Gasco Energy raises substantial doubt about ability to fund operations

By Caroline Salls

Pittsburgh, July 30 - Gasco Energy, Inc. said there is substantial doubt about its ability to generate sufficient cash flows from operations to fund its ongoing operations, with cash on hand and forecasted cash flows from operations only expected to fund working capital requirements through the end of September, according to a 10-Q filed Tuesday with the Securities and Exchange Commission.

Because of an extended decline in the natural gas market and low natural gas prices in recent years caused primarily by excess production, Gasco said it has not been able to recover its exploration and development costs as expected.

The company said its previous revolving credit facility matured on June 29, 2012 and it has not been able to obtain a replacement facility on acceptable terms. Gasco said it is no longer in discussions to obtain replacement financing.

In addition, the company's failure to make the $1.24 million April 5 interest payment on its $45.17 million principal amount of 5½% notes due 2015 within the 30-day grace period constitutes an event of default on the notes, according to the filing.

The rate on overdue interest payments under the indenture is 7½%. Gasco said it owed $2.07 million in interest on the notes as of July 30.

The company said it has not received a notice of acceleration on the notes, and it is in talks with the noteholders in connection with the default.

Strategic alternatives

According to the 10-Q, the company hired financial adviser Stephens, Inc. to help it evaluate potential strategic alternatives, including a sale of the company or its assets.

Gasco said these alternatives and its possible inability to continue as a going concern may require it to file Chapter 11 bankruptcy.

Cash management strategy

In order to address its liquidity constraints, the company said it has embarked on a cash management strategy to enhance and preserve as much liquidity as possible. This plan includes the following:

• Reducing expenditures by eliminating, delaying or curtailing discretionary and non-essential spending and not designating any capital budget for 2013;

• Managing working capital;

• Delaying some drilling projects;

• Pursuing farm-out and other similar types of transactions to fund working capital needs;

• Evaluating options for the divestiture of some assets;

• Investigating merger opportunities; and

• Restructuring and reengineering the company's organization and processes to reduce operating costs and increase efficiency.

Gasco is a Denver-based natural gas and petroleum exploitation, development and production company.

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