(Source: PrimeNewswire)OKLAHOMA CITY, Aug. 3, 2009 (GLOBE NEWSWIRE) -- GMX Resources Inc. (Nasdaq:GMXR) (visit www.gmxresources.com to view the most recent Company presentation and for more information on the Company) today announced a Letter of Intent for the sale of an interest in its Endeavor Pipeline assets; reported financial and operating results for the three and six months ended June 30, 2009; updated 2009 guidance; and announced resolution of SEC comment letter.

Letter of Intent for an Interest in Endeavor Pipeline Assets

GMXR announced today it has signed a non-binding Letter of Intent to sell an interest in its Endeavor Pipeline assets to Kinder Morgan Tejas Pipeline LLC for $40 million. The Company expects the transaction to close within 45 days, subject to the satisfactory completion of due diligence and the negotiation and execution of definitive agreements. This transaction will provide the capital required by the Company to add a second H&P FlexRig3(TM) to its Haynesville/Bossier horizontal development program.

Financial Results for the Three Months Ended June 30, 2009

GMXR reported a net loss of $8.2 million for the three months ended June 30, 2009 as compared to 2008's second quarter net income of $12.1 million. Diluted earnings (loss) per share for the three months ended June 30, 2009 were ($0.51) per share compared to $0.74 per share for the three months ended June 30, 2008. Adjusted net income available to common shareholders, a non-GAAP measure adjusting for unrealized derivative losses, non-cash inventory writedowns, bad debt expenses and income tax valuation allowances, was $1.4 million or $0.08 per share for the second quarter of 2009 and is broken out as follows:

                                                    Three Months Ended                                                    June 30, 2009                                                ----------------------  (in thousands, except per share amounts)       Amount      per share                                                ---------    ---------  Net loss applicable to common stock           $  (9,321)   $   (0.51)  Adjustments:   Inventory writedown, net of taxes of $948        1,841         0.10   Deferred income tax valuation allowance          7,909         0.43   Unrealized losses on derivatives, net of    taxes of $350                                     680         0.04   Bad debt expense, net of taxes of $165             321         0.02                                                 ---------    ---------   Adjusted net income applicable to common    stock                                        $   1,430    $    0.08                                                =========    ========= 

The Company did not recognize a full cost accounting impairment charge during the three months ended June 30, 2009 due to an increase in natural gas and crude oil prices from March 31, 2009.

The second quarter operating results were impacted by the decline in market prices for crude oil and natural gas. Oil and gas sales in the second quarter of 2009 of $22.8 million decreased 40% from 2008's second quarter sales of $38.0 million as a 2% production increase was largely offset by lower crude oil and natural gas prices. GMXR's production from its East Texas operations in the second quarter of 2009 increased to 3.31 billion cubic feet equivalent of natural gas ("Bcfe") as compared to production of 3.25 Bcfe in the second quarter of 2008. Natural gas prices realized in the second quarter of 2009 averaged $6.54 per thousand cubic feet ("Mcf"), 41% lower than the $11.03 per Mcf realized in the second quarter of 2008. GMXR's average realized oil prices in the second quarter of 2009 declined to $75.88 per barrel, 30% lower than the $108.10 per barrel in 2008's second quarter.

Among non-GAAP measures, discretionary cash flow generated by GMXR in the second quarter of 2009 was $12.0 million, a decrease of 55% over 2008's second quarter non-GAAP discretionary cash flow of $26.5 million.

Financial Results for the Six Months Ended June 30, 2009

GMXR reported a net loss of $132.6 million for the six months ended June 30, 2009 as compared to net income of $18.3 million in the six months ended June 30, 2008. Diluted earnings (loss) per share for the six months ended June 30, 2009 was ($8.03) per share compared to $1.14 per share for the six months ended June 30, 2008. Adjusted net income available to common shareholders, a non-GAAP measure adjusting for unrealized derivative losses, non-cash impairment charges and writedowns, bad debt expenses and income tax valuation allowances, was $2.1 million or $0.13 per share for the first half of 2009 and is broken out as follows:

                                                    Six Months Ended                                                    June 30, 2009                                               ----------------------  (in thousands, except per share amounts)       Amount    per share                                               ----------  ----------   Net loss applicable to common stock          $ (134,911) $    (8.03)  Adjustments:   Full cost accounting impairment, net of    taxes of $61,298                              118,990        7.09   Inventory writedown, net of taxes of    $2,118                                          4,111        0.24   Deferred income tax valuation allowance         12,713        0.76   Unrealized losses on derivatives, net of    taxes of $467                                     906        0.05   Bad debt expense, net of taxes of $165             321        0.02                                                ----------  ----------     Adjusted net income applicable to common     stock                                      $    2,130  $     0.13                                               ==========  ========== 

The 2009 operating results were impacted by the decline in market prices for crude oil and natural gas. Oil and gas sales in the first half of 2009 of $45.7 million decreased 30% from 2008's sales of $65.2 million as a 7% production increase was largely offset by lower crude oil and natural gas prices. GMXR's production from its East Texas operations in the first half of 2009 increased to 6.5 Bcfe as compared to production of 6.1 Bcfe in the first half of 2008. Natural gas prices realized in the first half of 2009 averaged $6.72 per Mcf, 33% lower than the $10.04 per Mcf realized in the first half of 2008. GMXR's average realized oil prices in the first half of 2009 declined to $68.49 per barrel, 30% lower than the $98.47 per barrel in the six months ended June 30, 2008.

Among non-GAAP measures, discretionary cash flow generated by GMXR in the six months ended June 30, 2009 was $25.2 million, a decrease of 42% over 2008's first half non-GAAP discretionary cash flow of $43.3 million.

Our oil and gas properties impairment charge in the first half of 2009 was recorded in the first quarter and was based on March 31, 2009 cash spot market prices of $3.63 per Mmbtu for natural gas and $49.64 per Bbl of oil computed in accordance with current guidelines established by the Securities and Exchange Commission (SEC). Recently, the SEC issued new rules related to disclosure of oil and natural gas reserves and the computation of impairment for companies that follow the full cost method of accounting. These new rules, which do not take effect until the end of 2009, will change the prices utilized in our SEC reserve estimates and will use an average cash spot market price based on the first day of each month over the trailing twelve month period rather than the cash spot market price at the end of each quarter.

Second Quarter 2009 Operational Results

GMXR has 62,160 (42,300 net) acres that are prospective for Haynesville/Bossier ("H/B") development, giving us a total of 777 gross (529 net) 80-acre Haynesville/Bossier horizontal ("H/B Hz") locations. Our H/B Hz development in East Texas/Northwest Louisiana continues to be very successful. The Company has drilled and completed a total of seven H/B Hz wells, drilled but not yet completed two additional wells and is currently drilling its tenth H/B Hz well.

Cost Reduction and CAPEX Control

The Company's focus on reduction in drilling costs has continued to drive favorable economics with rates of return in the range of 35% to 45%, when you include our hedges and use a 5.4 - 6.5 Bcfe EUR. The emphasis on supplier selection, drilling methodology and the deployment of the FlexRig3(TM) from Helmerich and Payne has facilitated a dramatic drop in total costs. The latest completion (Holt 1H) will be in the $7 million range for total completed well cost. The Company is continuing to focus on reducing drilling times by an additional five to ten days which could reduce well costs by $375,000 to $750,000. Current frac and stimulation costs have been reduced to approximately one third the cost per stage compared to similar completions in the first quarter. These cost reductions are a combination of supplier base management, proppant selection and frac design. The Company continues to develop frac and stimulation schemes that will deliver the maximum results with decreasing costs.

The Company spent a total of $41.9 million in CAPEX during the second quarter. This was a decrease in capital expenditure of 41% as compared to $70.5 million in the first quarter. In the six months ended June 30, 2009, our capital expenditures were $112.4 million of which $64.2 million was for drilling and completing H/B horizontal wells; $6.1 million was for rig delay fees; $9.0 million on Cotton Valley and Travis Peak drilling and other drilling related expenditures including tubular inventory and $33.1 million was related to leasehold and infrastructure costs. For the six months ended June 30, 2009, the Company had six H/B Hz completions and the Company expects to have three completions in each of the third and fourth quarters of 2009.

In the last six months of 2009, we expect to have capital expenditures of approximately $45.0 million a 60% reduction from 1H 2009. Of the remaining 2009 capital expenditures, $34.0 million is related to drilling and completing H/B horizontal wells, $6.0 million is related to rig termination and lay down fees and $5 million is related to leasehold and infrastructure costs. Our current capital expenditure budget for the rest of 2009 assumes one operated rig drilling H/B Hz wells. Upon successful completion of the Endeavor Pipeline transaction, the Company will bring up an additional H&P FlexRig3 on or around October 1st. In this event, the Company expects to drill and complete an additional 2 H/B Hz wells in 2H 2009 for $13 million of additional CAPEX.

Production and Well Performance

GMXR produced 3.31 Bcfe in Q2 2009 as compared to 3.25 Bcfe in Q2 2008, a 2% increase. GMXR produced 6.5 Bcfe in 1H 2009 compared to 6.1 Bcfe in 1H 2008, a 7% increase. Sequentially, production increased 3% from Q1 2009 to Q2 2009. Production from the H/B Hz wells was approximately 31% and 24% of the Company's production for the three and six months ended June 30, 2009, respectively.

The five H/B Hz wells with lateral lengths in excess of 4000' have averaged 5.4 Mmcfg for the first 30 days of production with an average Initial Production ("IP") rate of 9.0 Mmcfg/d. Four of those five have been on for at least 60 days with an average of 3.9 Mmcfg for the second 30 day period and two of those five wells have been on production for at least 90 days and have averaged 3.4 Mmcfg for the third 30 days. This production data fits our forecast very well and indicates EUR potential in the range of 5.4 Bcfe to 6.5 Bcfe depending on the decline rate and B-factor applied to the production rates. Decline rates in the Company's East Texas core area appear to be flatter than decline rates reported by other operators in N. Louisiana.

The Company drilled and completed a total of four H/B Hz wells in the second quarter, and drilled but has not yet completed a fifth well (TJT Simpson 1H), which is scheduled to complete in August 2009. Additionally the Company spud and began drilling the Holt 1H, currently on flowback and the Verhalen "B" 1H which is currently drilling and expected to complete in late August 2009.

Previously Reported Second Quarter Well Results

    * Our fourth H/B Hz well, the Baldwin #14H, had a 24 hour initial     production rate of 9.2 million cubic feet of gas per day ("Mmcfgpd")     on a 20/64th choke at 4,874 pounds of flowing casing pressure     ("FCP").  The lateral length of this well is 4,420' and is located     entirely in the upper sub-layers (the "A" sub layer) of the H/B.     The well had thirteen fracture treatment stages.    * Our fifth H/B Hz completion was the Verhalen "A" #2H which had a 24     hour initial production rate of 8.5 Mmcfgpd on a 14/64th choke at     4,164 pounds of FCP.  The lateral length of this well is 4,260' and     is located entirely in the "A" sub-layer of the H/B. The well had     twelve fracture treatment stages.    * Our sixth H/B Hz completion was the Blocker Ware #19H which had a     24 hour initial production rate of 8.9 Mmcfgpd on a 22/64th choke     at 4,470 pounds of FCP.  The lateral length of this well is 4,450'     and is located entirely in the "A" sub-layer of the H/B. The well     had twelve fracture treatment stages.   * The seventh H/B Hz completion was the Blocker Heirs #12H which had     a 24 hour initial production rate of 9.4 Mmcfgpd on a 23/64th choke     at 5,344 pounds of FCP.  The lateral length of this well is 5,100'     and is located entirely in the "A" sub-layer of the H/B.  The well     had 14 fracture treatment stages. 

2009 Updated Guidance

GMXR's current 2009 one rig CAPEX budget is estimated at $157 million which includes the drilling and completion of 10 HB Hz wells and 2 other H/B Hz completions in 2009. Almost 100% of the remaining $45 million related to the 2009 CAPEX will be focused on Haynesville/Bossier horizontal drilling which has the Company's highest expected rate of return and includes the drilling and completion of four H/B wells and two completions of H/B Hz wells that have been successfully drilled.

The Company expects production for the year to be in the range of 13.5 to 14.5 Bcfe with Q3 production in the range of 3.3 to 3.6 Bcfe.

Resolution of SEC Comment Letter

On July 20, 2009, the Company received notification from the SEC that the SEC had no further comments after reviewing the Company's responses to the SEC's comments (originally received in January 2009), which had focused on certain aspects of the Company's oil and gas reserves and production.

Management Comment

Ken L. Kenworthy, Chief Executive Officer, said "The second quarter was incredibly active for the Company. The entire company from Oklahoma City, Oklahoma to Harrison County, Texas performed to its highest level under very adverse economic and market conditions. In addition to the drilling and completion of four Haynesville horizontal wells we lowered our completed well costs nearly 40% to $7MM; increased our average IP rate to 9 mmcfg/d; we raised $69 million in a follow on equity offering dramatically improving our liquidity; successfully negotiated a new borrowing base with our banks; added a new bank to our lending group; positioned the Company to find a very strong partner in the mid-stream sector to purchase an interest in the assets of our wholly owned subsidiary Endeavor Pipeline and broadened our management by creating three new executive positions.

"We are continuing to focus on our liquidity and are pleased to be able to announce a Letter of Intent has been signed with Kinder Morgan for an interest in the assets of our Endeavor Pipeline subsidiary. This transaction will provide enough near term liquidity for us to be able to activate another FlexRig3(TM) in early October. Once we activate our second H/B Hz rig, we will actively attempt to hedge 60% - 80% of our future production, to help assure our operating income and lock-in higher returns. Additionally, the activation will further reduce our 'lay down fees' for our contracted rigs. This focus on liquidity should reassure our shareholders that we can continue to find avenues to exploit our position in the H/B Hz development and ultimately return to a growth and value enhancement business plan."

GMXR Second Quarter 2009 Earnings Conference Call

GMXR has scheduled a conference call for Tuesday, August 4, 2009 at 10:00 a.m. CDT (11:00 a.m. EDT) to discuss second quarter 2009 financial and operating results. To access the call, dial 877.795.3647 or 719.325.4907 before the call begins. A replay of the call will be available after 2:00 PM, August 4, 2009. To access the replay, please dial 888.203.1112 or 719.457.0820 and reference passcode 1340685. The corporate presentation being used for this call is available for download at http://www.gmxresources.com under the Events and Presentation tab.

    GMXR Summary Operating Data for the Three and Six Months Ended   June 30, 2009                                 Three Months Ended   Six Months Ended                                     June 30,            June 30,                                ------------------  ------------------                                  2008      2009      2008      2009                                --------  --------  --------  --------  Production:   Oil (MBbls)                         50        33        98        63  Natural gas (MMcf)               2,949     3,113     5,529     6,155  Gas equivalent production  (MMcfe)                          3,254     3,309     6,119     6,533  Average daily (MMcfe)             35.7      36.4      33.6      36.1   Average Sales Price:   Oil (per Bbl)   Wellhead price               $ 121.21  $  54.04  $ 108.79  $  45.50   Effect of hedges               (13.11)    21.84    (10.32)    22.99                                --------  --------  --------  --------   Total                        $ 108.10  $  75.88  $  98.47  $  68.49   Natural gas (per Mcf)   Wellhead price               $  12.22  $   3.36  $  10.71  $   3.73   Effect of hedges                (1.19)     3.18     (0.67)     2.99                                --------  --------  --------  --------   Total                        $  11.03  $   6.54  $  10.04  $   6.72  Average sales price (per    Mcfe)                       $  11.70  $   6.90  $  10.66  $   6.99  Operating and Overhead   Costs (per Mcfe):  Lease operating expenses      $   0.97  $   0.82  $   1.07  $   0.90  Production and severance   taxes                            0.46      0.09      0.50     (0.21)  General and administrative        1.47      1.61      1.20      1.50                                --------  --------  --------  --------    Total                       $   2.90  $   2.52  $   2.77  $   2.19                                --------  --------  --------  --------  Cash Operating Margin (per   Mcfe)                        $   8.80  $   4.38  $   7.89  $   4.80                                ========  ========  ========  ========  Other (per Mcfe):   Depreciation, depletion    and amortization--oil    and natural gas    properties                  $   2.02  $   1.47  $   2.02  $   1.95 

Results of Operations for the Three Months Ended June 30, 2009 Compared to the Three Month Ended June 30, 2008

Oil and Natural Gas Sales. Oil and natural gas sales in the three months ended June 30, 2009 decreased 40% to $22.8 million compared to the three months ended June 30, 2008. This decrease was due to a 41.0% decrease in the average realized price of oil and natural gas, net of hedging activities, partially offset by a 1.7% increase in production. The average price per barrel of oil and Mcf of natural gas received (net of hedging) in the three months ended June 30, 2009 was $75.88 and $6.54, respectively, compared to $108.10 and $11.03, respectively, in the three months ended June 30, 2008. Production of oil for the second quarter of 2009 decreased to 33 MBbls compared to 50 MBbls for the second quarter of 2008, a decrease of 34%. Natural gas production for the second quarter of 2009 increased to 3,113 MMcf compared to 2,949 MMcf for the second quarter of 2008, an increase of 5.6%.