ZaZa Energy eyes capital markets, files shelf registration for up to $150 million

By Lisa Kerner

Charlotte, N.C., Nov. 12 - ZaZa Energy Corp. chief financial officer Ian Fay said the company is looking at "any and all avenues that will enable us to raise additional capital."

Over the past few quarters, ZaZa's strategy, according to Fay, has been to de-emphasize and monetize noncore assets and use cash generated from asset sales to fund general corporate activities and to reduce debt.

"Our focus now is on optimizing our balance sheet and capital structure in order to replicate our proven growth model and be more opportunistic," Fay said during ZaZa's third-quarter earnings conference call on Tuesday.

The company has filed a universal shelf registration statement on form S-3 for up to $150 million with the Securities and Exchange Commission.

Fay said over the next six months, ZaZa will shift its balance sheet "to a place where we can access the capital markets in the most efficient way," pursuing a multifaceted approach that will include bonds, preferred stock and possibly equity.

"We want to retire some of our more expensive debt, use cash from operations to enhance what we've built, and have additional resources available to us to go out and pursue growth opportunities," said Fay.

As of Sept. 30, ZaZa had $6.6 million in cash and cash equivalents and restricted cash of $15.5 million. This compares to total cash and cash equivalents of $34.6 million and restricted cash of $21.9 million at year-end.

Total debt at quarter-end was $97 million, after subtracting the issuance discount of $17.1 million.

"This consisted of, number one, $22.4 million of senior secured notes, number two, $27.3 million of convertible senior notes and, number three, $47.3 million of subordinated notes," Fay said.

Of the total, $9.9 million has been classified as current because of ZaZa's obligation to repay part of its senior secured notes by Feb. 28, 2014.

Total debt at Dec. 31 was $96.3 million, of which $25.3 million was considered current.

ZaZa is also considering entering into discussions with the holders of its convertible notes in order to exchange the convertible notes for nonconvertible senior debt, according to the company's earnings news release.

And, ZaZa has discussed with the ZaZa LLC members, each of whom is a director of the company, to exchange all or part of their subordinated notes for common stock, preferred stock, cash or some combination thereof. The exchange of subordinated notes by the three ZaZa LLC members would be conditioned upon the full repayment of the senior secured notes, as well as exchange of the convertible notes.

Asset sales and JV

During 2013, the Houston-based onshore oil and gas exploration and development company sold the majority of its noncore assets and entered into the first development phase of its Eaglebine/Eagle Ford East joint venture. This resulted in combined total cash proceeds of $49.6 million, according to Fay.

The proceeds were used to fund general corporate activities and reduce liabilities and outstanding principal on the company's senior secured notes.

In the fourth quarter, ZaZa received about $16.3 million in cash from accelerated JV activities and working interests in several producing wells.

As a result, ZaZa's pro-forma cash balance, excluding restricted cash of $15.5 million, was about $21 million as of October 15, said Fay.

Financial highlights

ZaZa reported third-quarter total revenues and other income from continuing operations of $1.1 million as compared to $199.2 million reported for the comparable 2012 period.

The company reported an operating loss of $14.1 million for the quarter, as compared to operating income of $176.9 million for the three months ended Sept. 30, 2012.

ZaZa reported a net loss of $20.6 million, or a loss per diluted share of $0.20, as compared to net income of $133.8 million, or income per diluted share of $1.02, for third-quarter 2013 and third-quarter 2012, respectively.

For the nine months ended Sept. 20, 2013, ZaZa reported total revenues and other income from continuing operations of $6.3 million, an operating loss of $124.7 million, and a net loss of $81.7 million, or a loss per diluted share of $0.79.

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