Glori Energy Inc. (OTCQB:GLRI), an oil production company with a proprietary technology to increase oil recovery, today reported financial and operating results for the three and nine months ended September 30, 2016.

• Net loss for the quarter of $2.5 million, or a loss of $0.08 per common share, which includes the impact of a $605,000 unrealized loss on commodity derivatives, versus net loss of $1.3 million, or a loss of $0.04 per common share in the 2015 quarter, which included the impact of a $1.8 million unrealized gain on commodity derivatives.
• Adjusted net loss for the quarter of $1.9 million, or a loss of $0.06 per common share, a 39% improvement versus an adjusted net loss of $3.1 million, or a loss of $0.10 per common share in the year-earlier quarter.
• Adjusted EBITDA of a negative $748,000 in the quarter, compared to a negative $968,000 in the third quarter of 2015.

Financial Results

Total revenues for the third quarter were $1.1 million, down from $2.0 million in the prior-year period due to the decline in oil prices, lower oil production and the absence of AERO Services Segment project revenues.

Oil and Gas Segment revenues decreased to $1.1 million from $1.7 million in the third quarter of 2015, reflecting a 2% decrease in average oil prices received and a 34% decrease in oil and gas volumes sold. The decrease in production is primarily due to shutting in certain uneconomic wells in the current low oil price environment in the Coke Field to reduce lease operating expenses beginning in March.

The Company did not generate revenues from the AERO Services Segment in the third quarter, as compared to service revenues of $281,000 in the prior-year quarter. This is the result of the decreased level of E&P industry spending on new projects due to the sharp drop in oil prices and due to Glori’s increased focus on its Oil and Gas Segment activities.

Reported net loss was $2.5 million, or a loss of $0.08 per common share, which includes the impact of a $605,000 unrealized loss on commodity derivatives. This compares to a reported third quarter 2015 net loss of $1.3 million, or a loss of $0.04 per common share, which included the impact of a $1.8 million unrealized gain on commodity derivatives. Excluding the impact of the unrealized commodity derivatives, adjusted net loss for the third quarter 2016 was $1.9 million, or a loss of $0.06 per common share, a 39% improvement from the adjusted net loss in the third quarter of 2015 of $3.1 million, or a loss of $0.10 per common share. The reduced net loss was driven by a 43% decline in overall operating expenses between the periods. (See the accompanying reconciliation of net loss to adjusted net loss excluding special items.)

Adjusted earnings before interest, income taxes, depreciation, depletion and amortization (“Adjusted EBITDA”) for the third quarter was a negative $748,000, compared to a negative $968,000 for the third quarter of 2015. (See the accompanying reconciliation of net loss to adjusted EBITDA.)

Kevin Guilbeau, Executive Co-Chairman and Interim Chief Executive Officer of Glori Energy, said, “The sequential improvement in our third-quarter adjusted net loss reflects our ongoing cost reduction initiatives and the impact of shutting in wells in the Coke Field in the first quarter that were not profitable to operate in this lingering low commodity price environment. These initiatives allowed us to cut our third quarter oil and gas operating expenses by more than 40% versus a year ago, and our Coke Field remains cash flow positive despite lower production levels. In order to further reduce our negative cash flow from operations, we took additional steps in October to reduce our costs company-wide.

“Although oil prices have rebounded somewhat from earlier in the year, we remain focused on managing operating expenses and diligently conserving cash to ensure we have the liquidity and optionality needed to continue our Phoenix initiative. As part of this initiative, we are systematically acquiring a non-producing oil field, through low-cost leasing, that we believe has a significant quantity of remaining oil in place. We plan to implement a waterflood operation in combination with our AERO technology to recover a large portion of the reserves left behind.

“In order to be able to fund our operations and execute on the Phoenix project, we are having active discussions with existing investors for a corporate-level capital raise. We are optimistic that we will be able to finalize the terms for this additional funding soon. In October, we also engaged an investment banking firm to assist us in raising capital at the project-level to fund our first Phoenix field. We are encouraged by the feedback received thus far about this project and the potential investor interest.

“We are also continuing discussions with the U.S. Department of Energy regarding a loan guarantee that would enable us to fund these Phoenix projects. We cannot predict the ultimate outcome of our application for DOE financing, but in the meantime, as I mentioned earlier, we are aggressively pursuing other financing options that will enable us to meet our capital needs and resume the growth of our Oil and Gas Segment operations,” Mr. Guilbeau concluded.

Oil and Gas Segment

Revenues from oil, condensate and natural gas decreased to $1.1 million in the third quarter of 2016 from $1.7 million in the prior-year period. Average daily production was 301 net barrels of oil equivalent per day (“BOE/D”), of which 95% was from oil and condensate. Average realized oil price was $41.77 per barrel. After the effect of oil swap settlements, oil price per barrel was approximately $69.42.

Total production in the third quarter of 2016 was 27,688 BOE, a decrease of 4.5% from second quarter 2016 production, primarily due to production down-time due to periodic field maintenance. Third quarter 2015 production was 483 net BOE/D, with an average realized oil price of $42.44. Total oil production in the third quarter of 2016 decreased versus a year ago due primarily to shutting in certain uneconomic wells in order to reduce operating expenses. Including the effect of oil swap settlements, average realized price was $64.18 in the third quarter of 2015.

We are continuing to closely monitor the impact of the three AERO system injection wells on the Coke Field, but we believe more time is needed to be able to reach definitive conclusions. We will continue to closely evaluate field production while carefully managing field expenses.

Oil and gas expenses in the third quarter of 2016 were $1.5 million, a decrease of 42% compared to $2.5 million in the third quarter of 2015. Overhead expenses decreased $186,000, or 38%, due to decreases in salaries and benefits resulting from a lower headcount. Lease operating expenses (“LOE”) decreased by a net $698,000 due to lower expenses in the Coke Field resulting from cost reduction efforts and to the impact of the sale of the Etzold Field in July 2015. The overall decrease in oil and gas operating expenses also included a decrease of $29,000 in severance taxes due to sustained lower oil prices and decreased revenues, and a decrease of $56,000 due to an adjustment to the annualized estimate of the 2016 period tax assessment.

For the third quarter of 2016, we had price swap derivatives in place covering approximately 74% of our oil and condensate production. We continue to maintain swaps covering a portion of estimated future production for 2016, and we have costless collars (a combination of put and call options to sell and buy oil) to cover a portion of our estimated future production in the first half of 2017.

Our commodity swaps resulted in a net gain of $132,000 in the third quarter of 2016, compared to a net gain on commodity derivatives of $2.6 million in the 2015 period. The commodity derivative gain for the most recent quarter consisted of a $605,000 unrealized loss on the change in fair value of future settlements due to inter-month increases in NYMEX oil futures prices, which was offset by a $737,000 realized gain on price swap settlements. In the 2015 period, the commodity derivative gain consisted of a $1.8 million unrealized gain on the change in fair value of future settlements and an $878,000 realized gain on price swap settlements.

Glori has oil derivative contracts for 6,550 barrels per month at $82.46 per barrel through December 31, 2016, and costless collars for the first six months of 2017 with a floor of $42.50 per barrel and a ceiling of $55.60 per barrel for 100 barrels of oil per day.

AERO Services Segment

The AERO Services Segment did not generate revenues in the third quarter of 2016, compared with revenues of $281,000 in the year-earlier quarter. In response to the significant decrease in the number of new projects due to spending reductions by our exploration and production customers and prospects, AERO Services operating expenses decreased 20% to $316,000 in the third quarter of 2016 compared to $395,000 in the same period in 2015, primarily due to the completion of existing projects and overall segment expense reductions.

Other Expenses

Science and technology expenses decreased 37% to $268,000 from $425,000 a year ago, primarily due to lower payroll and benefits expense resulting from our lower headcount, reduced patent-related legal fees, and lower AERO Service Segment project-related travel and laboratory expenses.

Selling, general and administrative (“SG&A”) expense decreased 37% to $812,000 in the third quarter of 2016, compared to $1.3 million in the prior-year period, primarily due to cost cutting measures in salaries, benefits, travel and certain other back office expenses, including a reduction in fees paid to the Board of Directors.

Depreciation, depletion and amortization decreased 61% to $479,000 from $1.2 million in the third quarter of 2015. This was primarily due to the December 2015 asset value impairments of the Coke and Bonnie View fields as a result of the oil price decline and to lower production volumes as a result of shutting in or reducing flow rates for certain uneconomic wells.

Interest expense decreased by $93,000 year-over-year, or 19%, to $390,000 as a result of a reduction of debt.

Liquidity

At September 30, 2016, Glori had a working capital deficit of $8.4 million, down from positive working capital of $9.5 million at December 31, 2015. The working capital deficit resulted primarily from the classification of our $10.0 million term loan as a current liability, since it matures in March 2017.

Cash decreased from $8.4 million at December 31, 2015 to $1.7 million at September 30, 2016 due to net cash used in operating activities of $4.2 million, capital expenditures of $1.5 million and cash used in financing activities of $947,000, principally for the repayment of debt. A majority of the capital expenditures in 2016 were associated with implementing Phase II of our AERO System technology at the Coke Field in March.

Subject to our ability to obtain new financing, Glori’s goal is to acquire and redevelop previously abandoned oil fields and to capture significant economic quantities of oil that have been left behind by the industry. As a result of the decreased oil prices and market conditions, the Company is not currently generating positive cash flow from operations. During the fourth quarter, Glori will need to raise additional capital to fund operations.

The significant risks, uncertainties, significant working capital deficit, historical operating losses and resulting cash used in operations raise substantial doubt about the Company’s ability to continue as a going concern. For more information, see “Note 3 – Liquidity Considerations and Ability to Continue as a Going Concern” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.

As previously reported, GLRI common shares commenced trading on the OTCQB market on September 30, 2016. Investors can view real-time best bid and ask quotes for “GLRI” at http://www.otcmarkets.com/stock/GLRI/quote and via most financial websites.

ABOUT GLORI ENERGY INC.

Glori Energy is a Houston-based oil production company that deploys its proprietary AERO technology to increase the amount of oil that can be produced from conventional oil fields. Glori owns and operates oil fields onshore U.S. and additionally provides its technology as a service to E&P companies globally. Only one-third of all oil discovered in a typical reservoir is recoverable using conventional technologies; the rest remains trapped in the rock. Glori’s proprietary AERO System recovers residual oil by stimulating a reservoir’s native microorganisms to sustainably increase the ultimate recovery at a low cost. For more information, visit www.GloriEnergy.com.