Glori Energy Reports Third Quarter 2016 Operating and Financial Results

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.

FORWARD LOOKING STATEMENTS

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Any statements contained herein which are not statements of historical fact may be deemed to be forward-looking statements, including, without limitation, statements identified by or containing words like "believes," "expects," "anticipates," "intends," "estimates," "projects," "predicts," "potential," "target," "goal," "plans," "objective," "should," "could," "will," or similar expressions. All statements by us regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, models, including the ROF models, plans and objectives and similar matters are forward-looking statements. Glori gives no assurances that the assumptions upon which such forward-looking statements are based will prove correct.  Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions (many of which are beyond our control), and are based on information currently available to us. Actual results may differ materially from those expressed herein due to many factors, including, without limitation: our ability to continue as a going concern; the adequacy of the Company's capital to fund its ongoing operations; the risk that any projections, including models, earnings, revenues, expenses, margins, or any other financial expectations are not realized; oil production rates; the continued decline in oil prices and the sustained low oil price environment; the efficacy of changes in oil fields acquired or treated by us; competition and competitive factors in the markets in which Glori operates; Glori's ability to repay or refinance its $10.0 million term loan in March 2017; the successful development of the Phoenix initiative, including our ability to acquire non-producing oilfields through low-cost leasing; our ability recover a large portion of the oil reserves via waterflood; the expected cost of recovering oil using the AERO System, demand for Glori's AERO System and expectations regarding future projects; adaptability of the AERO System and development of additional capabilities that will expand the types of oil fields to which Glori can apply its technology; plans to acquire and develop additional oil fields and the availability of debt and equity financing to fund any such acquisitions; the percentage of the world's reservoirs that are suitable for the AERO System; Glori's ability to create positive cash flows; the advantages of the AERO System and our refinements thereto compared to other enhanced oil recovery methods; Glori's ability to develop and maintain positive relationships with its customers and prospective customers; and such other factors as are discussed in Item 1A "Risk Factors" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the 2016 fiscal year and our subsequent Quarterly Reports on Form 10-Q for 2016. Although Glori believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurances that such expectations will prove to be correct. These risks are more fully discussed in Glori's filings with the Securities and Exchange Commission. Glori undertakes no obligation to update any forward-looking statements contained herein to reflect events or circumstances, which arise after the date of this document except as required by law.

Glori Energy Contact
Victor M. Perez
Chief Financial Officer
713-237-8880
ir@glorienergy.com

Investor Relations Counsel
Lisa Elliott/ Anne Pearson 
Dennard-Lascar Associates
713-529-6600
lelliott@DennardLascar.com 
apearson@DennardLascar.com

(Financial Statements Follow)

Consolidated Statements of Operations
(in thousands, except per share data)
			Three Months Ended September 30,				Nine Months Ended September 30,
			2015		2016		2015		2016
			(Unaudited)				(Unaudited)
Revenues:
	Oil and gas revenues		$     1,738		$  1,119		$    5,874		$  3,306
	Service revenues		281		-		1,344		246
		Total revenues	2,019		1,119		7,218		3,552
Operating expenses:
	Oil and gas operations		2,539		1,462		7,431		4,593
	Service operations		395		316		1,450		802
	Science and technology		425		268		1,528		911
	Selling, general and administrative		1,297		812		4,549		3,633
	Depreciation, depletion and amortization		1,230		479		3,337		1,481
		Total operating expenses	5,886		3,337		18,295		11,420
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