Lease operating expense
increased $1.6 million, or 22.4% from
$7.2 million for the second quarter 2017 to $8.8 million for the second quarter 2018 and increased $3.0 million, or 21.1% from $14.3 million for the six months ended June 30, 2017 to $17.3 million for the six months
ended June 30, 2018. This increase is primarily due to costs related to new wells brought
on-line,
general rate increases on vendor services and increased production taxes related to increased prices and
production during the first six months of 2018 as compared to the same period of 2017.
Field service expense
increased
$0.2 million or 5.7% from $3.0 million for the second quarter 2017 to $3.2 million for the second quarter 2018 and increased $0.4 million, or 6.7% from $6.0 million for the six months ended June 30, 2017 to
$6.4 million for the six months ended June 30, 2018. Field service expenses primarily consist of salaries and vehicle operating expenses which have increased during the six months ended June 30, 2018 over the same period of 2017 as a
direct result of increased services and utilization of the equipment.
Depreciation, depletion, amortization and accretion on
discounted liabilities
decreased $0.1 million, or 1.3% from $8.0 million for the second quarter 2017 to $7.9 million for the second quarter 2018 and $0.2 million, or 1.3% from $16.0 million for the six months ended
June 30, 2017 to $15.8 million for the six months ended June 30, 2018, reflecting the increased reserve base and production related to new wells placed on production late in 2017.
General and administrative expense
increased $4.2 million, or 96% from $4.4 million for the six months ended
June 30, 2017 to $8.5 million for the six months ended June 30, 2018, and decreased $50 thousand, or 1.9% from $2.62 million for the three months ended June 30, 2017 to $2.57 million for the three months ended
June 30, 2018. This increase in 2018 reflects the combination of a reduction in reimbursements related to the decrease in gains on sales of properties from 2017 to 2018 and increases in personnel costs.
Gain on sale and exchange of assets
of $2.7 million and $41.7 million for the six months ended June 30, 2018 and
June 30, 2017, respectively consists of sales of
non-essential
oil and gas interests and field service equipment.
Interest expense
increased from $0.5 million for the second quarter 2017 to $0.9 million for the second quarter 2018
and from $1.1 million for the six months ended June 30, 2017 to $1.8 million for the six months ended June 30, 2018. This increase reflects the increase in current borrowings under our revolving credit agreement.
Income tax expense
decreased $12.9 million due to a lower effective tax rate and lower
pre-tax
income. The effective tax rates for the six months of 2018 and 2017 were 25.12% and 32.86%, respectively. The decrease in the effective tax rate is primarily due to the impact of the Tax Cuts and Jobs
Act changes that are effective January 1, 2018.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flows generated from operations, through our producing oil and gas properties, field services
business and from sales of
non-core
acreage.
Net cash used in our operating activities for the
six months ended June 30, 2018 was $7.4 million compared to $14.5 million provided by operating activities for the six months ended June 30, 2017. Excluding the effects of significant unforeseen expenses or other income, our cash
flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on actual well performance but may be curtailed due to factors
beyond our control.
Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage
levels, and weather patterns. We sell the vast majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility we sometimes lock in prices for some
portion of our production through the use of derivatives.
If our exploratory drilling results in significant new discoveries, we will
have to expend additional capital in order to finance the completion, development, and potential additional opportunities generated by our success. We believe that, because of the additional reserves resulting from the successful wells, we will be
able to access sufficient additional capital through bank financing.
We currently maintain a credit facility totaling $300 million,
with a borrowing base of $90 million. The Company currently has $64 million in outstanding borrowings and $26 million in availability under this facility. The bank reviews the borrowing base semi-annually and, at their discretion, may
decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves. The next borrowing base review is scheduled for November 2018. Our oil and gas properties are pledged as collateral for the
line of credit and we are subject to certain financial and operational covenants defined in the agreement. We are
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