’s marketable securities that are considered “available-for-sale.” As of September 30, 2014 and December 31, 2013, the Company’s marketable securities consisted of the following (in thousands):

 

       Gains in   Losses in 
       Accumulated   Accumulated 
   Estimated   Other   Other 
   Fair   Comprehensive   Comprehensive 
   Value   Income   Income 
September 30, 2014               
Noncurrent assets:               
Common stocks  $1,162   $22   $(107)
                
December 31, 2013               
Noncurrent assets:               
Common stocks  $1,050   $100   $(75)

 

The fair value of all securities is determined by quoted market prices. There were no sales of marketable securities during the three-month or nine-month periods ended September 30, 2014.

 

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 or 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market.

 

The fair value of the Company’s financial instruments, measured on a recurring basis at September 30, 2014 and December 31, 2013, were as follows (in thousands):

 

September 30, 2014  Level 1   Level 2   Level 3   Total 
Marketable securities  $1,162   $-   $-   $1,162 
Current derivative asset   -    466    -    466 
Noncurrent derivative asset   -    155    -    155 
Current derivative liability   -    (3)   -    (3)

 

10
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

December 31, 2013  Level 1   Level 2   Level 3   Total 
Marketable securities  $1,050   $-   $-   $1,050 
Current derivative asset   -    211    -    211 
Current derivative liability   -    (276)   -    (276)
Noncurrent derivative liability   -    (750)   -    (750)

 

4.Purchases and Sale of Property Interests

 

In January 2013, the Company purchased additional net revenue and working interests in several key, non-operated spacing units within the Spyglass Area from SM Energy Company. The purchase price totaled approximately $3.9 million in cash, which was paid at closing.

 

In October 2013, the Company purchased additional net revenue and working interests in proved producing and proved undeveloped properties located within the Spyglass Area from a certain working interest partner. The transaction closed on October 2, 2013 with an effective date of June 1, 2013. The gross purchase price for the acquired interests totaled $47.0 million. The net purchase prices, after taking into consideration revenues and operating expenses associated with the acquired interests from the period June 1, 2013 through the closing date, totaled approximately $41.4 million. To finance the acquisition, the Company sold shares of its common stock, through two public offerings (See Note 13), and borrowed an additional $40 million under its existing Credit Facility (the “MSCG Credit Facility”) with Morgan Stanley Capital Group, Inc. (“MSCG”) (See Note 8). The agreement contained the option to purchase additional net revenue and working interests in the same producing and proved undeveloped properties at a later date.

 

In March 2014, the Company exercised its option to purchase the additional net revenue and working interests in proved producing and proved undeveloped properties located within the Spyglass Area from the same working interest partner. The transaction closed on March 26, 2014 with an effective date of June 1, 2013. The gross purchase price for the acquired interests totaled $47.0 million. The purchase price is subject to adjustments for revenues, operating expenses and capital expenditures associated with the acquired interests from the period June 1, 2013 through the closing date. The acquisition of the additional net revenue and working interests was funded with proceeds received from a March 2014 public offering, as discussed in Note 13).

 

Supplemental Pro Forma Information (Unaudited)

 

The Company’s condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2014 include revenues and oil and gas operating expenses related to the net revenue and working interests acquired via the exercise of the purchase option, for the period April 1, 2014 through September 30, 2014.

 

11
 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

Had the purchase of these additional net revenue and working interests occurred on January 1, 2013, the Company’s consolidated financial statements for the nine-month periods ended September 30, 2014 and 2013 would have been as follows (in thousands):

 

   2014   2013 
Pro forma revenues  $49,273   $49,998 
           
Pro forma net income (loss)  $(11,926)  $5,770 
           
Pro forma income (loss) per share - basic  $(0.40)  $0.23 
           
Pro forma income (loss) per share – diluted  $(0.40)  $0.22 

 

The acquisition of the working interests could not have been completed without an initial acquisition of related working interests that occurred in October 2013. Accordingly, the pro forma effect of the initial acquisition of working interests has also been included in the pro forma information presented above for the nine-month period ended September 30, 2013.

 

Also in March 2014, the Company acquired certain undeveloped acreage from the same working interest partner at a price of approximately $7.5 million.

 

In July 2014, the Company sold 100% of its net revenue and working interests in its Hardy Property to its working interest partner. Prior to the sale, the Hardy Property represented 100% of the Canadian cost center for the Company’s full-cost pool. Cash proceeds received from the sale approximated $1.8 million, which resulted in a loss on the sale of approximately $12,000.

 

5.Carry Agreement

 

On April 16, 2012, the Company entered into a Carry Agreement with a third-party working interest partner (the “Carry Agreement Partner”), pursuant to which (i) the Carry Agreement Partner agreed to fund 100% of the Company’s working interest share of the drilling and completion costs of up to six new oil and gas wells within our Spyglass Area, up to 120% of the original AFE amount, and (ii) the Company agreed to convey, for a limited duration, a portion of its revenue interest in the pre-payout revenues of each carried well and a portion of its working interest in the pre-payout operating costs of each carried well, to the Carry Agreement Partner. In the event that the gross drilling and completion cost of a carried well exceeds 120% of the AFE amount, the Company and the Carry Agreement Partner would share in the excess costs based on the working interests stipulated in the Carry Agreement.

 

12
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

Pursuant to the terms of the Carry Agreement, the portion of the Company’s net revenue interest in each well to be conveyed to the Carry Agreement Partner followed a graduated scale, whereby 50% of the Company’s net revenue and working interests are assigned to the Carry Agreement Partner during the first year of the well’s production or until the carried costs, plus the 12% return, have been achieved, whichever occurs first. In the event that the Carry Agreement Partner had not recouped all of the carried costs plus the 12% return by the end of the first year of production, the assignment of the Company’s net revenue and working interests in the well would increase from 50% to 75% for the second year of production or until the carried costs, plus the 12% return, had been achieved, whichever occurs first. In the event that the Carry Agreement Partner had not recouped all of the carried costs, plus the 12% return, by the end of the second year of production, the assignment of the Company’s net revenue and working interests in the well would increase to 100% until the carried costs, plus the 12% return, had been achieved. Once payout has occurred (112% of the costs on a well-by-well basis), the respective working interests in the revenues from each carried well would revert to the original working interests in each such well.

 

Effective July 15, 2012, the Company amended the Carry Agreement with the third-party to include an additional four oil and gas wells.

 

As discussed in Note 4, the Company acquired net revenue and working interests associated with certain properties, in March 2014, including 100% of the net revenue and working interests that had been conveyed to the Carry Agreement Partner, which effectively terminated the Carry Agreement.

 

In August 2013, the Company entered into a second carry agreement (the “Second Carry Agreement”) with the Carry Agreement Partner, pursuant to which (i) that Carry Agreement Partner agreed to fund 100% of the Company’s working interest share of the drilling and completion costs of up to five new oil and gas wells to be located within the Spyglass Area, up to 120% of the original AFE amount, and (ii) the Company agreed to convey, for a limited duration, 50% of its revenue interest in the pre-payout revenues of each carried well and 50% of its working interest in the pre-payout operating costs of each carried well, to the Carry Agreement Partner.  In the event that the gross drilling and completion cost of a carried well exceeds 120% of the AFE amount, the Company and the Carry Agreement Partner will share in the excess costs based on the working interests stipulated in the Carry Agreement. 

 

Pursuant to the terms of the Second Carry Agreement, 50% of the Company’s net revenue interest in each well will be conveyed to the Carry Agreement Partner for a period of two years or until such a time when the working interest partner has recouped 112% of the carried drilling and completion costs of the well, whichever occurs sooner.  In the event that the Carry Agreement Partner has not recouped 112% of the carried drilling and completion costs by the end of the second year of production, the Company has agreed to make cash payments to the Carry Agreement Partner in the amount of the shortfall.  Once the Carry Agreement Partner has recouped 112% of the carried drilling and completion costs of a well, the conveyed working interest and net revenue interest will revert to the Company. 

 

As of September 30, 2014, all five of the wells to be drilled pursuant to the Second Carry Agreement have been completed. To date, the Company has received approximately $15.2 million of funding under the Second Carry Agreement. As of September 30, 2014, the cost of drilling and completing one of the five wells exceeded the 120% of AFE cost threshold. Accordingly, the Company has recorded its portion of excess drilling and completion costs associated with this well, totaling approximately $399,000 as of September 30, 2014. None of the five wells covered by the Second Carry Agreement has achieved payout as of September 30, 2014.

 

13
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

6.Farm-Out Agreement

 

In August 2013, the Company entered into a Farm-Out Agreement (the “Farm-Out Agreement”) with the Carry Agreement Partner, pursuant to which (i) that Carry Agreement Partner agreed to fund 100% of the Company’s working interest share of the drilling and completion costs of up to six new oil and gas wells to be located within the original Spyglass and West Spyglass sections of the Spyglass Area and (ii) the Company agreed to convey, for a period of time, 100% of its net revenue interest in the pre-payout revenues of each farm-out well and 100% of its working interest in the pre-payout operating costs of each farm-out well, to the Carry Agreement Partner, until such a time when the Carry Agreement Partner has recouped 112% of the drilling and completion costs associated with each well.  Once the Carry Agreement Partner has recouped 112% of the drilling and completion costs of a well, the Carry Agreement Partner will convey 30% of the Company’s original working and net revenue interests in each farm-out well back to the Company.

 

As of September 30, 2014, all of the six wells drilled pursuant to the Farm-Out Agreement have been completed. None of the six wells covered by the Farm-Out Agreement has achieved payout as of September 30, 2014.

 

7.Swap Facility

 

On December 28, 2012, the Company entered into a prepaid Swap Facility with Macquarie Bank Limited (“MBL”), pursuant to which MBL agreed to advance up to $18 million, of which $16 million was received at closing. The remaining $2 million was received in January 2013.

 

Funds received under the Swap Facility were accounted for as debt and were scheduled to be repaid through a series of monthly payments from the sale of approximately 212,000 barrels of oil over the five-year period from January 2013 to December 2017, with a final balloon payment of $2 million, due in February 2018.

 

The annual interest rate associated with the Swap Facility approximated 7.4%. The Company recognized interest expense related to the Swap Facility totaling approximately $183,000 and $903,000 for the three-month and nine-month periods ended September 30, 2013, respectively. 

 

The Company incurred investment banking fees and closing costs totaling approximately $780,000 in connection with the negotiation and closing of the MBL Swap Facility. The Company capitalized these items as deferred financing costs, and began amortizing the deferred financing costs over the life of the Swap Facility. The Company recognized approximately $38,000 and $151,000 of amortization expense related to the deferred financing costs for the three-month and nine-month periods ended September 30, 2013, respectively. The amortization of deferred loan costs is included as an additional component of interest expense for the respective periods.

 

14
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

On August 19, 2013, the Company repaid in full the outstanding balance under the Swap Facility using proceeds received from its Credit Facility with MSCG (see Note 8). The total payoff amount was approximately $18 million, which included 100% of the then outstanding principal balance, the settlement of all outstanding swap agreements, and certain prepayment penalties. The Company recognized a loss on the early extinguishment of debt of approximately $3.7 million, which includes prepayment penalties, the termination of related price swap agreements and the write-off of deferred financing costs associated with the Swap Facility.

 

8.MSCG Credit Facility

 

In August 2013, the Company entered into the $200 million MSCG Credit Facility, which was comprised of a $68 million initial term loan (the “Initial Term Loan”), a $40 million term loan to be used to fund certain working interest purchases (the “Spyglass Tranche A Loan”) and an uncommitted term loan of up to $92 million (the “Tranche B Loan”). The MSCG Credit Facility was collateralized by, among other things, the Company’s oil and gas properties and future oil and gas sales derived from such properties.

 

Net proceeds from borrowings under the Initial Term Loan totaling approximately $67.3 million were used: (i) to repay amounts outstanding under the Swap Facility, thus fully extinguishing the Swap Facility, (ii) to reduce the Company’s payables, (iii) to develop its Spyglass Area in North Dakota to increase production of hydrocarbons, (iv) to acquire new oil and gas properties within the Spyglass Area and (v) to fund general corporate purposes that are usual and customary in the oil and gas exploration and production business.

  

Proceeds from borrowings under the Spyglass Tranche A Loan totaling approximately $40 million were used to purchase additional net revenue and working interests in the Spyglass Area (See Note 4).

 

The MSCG Credit Facility had a five-year term and carried a variable interest rate ranging from approximately 5.5% to 10.5%. The variable interest rate was based primarily on the ratio of the Company’s proved developed reserves to its debt for a given period. Interest expense related to the Initial Term Loan totaled approximately $833,000 for the three-month and nine-month periods ended September 30, 2013. Interest expense related to the Initial Term Loan and Spyglass Tranche A Loan totaled approximately $1.9 million and $7.6 million for the three-month and nine-month periods ended September 30, 2014, respectively.

 

The Company incurred investment banking fees and closing costs totaling approximately $7.8 million in connection with the negotiation and closing of the Initial Term Loan and Spyglass Tranche A Loan. The Company capitalized these items as deferred financing costs, and began amortizing these costs over the life of the MSCG Credit Facility using the effective interest method. The amortization of deferred financing costs is included as a component of the Company’s interest expense for the period. The Company amortized approximately $123,000 and $245,000 of deferred financing costs related to the MSCG Credit Facility during the three-month periods ended September 30, 2014 and 2013, respectively, and approximately $1.0 million and $123,000 during the nine-month periods ended September 30, 2014 and 2013, respectively.

 

15
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

The MSCG Credit Facility contained customary affirmative and negative covenants for borrowings of this type, including limitations on the Company with respect to transactions with affiliates, hedging agreements, dividends and distributions, operations in respect of the property that secures its collective obligations under the MSCG Credit Facility, liens and encumbrances in respect of the property that secures the Company’s collective obligations under the MSCG Credit Facility, subsidiaries and divestitures, indebtedness, investments, and changes in business. The MSCG Credit Agreement also contained a number of financial covenants, including the maintaining of an adjusted minimum working capital ratio of 1.0.

 

In July 2014, the Company borrowed approximately $2.2 million in connection with the amendment of certain financial covenants contained in the original MSCG Credit Facility agreement.

 

In August 2014, the Company repaid all amounts then-outstanding under the MSCG Credit Agreement with funds received from the issuance of certain bonds (see Note 9) and, in doing so, recognized a loss on the early extinguishment of debt totaling approximately $11.9 million. The loss on the early extinguishment of debt included, the covenant amendment fee of approximately $2.2 million, a prepayment penalty of approximately $3.3 million and the write-off of unamortized deferred financing costs of approximately $6.4 million.

 

9.Bonds Payable

 

In August 2014, the Company issued a series of 11% secured bonds (the “Bonds”) through a Rule 144A / Regulation S private offering. The Bonds mature on September 1, 2019 and have an aggregate gross value of $175 million. The Bonds were issued at a discount (99.059%), resulting in a discount of approximately $1.6 million. Net proceeds received from the issuance of the Bonds approximated $167.3 million, net of the bond discount, investment banking fees and closing costs. A portion of the net proceeds received from the issuance of the Bonds was used to repay in full the then-outstanding balance of the MSCG Credit Facility (see Note 8). The Company is amortizing the bond discount over the life of the bonds using the effective interest method. Amortization of the Bond discount totaled approximately $32,000 for the three-month and nine-month periods ended September 30, 2014. Interest on the Bonds is payable in arrears each March 1st and September 1st.

 

The Company incurred investment banking fees and closing costs totaling approximately $7.1 million in connection with the issuance of the Bonds. The Company has capitalized these items as deferred financing costs, and is amortizing these costs over the life of the Bonds using the effective interest method. The amortization of deferred financing costs is included as a component of the Company’s interest expense for the period. The Company amortized approximately $137,000 of deferred financing costs related to the Bonds during the three-month and nine-month periods ended September 30, 2014.

 

16
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

The Bond Indenture contains customary affirmative and negative covenants for financial instruments of this nature, including limitations on the Company with respect to dividends, distributions and additional future borrowings. The Company is in compliance with all covenants required by the Bond Indenture as of September 30, 2014. The Bonds are secured by a second priority lien on virtually all of the Company’s assets.

 

10.Senior Secured Revolving Credit Facility

 

Also in August 2014, the Company entered into a Senior Secured Credit Facility (the “Senior Credit Facility”) with SunTrust Robinson Humphrey, Inc., which provides for the initial availability of up to $35 million of borrowing capacity. In the event that the Company achieves certain milestones or maintain certain financial ratios, the borrowing capacity of the Senior Credit Facility may be increased to $60 million in the future. As of September 30, 2014, the Company has not borrowed any funds under the Senior Credit Facility.

 

When outstanding, amounts drawn under the Senior Credit Facility are subject to variable annual interest rates ranging from LIBOR plus 1.75% to LIBOR plus 3.75%, depending on the nature of the borrowing and the balance outstanding under the Senior Credit Facility at the time the funds are drawn. The terms of the Senior Credit Facility also call for the payment of unused commitment fees relative to amounts that are available, but not drawn, under the Senior Credit Facility. Unused commitment fees are included as a component of the Company’s interest expense for the period. The Company recognized approximately $13,000 of unused commitment fees related to the Senior Credit Facility for the three-month and nine-month periods ended September 30, 2014.

 

The Company incurred investment banking fees and closing costs totaling approximately $834,000 in connection with the establishment of the Senior Credit Facility. The Company has capitalized these items as deferred financing costs, and is amortizing these costs over the life of the Senior Credit Facility using a method that approximates the effective interest method. The amortization of deferred financing costs is included as a component of the Company’s interest expense for the period. The Company amortized approximately $13,000 of deferred financing costs related to the Bonds during the three-month and nine-month periods ended September 30, 2014.

 

The Senior Credit Facility contains customary affirmative and negative covenants for borrowings of this type, including limitations on the Company with respect to transactions with affiliates, hedging agreements, dividends and distributions, operations in respect of the property that secures its collective obligations under the Senior Credit Facility, indebtedness, investments, and changes in business. The Senior Credit Facility also contained a number of financial covenants, including the maintaining of an adjusted minimum working capital ratio of 1.0 and a fixed cost coverage ratio of at least 4.0. The Company is compliance with all covenants required by the Senior Credit Facility as of September 30, 2014.

 

17
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

11.Price Swap Derivatives

 

As a condition of closing for the Swap Facility (see Note 7), the Company entered into various commodity derivative contracts to mitigate the effects of potential downward pricing on the Company’s oil and gas revenues. The contracts included floating vs. fixed price swaps for the Company’s produced oil. The Company did not designate the price swap agreements as hedges. Accordingly, management elected not to apply hedge accounting to these derivatives but, instead, recognized the changes in the fair value of the price swap agreements in its statement of operations in the period for which such unrealized changes occurred. The Company recognized realized gains associated with the price swap agreements totaling approximately $116,000 for the three-month and nine-month periods ended September 30, 2013. These price swaps were closed in August 2013, concurrent with the full repayment of the Swap Facility.

 

As a condition of the MSCG Credit Facility (see Note 8), the Company was required to enter into commodity price swap agreements covering up to 85% of its projected five-year future production on its proved, developed, producing properties. The Company did not designate the price swap agreements as hedges. Accordingly, management elected not to apply hedge accounting to these derivatives but, instead, recognized the changes in the fair value of the price swap agreements in its statement of operations in the period in which such unrealized changes in fair value occur. The Company recognized unrealized losses on the price swaps associated with the MSCG Credit Facility of approximately $775,000 for the three-month and nine-month periods ended September 30, 2013, respectively. The price swap agreements were fully settled in August 2014 in conjunction with the full-repayment of the then-outstanding balance of the MSCG Credit Facility (see Note 8). The Company recognized realized losses on the settlement of the price swaps associated with the MSCG Credit Facility totaling approximately $7.1 million and $7.5 million for the three-month and nine-month periods ended September 30, 2014, respectively, and unrealized gains on the price swaps totaling approximately $8.0 million and $0 for the three-month and nine-month periods ended September 30, 2014, respectively.

 

In September 2014, the Company entered into new commodity price swap agreements. The Company recognized unrealized gains on the new price swaps of approximately $618,000 for the three-month and nine-month periods ended September 30, 2014.

 

The Company’s outstanding price swap agreements had the following net fair market values as of June 30, 2014 and December 31, 2013 (in thousands):

 

18
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

   September 30,   December 31, 
   2014   2013 
Current derivative asset  $466   $211 
Noncurrent derivative asset   155    - 
Current derivative liability   (3)   (276)
Noncurrent derivative liability   -    (750)
Net derivative asset (liability)  $618   $(815)

 

12.Asset Retirement Obligation

 

The Company has recorded estimated asset retirement obligations for the future plugging and abandonment of operated and non-operated wells within its Spyglass Property. As of September 30, 2014 and December 31, 2013, the Company’s asset retirement obligation approximated $1.4 million and $1.1 million, respectively. The projected plugging dates for wells in which the Company owns a working interest ranges from December 31, 2015 to September 30, 2035. The Company recognized amortization expense associated with the accretion of its asset retirement agreements totaling approximately $54,000 and $36,000 for the nine-month periods ended September 30, 2014 and 2013, respectively.

 

13.Equity Transactions

 

Reverse Split

 

In March 2014, the Company completed a 1-for-4 reverse split of its common stock. Pursuant to accounting guidelines, all historical share and per-share data contained in these financial statements have been restated to reflect the reverse split for all periods presented.

 

Private Placement

 

In January 2013, the Company sold 1,000,000 shares of its common stock in a private placement at a price of $4.00 per share. Proceeds from the sale totaled $4.0 million.

 

Public Offerings

 

In August 2013, the Company sold 1,250,000 shares of its common stock in a public offering at a price of $8.00 per share. Proceeds from the sale totaled approximately $9.9 million, net of investment banking fees.

 

In October 2013, the Company sold 3,941,449 shares of its common stock at a price of $6.80 per share in two public offerings. The sales were completed pursuant to the then-current shelf registration, which was filed in August 2013. Proceeds from the sales, net of expenses, broker fees and commissions, totaled approximately $25.0 million.

 

In March 2014, the Company sold 12,650,000 shares of its common stock in a public offering at a price of $6.60 per share. The sale of stock was completed pursuant to the Company’s December 2013 shelf registration. Proceeds from the sale, net of expenses, broker fees and commissions, totaled approximately $78.3 million.

 

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American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

Stock Options

 

During the year ended December 31, 2013, the Company granted 440,000 stock options to members of its Board of Directors, employees and certain key third-party consultants. The options have exercise prices ranging from $5.84 to $9.28 per share. Each of the stock options granted has a five-year life and vest 50% on the one-year anniversary of the grant date, with the remaining 50% vesting on the second-year anniversary date.

 

The assumptions used in the Black-Scholes Option Pricing Model for the stock options granted during the 2013 were as follows:

 

Risk-free interest rate  0.23 to 0.35%
Expected volatility of common stock  62% to 84%
Dividend yield  $0.00
Expected life of options  5 years

 

During the nine-month period ended September 30, 2014, the Company granted 37,500 stock options to certain employees. The options have exercise prices ranging from $6.18 to $7.05 per share. Each of the stock options granted has a five-year life and vest 50% on the one-year anniversary of the grant date, with the remaining 50% vesting on the second-year anniversary date.

 

The assumptions used in the Black-Scholes Option Pricing Model for the stock options granted during the 2014 were as follows:

 

Risk-free interest rate  0.43 to 0.48%
Expected volatility of common stock  59% to 61%
Dividend yield  $0.00
Expected life of options  5 years

 

The options outstanding as of September 30, 2014 and December 31, 2013 have an intrinsic value of $2.67 and $4.12 per share and an aggregate intrinsic value of approximately $5.2 million and $7.9 million respectively.

 

Shares Reserved for Future Issuance

 

As of September 30, 2014 and December 31, 2012, the Company had reserved 1,941,150 and 1,926,775 shares, respectively, for future issuance upon exercise of outstanding options.

 

20
 

 

American Eagle Energy Corporation

Notes to the Condensed Consolidated Financial Statements

As of September 30, 2014 and December 31, 2013 and

For the Three-Month and Nine-Month Periods Ended September 30, 2014 and 2013

 

14.Earnings Per Share

 

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2014 and 2013 (in thousands, except for per share data):

 

   Three Months   Nine Months Ended 
   Ended September 30,   Ended September 30, 
   2014   2013   2014   2013 
Net income (loss)  $(8,738)  $(936)  $(13,667)  $2,056 
                     
Weighted average number of common shares outstanding   30,448    13,224    26,524    12,741 
Incremental shares from the assumed exercise of dilutive stock options   -    -    -    484 
Diluted common shares outstanding   30,448    13,224    26,524    13,225 
                     
Earnings (loss) per share – basic  $(0.29)  $(0.07)  $(0.52)  $0.16 
Earnings (loss) per share – diluted  $(0.29)  $(0.07)  $(0.52)  $0.16 

 

For periods in which the Company recognizes a net loss, the calculation of diluted loss per share is the same as the calculation of basis loss per share, as the effect of including any incremental shares from the assumed exercise of dilutive stock options would be anti-dilutive. The number of anti-dilutive shares that have been excluded from the calculation of diluted loss per share for the three month-periods ended September 30, 2014 and 2013, and the nine-month period ended September 30, 2014, is approximately 474,000, 297,000 and 579,000 shares, respectively.

 

15.Related Party Transactions

 

The Company is under contract through February 2016 to sell 100% of its oil, gas and liquids production to Power Energy Partners LP (“Power Energy”) at prevailing market rates. As of September 30, 2014, Power Energy holds 2,250,000 shares of our common stock.

 

The Company routinely obtains legal services from a firm for whom one of its directors serves as a principal. Fees paid this firm approximated $52,000 and $24,000 for the nine-month periods ended September 30, 2014 and 2013, respectively.

 

The Company receives monthly geological consulting services from Synergy Energy Resources LLC (“Synergy”). One of the Company’s current directors and one current officer own material ownership interests in Synergy. The Company terminated its consulting agreement with Synergy on June 30, 2014. The Company incurred $84,000 and $126,000 of consulting expenses from Synergy during the nine-month periods ending September 30, 2014 and 2013, respectively.

 

The Company’s Chairman and its Chief Operating Officer each owns overriding royalty interests in certain of the Company’s operated wells. The overriding royalty interests were obtained prior the Company’s acquisition of AEE, Inc. in December 2011. Aggregate royalties paid to these individuals totaled approximately $648,000 and $802,000 for the nine-month periods ended September 30, 2014 and 2013, respectively.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

THE FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS REPORT.

 

A Note About Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current management's expectations. These statements may be identified by their use of words like “plans,” “expect,” “aim,” “believe,” “projects,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including statements about our business strategy, expenditures, and financial results are forward-looking statements. We believe that the expectations reflected in such forward-looking statements are accurate. However, we cannot assure the reader that such expectations will occur.

 

Actual results could differ materially from those in the forward-looking statements due to a number of uncertainties, including, but not limited to, those discussed in this section. Factors that could cause future results to differ from these expectations include general economic conditions, further changes in our business direction or strategy, competitive factors, oil and gas exploration uncertainties, and an inability to attract, develop, or retain technical, consulting, or managerial agents or independent contractors. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements. The reader should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report, except as required by law; we are not obligated to release publicly any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report or to reflect the occurrence of unanticipated events.

 

Industry Outlook

 

The petroleum industry is highly competitive and subject to significant volatility due to numerous market forces. Crude oil and natural gas prices are affected by market fundamentals such as weather, inventory levels, competing fuel prices, overall demand, and the availability of supply.

 

22
 

  

Oil prices cannot be predicted with any certainty and have significantly affected profitability and returns for upstream producers. Historically, West Texas Intermediate (“WTI”) crude oil prices have averaged approximately $91.70 per barrel over the past five years, per the U.S. Energy Information Administration. However, during that time, WTI oil prices have experienced wide fluctuations in prices, ranging from $64.78 per barrel to $113.39 per barrel, with the median price of $93.35 per barrel. The daily WTI oil prices averaged approximately $99.97 and $98.15 for the nine-month periods ended September 30, 2014 and 2013, respectively.

 

While local supply/demand fundamentals are a decisive factor affecting domestic natural gas prices over the long term, day-to-day prices may be more volatile in the futures markets and other exchanges, making it difficult to forecast prices with any degree of confidence. In addition, prolonged declines in oil and gas prices may ultimately result in the impairment of our oil and gas properties or cause the operation of certain oil and gas wells to become uneconomic.

 

Company Overview

 

The address of our principal executive office is 2549 W. Main Street, Suite 202, Littleton, Colorado, 80120. Our telephone number is 303-798-5235. Our current operations consist of 24 full-time employees.

 

Since November 20, 2013, our common stock has been listed on the NYSE MKT LLC under the symbol “AMZG.” Prior to that, it was quoted on the OTC Bulletin Board and the OTC Markets Group Inc.’s OTCQX tier under the symbol “AMZG”.

 

Our Company was incorporated in the State of Nevada under the name “Golden Hope Resources Corp.” on July 25, 2003. We are engaged in the acquisition, exploration, and development of natural resource properties and are primarily focused on extracting proved oil reserves from those properties. On November 7, 2005, we filed documents with the Nevada Secretary of State to change our name to “Eternal Energy Corp.” by way of a merger with our wholly-owned subsidiary, Eternal Energy Corp., which was formed solely to facilitate the name change. In December 2011, we again filed documents with the Nevada Secretary of State to change our name to “American Eagle Energy Corporation” in conjunction with our acquisition of, and merger with, American Eagle Energy Inc.

 

During the past five years, we have engaged in exploration and production activities in both the northern United States as well as southeastern Saskatchewan, Canada. In July 2014, we sold all of our net revenue and working interests in our Canadian oil and gas properties. As of September 30, 2014, we are engaged in exploration and production activities in the northwest portion of Divide County, North Dakota, where we target the extraction of oil and natural gas reserves from the Three Forks and Middle Bakken formations. We are aggressively pursuing the development of our Spyglass Area, to which virtually all of our capital is being deployed. Our Spyglass Area generated 99% of our revenue for the nine-month period ended September 30, 2014 and represents 100% of our estimated remaining proved reserves as of September 30, 2014.

 

In addition to our existing wells, we own undeveloped acreage interests located in Sheridan, Daniels and Richland Counties, Montana. We currently do not plan to devote capital to any of these areas over the next twelve months.

 

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Oil & Gas Wells

 

We are primarily focused on drilling and completing wells located within our Spyglass Area, located in northwestern Divide County, North Dakota. As of September 30, 2014, 51 gross (30.3 net) of our operated Spyglass wells were producing, in which we own working interests ranging from approximately 5% to 100%, with an average working interest of approximately 60%. At September 30, 2014, there were 36 gross (23.2 net) operated wells producing from the Three Forks formation and 15 gross (7.1 net) operated wells producing from the Middle Bakken formation. During the nine-month period ended September 30, 2014, we added 23 gross (13.0 net) operated wells to production in our Spyglass Area. In addition, we added 3.7 net operated wells to production as a result of acquiring additional working interests in our existing operated wells.

 

We have elected to participate as a non-operating working interest partner in the drilling of 85 gross (4.2 net) wells within the Spyglass Area, of which 81 gross (4.2 net) were producing as of September 30, 2014. Our working interest ownership in these non-operated wells ranges from less than 1% to approximately 28%, with an average working interest of approximately 5%.

 

The following table summarizes our Spyglass Area well activity for the three-month period ended September 30, 2014:

 

      Non-   Total 
   Operated   Operated   Spyglass 
Gross Wells               
Wells producing at beginning of period   43    77    120 
Wells added to production during the period   8    4    12 
Wells producing at end of period   51    81    132 
                
Net Wells               
Wells producing at beginning of period   24.0    3.7    27.7 
Wells added to production during the period   6.3    0.5    6.8 
Wells producing at end of period   30.3    4.2    34.5 

 

Our capital expenditures related to well development totaled approximately $94.2 million for the nine-month period ended September 30, 2014. The cost of drilling and completing successful wells is dependent on a number of factors including, among other things, the vertical depth of the well, the lateral length of the well, the geological zone targeted for development, the methods used to complete the wells and the weather conditions at the time the wells are drilled and completed. In general, our costs of drilling wells that we operate decreased during 2014 as a result of more efficient drilling operations, which decreased the average number of days it takes for us to reach total depth on our wells.

 

During the nine-month period ended September 30, 2014, we spent approximately $61.3 million to acquire additional working and net revenue interests in existing producing wells, as well as to expand our overall acreage position in areas containing proved oil and gas reserves. Of this amount, approximately $54.8 million was spent to acquire additional working and net revenue interests from one of our working interest partners. The acquisition of the additional working and net revenue interests was funded from proceeds received from a public offering of our common stock in March 2014.

 

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Oil and Gas Reserves

 

As of June 30, 2014, the date of our most recent reserve report, our estimated proved oil and gas reserves consisted of approximately 15.4 million barrels of oil equivalent (“BOE”). The estimated pre-tax present value of our proved oil and gas reserves, discounted at an annual rate of 10% (“PV10”), was approximately $366 million as of June 30, 2014.

 

Operating Results

 

For the purpose of furthering the reader’s understanding of the results of our operations, we have elected to present certain non-GAAP financial measures that are commonly used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, to analyze the results of our operations for the three-month and nine-month periods ended September 30, 2014 and 2013. Specific non-GAAP financial measures presented include Adjusted Net Earnings, Adjusted Net Earnings per Share, Adjusted EBITDA and Adjusted Cash Flow from Operations. A description of each non-GAAP financial measure presented is provided below.

 

We define Adjusted Net Earnings as net income excluding any loss from the impairment of oil and gas properties and changes in the fair value of our outstanding commodity derivatives. We believe that this financial measure is meaningful because it excludes the effects of non-cash items that are primarily based on predicted future commodity prices, over which management has no control.

 

Adjusted Net Earnings per Share is calculated by dividing Adjusted Net Earnings by the weighted average shares of our common stock that were outstanding for the period. GAAP requires the use of basic weighted average shares outstanding for the period to calculate both basic and diluted net loss per share for periods in which an entity recognizes a net loss, as the use of the diluted weighted average shares outstanding for the period would have an anti-dilutive effect. In the event that, for a given period, we recognize a net loss (GAAP basis), but Adjusted Net Earnings (non-GAAP basis), we also present Adjusted Net Earnings Per Share (non-GAAP basis) on both a basic and diluted basis using the appropriate weighted average shares outstanding figure as the denominator.

 

We define Adjusted EBITDA as net income before depletion, depreciation and amortization, impairment of oil and natural gas properties, asset retirement obligation accretion expense, gain (loss) on derivative activities, net cash receipts (payments) on settled derivative instruments, premiums (paid) received on options that settled during the period, interest expense, and income tax expense.

 

Management believes Adjusted EBITDA is useful because it allows management to evaluate our operating performance more effectively and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the methods by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance or liquidity.

 

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Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which is a component of Adjusted EBITDA. The Adjusted EBITDA presented below may not be comparable to similarly titled measures presented by other companies, and may not be identical to corresponding measures used in the our various agreements, including the agreements governing the Senior Credit Facility. We have included a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, below.

 

We believe that Adjusted Cash Flow from Operations is a meaningful financial measure because it excludes the majority of non-cash charges from EBITDA, yet includes the portion of interest expense that paid in cash, thus providing a measurement of our ability to service our debt.

 

The following table summarizes our consolidated revenue, production data, and operating expenses for the three-month and nine-month periods ended September 30, 2014 and 2013:

 

   For the three-month period   For the nine-month period 
   ended September 30,   ended September 30, 
   2014   2013   2014   2013 

Revenues (in thousands):

                    
Oil sales  $16,939   $11,585   $45,431   $29,579 
Gas sales   31    26    209    31 
Liquids sales   121    28    459    28 
Total revenues  $17,091   $11,639   $46,099   $29,638 
                     
Volumes:                    
Oil (barrels)   

197,740

    

123,343

    

514,090

    

327,783

 
Gas (mcf)   

1,968

    

6,333

    

30,315

    

7,501

 
Liquids (barrels)    

3,706

    

944

    

13,202

    

944

 
Total barrels of oil equivalent (“BOE”)   

201,774

    

125,343

    

532,345

    

329,977

 
                     
Average daily sales volumes (BOE)   2,193    1,362    1,950    1,209 
                     
Average sales prices:                    
Oil sales (per barrel)  $85.66   $93.92   $88.37   $90.24 
Effect of settled derivatives (per barrel)   (3.80)   0.94    (2.38)   0.35 
Oil sales, net of settled derivatives (per barrel)   81.86    94.86    85.99    90.59 
Gas sales (per mcf)   15.52    4.09    6.90    4.17 
Liquids sales (per barrel)   32.85    29.67    34.80    29.67 
Oil equivalent sales (per BOE)   80.98    93.78    84.29    89.69 
                     

Operating expenses (in thousands):

                    
Lease operating expenses  $3,671   $1,766   $9,258   $4,371 
Production taxes   1,950    1,289    5,217    3,286 
Total oil and gas operating expenses   5,621    3,055    14,475    7,657 
General and administrative expenses, excluding stock-based compensation   1,665    1,509    4,446    3,553 
Stock-based compensation (non-cash)   445    303    1,344    827 
Depletion, depreciation and amortization   6,154    2,524    15,497    5,915 
Impairment of oil and gas properties   -    -    -    1,525 
Total operating expenses  $13,885   $7,391   $35,762   $19,477 

 

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   For the three-month period   For the nine-month period 
   ended September 30,   ended September 30, 
   2014   2013   2014   2013 
Costs and expenses per BOE:                    
Lease operating expenses  $18.20   $14.09   $17.39   $13.25 
Production taxes   9.66    10.28    9.80    9.95 
Total oil and gas operating expenses   27.86    24.37    27.19    23.20 
General and administrative expenses, excluding stock-based compensation   8.25    12.04    8.36    10.77 
Stock-based compensation (non-cash)   2.21    2.42    2.52    2.51 
Depletion, depreciation and amortization   30.50    20.14    29.11    17.93 
Impairment of oil and gas properties   -    -    -    4.62 
Total operating expenses  $68.82   $58.97   $67.18   $59.03 
                     

Adjusted net earnings (Non-GAAP) (in thousands):

                    
Net income (loss)  $(8,738)  $(936)  $(13,667)  $2,056 
Add: Impairment of oil and gas properties   -    -    -    1,525 
Add: Loss on sale of oil and gas properties   12    -    12    - 
Add: One-time loss on settlement of derivatives   6,362    -    6,362    - 
Add: Loss on early extinguishment of debt   11,894    3,714    11,894    3,714 
Changes in fair value of derivatives   (8,641)   934    (618)   775 
Adjusted net earnings  $889   $3,712   $3,983   $8,070 
                     
Adjusted net earnings per share (Non-GAAP):                    
Basic  $0.03   $0.28   $0.15   $0.63 
Diluted  $0.03   $0.27   $0.15   $0.61 

Weighted average number of shares outstanding (in thousands):

                    
Basic   30,448    13,224    26,524    12,741 
Diluted   30,922    13,733    27,103    13,225 
                    

Adjusted EBITDA (Non-GAAP) (in thousands):

                    
Net income (loss)  $(8,738)  $(936)  $(13,667)  $2,056 
Less: Interest and dividend income   (28)   (19)   (56)   (57)
Add: Interest expense   4,163    1,316    10,628    2,149 
Add: Income tax expense (benefit)   (2,569)   (646)   (5,311)   1,639 
Add: Depletion, depreciation and amortization (non-cash)   6,154    2,524    15,497    5,915 
Add: Stock-based compensation (non-cash)   445    303    1,344    827 
Add: Accretion of asset retirement obligations   9    8    60    36 
Add: Impairment of oil and gas properties (non-cash)   -    -    -    1,525 
Add: Loss on sale of oil & gas properties   12    -    12    - 
Add: Loss on early extinguishment of debt   11,894    3,714    11,894    3,714 
Add: One-time loss on settlement of derivatives   6,362    -    6,362    - 
Changes in fair value of derivatives   (8,641)   934    (618)   775 
Adjusted EBITDA  $9,063   $7,198   $26,145   $18,579 
                     

Adjusted cash flow from operations (Non-GAAP) (in thousands):

                    
Adjusted EBITDA  $9,063   $7,198   $26,145   $18,579 
Less: Interest expense   (4,163)   (1,316)   (10,628)   (2,149)
Add:  Amortization of deferred financing costs and bond discount (non-cash)   426    162    1,190    274 
Adjusted cash flow  $5,326   $6,044   $16,707   $16,704 

 

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Results of Operations for the three-month period ended September 30, 2014 vs September 30, 2013

 

In July 2014, we sold all of our Canadian net revenue and working interests. Accordingly, the following discussion focuses solely on the results of our US oil and gas activities for the three-month periods ended September 31, 2014 and 2013.

 

Revenues from the sale of oil, natural gas and liquids totaled approximately $17.1 million for the three-month period ended September 30, 2014, compared to approximately $11.6 million for the three-month period ended September 30, 2013, an increase of 47%. This increase was driven primarily by a 62% increase in production by volume, which was partially offset by a 14% decline in oil prices, after considering the effects of settled hedges. Our wells continue to be primarily oil-producing wells, with 99% of total revenues for the three-month periods ended September 30, 2014 and 2013 resulting from oil sales. Our average daily production for the three-month period ended September 30, 2014, calculated on a barrel of oil equivalent basis, was 2,193 BOEPD, compared to 1,362 BOEPD for the corresponding period in 2013. Production volumes increased primarily due to the addition of 26 gross (22.5 net) operated wells and 10 gross (1.2 net) non-operated wells to production within the Williston Basin from October 1, 2013 through September 30, 2014. During the three-month period ended September 30, 2014, our average realized price per barrel of oil was $85.66 ($81.86 after considering the effects of settled derivatives) compared to an average realized price of $93.92 ($94.86, after considering the effects of settled derivatives) per barrel for the three-month period ended September 30, 2013.

 

Lease operating expenses totaled approximately $3.7 million for the three-month period ended September 30, 2014 compared to approximately $1.8 million for the three-month period ended September 30, 2013. On a per-unit basis, LOE increased from $14.09 per BOE for the three-month period ended September 30, 2013 to $18.20 per BOE for the three-month period ended September 30, 2014. The increase in LOE per BOE from 2013 to 2014 is primarily due to planned workover expenses related to some of our older wells, as well as higher water transportation and disposition costs.

 

Production taxes totaled approximately $2.0 million for the three-month period ended September 30, 2014, compared to approximately $1.3 million for the three-month period ended September 30, 2013. Production taxes, as a percentage of total revenues were approximately 11.4% and 11.1% for the three-month periods ended September 30, 2014 and 2013, respectively. The statutory production tax rate for our North Dakota operated wells is 11.5%.

 

General and administrative expenses, excluding stock based compensation, totaled approximately $1.7 million million for the three-month period ended September 30, 2014, compared to approximately $1.5 million for the three-month period ended September 30, 2013. The increase is largely attributable to additional payroll, employee benefit expenses, and office-related expenses as the number of our employees grew from 19 as of September 30, 2013 to 24 as of September 30, 2014. Included in general and administrative expenses is stock-based compensation totaling approximately $445,000 and $303,000 for the three-month periods ended September 30, 2014 and 2013, respectively. Stock-based compensation is a non-cash charge to earnings.

 

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Depletion, depreciation and amortization expense totaled approximately $6.2 million ($30.50 per BOE) for the three-month period ended September 30, 2014, compared to approximately $2.5 million ($20.14 per BOE) for the three-month period ended September 30, 2013. Our depletion expense is based on the capitalized costs related to oil and gas properties for which proved reserves have been assigned, plus the estimated future development costs necessary to convert undeveloped proved reserves to proved producing reserves. Our gross capitalized costs related to amortizable oil and gas properties increased from approximately $108.6 million at September 30, 2013 to approximately $320.0 million at September 30, 2014. The increase in depletion expense was due primarily to the addition of 26 gross (22.5 net) operated wells to production since October 1, 2013. The increase in depletion expense per BOE is primarily due to the identification of new future drill sites, for which proved, undeveloped reserves (and estimated future development costs) have been assigned.

 

In August 2013, we entered into the $200 million MSCG Credit Facility, at which time we borrowed $68 million. We used a portion of these funds to repay in full the then-outstanding balance of our prepaid Swap Facility (the “MBL Swap Facility”) with Macquarie Bank Limited (“MBL”). In doing so, we recognized a loss on the early extinguishment of the MBL debt of approximately $3.7 million, which consisted of a prepayment penalty and the write-off of unamortized deferred financing costs. In October 2013, we borrowed an additional $40 million under the MSGC Credit Facility to acquire certain working and net revenue interests in the Spyglass Property from one of our working interest partners.

 

In August 2014, we issued a series of 11% secured bonds (the “Bonds”) through a Rule 144A / Regulation S private offering. The Bonds mature on September 1, 2019 and have an aggregate gross value of $175 million. The Bonds were issued at a discount (99.059%), resulting in an original issuance discount of approximately $1.6 million. Net proceeds received from the issuance of the Bonds were approximately $167.3 million, net of the bond discount, investment banking fees and closing costs. We also incurred legal and bond rating fees totaling approximately $1.0 million in connection with the issuance of the Bonds. A portion of the net proceeds received from the issuance of the Bonds was used to repay in full the then-outstanding balance of the MSCG Credit Facility. In repaying the amounts due under the MSCG Credit Facility prior to its scheduled maturity, we recognized a loss on the early extinguishment of debt totaling approximately $11.9 million, which included amendment and prepayment penalties totaling approximately $5.5 million and the non-cash write-off of approximately $6.4 million of unamortized deferred financing costs.

 

We recognized interest expense totaling approximately $4.2 million for the three-month period ended September 30, 2014 related to the MSCG Credit Facility, prior to repayment, and the Bonds. Interest expense for the three-month period ended September 30, 2013 related to the MBL Swap Facility and the MSCG Credit Facility totaled approximately $1.3 million. Included in the aggregate interest expense figures for the three-month periods ended September 30, 2014 and 2013 is the amortization of the original issuance bond discount and deferred financing costs, both of which are non-cash items. The specific terms of the Bonds are discussed in the “Liquidity and Capital Resources” section, below.

 

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In connection with MSCG Credit Facility, we were required to enter into price swap agreements with MSGC covering up to 85% of the anticipated production from our estimated proved developed reserves over the remaining life of the MSCG Credit Facility. The purpose of price swap agreements is to limit our potential exposure to falling oil prices. Sustained oil prices above the pre-determined terms of our price-swap agreements result in realized and unrealized losses, while sustained oil prices below the pre-determined terms of our price swap agreements result in realized and unrealized gains. The price swap agreements are considered derivatives under generally accepted accounting principles. We recognized losses on the normal settlement of monthly swap agreements totaling approximately $751,000, and unrealized gains resulting from the change in fair value of unsettled price swaps totaling approximately$8.0 million for the three-month period ended September 30, 2014. In addition, we were required to settle the remaining price swaps with MSGC prior to their scheduled maturity, which resulted in a one-time loss on the settlement of price swaps of approximately $6.4 million. We recognized gains on the normal settlement of prices swaps totaling approximately $115,000 and unrealized losses totaling approximately $934,000 resulting from the change in fair value of unsettled price swaps for the three-month period ended September 30, 2013.

 

In September 2014, we entered into new swap agreements covering approximately 55% of our expected oil production through December 2015. As a result of falling oil prices, we recognized unrealized gains and a corresponding net derivative asset totaling approximately $618,000 as of September 30, 2014.

 

We recognized an estimated income tax benefit of approximately $2.6 million for the three-month period ended September 30, 2014, compared to an income tax benefit of approximately $646,000 for the corresponding period in 2013. Our estimated tax benefit rates for the periods were 23% and 41%, respectively.

 

Our basic and diluted loss per share was $0.29 for the three-month period ended September 30, 2014, compared to $0.07 for the three-month period ended September 30, 2013. Because we recognized a net loss for the current period, diluted income per share is calculated using the basic weighted average number of weighted shares outstanding for the period, as the effect of including potentially dilutive items would be anti-dilutive.

 

Our adjusted net earnings for the three-month period ended September 30, 2014 was approximately $889,000, compared to an adjusted net earnings of approximately $3.7 million for the three-month period ended September 30, 2013. Adjusted net earnings is derived by adding back unrealized changes in fair value of commodity derivatives (non-cash) to net income or adjusting for other non-recurring gains or losses during the period. Adjusted net earnings is a non-GAAP financial measure.

 

Our adjusted EBITDA for the three-month periods ended September 30, 2014 and 2013 was approximately $9.1 million and $7.2 million, respectively. Adjusted EBITDA represents net earnings before interest income, dividend income, interest expense, income taxes, depletion, depreciation, and amortization, non-cash expenses related to stock-based compensation, impairment of oil and gas properties, loss on early extinguishment of debt, accretion of asset retirement obligations and changes in fair value of commodity derivatives (non-cash), and adjusted for other non-recurring gains or losses during the period. Adjusted EBITDA is a non-GAAP financial measure.

 

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Results of Operations for the nine-month period ended September 30, 2014 vs September 30, 2013

 

Revenues from the sale of oil, natural gas and liquids totaled approximately $46.1 million for the nine-month period ended September 30, 2014, compared to approximately $29.6 million for the nine-month period ended September 30, 2013, an increase of 56%. This increase was driven primarily by a 61% increase in production by volume, which was partially offset by a 5% decline in oil prices, after considering the effects of settled hedges. Our average daily production for the nine-month period ended September 30, 2014, calculated on a barrel of oil equivalent basis, was 1,950 BOEPD, compared to 1,209 BOEPD for the corresponding period in 2013. Production primarily increased due to the addition of 26 gross (22.5 net) operated wells and 10 gross (1.2 net) non-operated wells within the Williston Basin from October 1, 2013 through September 30, 2014.

 

During the nine-month period ended September 30, 2014, our average realized price per barrel of oil was $88.37 ($85.99 after considering the effects of settled derivatives) compared to an average realized price of $93.92 (94.86 after considering the effects of settled derivatives) for the nine-month period ended September, 2013.

 

Lease operating expenses totaled approximately $9.3 million ($17.39 per BOE) for the nine-month period ended September 30, 2014 compared to approximately $4.4 million ($13.25 per BOE) for the nine-month period ended September 30, 2013. The increase in lease operating expenses per BOE from 2013 to 2014 is primarily due to extreme winter weather conditions, which negatively affected our production during the first quarter of 2014 and excessive rains during the second quarter, which prevented trucks from accessing our well sites to retrieve oil and caused us to shut in a number of wells lengthy periods of time, thus resulting in lower production for the periods and higher lease operating expense on a per BOE basis.

 

Production taxes totaled approximately $5.2 million and $3.3 million for the nine-month periods ended September 30, 2014 and 2013, respectively, which represented 11.3% and 11.1% of gross revenues for the periods. The statutory production tax rate for our North Dakota wells is 11.5%.

 

General and administrative expenses, excluding stock-based compensation, totaled approximately $4.4 million for the nine-month period ended September 30, 2014, compared to approximately $3.6 million for the corresponding period in 2013. The increase is largely attributable to additional payroll, employee benefit expenses, and office-related expenses as the number of our employees grew from 19 as of October 1, 2013 to 24 as of September 30, 2014. We also incurred higher legal and accounting fees during the first quarter of 2014 in anticipation of equity financing and acquisitions. Our general and administrative expenses for the nine-month period ended September 30, 2014 and 2013 includes stock-based compensation totaling approximately $1.3 million and $827,000 for the nine-month periods ended September 30, 2014 and 2013, respectively. Stock-based compensation is a non-cash charge to earnings.

 

Depletion, depreciation and amortization expense totaled approximately $15.5 million ($29.11 per BOE) for the nine-month period ended September 30, 2014, compared to approximately $5.9 million ($17.93 per BOE) for the nine-month period ended September, 2013. Our gross capitalized costs related to amortizable oil and gas properties increased from approximately $108.6 million at September 30, 2013 to approximately $320.0 million at September 30, 2014. The increase in depletion expense was due primarily to the addition of 26 gross (22.5 net) operated wells to production since October 1, 2013. The increase in the depletion expense per BOE is primarily due to the identification of new future drill sites, for which proved, undeveloped reserves (and estimated future development costs) have been assigned.

 

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Due to lower than anticipate production volumes from our Hardy Property wells and declining oil prices during the period, we were required to write-down the value of our Canadian oil and gas properties at March 31, 2013, pursuant to full-cost accounting rules. In doing so, we recognized an impairment expense of approximately $1.5 million related to our Canadian oil and gas properties during the nine-month period ended September 30, 2013. The impairment expense represented a non-cash charge against our earnings. We did not record any such impairment during the nine-month period ended September 30, 2014. As noted above, we sold all of our net revenue and working interests in our Canadian oil and gas properties in July 2014, for which we received cash proceeds of approximately $1.8 million. We recognized a $12,000 loss on the sale of the assets.

 

As noted above, we entered into the $200 million MSCG Credit Facility in August 2013, at which time we borrowed $68 million. We used a portion of these funds to repay in full the then-outstanding balance of the MBL Swap Facility. In doing so, we recognized a loss on the early extinguishment of the MBL debt of approximately $3.7 million, which consisted of a prepayment penalty and the write-off of unamortized deferred financing costs. In October 2013, we borrowed an additional $40 million under the MSGC Credit Facility to acquire certain working and net revenue interests in the Spyglass Property from one of our working interest partners.

 

As noted above, we issued secured Bonds having a face value of $175 million (approximately $173.4 million net of original issuance discount) through a Rule 144A / Regulation S private offering in August 2014. A portion of the proceeds received from the issuance of the Bonds was used to fully repay our then-outstanding balance under the MSCG Credit Facility. In repaying the amounts due under the MSCG Credit Facility prior to its scheduled maturity, we recognized a loss on the early extinguishment of debt totaling approximately $11.9 million, which included amendment and prepayment penalties totaling approximately $5.5 million and the non-cash write-off of approximately $6.4 million of unamortized deferred financing costs.

 

We recognized aggregate interest expense of totaling approximately $10.6 million for the nine-month period ended September 30, 2014 related to the MSGC Credit Facility and Bonds, which includes the amortization of deferred financing costs and amortization of the original bond discount. The amortization of deferred financing costs and the original issuance bond discount are non-cash items. Interest expense related to the MBL Swap Facility and the MSCG Credit Facility totaled approximately $2.1 million for the nine-month period ended September 30, 2013, including the amortization of deferred financing costs. The specific terms of our Bonds are discussed in the “Liquidity and Capital Resources” section, below.

 

We recognized losses on the normal monthly settlement of price swap agreements totaling approximately $1.1 million, and unrealized gains related to changes in the fair value of price swaps totaling approximately $8.0 million for the nine-month period ended September 30, 2014, in connection with price swap agreements entered into pursuant to our MSCG Credit Facility. In addition, as stated above, we were required to settle our outstanding price swaps with MSGC in August 2014, prior to their maturity, in connection with the early extinguishment of the MSCG Credit Facility. In doing so, we recognized a one-time loss of approximately $6.4 million. We also recognized realized gains totaling approximately $115,000 and unrealized losses related to changes in the fair value of price swaps of approximately $775,000 for the nine-month period ended September 30, 2013 in connection with price swaps agreements entered into pursuant to the MBL Swap Facility. The price swap agreements associated with the MBL Swap Facility were settled upon the full repayment of the MBL Swap Facility in August 2013.

 

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We recognized an estimated income tax benefit of approximately $5.3 million for the nine-month period ended September 30, 2014, compared to income tax expense of approximately $1.6 million for the corresponding period in 2013. Our estimated effective tax benefit and tax expense rates for the periods were 28% and 44%, respectively.

 

Our basic and diluted loss per share was $0.52 for the nine-month period ended September 30, 2014, compared to basic and diluted income per share of $0.16 for the nine-month period ended September, 2013. Because we recognized a net loss for the current period, diluted income per share is calculated using the basic weighted average number of weighted shares outstanding for the period, as the effect of including potentially dilutive items would be anti-dilutive.

 

Our adjusted net earnings for the nine-month period ended September 30, 2014 and 2013 was approximately $4.0 million and $8.1 million, respectively. Adjusted net earnings is derived by adding back unrealized changes in fair value of commodity derivatives to net income or adjusting for other non-recurring gains or losses during the period. Adjusted net earnings is a non-GAAP financial measure.

 

Our adjusted EBITDA for the nine-month period ended September 30, 2014 and 2013 was approximately $26.1 million and $18.6 million, respectively. Adjusted EBITDA represents net earnings before interest income, dividend income, interest expense, income taxes, depletion, depreciation, and amortization, non-cash expenses related to stock-based compensation, impairment of oil and gas properties, loss on early extinguishment of debt, and unrealized changes in fair value of commodity derivatives, and adjusted for other non-recurring gains or losses during the period. Adjusted EBITDA is a non-GAAP financial measure.

 

Liquidity and Capital Resources

 

On March 24, 2014, we sold 12,650,000 shares of our common stock in a transaction utilizing our shelf registration. Proceeds received from the sale of equity, net of expenses and broker fees and commissions, totaled approximately $78.3 million. A portion of the net proceeds from the public offering were used to close the second half of our previously announced working interest acquisition. The remaining funds will be used (i) to execute our 2014 drilling program, (ii) to fund further development of wells within our Spyglass Area, (iii) to acquire additional working interests in undeveloped properties, and (iv) to provide working capital for operations.

 

In August 2014, we issued the series of 11% secured Bonds through a Rule 144A / Regulation S private offering. The Bonds mature on September 1, 2019 and have an aggregate gross value of $175 million. The bonds were issued at a discount (99.059%), resulting in a discount of approximately $1.6 million. Net proceeds received from the issuance of the bonds approximated $167.3 million, net of the bond discount, investment banking fees and closing costs. We also incurred legal and bond rating fees totaling approximately $1.0 million in connection with the issuance of the bonds. A portion of the net proceeds received from the issuance of the Bonds was used to repay in full the then-outstanding balance of the MSCG Credit Facility. Interest on the Bonds is payable in arrears each March 1st and September 1st.

 

The Bond Indenture contains customary affirmative and negative covenants for financial instruments of this nature, including limitations with respect to our ability to pay dividends, distributions and to secure additional future borrowings. The Bonds are secured by a second priority lien on virtually all of our assets.

 

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Also in August 2014, we entered into a Senior Credit Facility (the “Senior Credit Facility”) with SunTrust Robinson Humphrey, Inc., which provides for the initial availability of up to $35 million of borrowing capacity. In the event that we achieve certain milestones or maintain certain financial ratios, the borrowing capacity of the Senior Credit Facility may be increased to $60 million in the future. As of September 30, 2014, we have not borrowed any funds under the Senior Credit Facility.

 

When outstanding, amounts drawn under the Senior Credit Facility are subject to variable annual interest rates ranging from LIBOR plus 1.75% to LIBOR 3.75%, depending on the nature of the borrowing and the balance outstanding under the Senior Credit Facility at the time the funds are drawn. The terms of the Senior Credit Facility also call for the payment of unused commitment fees relative to amounts that are available, but not drawn, under the Senior Credit Facility. Unused commitment fees are included as a component of our interest expense for the period.

 

The Senior Credit Facility contains customary affirmative and negative covenants for borrowings of this type, including limitations on us with respect to transactions with affiliates, hedging agreements, dividends and distributions, operations in respect of the property that secures its collective obligations under the Senior Credit Facility, indebtedness, investments, and changes in business. The Senior Credit Facility also contained a number of financial covenants, including the maintaining of a current ratio of no less than 1.0 and a total debt to EBITDAX ratio of no less than 4.0. The current ratio, as defined by the Senior Credit Facility, includes the unused portion of the Senior Credit Facility as a component of current assets.

 

As of September 30, 2014, our assets totaled $372.7 million, which includes, among other items, cash totaling approximately $48.8 million, trade receivables totaling approximately $17.8 million and marketable securities valued at approximately $1.2 million. Our current assets total approximately $67.1 million, compared to current liabilities of approximately $73.1 million, resulting in a working capital deficit of approximately $6.0 million.

 

It is possible that we will seek additional financing, sell certain of our oil and gas properties, or raise capital through the sale of additional shares of our common stock in the future, in order to eliminate our working capital deficit and/or to fund our future drilling activities.

 

Litigation

 

As of September 30, 2014, we were not subject to any known, pending or threatened material litigation.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Principal Accounting Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and the Principal Accounting Officer concluded that the Company’s internal controls over financial reporting were effective as of September 30, 2014.

 

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PART II – OTHER INFORMATION

 

ITEM 6. EXHIBITS.

 

Exhibit Description of Exhibit

 

2.1 Agreement and Plan of Merger among Eternal Energy Corp., Eternal Sub Corp. and American Eagle Energy Inc., dated April 8, 2011. (Incorporated by reference to Exhibit 2.1 of our Registration Statement on Form S-4 filed May 4, 2011.)
2.1(a) First Amendment to Agreement and Plan of Merger among Eternal Energy Corp., Eternal Sub Corp. and American Eagle Energy Inc., dated September 28, 2011. (Incorporated by reference to Exhibit 2.1(a) of our Current Report on Form 8-K filed September 28, 2011.)
3(i).1 Articles of Incorporation filed with the Nevada Secretary of State on July 25, 2003. (Incorporated by reference to Exhibit 3.1 of our Form 10-SB filed August 18, 2004.)
3(i).2 Certificate of Change filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 3(i).2 of our Current Report on Form 8-K filed November 9, 2005.)
3(i).3 Articles of Merger filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 3(i).3 of our Current Report on Form 8-K filed November 9, 2005.)
3(i).4 Articles of Merger filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to Exhibit 3(i).4 of our Current Report on Form 8-K filed December 20, 2011.)
3(i).5 Articles of Merger filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to Exhibit 3(i).5 of our Current Report on Form 8-K filed December 20, 2011.)
3(i).6 Certificate of Change filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to Exhibit 3(i).6 of our Current Report on Form 8-K filed December 20, 2011.)
3(i).7 Certificate of Change filed with the Nevada Secretary of State effective March 18, 2014. (Incorporated by reference to Exhibit 3(i).7 of our Current Report on Form 8-K filed on March 21, 2014.)
3(ii).1 Bylaws, adopted July 18, 2003. (Incorporated by reference to Exhibit 3.2 of our Form 10-SB filed August 18, 2004.)
3(ii).2 Amendment No. 1 to Bylaws, adopted November 4, 2005. (Incorporated by reference to Exhibit 3(ii) of our Current Report on Form 8-K filed November 9, 2005.)
3(ii).3 Amendment No. 2 to Bylaws, adopted February 22, 2011. (Incorporated by reference to Exhibit 3(ii).3 of our Current Report on Form 8-K filed February 23, 2011.)
4.1 American Eagle Energy Corporation 2012 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.2 Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.3 Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and John Anderson. (Incorporated by reference to Exhibit 4.3 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.4 Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and Paul E. Rumler. (Incorporated by reference to Exhibit 4.4 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.5 Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 4.5 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.6 Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Thomas G. Lantz. (Incorporated by reference to Exhibit 4.6 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.7 American Eagle Energy Corporation 2013 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.7 of our Annual Report on Form 10-K filed March 28, 2014.)
4.8 Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Richard Findley. (Incorporated by reference to Exhibit 4.8 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.9 Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and Paul E. Rumler. (Incorporated by reference to Exhibit 4.9 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.10 Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and John Anderson. (Incorporated by reference to Exhibit 4.10 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.11 Reserved for future use.
4.12 Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and Kirk Stingley. (Incorporated by reference to Exhibit 4.12 of our Registration Statement on Form S-8 filed February 28, 2012.)
4.13 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 4.13 of our Annual Report on Form 10-K filed March 28, 2014.)
4.14 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and Thomas G. Lantz. (Incorporated by reference to Exhibit 4.14 of our Annual Report on Form 10-K filed March 28, 2014.)

 

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4.15 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and Kirk A. Stingley. (Incorporated by reference to Exhibit 4.15 of our Annual Report on Form 10-K filed March 28, 2014.)
4.16 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and Richard Findley.  (Incorporated by reference to Exhibit 4.16 of our Annual Report on Form 10-K filed March 28, 2014.)
4.17 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and Paul E. Rumler. (Incorporated by reference to Exhibit 4.17 of our Annual Report on Form 10-K filed March 28, 2014.)
4.18 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and John Anderson. (Incorporated by reference to Exhibit 4.18 of our Annual Report on Form 10-K filed March 28, 2014.)
4.19 Non-qualified Stock Option Agreement, dated as of February 21, 2012, by and between the Registrant and Andrew P. Calerich. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed February 21, 2012.)
4.20 Non-qualified Stock Option Agreement, dated as of November 14, 2013, by and between the Registrant and James N. Whyte. (Incorporated by reference to Exhibit 4.20 of our Current Report on Form 8-K filed November 14, 2013.)
4.21 Non-qualified Stock Option Agreement, dated as of December 14, 2012, by and between the Registrant and Andrew P. Calerich. (Incorporated by reference to Exhibit 4.21 of our Annual Report on Form 10-K filed March 28, 2014.)
4.22 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 4.22 of our Annual Report on Form 10-K filed March 28, 2014.)
4.23 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and Thomas G. Lantz. (Incorporated by reference to Exhibit 4.23 of our Annual Report on Form 10-K filed March 28, 2014.)
4.24 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and Kirk A. Stingley. (Incorporated by reference to Exhibit 4.24 of our Annual Report on Form 10-K filed March 28, 2014.)
4.25 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and Richard Findley. (Incorporated by reference to Exhibit 4.25 of our Annual Report on Form 10-K filed March 28, 2014.)
4.26 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and Paul E. Rumler. (Incorporated by reference to Exhibit 4.26 of our Annual Report on Form 10-K filed March 28, 2014.)
4.27 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and John Anderson. (Incorporated by reference to Exhibit 4.27 of our Annual Report on Form 10-K filed March 28, 2014.)
4.28 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and Andrew P. Calerich. (Incorporated by reference to Exhibit 4.28 of our Annual Report on Form 10-K filed March 28, 2014.)
4.29 Non-qualified Stock Option Agreement, dated as of December 13, 2013, by and between the Registrant and James N. Whyte. (Incorporated by reference to Exhibit 4.29 of our Annual Report on Form 10-K filed March 28, 2014.)
10.1 Agreement and Plan of Merger between Golden Hope Resources Corp. (renamed Eternal Energy Corp.) and Eternal Energy Corp., filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 9, 2005.)
10.2 Reserved for future use.
10.3 Purchase and Sale Agreement, dated June 18, 2010, between Eternal Energy Corp. and American Eagle Energy Inc. (Incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q filed August 16, 2010.)
10.4 Restricted Common Stock Purchase Agreement, dated January 4, 2013, by and between American Eagle Energy Corporation and Power Energy Holdings, LLC. (Incorporated by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q filed May 14, 2013.)
10.5 Common Stock Purchase Agreement, dated August 9, 2013, by and between American Eagle Energy Corporation and Power Energy Holdings, LLC. (Incorporated by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q filed August 19, 2013.)
10.6 Purchase, Sale and Option Agreement, dated August 12, 2013, by and between American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q filed November 14, 2013.)
10.6a First Amendment to Purchase, Sale and Option Agreement, dated September 30, 2013, by and between American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.6a of our Quarterly Report on Form 10-Q filed November 14, 2013.)
10.6b Second Amendment to Purchase, Sale and Option Agreement, dated October 2, 2013, by and between American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.6b of our Quarterly Report on Form 10-Q filed November 14, 2013.)
10.6c Notice of Exercise pursuant to the Purchase and Sale and Option Agreement, dated October 2, 2013, by and between American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.6c of our Quarterly Report on Form 10-Q filed November 14, 2013.)
10.6d Third Amendment to the Purchase, Sale and Option Agreement, dated March 27, 2014, by and between American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.6d of our Annual Report on Form 10-K filed March 28, 2014.)
10.7 Underwriting Agreement, dated March 18, 2014, by and between American Eagle Energy Corporation and Johnson Rice & Company LLC. (Incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K, filed March 19, 2014.)
10.8 Purchase Agreement, dated October 2, 2013, by and between American Eagle Energy Corporation and Northland Securities, Inc. (Incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K filed on October 2, 2013.)

 

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10.9 Purchase Agreement, dated October 9, 2013, by and between American Eagle Energy Corporation and Northland Securities, Inc. (Incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K filed on October 10, 2013.)
10.10 Reserved for future use.
10.11 Amended and Restated Employment Agreement, effective May 1, 2013, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 10.11 of our Annual Report on Form 10-K filed March 28, 2014.)
10.12 Employment Agreement, effective May 1, 2013, by and between the Registrant and Thomas G. Lantz. (Incorporated by reference to Exhibit 10.12 of our Annual Report on Form 10-K filed March 28, 2014.)
10.13 Employment Agreement, effective May 1, 2013, by and between the Registrant and Kirk Stingley. (Incorporated by reference to Exhibit 10.13 of our Annual Report on Form 10-K filed March 28, 2014.)
10.14 Consulting Agreement, effective November 30, 2011, by and between the Registrant and Richard Findley. (Incorporated by reference to Exhibit 10.41 of our Annual Report on Form 10-K filed April 16, 2012.)
10.15 Reserved for future use.
10.16 Reserved for future use.
10.17 Carry Agreement, dated August 12, 2013, by and among American Eagle Energy Corporation, AMZG, Inc. and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.20 of our Quarterly Report on Form 10-Q filed August 19, 2013.)
10.18 Farm-Out Agreement, dated August 12, 2013, by and among American Eagle Energy Corporation, AMZG, Inc. and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.21 of our Quarterly Report on Form 10-Q, filed August 19, 2013.)
10.19 Letter Agreement, dated March 21, 2014, by and between American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.19 of our Annual Report on Form 10-K filed March 28, 2014.)
10.19a Amendment and Addendum to Letter Agreement, dated March 27, 2014, by and among American Eagle Energy Corporation and USG Properties Bakken I, LLC. (Incorporated by reference to Exhibit 10.19a of our Annual Report on Form 10-K filed March 28, 2014.)
10.20 Credit Agreement, dated August 19, 2013, by and among American Eagle Energy Corporation, the lenders parties thereto, and Morgan Stanley Capital Group Inc., as administrative agent for such lenders. (Incorporated by reference to Exhibit 10.20 of our Form 8-K filed August 23, 2013.)
10.20a* First Amendment to the Credit Agreement, dated October 2, 2013, by and among American Eagle Energy Corporation, the lenders parties thereto, and Morgan Stanley Capital Group Inc.
10.20b* Second Amendment to the Credit Agreement, dated October 2, 2013, by and among American Eagle Energy Corporation, the lenders parties thereto, and Morgan Stanley Capital Group Inc.
10.20c Third Amendment to the Credit Agreement, dated July 21, 2014, by and among American Eagle Energy Corporation, the lenders parties thereto, and Morgan Stanley Capital Group Inc. (Incorporated by reference to Exhibit 10.20c of our Quarterly Report on Form 10-Q filed August 4, 2014.)
10.21 Promissory Note, dated August 19, 2013, by American Eagle Energy Corporation, payable to the order of Morgan Stanley Capital Group Inc. in the principal amount of $200,000,000. (Incorporated by reference to Exhibit 10.21 of our Form 8-K filed August 23, 2013.)  
10.22 Pledge and Security Agreement, dated as of August 19, 2013, by and among American Eagle Energy Corporation, AMZG, Inc., AEE Canada, Inc., EERG Energy ULC, and Morgan Stanley Capital Group Inc. (Incorporated by reference to Exhibit 10.22 of our Form 8-K filed August 23, 2013.)
10.23 Mortgage-Collateral Real Estate Mortgage, Deed of Trust, Indenture, Security Agreement, Fixture Filing, As-Extracted Collateral Filing, Financing Statement and Assignment of Production, dated as of August 19, 2013, by and among American Eagle Energy Corporation, AMZG, Inc., and Morgan Stanley Capital Group Inc. (Incorporated by reference to Exhibit 10.23 of our Form 8-K filed August 23, 2013.)
10.24 Guaranty Agreement, dated as of August 19, 2013, by and among AMZG, Inc., AEE Canada Inc., EERG Energy ULC, and Morgan Stanley Capital Group Inc. (Incorporated by reference to Exhibit 10.24 of our Form 8-K filed August 23, 2013.)
10.25 Form of Warrant of American Eagle Energy Corporation. (Incorporated by reference to Exhibit 10.25 of our Form 8-K filed August 23, 2013.)
10.26 Reserved for future use.
10.27 Lease Agreement, dated January 1, 2009, by and between Eternal Energy Corp. and Oakley Ventures, LLC. (Incorporated by reference to Exhibit 10.27 of our Annual Report on Form 10-K filed March 23, 2010.)
10.27a Lease Addendum, dated October 1, 2011, by and between Eternal Energy Corp. and Oakley Ventures, LLC, and Exhibit A thereto. (Incorporated by reference to Exhibit 10.27a of our Annual Report on Form 10-K filed April 16, 2012.)
10.27b Lease Addendum, dated July 1, 2012, by and between American Eagle Energy Corporation and Oakley Ventures, LLC. (Incorporated by reference to Exhibit 10.27b of our Quarterly Report on Form 10-Q filed on August 20, 2012.)
10.27c Lease Addendum, dated November 1, 2013, by and between American Eagle Energy Corporation and Oakley Ventures, LLC.
10.28* Indenture, dated August 27, 2014, by and between American Eagle Energy Corporation and U.S. Bank National Association.

 

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10.29* Purchase Agreement, dated August 13, 2014, by and between American Eagle Energy Corporation and GMP Securities L.P.
10.30* Registration Rights Agreement, dated August 27, 2014, by and among American Eagle Energy Corporation and GMP Securities L.P.
10.31* Credit Agreement, dated August 27, 2014, by and among American Eagle Energy Corporation, SunTrust Bank and SunTrust Robinson Humphrey, Inc.
10.32* Guarantee and Collateral Agreement, dated August 27, 2014, by and between American Eagle Energy Corporation, Grantors and SunTrust Bank.
10.33* Intercreditor Agreement, dated August 27, 2014, by and among American Eagle Energy Corporation, SunTrust Bank and U.S. Bank National Association.
10.34 Reserved for future use.
10.35 Reserved for future use.
10.36 Letter of Intent, dated February 22, 2011, by and between Eternal Energy Corp. and American Eagle Energy Inc. (Incorporated by reference to Exhibit 10.36 of our Annual Report on Form 10-K filed March 23, 2011.)
10.37 Engagement Letter for Professional Services, dated February 25, 2011, by and between Eternal Energy Corp. and C.K. Cooper & Company. (Incorporated by reference to Exhibit 10.37 of our Annual Report on Form 10-K filed March 23, 2011.)
10.38 Participation and Operating Agreement, dated April 15, 2011, by and among Eternal Energy Corp., AEE Canada Inc. and Passport Energy Inc. (Incorporated by reference to Exhibit 10.38 of our Registration Statement on Form S-4 filed May 4, 2011.)
10.38a Amendment to the Participation and Operating Agreement, dated February 1, 2012, by and among Eerg Energy Ulc, Aee Canada Inc. and Passport Energy Inc. (Incorporated by reference to Exhibit 10.38a of our Annual Report on Form 10-K/A filed April 10, 2012.)
10.39^ Purchase and Sale Agreement, dated May 17, 2011, by and among Eternal Energy Corp., American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC. (Incorporated by reference to Exhibit 10.39 of our Amended Quarterly Report on Form 10-Q/A filed October 11, 2011.)
10.40^ Purchase and Sale Agreement, dated May 17, 2011, by and among Eternal Energy Corp., American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC. (Incorporated by reference to Exhibit 10.40 of our Amended Quarterly Report on Form 10-Q/A filed October 11, 2011.)
10.40a First Amendment to Purchase and Sale Agreement, dated June 14, 2011, by and among Eternal Energy Corp., American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC. (Incorporated by reference to Exhibit 10.40a of our Quarterly Report on Form 10-Q filed August 18, 2011.)
10.40b Second Amendment to Purchase and Sale Agreement, dated July 25, 2011, by and among Eternal Energy Corp., American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC. (Incorporated by reference to Exhibit 10.40b of our Quarterly Report on Form 10-Q filed August 18, 2011.)
10.41^ Purchase and Sale Agreement, dated November 15, 2011, by and among Eternal Energy Corp., American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC. (Incorporated by reference to Exhibit 10.38a of our Annual Report on Form 10-K/A filed April 10, 2012.)
10.42^ Carry Agreement, dated April 16, 2012, by and among American Eagle Energy Corporation, American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC, and Exhibit C thereto. (Incorporated by reference to Exhibit 10.42 of our Quarterly Report on Form 10-Q filed on August 20, 2012.
10.43 First Amendment to Carry Agreement, dated July 15, 2012, by and among American Eagle Energy Corporation, American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC. (Incorporated by reference to Exhibit 10.43 of our Quarterly Report on Form 10-Q filed on August 20, 2012.)
10.44 ISDA Master Agreement, dated December 27, 2012, by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited. (Incorporated by reference to Exhibit 10.44 of our Annual Report on Form 10-K filed on April 16, 2013.)
10.44a Schedule to the 2002 ISDA Master Agreement, dated December 27, 2012, by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited. (Incorporated by reference to Exhibit 10.44a of our Annual Report on Form 10-K filed on April 16, 2013.)
10.45 Commodity Swap Transaction Confirmation, dated December 27, 2012, by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited. (Incorporated by reference to Exhibit 10.45 of our Annual Report on Form 10-K filed on April 16, 2013.)
10.46 Security Agreement, dated December 27, 2012, by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited. (Incorporated by reference to Exhibit 10.46 of our Annual Report on Form 10-K filed on April 16, 2013.)
10.47 Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Production and Revenue, dated December 27, 2012, by and among American Eagle Energy Corporation, AMZG, Inc., and Macquarie Bank Limited. (Incorporated by reference to Exhibit 10.47 of our Annual Report on Form 10-K filed on April 16, 2013.)
10.48 Purchase and Sale Agreement, dated December 20, 2012, by and between USG Properties Bakken I, LLC and American Eagle Energy Corporation. (Incorporated by reference to Exhibit 10.48 of our Annual Report on Form 10-K filed on April 16, 2013.)

 

39
 

 

10.49

  Purchase and Sale Agreement, dated November 20, 2012, by and between SM Energy Company and American Eagle Energy Corporation. (Incorporated by reference to Exhibit 10.49 of our Annual Report on Form 10-K filed on April 16, 2013.)
21.1   List of Subsidiaries. (Incorporated by reference to Exhibit 21.1 of our Annual Report on Form 10-K filed April 16, 2013.)
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

*Filed herewith.
^Portions omitted pursuant to a request for confidential treatment.
40
 

  

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

AMERICAN EAGLE ENERGY CORPORATION    
     
(Registrant)    
     
November 6, 2014 /s/ Bradley M. Colby  
  Bradley M. Colby  
  President and Chief Executive Officer  
41

 

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Document And Entity Information
Condensed Consolidated Balance Sheets
Condensed Consolidated Balance Sheets [parenthetical]
Condensed Consolidated Statements Of Cash Flows
Condensed Consolidated Statements Of Operations And Comprehensive Income (loss)
Asset Retirement Obligation
Asset Retirement Obligation (details Textual)
Bonds Payable
Bonds Payable (details Textual)
Carry Agreement
Carry Agreement (details Textual)
Description Of Business
Earnings Per Share
Earnings Per Share (details Textual)
Earnings Per Share (details)
Earnings Per Share (tables)
Equity Transactions
Equity Transactions (details Textual)
Equity Transactions (details)
Equity Transactions (tables)
Farm-out Agreement
Farm-out Agreement (details Textual)
Marketable Securities And Fair Value Of Financial Instruments
Marketable Securities And Fair Value Of Financial Instruments (details 1)
Marketable Securities And Fair Value Of Financial Instruments (details)
Marketable Securities And Fair Value Of Financial Instruments (tables)
Mscg Credit Facility
Mscg Credit Facility (details Textual)
Price Swap Derivatives
Price Swap Derivatives (details Textual)
Price Swap Derivatives (details)
Price Swap Derivatives (tables)
Purchases And Sale Of Property Interests
Purchases And Sale Of Property Interests (details Textual)
Purchases And Sale Of Property Interests (details)
Purchases And Sale Of Property Interests (tables)
Related Party Transactions
Related Party Transactions (details Textual)
Senior Secured Revolving Credit Facility
Senior Secured Revolving Credit Facility (details Textual)
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies (policies)
Swap Facility
Swap Facility (details Textual)
Ticker: AMZGQ
CIK: 1282613
Form Type: 10-Q Quarterly Report
Accession Number: 0001144204-14-065548
Submitted to the SEC: Thu Nov 06 2014 11:48:21 AM EST
Accepted by the SEC: Thu Nov 06 2014
Period: Tuesday, September 30, 2014
Industry: Metal Mining

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