Geoff Rochwarger - Vice Chairman and CEO, Genie E&P Michael Stein - CEO, Genie Retail Energy Avi Goldin - CFO, Genie Energy.

Lawrence Schreiber - Clarity Capital.

Good morning and welcome to Genie Energy's Second Quarter 2015 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation by Genie Energy's management, there will be an opportunity to ask questions.

[Operator Instructions] In this presentation, Genie Energy’s management team will discuss financial and operational results for the three months ended June 30, 2015.

Any forward-looking statements made during this conference call, either in the prepared remarks or in the Q&A session, whether general or specific in nature are subject to risks and uncertainties that may cause actual results to differ materially from those which the Company anticipates.

These risks and uncertainties include but are not limited to specific risks and uncertainties discussed in the reports that Genie Energy files periodically with the SEC.

Genie Energy assumes no obligation, either to update any forward-looking statements that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast.

Please note that the Genie Energy earnings release is available on the Investor Relations page of the Genie Corporation website, www.genie.com. The earnings release has also been filed on a Form 8-K with the SEC. Please note this event is being recorded.

I would now like to turn the conference over to Geoff Rochwarger, Genie's Vice Chairman and CEO of Genie E&P. Please go ahead..

Thank you, operator, and welcome to Genie Energy’s second quarter 2015 earnings conference call. On today's call, I will provide an update on our oil and gas exploratory operations in Northern Israel. Michael Stein, the CEO of Genie Retail Energy will follow with the review of that business's operational result.

Avi Goldin, Genie Energy's CFO will then discuss our financial results. At the conclusion of Avi's remarks, Terry Strong, CFO of Genie Retail Energy will joins us and we would be delighted to take any questions that you may have. Now, let me give you an update on Northern Israel.

As we recently announced, Afek completed a second exploratory well Ness 3 last week as part of our multi-well oil and gas exploration program. Drilling and ancillary activities at Ness 3 required approximately 65 days to complete and that is a significant reduction compare to our first well, Ness 5.

As our understanding of the subsurface conditions continues to improve, we will further refine our approach and drilling operations will become customized for the specific conditions and more efficient. We expect to spud our third well of Ness 6 during the latter part of August.

Ness 6 is located approximately 5.5 kilometers north and slightly east of Ness 3 in the heart of our license area. If all goes according to plan, we will complete Ness 6 and spud one additional well this year. Preliminary internal results from the first two wells show oil and gas at both locations.

Our analysis identified several distinct zones of resource within the target depth range each with potentially different composition and characteristics.

As is the norm on exploration uncharted geology, we are constantly refining our drilling techniques, testing programs and instrumentation as we gain a clear picture of the interplay between our drilling approach and the subsurface geology. Consequently, we are garnering better data on the resources as the drilling program progresses.

We recently began to design another well flow test program intended to provide us with critical information on the reservoir characteristics and preliminary information on possible production techniques, all within the narrow guidelines of our drilling permit.

As the well flow test represents a key milestone for our program, we have contracted with Baker Hughes, an UK based OTC group to build, execute and interpret the test results.

Data gathered from the cuttings, logs, core samples and other instrumentation are being shared with Jeff Mclean, [ph] a respected reservoir appraiser that will ultimately provide a third-party reserve estimate.

The results to-date while very preliminary are encouraging and generally consistent with our thesis that there is a large oil resource in the Golan.

We are still early in exploratory program and it will likely take us another year or more before we will be in a position to make a definitive declaration as to the nature and commercial viability of resource. That concludes my update.

Now I would like to turn the call over to Michael Stein to discuss this quarter's operational results for Genie Retail Energy..

Thank you, Geoff. It's hard to follow a report about our prospects of developing a world-class oil field, but Genie Retail has its own list to report. During my first quarter as CEO for Genie Retail, I discovered a world of opportunities. The business that Geoff and his team developed so well over the last 10 years is poised for growth again.

We are excited by the opportunities ahead and determine to make full advantage of them. We got off to a good start this quarter. Genie Retail increased gross meter add to 79,000 compared to 55,000 in both the first quarter and the year ago quarter.

The increase in gross meter additions reflects the favorable impact of several components of our growth strategy including targeted acquisition and retention incentives, brand diversification and expanded portfolio of offerings including green energy and packages with fixed rate characteristics and a promising new sales channel.

We expect that these elements of our strategy, along with the geographical expansion will drive growth going forward. Turning now to churn, our average monthly churn rate climbed to 6.3% from 5.9% in the prior quarter.

The increase was driven by the accelerated pace of gross meter adds as newly acquired customers churned at significantly higher rates than those that had been enrolled for six months or more. We expect that over the long run, our churn rate will stabilize, as the proportion of smart budget fixed rate meters increases.

Fixed rate meters have historically enjoyed lower churn rates than our variable rate base. Despite the uptick in churn, meters served increased by 19,000 this quarter to 377,000 at June 30th compared to 358,000 at March 31st and 364,000 at June 30, 2014. To wrap up I was extremely pleased with the operational results this quarter.

We have turned the corner on the lingering impacts from the polar vortex after incorporating some valuable lessons learned, rolled out new products and brands, are fleshing out some options for geographic expansion and had a very successful quarter in terms of meter growth and gross margins.

We'll be looking to build on this momentum in the third quarter. Now I'll turn the call over to Avi Goldin to discuss the second quarter's financial results..

Thank you Michael and thanks to everyone listening in for joining us this morning. My remarks cover our financial results for the second quarter of 2015. The three-month period ended June 30, 2015. Except where I indicate otherwise, all comparisons in my remarks are to the results for the corresponding period in 2014.

Like Michael, I'm pleased by the operational progress we achieved this quarter across our businesses, particularly the return to net meter growth at Genie Retail and the pace of exploration activities that are out there. In both sides of the business, we are significantly stepping up investing in growth.

Mindful of the demands on our cash resulting from our meter acquisition programs and exploration activities at Afek, the board has suspended the dividend on Genie common stock. The dividend in our preferred shares will not be affected.

We initiated the dividend in December of 2014 and said at the time that was dependent on our resources and cash we needed for operations. As we enter a period of significant investment on both sides of the business, management and the board felt that it's prudent to conserve cash and continue to keep our balance sheet strong and liquid.

We will of course reconsider the suspension when circumstances warrant. Turning now to our income statement. Genie Retail again generated all of Genie Energy's revenue, cost of goods sold and gross profit.

As in my remarks for previous quarters, my remarks will discuss only the year-over-year comparison, seasonality makes sequential comparisons in our retail energy business difficult to best. In the second quarter, Genie Retail generated $39.5 million in revenue compared to $48.8 million in the year ago quarter.

The decrease reflects declines in both revenue per units sold and in consumption for electricity and natural gas. Electric revenue decreased to $33.8 million from $39.5 million. Average revenue per kilowatt hours sold decreased 3% and kilowatt hours sold decreased 11.8%, primarily reflecting lower per meter consumption.

Gas revenue was $5 million compared to $8.8 million in the year ago quarter. Average sales per therm sold decreased 34.1% while therm sold dropped 13.6% reflecting decreases in both meter served and per meter consumption.

Despite the drop in revenue, Genie Retail generated $14 million in gross profit in the second quarter of 2015 compared to $11.5 million, as the underlying commodity costs of both electricity and gas declined more rapidly than our rates. In aggregate, Genie Retail's gross margin increased to 35.4% from 23.5%.

Consolidated SG&A expense increased to $16.5 million from $13.4 million including non-cash compensation of $1.6 million and $1.7 million respectively. The key drivers of the SG&A increase were the costs incurred and the increase in organic gross meter additions to Genie Retail and a $1.5 million accrual for a legal matter.

Largely as a result of these two factors, SG&A at Genie Retail increased to $13.9 million from $10.5 million. Corporate SG&A meanwhile decreased, falling to $2.2 million from $2.5 million in year ago quarter, including a reduction in non-cash compensation to $1.3 million from $1.4 million.

Research and development expenses have been driven principally by Genie Oil and Gas’s oil shale exploration operations in Mongolia and in Israel's Shfela Basin decreased to $600,000 from $1.4 million a year ago quarter. We anticipate that R&D expenses will continue to climb as activities for both of these projects are scaled back even further.

Exploration expense incurred entirely by Afek was $1.3 million compared to $1 million. Capitalized exploration expense was $6.7 million compared to zero in the year ago quarter and $4.3 million in the first quarter of this year.

As I introduced last quarter, we now capitalize cost directly related to the Afek drilling program under the successful efforts method of accounting. Adjusted EBITDA was negative $2.1 million compared to negative $2.6 million.

Genie Retail contributed $300,000 in adjusted EBITDA compared to $1.1 million in the year ago quarter as the improvement in gross margin was more than offset by increases in meter acquisition costs and a $1.5 million non-routine legal accrual.

In our remarks at the end of the first quarter, we noted that we expect Genie Retail Energy to generate between $15 million to $20 million of adjusted EBITDA in 2015. That expectation is unchanged.

On a consolidated basis, the improvement in adjusted EBITDA was driven by the reduction expenses at Genie Oil and Gas reflective of the reduced scope of operations in Mongolia and suspension of our work in the Shfela Basin as well as the decrease in corporate SG&A expense.

Adjusting for non-controlling interests, the net loss attributable to Genie common stockholders after preferred stock dividends for the second quarter narrowed to $4.9 million or $0.22 per diluted share compared to a net loss of $5.2 million or $0.24 per diluted share in the year ago quarter. Genie's balance sheet remained strong.

At June 30, we had over $73 million in cash, cash equivalents, restricted cash, and certificates of deposit. Our working capital totaled over $93 million and we had no debt. That wraps up my discussion of the second quarter’s financial results. As always, we're happy to take any questions about the business you may have.

For Q&A, we're joined by the Terry Stronz, CFO of Genie Retail. I will now turn the call back to the operator..

[Operator Instructions] And our first question comes from Darren Schlosser [ph] from Great Mountain Capital. Please go ahead with your question..

I have few questions. First, you've mentioned that you've suspended the project in the Shfela Basin.

And I am wondering if management thinks there is any hopes of ever resuming operations down there and getting the go ahead from the government?.

Hi, this is Geoff. Thank you for your question. Without having any specific information about when we would potentially apply, the answer is yes, we do foresee an opportunity in that future to pursue that. We know based on our initial plan, based on our appraisal wells there that the resource does exist there; it's in large qualities.

And we do have with Harold Vinegar the science and technology to ultimately pull that out. Right now, in Israel due to the forward movement with Afek in the north, all resources, both in terms of personnel and financial resources are of course being focused on the north, but it's certainly our expectation at some to point to revisit the Shfela..

And my last question I think has to do with Afek.

Yuval Bartov was recently quoted in Jerusalem Post, saying that you're preparing to carryout trial production and I am wondering if you can elucidate on that?.

So, in terms of trial production that's in Israel, specifically with our permit. Any type of trial production is severely restricted. What we're doing is we are preparing right now concurrent with our continuing drilling exploration program. We are working on a well flow test that will be used in one or more of the wells that we've drilled.

And there is an offshoot of that test that should help produce a very minimal number of barrels of oil, really to aid the process in studying and analyzing the potential of the reservoir there. But we have -- under our permit, we are very restricted in terms of production.

And as an example, we're not allowed to produce currently more than 10 barrels of oil to surface. So most of what we will be doing with the well flow test as well as other instrumentation and analysis is to create flow within the well, try to learn as many characteristics of the reservoir that we believe is there..

And my follow-up question has to specifically with the reservoir. I am wondering if I can ask a question related to the investor presentation that you recently made available..

Sure..

If I take the numbers from the barrels of oil per square kilometer in the non-licensed area and then the 70% coverage that's possible, your high expectations seem to be in the tens billions of barrels or are my numbers wrong?.

I think that what we would say is right now number one is this is so -- we're at a very preliminary stage in our exploration.

Having said that and having finished drilling our second well and starting to study the results, both in terms of the lithology as well as some of core samples and some additional information, we're seeing as we've announced, the presence of many hydrocarbons and that's both oil and gas.

In terms of at this point in time being able to[]… this point in time being able to extrapolate, and say what do we really think in terms of barrels, you know I think a very, very rough figure right now would be as you said, would be in the tens of billions of barrels but specifically how producible that is, what are the methods of production and what's recoverable, I think it's still little early to be able to opine on that..

This is Avi. The only thing I would add to that is that also assumes a prevalence of what we found in the southern part of the license, extending to the other parts.

While we have expectations that as we complete the drill and continue find, because we’ll continue to find some good things that is not necessarily extrapolation that we know for sure will occur at this point.

So to -- just wanted to, where we are right now is to continue to drill and explore, to drill the kinds of wells, the record wells that we've been drilling and to introduce as much science and testing as we can to determine what the -- how widespread it is and what is commercialized of the resources..

[Operator Instructions] And we do have an additional question, this question comes from Lawrence Schreiber from Clarity Capital. Please go ahead with your question..

Hi, just a quick one. Obviously you've done a lot of work in the Colorado area with research. And I remember several quarters ago you talking about trying to cope with a better heat source et cetera. Is that project just completely shut down? There was no mention of it today.

And what have you learned from that technology or where do you stand with that?.

Lawrence, this is Avi. That project continues to operate. As we said in past quarters, we're partnered with Total there and they've been handling the bulk of the investment in that project which is why you're not seeing it within our financial results as an impact. That project continues to progress.

They're continuing to work on a heater technology that they feel will be successful within their pilot tests.

It's a project that we've seen hold the significant ownership stake and have expectations that over time we'll be able to realize value from that project, both in the form of technology developed and also as they move towards a conversion to a commercial lease under the US RPE [ph] statute and that becomes a significant and valuable energy project, but it's something that has a bit more of a longer term path to commerciality today.

So, the short version it is the project we will continue to hold the significant equity stake in. This is not a near-term draw on cash; it’s something that we have decided about future..

[Operator Instructions] And ladies and gentlemen, at this time I’m showing no additional questions. This will conclude our question and answer session and conference call. We do thank you for attending today's presentation. You may now disconnect your telephone lines..