UPDATED -- Amid falling prices for crude oil, troubled energy business Daybreak Oil & Gas Inc. has recorded further losses. Volatility in oil prices is expected to continue in the wake of the July 14 announcement that Iran has reached an accord with U.S. and other world powers to curb its nuclear program in exchange for lifting international sanctions on oil exports later in the year.
Spokane, Washington-based Daybreak, an oil and gas exploration and production company, has an interest in 20 producing wells in California, plus a project in Kentucky.
The business' revenue from oil and gas sales has decreased significantly. For the three months ended May 31, Daybreak had $441,284 in revenue, down from $810,429 for the same quarter in 2014.
Daybreak's net loss also increased from $257,659 for the quarter ended May 31 2014, to $516,590 for the same quarter of 2015.
"The company's financial condition, results of operations, and capital resources are highly dependent upon prevailing market prices of, and demand for, oil and natural gas," Daybreak says in its latest quarterly filing with the U.S. Securities and Exchange Commission, filed July 10.
"The results of the quarter came as no surprise to us, given the unprecedented fall in oil prices experienced over last 9 months," Daybreak CEO Jim Westmoreland tells Mergers & Acquisitions. Daybreak has a plan to selectively drill the "most economic wells" as it rides out the low-price environment, according to Westmoreland, who says the company's reserve base is still worth about $17.5 million in today's market.
The price of crude oil, which in the past month bounced between about $51 to $61, has affected some businesses in the sector negatively and inspired some healthy companies to make acquisitions while costs are down. The oil market continued to experience volatility on July 14, after a deal that would remove sanctions on Iran's oil production was reached between the country, the U.S. and other countries as part of larger political negotiations. Iran has 30 million of barrels of crude in storage and ready for sale, according to industry consultancy Facts Global Energy.
For more on how oil prices are affecting M&A, see Investors Flow Into Oil & Gas. Other businesses have also faced problems because of oil price decreases. For one example, see Struggling Cardinal Energy Brings in PE Investor.
Daybreak's financial history, including accumulated deficit of $28.7 million and working capital deficit of $4.7 million, raises substantial doubt about its ability to continue as a going concern, or without the threat of liquidation, the group says in the SEC filing.
The company has about $565,000 in notes that mature in January 2017, and a $90 million revolving credit facility, the balance of which will mature in August 2017.
For the previous edition of Turnaround Tuesday, see Joe's Jeans Reaches Forbearance with Lenders, Continues Exploring Potential Sale. For a list of troubled companies, check out Mergers & Acquisitions Distressed Company Watch List.