Approach Resources Inc. (NASDAQ: AREX) today reported
second quarter 2018 financial and operational results.
Financial and operational highlights for the second quarter
of 2018
- Production at the high end of quarterly
guidance, driven primarily by liquids growth, increased production
to 1,056 MBoe or 11.6 MBoe/day, an increase of 2% over prior
quarter
- Reduced lease operating expense (“LOE”)
per Boe by 8% from previous quarter, peer leading LOE of $4.77 for
the second quarter
- Oil marketing contributed to an 8%
increase in realized oil prices, over prior quarter
- Revenues of $30.3 million, a 21%
increase over the prior year quarter
- Net loss was $9.1 million or $0.10 per
diluted share, adjusted net loss (non-GAAP) was $6.8 million, or
$0.07 per diluted share
- Improved unhedged cash margin
(non-GAAP) by 37% over the prior year quarter
- Generated $15.3 million of EBITDAX
(non-GAAP)
Adjusted net loss, EBITDAX and unhedged cash margin are non-GAAP
measures. See “Supplemental Non-GAAP Financial and Other Measures”
below for our definitions and reconciliations of adjusted net loss,
EBITDAX to net loss and unhedged cash margin.
Management Comment
Ross Craft, Approach’s Chairman and CEO, commented, “We wrapped
up another solid quarter on multiple fronts delivering growth in
oil production, revenue, unhedged cash margin and EBITDAX while
lowering lease-operating expense. We delivered production of 11.6
MBoe/d, at the high end of quarterly guidance, and increased daily
oil production quarter over quarter. Our oil marketing arrangement
allows us to sell at Cushing pricing and mitigate the impact of
recent Midland - Cushing differentials. We continue to experiment
with our completion techniques and gas lift optimization and are
pleased with the solid results we are realizing. In spite of the
multiple challenges faced by our industry over the last several
years, our knowledge, experience and strong focus on day-to-day
operations has continuously improved the performance of our asset
and maintained our efficient cost structure.
“Our focus for the remainder of 2018 is strengthening our
balance sheet through acquisitions or other deleveraging
opportunities so that we have the appropriate capital structure to
execute a growth strategy that is accretive to our
shareholders.”
Second Quarter 2018 Results
Production for second quarter 2018 totaled 1,056 Mboe, or 11.6
MBoe/d, made up of 26% oil, 36% NGLs and 38% natural gas. Average
realized commodity prices for second quarter 2018, before the
effect of commodity derivatives, were $65.09 per Bbl of oil, $23.49
per Bbl of NGLs and $1.40 per Mcf of natural gas. Our average
realized price, including the effect of commodity derivatives, was
$26.85 per Boe for second quarter 2018.
Net loss for second quarter 2018 was $9.1 million, or $0.10 per
diluted share, on revenues of $30.3 million. Excluding the decrease
in the fair value of our commodity derivatives of $2.9 million,
adjusted net loss (non-GAAP) for second quarter 2018 was $6.8
million, or $0.07 per diluted share. EBITDAX (non-GAAP) for second
quarter 2018 was $15.3 million. See “Supplemental Non-GAAP
Financial and Other Measures” below for our reconciliation of
adjusted net loss and EBITDAX to net loss.
Lease operating expense averaged $4.77 per Boe, an 8% decrease
from the prior quarter. Production and ad valorem taxes averaged
$2.43 per Boe, or 8.5% of oil, NGL and gas sales. Total general and
administrative (“G&A”) costs averaged $5.77 per Boe, including
cash G&A costs of $5.14 per Boe. Depletion, depreciation and
amortization expense averaged $15.96 per Boe. Interest expense
totaled $6.2 million.
Operations Update
During the second half of the second quarter 2018, we completed
three horizontal wells. One in Pangea West in the Wolfcamp A bench
and two wells in Baker, one well in the Wolfcamp B bench and one
well in the Wolfcamp C bench. At June 30, 2018, we had three
horizontal wells waiting on completion. We plan to have one rig
running intermittently during the second half of 2018.
Capital expenditures incurred during second quarter 2018 totaled
$13.5 million, consisting of $11.2 million for drilling and
completion activities, $2 million for infrastructure projects and
equipment and $0.3 million for lease acquisitions. For the six
months ended June 30, 2018, our capital expenditures totaled $27.2
million, consisting of $23.6 million for completion activities,
$3.3 million for infrastructure projects and equipment and $0.3
million for lease acquisitions.
Liquidity Update
At June 30, 2018, we had a $1 billion revolving credit facility
in place, with a borrowing base and lender commitment amount of
$325 million, and liquidity of $27.2 million. See “Supplemental
Non-GAAP Financial and Other Measures” below for our definition and
calculation of liquidity.
Commodity Derivatives Update
We enter into commodity derivatives positions to reduce the risk
of commodity price fluctuations. The table below is a summary of
our current derivatives positions.
Commodity and Period Contract
Type
Volume Transacted Contract Price
Crude Oil
July 2018 – December 2018 Swap 300 Bbls/day $50.00/Bbl July 2018 –
September 2018 Swap 1,500 Bbls/day $60.50/Bbl
CMA Roll
July 2018 – December 2018 Swap 2,000 Bbls/day $0.66/Bbl
Natural Gas
July 2018 – December 2018 Swap 200,000 MMBtu/month $3.085/MMBtu
July 2018 – December 2018 Swap 250,000 MMBtu/month $3.084/MMBtu
NGLs (C2 - Ethane)
July 2018 – December 2018 Swap 1,000 Bbls/day $11.424/Bbl
NGLs (C3 - Propane)
July 2018 – December 2018 Swap 600 Bbls/day $32.991/Bbl
August 2018 – December 2018
Swap
400 Bbls/day
$40.74/Bbl
NGLs (IC4 - Isobutane)
July 2018 – December 2018 Swap 50 Bbls/day $38.262/Bbl
NGLs (NC4 - Butane)
July 2018 – December 2018 Swap 200 Bbls/day $38.22/Bbl
NGLs (C5 - Pentane)
July 2018 – December 2018 Swap 200 Bbls/day $56.364/Bbl
Conference Call Information and Summary Presentation
The Company will host a conference call on Thursday, August 2,
2018, at 10:00 AM CT (11:00 AM ET) to discuss second quarter 2018
financial and operating results.
Those wishing to listen to the conference call, may do so by
visiting the Events and Presentations page under the Investor
Relations section of the Company’s website,
www.approachresources.com, or by phone:
Conference ID:
7988794 Participant Toll-Free Dial-In Number: (844) 884-9950
Participant International Dial-In Number: (661) 378-9660 A
replay of the call will be available onthe Company’s website or by
dialing: Replay Toll-Free: (855) 859-2056 Replay
International: (404) 537-3406 Conference ID: 7988794
In addition, a second quarter 2018 summary presentation will be
available on the Company’s website.
About Approach Resources
Approach Resources Inc. is an independent energy company
focused on the exploration, development, production and acquisition
of unconventional oil and natural gas reserves in the Midland Basin
of the greater Permian Basin in West Texas. For more information
about the Company, please visit www.approachresources.com. Please
note that the Company routinely posts important information about
the Company under the Investor Relations section of its
website.
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements,
other than statements of historical facts, included in this press
release that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the
future are forward-looking statements. Without limiting the
generality of the foregoing, forward-looking statements contained
in this press release specifically include expectations of
anticipated financial and operating results. These statements are
based on certain assumptions made by the Company based on
management’s experience, perception of historical trends and
technical analyses, current conditions, anticipated future
developments and other factors believed to be appropriate and
reasonable by management. When used in this press release, the
words “will,” “potential,” “believe,” “estimate,” “intend,”
“expect,” “may,” “should,” “anticipate,” “could,” “plan,”
“predict,” “project,” “profile,” “model” or their negatives, other
similar expressions or the statements that include those words, are
intended to identify forward-looking statements, although not all
forward-looking statements contain such identifying words. Such
statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the Company,
which may cause actual results to differ materially from those
implied or expressed by the forward-looking statements. Further
information on such assumptions, risks and uncertainties is
available in the Company’s Securities and Exchange Commission
(“SEC”) filings. The Company’s SEC filings are available on the
Company’s website at www.approachresources.com. Any forward-looking
statement speaks only as of the date on which such statement is
made and the Company undertakes no obligation to correct or update
any forward-looking statement, whether as a result of new
information, future events or otherwise, except as required by
applicable law.
UNAUDITED RESULTS OF OPERATIONS
Three Months Ended Six Months Ended June
30, June 30, 2018 2017 2018
2017 Revenues (in thousands): Oil $ 18,106 $
12,508 $ 34,450 $ 26,202 NGLs 8,852 6,019 16,184 12,079 Gas
3,368 6,442 8,464 13,043
Total oil, NGLs and gas sales 30,326 24,969 59,098 51,324
Net cash (payment) receipt on derivative settlements (1,982
) 3 (3,513 ) (958 )
Total oil, NGLs and gas sales including
derivative impact
$ 28,344 $ 24,972 $ 55,585 $ 50,366
Production: Oil (MBbls) 278 281 550 560 NGLs (MBbls) 377 383
729 735 Gas (MMcf) 2,404 2,499 4,780
4,875 Total (MBoe) 1,056 1,080 2,076 2,107
Total (MBoe/d) 11.6 11.9 11.5 11.6
Average prices:
Oil (per Bbl) $ 65.09 $ 44.50 $ 62.59 $ 46.83 NGLs (per Bbl) 23.49
15.72 22.21 16.43 Gas (per Mcf) 1.40 2.58
1.77 2.68 Total (per Boe) 28.73 23.11
28.47 24.36 Net cash (payment) receipt on derivative
settlements (per Boe) (1.88 ) — (1.69 )
(0.46 ) Total including derivative impact (per Boe) $ 26.85
$ 23.11 $ 26.78 $ 23.90
Costs and expenses
(per Boe): Lease operating $ 4.77 $ 3.92 $ 4.96 $ 3.99
Production and ad valorem taxes 2.43 2.09 2.44 2.19 Exploration —
1.95 — 1.50 General and administrative (1) 5.77 6.06 6.10 5.92
Depletion, depreciation and amortization 15.96 18.09 15.67 17.80
(1) Below is a summary of general and
administrative expense:
General and administrative - cash component $ 5.14 $ 5.11 $ 5.38 $
4.88 General and administrative - noncash component (share-based
compensation) 0.63 0.95 0.72 $ 1.04
APPROACH RESOURCES INC. AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except shares and
per-share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
REVENUES:
Oil, NGLs and gas sales $ 30,326 $ 24,969 $ 59,098 $ 51,324
EXPENSES: Lease operating 5,032 4,238 10,300 8,408
Production and ad valorem taxes 2,569 2,252 5,069 4,609 Exploration
3 2,108 3 3,151 General and administrative (1) 6,086 6,548 12,653
12,476 Depletion, depreciation and amortization 16,849
19,543 32,529 37,505
Total expenses 30,539 34,689
60,554 66,149
OPERATING
LOSS (213 ) (9,720 ) (1,456 ) (14,825 )
OTHER:
Interest expense, net (6,184 ) (4,916 ) (12,070 ) (10,379 ) Gain on
debt extinguishment — — — 5,053 Commodity derivative (loss) gain
(4,884 ) 1,231 (6,812 ) 4,675 Other (expense) income (13 )
— (12 ) 3
LOSS BEFORE
INCOME TAX (BENEFIT) PROVISION (11,294 ) (13,405 ) (20,350 )
(15,473 )
INCOME TAX (BENEFIT) PROVISION (2,222 )
(4,509 ) (3,832 ) 134,191
NET
LOSS $ (9,072 ) $ (8,896 ) $ (16,518 ) $ (149,664 )
LOSS PER SHARE: Basic $ (0.10 ) $ (0.10 ) $ (0.17 ) $ (1.91
) Diluted $ (0.10 ) $ (0.10 ) $ (0.17 ) $ (1.91 )
WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 94,470,636
86,340,634 94,548,898 78,418,977 Diluted 94,470,636 86,340,634
94,548,898 78,418,977
(1) Includes non-cash share-based
compensation expense as follows:
656 1,029 1,484 2,188
Unaudited Consolidated Balance Sheet Data
(in thousands)
June 30, 2018 December 31, 2017 Cash and cash
equivalents $ 22 $ 21 Other current assets 13,754 16,679 Property
and equipment, net, successful efforts method 1,077,873
1,082,876 Total assets $ 1,091,649 $ 1,099,576
Current liabilities $ 29,767 $ 25,067 Long-term debt (1) 380,470
373,460 Deferred income taxes 78,228 82,102 Other long-term
liabilities 11,970 11,531 Stockholders' equity 591,214
607,416 Total liabilities and stockholders' equity $
1,091,649 $ 1,099,576
(1) Long-term debt at June 30, 2018, is comprised of $85.2
million in 7% senior notes due 2021 and $297.5 million in
outstanding borrowings under our revolving credit facility, net of
issuance costs of $0.9 million and $1.4 million, respectively.
Long-term debt at December 31, 2017, is comprised of $85.2 million
in 7% senior notes due 2021 and $291 million in outstanding
borrowings under our revolving credit facility, net of issuance
costs of $1.1 million and $1.7 million, respectively.
Supplemental Non-GAAP Financial and Other Measures
This release contains certain financial measures that are
non-GAAP measures. We have provided reconciliations below of the
non-GAAP financial measures to the most directly comparable GAAP
financial measures and on the Non-GAAP Financial Information page
in the Investor Relations section of our website at
www.approachresources.com.
Adjusted Net Loss
This release contains the non-GAAP financial measures adjusted
net loss and adjusted net loss per diluted share, which exclude (1)
non-cash fair value loss (gain) on derivatives, (2) gain on debt
extinguishment, (3) write-off of deferred tax assets, (4) tax
effect and other discrete tax items. The amounts included in the
calculation of adjusted net loss and adjusted net loss per diluted
share below were computed in accordance with GAAP. We believe
adjusted net loss and adjusted net loss per diluted share are
useful to investors because they provide readers with a meaningful
measure of our profitability before recording certain items whose
timing or amount cannot be reasonably determined. However, these
measures are provided in addition to, and not as an alternative
for, and should be read in conjunction with, the information
contained in our financial statements prepared in accordance with
GAAP (including the notes), included in our SEC filings and posted
on our website.
The table below provides a reconciliation of adjusted net loss
to net loss for the three and six months ended June 30, 2018 and
2017 (in thousands, except per-share amounts).
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
Net Loss $ (9,072 ) $ (8,896 ) $ (16,518 ) $ (149,664 )
Adjustments for certain items: Non-cash fair value loss
(gain) on derivatives 2,902 (1,228 ) 3,299 (5,633 ) Gain on debt
extinguishment — — — (5,053 ) Write-off of deferred tax assets — —
— 139,090 Tax effect and other discrete tax items (1) (610 )
452 (623 ) 4,052
Adjusted net
loss $ (6,780 ) $ (9,672 ) $ (13,842 ) $ (17,208 )
Adjusted
net loss per diluted share $ (0.07 ) $ (0.11 ) $ (0.15 ) $
(0.22 )
(1) The estimated income tax impacts on adjustments to net loss
are computed based upon a statutory rate of 21% and 35%, for the
three and six months ended June 30, 2018, and three and six months
ended June 30, 2017, respectively. Additionally, this includes the
tax impact of a tax shortfall related to share-based compensation
of $22,000, $70,000, $0.3 million, for the three months ended June
30, 2017, six months ended June 30, 2018, and six months ended June
30, 2018, respectively.
EBITDAX
We define EBITDAX as net loss, plus (1) exploration expense, (2)
depletion, depreciation and amortization expense, (3) share-based
compensation expense, (4) non-cash fair value loss (gain) on
derivatives, (5) gain on debt extinguishment, (6) interest expense,
net, and (7) income tax (benefit) provision. EBITDAX is not a
measure of net income or cash flow as determined by GAAP. The
amounts included in the calculation of EBITDAX were computed in
accordance with GAAP. EBITDAX is presented herein and reconciled to
the GAAP measure of net loss because of its wide acceptance by the
investment community as a financial indicator of a company's
ability to internally fund development and exploration activities.
This measure is provided in addition to, and not as an alternative
for, and should be read in conjunction with, the information
contained in our financial statements prepared in accordance with
GAAP (including the notes), included in our SEC filings and posted
on our website.
The table below provides a reconciliation of EBITDAX to net loss
for the three and six months ended June 30, 2018 and 2017 (in
thousands).
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
Net Loss $ (9,072 ) $ (8,896 ) $ (16,518 ) $ (149,664 )
Exploration 3 2,108 3 3,151 Depletion, depreciation and
amortization 16,849 19,543 32,529 37,505 Share-based compensation
656 1,029 1,484 2,188 Non-cash fair value loss (gain) on
derivatives 2,902 (1,228 ) 3,299 (5,633 ) Gain on debt
extinguishment — — — (5,053 ) Interest expense, net 6,184 4,916
12,070 10,379 Income tax (benefit) provision (2,222 )
(4,509 ) (3,832 ) 134,191
EBITDAX $
15,300 $ 12,963 $ 29,035 $ 27,064
Unhedged Cash Margin and Cash Operating Expenses
We define unhedged cash margin as revenue, less cash operating
expenses. We define cash operating expenses as operating expenses,
excluding (1) exploration expense, (2) depletion, depreciation and
amortization expense, and (3) share-based compensation expense.
Unhedged cash margin and cash operating expenses are not measures
of operating income or cash flows as determined by GAAP. The
amounts included in the calculations of unhedged cash margin and
cash operating expenses were computed in accordance with GAAP.
Unhedged cash margin and cash operating expenses are presented
herein and reconciled to the GAAP measures of revenue and operating
expenses. We use unhedged cash margin and cash operating expenses
as an indicator of the Company’s profitability and ability to
manage its operating income and cash flows. This measure is
provided in addition to, and not as an alternative for, and should
be read in conjunction with, the information contained in our
financial statements prepared in accordance with GAAP (including
the notes), included in our SEC filings and posted on our
website.
The table below provides a reconciliation of unhedged cash
margin and cash operating expenses to revenues and operating
expenses for the three and six months ended June 30, 2018 and
2017 (in thousands, except per-Boe amounts).
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
Revenues $ 30,326 $ 24,969 $ 59,098 $ 51,324
Production
(Mboe) 1,056 1,080 2,076 2,107
Average realize price per
Boe $ 28.73 $ 23.11 $ 28.47 $ 24.36
Operating
expenses $ 30,539 $ 34,689 $ 60,554 $ 66,149 Exploration (3 )
(2,108 ) (3 ) (3,151 ) Depletion, depreciation and amortization
(16,849 ) (19,543 ) (32,529 ) (37,505 ) Share-based compensation
(656 ) (1,029 ) (1,484 ) (2,188 )
Cash operating expenses $ 13,031 $ 12,009 $ 26,538 $ 23,305
Cash operating expenses per Boe $ 12.34 $ 11.12
$ 12.78 $ 11.06
Unhedged cash
margin $ 17,295 $ 12,960 $ 32,560 $ 28,019
Unhedged cash
margin per Boe $ 16.39 $ 11.99 $ 15.69 $
13.30
Liquidity
Liquidity is calculated by adding the net funds available under
our revolving credit facility and cash and cash equivalents. We use
liquidity as an indicator of the Company’s ability to fund
development and exploration activities. However, this measurement
has limitations. This measurement can vary from year-to-year for
the Company and can vary among companies based on what is or is not
included in the measurement on a company’s financial statements and
may further be subject to covenants in a company’s loan agreements.
This measurement is provided in addition to, and not as an
alternative for, and should be read in conjunction with, the
information contained in our financial statements prepared in
accordance with GAAP (including the notes), included in our SEC
filings and posted on our website.
The table below summarizes our liquidity at June 30, 2018 (in
thousands).
Liquidity at
June 30,
2018 Borrowing base $ 325,000 Cash and cash equivalents 22
Long-term debt – Credit Facility (297,500 ) Undrawn letters of
credit (325 ) Liquidity $ 27,197
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180801005887/en/
Approach Resources Inc.Suzanne Ogle, 817-989-9000Vice President
– Investor Relations & Corporate
Communicationsir@approachresources.com
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