We are an independent oil and gas exploration and production company with production, appraisal, and exploration activities in Poland. We also have modest oil production and oilfield service activities in the United States, where we have conducted limited exploration during 2012. Our headquarters are in Salt Lake City, Utah, and our Polish operations are headquartered in Warsaw.
At year-end 2012, independent reserve engineers estimated our worldwide proved oil and gas reserves to be 44.1 billion cubic feet, or Bcf, of natural gas and 0.6 million barrels of oil, or Bbl, or a combined total of 47.7 billion cubic feet of natural gas equivalent, or Bcfe (converting oil to gas at a ratio of one barrel of oil to 6,000 cubic feet of natural gas). Of this 47.7 Bcfe, 93% was in Poland and 7% was in the United States. The independent engineers estimated the PV-10 Value of our proved reserves to be approximately $158 million.
At year-end 2012, independent reserve engineers estimated our worldwide proved plus probable, or P50, oil and gas reserves to be a combined total of 79.4 Bcfe. The independent engineers estimated the PV-10 Value of our P50 reserves to be approximately $208 million.
Our 2012 oil and gas production was 4.8 Bcfe (13.1 million cubic feet equivalent per day, or MMcfed), which was up 9% from 2011 production. Of our 2012 production, 4.5 Bcfe (12.2 MMcfed) of our production was in Poland and 0.3 Bcfe (0.9 MMcfed) was in the United States. All of our production in Poland consisted of natural gas, while all of our United States production consisted of crude oil.
Our oil and gas revenues for 2012 were $34.5 million, which is an increase of 16% over revenues for the preceding fiscal year. We currently expect that our 2013 production will rise measurably from our 2012 production rates with the start of production at our Winna Gora, Lisewo-1, and Komorze-3 wells, which we believe will be greater than the natural declines in production from our currently producing wells. We expect our 2013 first quarter production to average approximately 14.0 MMcfed. Production began at our Winna Gora well in late January of 2013. We expect production facilities to be complete and gas to start flowing at our Lisewo-1 and Komorze-3 wells in the second half of 2013.
Substantially all of our growth in reserves and production in recent years has come from our operations in Poland. We expect this will continue, as most of our technical efforts and capital budget are devoted to these operations in Poland. We believe that these operations represent the most favorable opportunities for success that are available to us. With a view to future growth in reserves and production, we now hold 2.7 million gross acres (2.0 million net) in Poland and continually review additional acreage acquisition opportunities.
During 2012 in Poland, we drilled one well that we plan to place into production in 2013, one well with gas shows that has been temporarily abandoned pending further evaluation, and one dry hole.
As of December 31, 2012, we had approximately 53.2 million shares of common stock outstanding, and our market capitalization was approximately $219 million (approximately $214 million as of the date of this filing). Our shares are listed on the Nasdaq Global Select Market under the symbol “FXEN.” So far during 2013, our average daily trading volume has been approximately 278,000 shares. Our total assets as of December 31, 2012, were $106.0 million, and our working capital was $30.4 million. Total debt per thousand cubic feet equivalent, or Mcfe, of proved reserves was $0.84 at year end.
We believe Poland is a unique international exploration opportunity. Over the last 50 years or so, Western companies have poured billions of dollars into exploration efforts in the British, Dutch, Norwegian, and German sectors of the offshore and onshore North European Permian Basin (generally the North Sea area). For the industry, these efforts have resulted in the discovery of trillions of cubic feet of gas and more than a billion barrels of oil. However, until the last few years of the twentieth century, Poland was closed to exploration by foreign oil and gas companies. To date, the exploration activities conducted in the Polish onshore portion of the Permian Basin are only a fraction of those conducted in the western part of the basin. Consequently, we believe the Polish Permian Basin is underexplored and underexploited and, therefore, has high potential for discovery of significant amounts of oil and gas relative to the North Sea or other mature oil and gas provinces in the United States and elsewhere. As an example, the estimated gross proved recoverable reserves per well associated with the nine conventional gas discoveries in our core Fences concession in Poland are 14.8 Bcf. The average initial gross production rate for these nine wells is approximately 5.0 MMcfd of natural gas with a relatively long, flat production profile.
Just as important as the reserve and production potential is the fact that Poland is highly dependent upon imported natural gas, which is expensive. There is an attractive and deep market for gas discoveries and production in-country. For example, as of the date of this report the price we receive for natural gas at our Roszkow well is more than double the spot price under natural gas contracts traded on the New York Mercantile Exchange, sometimes referred to as the Henry Hub price.
Acting on this combination of facts, we were one of the first independent oil and gas companies to acquire a large land position, to embark on a focused exploration and development program, and as a result, to begin producing hydrocarbons in Poland. After a number of years of effort in Poland, our exploration efforts are showing significant progress. Our production volumes in the Fences concession area have increased at a compound annual growth rate of 35% from 2009 through 2012, while our natural gas revenues have increased at a compound annual growth rate of 50% during the same period. Though we cannot assert that future results will be similar, this success has encouraged us to continue to focus our efforts in Poland.
More specifically, we have directed the majority of our available capital, management, and technical resources to our core Fences concession area in Poland. We expect to continue concentrating much of our capital budget to this area in an effort to lower drilling risk, shorten the time to first production from successful wells, and optimize opportunities for robust revenue growth.
Outside our core Fences area, we currently hold substantial acreage in other areas of Poland that we consider underexplored and underdeveloped and, therefore, subject to greater exploration risk. With the success that we have achieved from our Fences drilling program, we now have means to increase our activities in our other exploration acreage, through both targeted seismic data acquisition and drilling of higher-risk, higher-reward exploration wells, where we believe we have the opportunity to find significant oil and gas reserves. To the extent that our overall strategy results in substantial revenue growth, we plan to continue to increase our funding of exploration projects over a wide area in Poland.
Current Activities and Presence in Poland
We concentrate our exploration efforts in Poland primarily on the Rotliegend sandstones of the Permian Basin. We have identified a core area consisting of approximately 852,000 gross acres surrounding the long-producing 390 Bcf Radlin field, which was discovered in the 1980s by our joint venture partner PGNiG (we do not own an interest in this field, but see it as a geologic analog). We have emphasized improved seismic data acquisition and processing in our exploration efforts surrounding this field, using technology developed by others for Rotliegend exploration in the Southern North Sea.
Since 2000, we have made commercially successful discoveries in nine of the 12 wells we have drilled on Rotliegend structural trap targets in our core Fences concession. In the aggregate, these nine discoveries found gross estimated recoverable proved reserves of approximately 133 Bcf of gas. We have acquired three-dimensional, or 3-D, seismic data over several hundred square kilometers in the Fences concession and plan to acquire 3-D seismic data over more of that concession. Using the data acquired to date, we have identified a number of possible additional structural traps. We believe the 3-D seismic data gives us better definition of the targets and might reduce our drilling risk. However, this is still exploration in an underexplored area. Thus, we expect to drill some wells that do not establish production or reserves, just as we have done in the past. Nonetheless, the extensive production history, well data, and seismic data available for the Fences area have contributed to our success rate there. We plan to continue to direct a significant portion of our available funds to carry out a multiyear exploration, appraisal, and development well drilling program in the Fences concession. We are drilling the Mieczewo-1 well at the date of this report and anticipate drilling three to four additional wells in the Fences area during 2013. These operations are the focus of our strategy to increase production and reserves in our core area.
While maintaining our focus on the Rotliegend structural trap exploration model, we are also working to determine the potential for commercial gas production from tight Rotliegend sandstone in the north part of our Fences concession using vertical drilling and fracture technology. The Plawce horst was discovered in the 1970s and 1980s; test wells found large gas columns in tight Rotliegend reservoirs. Modern technology now provides better tools to exploit such resources, which have significant potential. In 2011, we drilled a vertical well in the Plawce horst, encountering approximately 480 meters of relatively tight Rotliegend sandstone. Log, core, and test data show gas saturation with no free water. In the first half of 2013, we plan to fracture three separate intervals in the well and test the potential for commercial production.
We have also identified a number of prospects outside the Fences concession in our other concessions in Poland. These prospects are generally higher risk, as indicated by two noncommercial tests we drilled in these areas in 2012, but drilling success may open new productive areas with significant resources. We are drilling the Tuchola-3K well in our Edge concession at the date of this report and anticipate drilling two to three additional wells in 2013 in one or more of our Edge, Block 246, Warsaw South, and Block 229 concessions. These wells will test various horizons for hydrocarbon potential as part of a planned multiyear program of exploration. We have not entered into new farmout arrangements, but do not rule out the possibility of doing so, either before or after initial drilling, in order to diversify risk and benefit from the capital and technical resources of others.
We have accumulated a large land position in known productive regions or geologic trends and in selected “rank wildcat” areas in Poland located well away from previous drilling where exploration involves a high degree of risk. We have assembled a sophisticated technical team of employees and consultants experienced with using modern exploration tools and have generated a number of attractive oil and gas prospects. To the extent that our overall strategy results in substantial revenue growth, we plan to direct more of our own funds toward exploration of these early-stage exploration licenses, with a view toward long-term results.
Key Personnel for Poland
Jerzy Maciolek is a director of the Company and heads our exploration team as Vice President of International Exploration. He joined the Company in 1995 specifically to lead us into Poland, where he had identified the exploration opportunity that today is our principal asset. Before joining us, Mr. Maciolek had over 25 years of experience as a geophysicist with PGNiG and Gulf Oil Research and as an independent consultant. He received an M.S. in exploration geophysics from the Mining and Metallurgical Academy in Krakow, Poland.
Our Country Manager in Poland is Zbigniew Tatys, the former General Director of PGNiG’s Upstream Exploration and Production Division. During his 20-year career with PGNiG, he rose through the ranks as a production engineer and was serving as Vice Chairman of PGNiG at the time of his retirement. Mr. Tatys has unique qualifications to lead us through our transition from a pure exploration company to a natural gas and oil producer in Poland.
Our chief technical advisor is Richard Hardman, CBE. He also serves on our board of directors. Mr. Hardman has built a career in international exploration over the past 50 years in the upstream oil and gas industry as a geologist in Libya, Kuwait, Colombia, and Norway. In the United Kingdom, his career encompasses almost the whole of the exploration history of the North Sea – 1969 to the present. With Amerada Hess from 1983 to 2002 as Exploration Director and later as Vice President of Exploration, he was responsible for key Amerada Hess North Sea and international discoveries, including the Valhall, Scott, and South Arne fields. Mr. Hardman was made Commander of the British Empire in the New Year Honours, 1998, and has served as the Chairman of the Petroleum Society of Great Britain, President of the Geological Society of London, and President of the European Region of American Association of Petroleum Geologists Europe.
Polish Exploration Rights
As of December 31, 2012, we held oil and gas exploration rights in Poland in a number of separately designated project areas encompassing approximately 2.7 million gross acres. We are currently the operator in all areas, except our 852,000 gross-acre core Fences project area, in which we hold a 49% interest in approximately 807,000 acres and a 24.5% interest in the remaining 45,000 acres. PGNiG is the operator in the Fences project area. We hold interests in approximately 2.0 million net acres throughout Poland.
As we build revenues in our core area and further explore and evaluate our acreage in Poland, we expect to increase the operational and financial efforts we expend outside our core area. As we do so, we may add new concessions that we believe have high potential and relinquish acreage that we believe has lower potential.
Exploratory Activities in Poland
Our ongoing activities in Poland are conducted in several project areas: Fences, Blocks 287, 246, and 229 near the Fences concession, Warsaw South, and Edge. Our drilling activities have been focused primarily on the core Fences area. We have focused on this core area because substantial gas reserves have already been discovered and developed by PGNiG. We and PGNiG have discovered proved gas reserves of over 133 Bcf gross (59 Bcf net to our interest) in nine commercial wells in the Fences area as of the date of this report. We believe it is likely there remains substantial additional natural gas in the same geologic horizon in this area.
We plan to continue concentrating the majority of our efforts and resources on the Fences concession, but we are also increasing our efforts in our other exploration blocks in Poland. In the Fences area during 2012, we completed the Komorze-3K well. In 2013 we are drilling the Mieczewo-1 well, anticipate drilling two or three wells in the eastern part of Fences, and plan to fracture and test the Plawce-2 tight sand well previously drilled in the northern part of Fences. In our other concessions we drilled the Kutno-2 well, a noncommercial deep Rotliegend test in the Kutno concession, the Frankowo-1 well, a noncommercial Zechstein/Rotliegend test in Block 246, and started drilling the Tuchola-3K Ca2/Devonian test in Edge. In 2013 we expect to finish drilling and test the Tuchola-3K well and drill two or three additional exploration wells in one or more of the Edge, Warsaw South, Block 246, and Block 229 concessions. Click here.
Our U.S. Activities and Presence
Unlike our position in Poland, our U.S. operations have not been a focus of our exploration efforts. Our U.S. operations provide a modest amount of cash flow and are not capital intensive. They consist mostly of shallow, water flood oil-producing wells in the Southwest Cut Bank Sand Unit, or SWCBSU, of Montana. As of December 31, 2012, our U.S. reserves (all of which were proved reserves) were estimated at 594,000 Bbls of crude oil with a PV-10 Value of approximately $10.4 million. At year-end 2012, U.S. reserves were approximately 7% of total proved reserves on a gas equivalent basis. Our oil wells produce approximately 146 Bbls of oil per day, net to our interest. We produce oil from approximately 10,732 gross (10,418 net) acres in Montana and 400 gross (128 net) acres in Nevada.
From our field office in Montana, we also provide oilfield services, which provided approximately $2.1 million in revenue during 2012.