Tickers in this Article: GMXR, XCO, COG, HP
GMX Resources (NYSE:GMXR) was thrown out by the market in 2010. The exploration and production company suffered from its exposure to natural gas and investors succumbed to uncertainty over the funding of its capital plan going forward. (For background reading, see Natural Gas Industry: An Investment Guide.)

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GMX Resources was down by approximately 60% in 2010, as the market shunned stocks that were predominately focused on natural gas. The market also dumped stocks in this sector that had a funding gap between cash flow and capital budgets, as investors feared possible future dilution to holdings because of an equity offering.

Haynesville Shale
GMX Resources is focused on East Texas and Louisiana, where the company is working on the Haynesville Shale and Cotton Valley Sands formations. The company has more than 100,000 acres exposed to these two formations, and reported proven reserves of 442 Bcfe on September 30. Approximately 75% of these reserves were in the Cotton Valley formation.

Other companies in the Haynesville Shale include EXCO Resources (NYSE:XCO), which is active in the Shelby Trough area in Texas. Cabot Oil and Gas (NYSE:COG) also has acreage in the Haynesville Shale but is currently working more on its properties in the Eagle Ford Shale and Marcellus Shale.

Capital Program
GMX Resources focused its 2010 capital program into the Haynesville Shale. The company's average well cost in the third quarter of 2010 was $9.3 million, and production averaged 51 million cubic feet of natural gas equivalents per day in that quarter.

During 2010, GMX Resources tried to deal with the funding uncertainty through the subleasing of three of the four land rigs that the company had under contract from Helmerich and Payne (NYSE:HP). This helped conserve some cash flow for the company, which is now operating a one rig program through June 2011.

GMX Resources also cut its capital budget for 2011 to deal with low natural gas prices and the resulting reduced cash flow. The company originally planned to spend $200 million in 2011 and reduced this twice in the fall of 2010, cutting capital expenditures first to $175 million and then to $152 million. GMX Resources also cut capital expenditures for 2012 by $25 million to $175 million.

Borrowing Base
GMX Resources negotiated with its lenders during 2010 and reaffirmed the company's borrowing base of $130 million along with an extension of the maturity date. The company also relaxed several covenants in the credit facility.

The Bottom Line
GMX Resources was one of the worst-performing stocks in the exploration and production sector in 2010 as this company was brutalized by its devotion to natural gas and the investor uncertainty over funding its capital program over the next few years. (Learn a little more about the "non" part of this nonrenewable resource. See Peak Oil: Problems And Possibilities.)

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