HOUSTON, Aug. 9, 2018 /PRNewswire/ -- EP Energy
Corporation (NYSE:EPE) today reported second quarter 2018 financial
and operational results.
2Q'18 Updates - Executing Strategy to Drive Long-Term Value
Creation
- Equivalent production of 82.5 MBoe/d
- Oil production of 47.2 MBbls/d
- Net Loss of $58MM
- Adjusted EBITDAX of $215MM
- Oil and Gas Expenditures of $203MM
- Completed (based on wells fracture stimulated or frac'd) 37
gross wells
- Lease Operating Expense of $4.95
per Boe
- New completion designs generating ~20% improvement in F&D
costs versus pre-2018 wells
- Eagle Ford enhanced oil recovery (EOR) pilot project in second
injection cycle and expanding to three pilot projects this
year
- Drilled two horizontal wells in Altamont 2Q'18 and expect to
complete in 3Q'18 - two additional horizontal wells to be drilled
and completed in 3Q'18
- Amended Reserve-Based Loan Facility (RBL Facility) and extended
the maturity to November 2021
- Issued $1 billion senior secured
notes and used proceeds to fully repay RBL Facility borrowings
- Ended the quarter with $708MM of liquidity, $98MM of cash and
100% undrawn RBL Facility capacity
- Redirecting second half capital to the Eagle Ford from the
Permian to benefit higher margin basin
- Updating full year capital and production guidance
2Q'18 Results Continue to Show Positive Change With New
Leadership Team
The second quarter results continue to demonstrate improvement
in operational and financial metrics. The company has increased oil
production and Adjusted EBITDAX, while continuing to reduce lease
operating and general and administrative costs. Below is a
summary of second quarter 2018 results compared to the last three
quarters.
|
3Q'17
|
4Q'17
|
1Q'18
|
2Q'18
|
2Q'18
vs.
3Q'17
|
Oil Production
(MBbls/d)
|
45.1
|
43.6
|
45.4
|
47.2
|
+5%
|
Equivalent Production
(MBoe/d)
|
81.0
|
80.6
|
80.1
|
82.5
|
+2%
|
Percent Oil
(%)
|
55.7
|
54.1
|
56.7
|
57.2
|
+3%
|
LOE per Unit
($/Boe)
|
5.66
|
5.60
|
5.48
|
4.95
|
-13%
|
Lease Operating
Expense ($MM)
|
42.2
|
41.5
|
39.5
|
37.6
|
-11%
|
Boe/d per G&A
Headcount
|
229
|
238
|
253
|
321
|
+40%
|
Net (Loss) Income
($MM)
|
(72)
|
(72)
|
18
|
(58)
|
-19%
|
Adjusted EBITDAX
($MM)1
|
159
|
181
|
189
|
215
|
+35%
|
|
|
|
1 See
Disclosure of Non-GAAP Financial Measures for applicable
definitions and reconciliations to GAAP terms.
|
Eagle Ford: Increase in Oil Production and Improvement in
Capital Efficiency
The company produced 39.2 MBoe/d, including 25.8 MBbls/d of oil
in the second quarter of 2018, a nine percent and eight percent
increase from the first quarter of 2018, respectively.
Production in the second quarter benefited from the increase in
activities in early 2018, improved production results from new well
designs and completion techniques, and acquisition
properties. EP Energy averaged three drilling rigs, invested
$122 million and completed (frac'd)
17 gross and net wells in the second quarter of 2018 in its Eagle
Ford program.
EP Energy continues to make great progress on its EOR pilot
project. In the second quarter of 2018, EP Energy initialized
its second injection cycle and plans for two more pilot projects to
be operational by year end. Due to the promising long-term
value creation potential of the project, the company has decided to
accelerate the timing, allocate incremental capital, and increase
the number of pilot projects above what was originally
planned. The expansion of the EOR pilot projects will allow
the company to accelerate the delineation of the EOR applicability
across the company's Eagle Ford position.
The company continues to optimize completion designs for each
pad to maximize returns and minimize finding and development
costs. Based on new wells completed during 1Q'18, the company
estimates an approximately 20% improvement in recoverable reserves
per drilling and completion capital invested versus offset wells
completed prior to 2018.
In July, the company drilled two 16,000 foot lateral wells,
which are the longest laterals in company history. This is an
important step forward in the Eagle Ford asset as the company looks
to develop remaining acreage in the most capitally efficient manner
going forward. The company believes 15,000 foot laterals will be
the future of development for a large portion of the remaining
acreage. The step change from 7,500 foot laterals creates a
significant savings in total infrastructure costs. The company
expects the average lateral length for the second half of 2018 to
be 16% greater than the first half of 2018. In the second
half of 2018, the company plans to reallocate capital from the
Permian to the Eagle Ford to take advantage of the improved returns
and capital efficiency driven by the favorable LLS and Brent
pricing.
Permian: Reducing Operating Costs
In the second quarter of 2018, the company produced 26.5 MBoe/d,
including 9.7 MBbls/d of oil, effectively flat compared to the
first quarter of 2018. In the second quarter of 2018, the company
averaged approximately one drilling rig, invested $48 million in capital and completed (frac'd) 13
gross and nine net wells.
In the second quarter of 2018, the company constructed and
operationalized its first produced water pond for recycle
use. The facility became operational in April and is lowering
operating costs by approximately $1.54/Bbl of water. In addition, the
facility lowers completion costs by providing a low-cost direct
source of water for completion operations instead of trucking in
fresh water saving approximately $0.45/Bbl of water.
The company maintains ample take-away capacity out of the basin
through contractual agreements with third-party processors and
marketing companies. In addition, EP Energy has 100% of its
Midland to Cushing basis exposure hedged in 2018 at
-$1.02 per barrel.
Altamont: Two Horizontal Wells Drilled and First Quarter
Recompletion Record Broken
In the second quarter of 2018, the company produced 16.8 MBoe/d,
including 11.7 MBbls/d of oil, effectively flat compared to the
first quarter of 2018. The gas production was impacted by
downtime related to unexpected plant maintenance during
May 2018.
EP Energy operated two joint venture drilling rigs and completed
(frac'd) seven gross wells and two net wells in the second quarter
of 2018. Total capital invested in the Altamont program in
the second quarter of 2018 was $33
million. The company also accelerated its high-return
recompletion program, successfully recompleting 29 wells during the
quarter, which broke the company's all-time record from the first
quarter of 2018.
The company spud and rig released its first two horizontal wells
during the quarter. The two horizontal wells have an average
lateral length of 9,000 feet. The company has commenced
completion operations and expects to initialize flowback on both
wells over the next 30-60 days. In addition, the company
expects to drill two incremental horizontal wells in the third
quarter to accelerate the delineation of the horizontal potential
of the field.
Multi-year Commodity Hedge Program: Well Positioned in 2018
and ~51 Percent Hedged in 20191
EP Energy maintains a solid hedge program, which provides
continued commodity price protection. A summary of the
company's current open hedge positions is listed below:
|
|
2018
|
|
2019
|
Total Fixed Price
Hedges
|
|
|
|
|
Oil volumes
(MMBbls)2
|
|
7.6
|
|
|
8.6
|
|
Average ceiling price
($/Bbl)
|
|
$
|
63.96
|
|
|
$
|
66.60
|
|
Average floor price
($/Bbl)
|
|
$
|
58.45
|
|
|
$
|
57.63
|
|
|
|
|
|
|
Natural Gas volumes
(TBtu)
|
|
12.9
|
|
|
7.3
|
|
Average price
($/MMBtu)
|
|
$
|
3.04
|
|
|
$
|
2.97
|
|
|
Note: Positions are as of August 7, 2018
(Contract months: June 30, 2018 - Forward)
|
|
1
Percentage based on mid-point of 2018 production
guidance
|
2
2018 and 2019 positions include WTI three way collars of 4.5
MMBbls and 6.6 MMBbls, respectively, and WTI collars of 0.6 MMBbls
in 2018 and 1.3 MMBbls in 2019.
|
Liquidity - Financial Flexibility Significantly
Improved
The company ended the quarter with $708
million of available liquidity and $4.3 billion of net debt (total debt of
$4.4 billion less cash of
$98 million). In May 2018, the company issued $1 billion of senior secured notes and used the
proceeds to fully repay the RBL Facility. In addition, the
company amended its RBL Facility agreement by extending the
maturity date from May 2019 to
November 2021. The maintenance covenant was also amended to a
maximum ratio of first-lien debt to EBITDAX of 2.25 to 1.00 through
maturity.
2018 Outlook Updated to Reflect Reallocation of Capital For
Long-Term Value Creation
The table below summarizes the company's current operational and
financial guidance for the second half of 2018. The company
has increased the full year 2018 Oil & Gas Expenditures
midpoint, excluding acquisitions, to $650
million. The increase is driven by incremental activity
during the second half of the year that will result in incremental
2019 EBITDAX growth. The company expects to increase gross
completions six percent from the original guidance, add a third EOR
pilot, and two incremental Altamont horizontal wells. The company
has increased the full year Eagle Ford capital allocation from ~50%
to ~65%.
Due to the acceleration of activities in the Eagle Ford, and
changing the development approach, the company expects to
temporarily shut-in more recently completed offset wells than
planned during the second half of 2018. These intentional
shut-ins will temporarily lower near-term production, but will
reduce the future impact of offset frac interference and provide
greater long-term value over the life of the field benefiting 2019
and beyond production and cash flow. In addition, the
company's original guidance was based on $55 per barrel for West Texas Intermediate (WTI)
crude. Given the rise in current commodity prices, the company
expects higher cash flows. However, the company will experience an
increased burden in the Permian sliding scale royalty agreement,
resulting in approximately 500 Bbls/d lower volumes during 2Q'18 to
4Q'18.
|
|
1H'18
Actuals
|
2H'18
Estimate
|
FY 2018
Estimate
|
|
|
|
|
|
Production
Volumes
|
|
|
|
|
Oil production
(MBbls/d)
|
|
46.3
|
45 - 47
|
45 – 47
|
Total production
(MBoe/d)
|
|
81.3
|
79 – 82
|
79 – 82
|
|
|
|
|
|
Oil & Gas
Expenditures ($ million)
|
|
$411
|
$220 –
$260
|
$630 –
$6701
|
Eagle Ford
|
|
$257
|
|
~65%
|
Permian
|
|
$91
|
|
~15%
|
Altamont
|
|
$63
|
|
~20%2
|
|
|
|
|
|
Average Gross
Drilling Rigs
|
|
|
|
|
Eagle Ford
|
|
3
|
|
3
|
Permian
|
|
0.6
|
|
-
|
Altamont
|
|
2
|
|
2
|
|
|
|
|
|
Operating
Costs
|
|
|
|
|
Lease operating
expense ($/Boe)
|
|
$5.21
|
|
$5.00 –
$5.70
|
Reported G&A
expense ($/Boe)
|
|
$3.17
|
|
$2.90 –
$3.25
|
Adjusted G&A
expense ($/Boe)3
|
|
$2.47
|
|
$2.30 –
$2.60
|
Transportation and
commodity purchases ($/Boe)
|
|
$3.46
|
|
$3.15 –
$3.45
|
Taxes, other than
income ($/Boe)4
|
|
$2.78
|
|
$2.75 –
$2.85
|
|
|
|
|
|
DD&A
($/Boe)
|
|
$16.95
|
|
$17.00 –
$17.50
|
|
|
1 Full
year 2018 includes ~$120 million non-drill capital including: ~$55
million for general equipment, ~$20 million for capitalized G&A
and interest, ~$20 million for enhanced facility projects, ~$15
million for EOR projects, and ~$10 million for leasing and seismic,
and does not include acquisition costs.
|
2 Full
year 2018 Altamont capital includes ~81 recompletions for $47
million.
|
3 Adjusted
G&A represents G&A expense less approximately $0.30 per Boe
of non-cash compensation expense and $0.40 per Boe in transition,
restructuring and other costs in 1H'18 reported G&A and $0.60 -
$0.65 per Boe of non-cash compensation expense in FY 2018
Estimate.
|
4
Severance taxes estimates are based on current WTI
prices.
|
Webcast Information
EP Energy has scheduled a webcast at 10:00 a.m. Eastern Time, 9:00 a.m. Central
Time, on August 10, 2018, to discuss
its second quarter financial and operational results. The
webcast may be accessed online through the company's website at
epenergy.com in the Investor Center. Materials relating to
the webcast will be available in the Investor Center. A
limited number of telephone lines will be available to participants
by dialing 888-317-6003 (conference ID#6173767) 10 minutes prior to
the start of the webcast. A replay of the webcast will be
available through September 14, 2018
on the company's website in the Investor Center or by dialing
877-344-7529 (conference ID#10122575).
About EP Energy
The EP Energy team is driven to deliver superior returns for our
investors by developing the oil and natural gas that feeds
America's growing energy needs. The company focuses on enhancing
the value of its high quality asset portfolio, increasing capital
efficiency, maintaining financial flexibility, and pursuing
accretive acquisitions and divestitures. EP Energy is working to
set the standard for efficient development of hydrocarbons in the
U.S. Learn more at epenergy.com.
The following table provides the company's production results,
average realized prices, results of operations and certain non-GAAP
financial measures for the periods presented.
|
Quarter
ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
September 30,
2017
|
Oil Sales Volumes
(MBbls/d)
|
|
|
|
|
|
Eagle Ford
|
25.8
|
|
|
24.0
|
|
|
20.0
|
|
Permian
|
9.7
|
|
|
9.8
|
|
|
12.6
|
|
Altamont
|
11.7
|
|
|
11.6
|
|
|
12.5
|
|
Total Oil Sales
Volumes
|
47.2
|
|
|
45.4
|
|
|
45.1
|
|
Natural Gas Sales
Volumes (MMcf/d)
|
|
|
|
|
|
Eagle Ford
|
40
|
|
|
36
|
|
|
37
|
|
Permian
|
54
|
|
|
56
|
|
|
55
|
|
Altamont
|
30
|
|
|
34
|
|
|
34
|
|
Total Natural Gas
Sales Volumes
|
124
|
|
|
126
|
|
|
126
|
|
NGLs Sales Volumes
(MBbls/d)
|
|
|
|
|
|
Eagle Ford
|
6.8
|
|
|
5.9
|
|
|
6.7
|
|
Permian
|
7.8
|
|
|
7.8
|
|
|
8.2
|
|
Altamont
|
—
|
|
|
—
|
|
|
—
|
|
Total NGLs Sales
Volumes
|
14.6
|
-
|
|
|
13.7
|
|
|
14.9
|
|
Equivalent Sales
Volumes (MBoe/d)
|
|
|
|
|
|
Eagle Ford
|
39.2
|
|
|
35.9
|
|
|
32.9
|
|
Permian
|
26.5
|
|
|
27.0
|
|
|
29.9
|
|
Altamont
|
16.8
|
|
|
17.2
|
|
|
18.2
|
|
Total Equivalent Sales
Volumes
|
82.5
|
|
|
80.1
|
|
|
81.0
|
|
|
|
|
|
|
|
Net (loss) income ($
in millions)
|
(58)
|
|
|
18
|
|
|
(72)
|
|
Adjusted EBITDAX ($
in millions)
|
215
|
|
|
189
|
|
|
159
|
|
Basic and diluted net
(loss) income per common share ($)
|
(0.23)
|
|
|
0.07
|
|
|
(0.29)
|
|
Adjusted EPS
($)
|
(0.01)
|
|
|
(0.07)
|
|
|
(0.12)
|
|
Capital Expenditures
($ in millions)(1)
|
203
|
|
|
208
|
|
|
162
|
|
Total Operating
Expenses ($/Boe)
|
32.20
|
|
|
31.11
|
|
|
31.79
|
|
Adjusted Cash
Operating Costs ($/Boe)
|
13.85
|
|
|
13.97
|
|
|
14.73
|
|
Depreciation,
depletion and amortization rate ($/Boe)
|
17.20
|
|
|
16.69
|
|
|
15.92
|
|
Average realized
prices(2)
|
|
|
|
|
|
Oil price on physical
sales ($/Bbl)
|
65.53
|
|
|
61.56
|
|
|
45.49
|
|
Oil, including
financial derivatives ($/Bbl)(3)
|
62.30
|
|
|
58.86
|
|
|
51.75
|
|
Natural gas price on
physical sales ($/Mcf)
|
1.58
|
|
|
1.94
|
|
|
2.26
|
|
Natural gas, including
financial derivatives ($/Mcf)(3)
|
1.96
|
|
|
2.03
|
|
|
2.49
|
|
NGLs price on physical
sales ($/Bbl)
|
22.65
|
|
|
20.93
|
|
|
18.98
|
|
NGLs, including
financial derivatives ($Bbl)(3)
|
22.07
|
|
|
20.91
|
|
|
18.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The quarters ended
June 30, 2018 and March 31, 2018 do not include $16 million and
$248 million, respectively, of acquisition capital.
|
(2)
|
Oil and natural gas
prices on physical sales reflect operating revenues for oil and
natural gas reduced by oil and natural gas purchases associated
with managing our physical sales.
|
(3)
|
Prices per unit are
calculated using total financial derivative cash
settlements.
|
EP ENERGY
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
(In
millions)
|
(Unaudited)
|
|
|
|
Quarter
ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
September 30,
2017
|
Operating
revenues
|
|
|
|
|
|
Oil
|
$
|
281
|
|
|
$
|
252
|
|
|
189
|
|
Natural
gas
|
18
|
|
|
22
|
|
|
27
|
|
NGLs
|
30
|
|
|
26
|
|
|
26
|
|
Financial
derivatives
|
(64)
|
|
|
(14)
|
|
|
(23)
|
|
Total operating
revenues
|
265
|
|
|
286
|
|
|
219
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
Oil and natural gas
purchases
|
—
|
|
|
—
|
|
|
—
|
|
Transportation
costs
|
26
|
|
|
25
|
|
|
29
|
|
Lease operating
expense
|
38
|
|
|
39
|
|
|
42
|
|
General and
administrative
|
28
|
|
|
19
|
|
|
25
|
|
Depreciation,
depletion and amortization
|
129
|
|
|
120
|
|
|
118
|
|
Impairment
charges
|
—
|
|
|
—
|
|
|
1
|
|
Exploration and other
expense
|
—
|
|
|
1
|
|
|
6
|
|
Taxes, other than
income taxes
|
21
|
|
|
20
|
|
|
16
|
|
Total operating
expenses
|
242
|
|
|
224
|
|
|
237
|
|
|
|
|
|
|
|
Operating income
(loss)
|
23
|
|
|
62
|
|
|
(18)
|
|
Gain on
extinguishment/modification of debt
|
7
|
|
|
41
|
|
|
24
|
|
Interest
expense
|
(88)
|
|
|
(85)
|
|
|
(80)
|
|
(Loss) income before
income taxes
|
(58)
|
|
|
18
|
|
|
(74)
|
|
Income tax
benefit
|
—
|
|
|
—
|
|
|
2
|
|
Net (loss)
income
|
$
|
(58)
|
|
|
$
|
18
|
|
|
$
|
(72)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EP ENERGY
CORPORATION
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(In
millions)
|
(Unaudited)
|
|
|
|
|
|
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
ASSETS
|
|
|
|
|
|
Current
assets(1)
|
$
|
329
|
|
|
$
|
237
|
|
|
$
|
466
|
|
Property, plant and
equipment, net(2)
|
4,832
|
|
|
4,741
|
|
|
4,422
|
|
Other non-current
assets
|
|
13
|
|
|
|
11
|
|
|
|
12
|
|
Total
assets
|
$
|
5,174
|
|
|
$
|
4,989
|
|
|
$
|
4,900
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current
liabilities
|
$
|
479
|
|
|
$
|
436
|
|
|
$
|
448
|
|
Long-term debt, net
of debt issue costs
|
4,291
|
|
|
4,104
|
|
|
4,022
|
|
Other non-current
liabilities
|
49
|
|
|
39
|
|
|
38
|
|
Total stockholders'
equity
|
355
|
|
|
410
|
|
|
392
|
|
Total liabilities and
equity
|
$
|
5,174
|
|
|
$
|
4,989
|
|
|
$
|
4,900
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balance as of
December 31, 2017 includes $172 million of assets held for
sale.
|
(2)
|
Balance is net of
accumulated depreciation, depletion and amortization of $3,424
million, $3,307 million and $3,179 million as of June 30,
2018, March 31, 2018 and December 31, 2017,
respectively.
|
EP ENERGY
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In
millions)
|
(Unaudited)
|
|
|
|
Six months
ended June 30,
|
|
2018
|
|
2017
|
Net loss
|
$
|
(40)
|
|
|
$
|
(50)
|
|
Adjustments to
reconcile net loss to net cash provided by operating
activities
|
|
|
|
Non-cash
expenses
|
214
|
|
|
305
|
|
Asset and liability
changes
|
43
|
|
|
(74)
|
|
Net cash provided by
operating activities
|
217
|
|
|
181
|
|
Net cash used in
investing activities
|
(454)
|
|
|
(266)
|
|
Net cash provided by
financing activities
|
291
|
|
|
109
|
|
|
|
|
|
Change in cash, cash
equivalents and restricted cash
|
54
|
|
|
24
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash - beginning of period
|
45
|
|
|
20
|
|
Cash, cash
equivalents and restricted cash - end of period
|
$
|
99
|
|
|
$
|
44
|
|
Disclosure of Non-GAAP Financial Measures
The Securities and Exchange Commission's Regulation G applies to
any public disclosure or release of material information that
includes a non-GAAP financial measure. In the event of such a
disclosure or release, Regulation G requires (i) the
presentation of the most directly comparable financial measure
calculated and presented in accordance with GAAP and (ii) a
reconciliation of the differences between the non-GAAP financial
measure presented and the most directly comparable financial
measure calculated and presented in accordance with GAAP.
Non-GAAP Terms
Adjusted EPS is defined as diluted earnings per share adjusted
for certain items that EP Energy considers to be significant to
understanding our underlying performance for a given period.
Adjusted EPS is useful in analyzing the company's ongoing earnings
potential and understanding certain significant items impacting the
comparability of EP Energy's results. Adjusted EPS is
calculated as net income (loss) per common share adjusted for the
impact of financial derivatives (mark-to-market effects of
financial derivatives, net of cash settlements and cash premiums
related to these derivatives), gains and losses on
extinguishment/modification of debt, impairment charges, other
costs that affect comparability, including transition, severance
and other costs and changes in the valuation allowance on deferred
tax assets.
Below is a reconciliation of consolidated diluted net income
(loss) per share to Adjusted EPS:
|
Quarter ended June
30, 2018
|
|
Pre
Tax
|
|
After
Tax
|
|
Diluted
EPS(1)
|
|
($ in millions,
except earnings per share amounts)
|
Net loss
|
|
|
$
|
(58)
|
|
|
$
|
(0.23)
|
|
|
|
|
|
|
Adjustments(2)
|
|
|
|
|
|
Impact of financial
derivatives(3)
|
$
|
54
|
|
|
$
|
42
|
|
|
$
|
0.17
|
Transition, severance
and other costs
|
6
|
|
|
5
|
|
|
0.02
|
Gain on
extinguishment/modification of debt
|
(7)
|
|
|
(5)
|
|
|
(0.02)
|
Valuation allowance
on deferred tax assets
|
|
|
13
|
|
|
0.05
|
Total
adjustments
|
$
|
53
|
|
|
$
|
55
|
|
|
$
|
0.22
|
|
|
|
|
|
|
Adjusted
EPS
|
|
|
|
|
$
|
(0.01)
|
|
|
|
|
|
|
Diluted weighted
average shares
|
|
|
|
|
248
|
|
|
|
|
|
|
|
Quarter ended
March 31, 2018
|
|
Pre
Tax
|
|
After
Tax
|
|
Diluted
EPS(1)
|
|
($ in millions,
except earnings per share amounts)
|
Net income
|
|
|
$
|
18
|
|
|
$
|
0.07
|
|
|
|
|
|
|
Adjustments(2)
|
|
|
|
|
|
Impact of financial
derivatives(3)
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
0.01
|
Gain on
extinguishment/modification of debt
|
(41)
|
|
|
(32)
|
|
|
(0.13)
|
Valuation allowance
on deferred tax assets
|
|
|
(5)
|
|
|
(0.02)
|
Total
adjustments
|
$
|
(37)
|
|
|
$
|
(34)
|
|
|
$
|
(0.14)
|
|
|
|
|
|
|
Adjusted
EPS
|
|
|
|
|
$
|
(0.07)
|
|
|
|
|
|
|
Diluted weighted
average shares
|
|
|
|
|
247
|
|
|
|
|
|
|
|
Quarter ended
September 30, 2017
|
|
Pre
Tax
|
|
After
Tax
|
|
Diluted
EPS(1)
|
|
($ in millions,
except earnings per share amounts)
|
Net loss
|
|
|
$
|
(72)
|
|
|
$
|
(0.29)
|
|
|
|
|
|
|
Adjustments(2)
|
|
|
|
|
|
Impact of financial
derivatives(3)
|
$
|
50
|
|
|
$
|
32
|
|
|
$
|
0.13
|
Gain on
extinguishment of debt
|
(24)
|
|
|
(15)
|
|
|
(0.06)
|
Impairment
charges
|
1
|
|
|
—
|
|
|
—
|
Valuation allowance
on deferred tax assets
|
|
|
24
|
|
|
0.10
|
Total
adjustments
|
$
|
27
|
|
|
$
|
41
|
|
|
$
|
0.17
|
|
|
|
|
|
|
Adjusted
EPS
|
|
|
|
|
$
|
(0.12)
|
|
|
|
|
|
|
Diluted weighted
average shares
|
|
|
|
|
246
|
|
|
|
|
|
|
(1)
|
Diluted per share
amounts are based on actual amounts rather than the rounded totals
presented.
|
(2)
|
All individual
adjustments for all periods presented assume a statutory federal
and blended state tax rate, as well as any other income tax effects
specifically attributable to that item.
|
(3)
|
Represents
mark-to-market impact net of cash settlements and cash premiums
related to financial derivatives. There were no cash premiums
received or paid for the periods presented.
|
EBITDAX is defined as net income (loss) plus interest and debt
expense, income taxes, depreciation, depletion and amortization and
exploration expense. Adjusted EBITDAX is defined as EBITDAX,
adjusted as applicable in the relevant period for the net change in
the fair value of derivatives (mark-to-market effects of financial
derivatives, net of cash settlements and cash premiums related to
these derivatives), the non-cash portion of compensation expense
(which represents non-cash compensation expense under our long-term
incentive programs adjusted for cash payments made under these
plans), transition, severance and other costs that affect
comparability, fees paid to the Sponsors, gains and losses on
extinguishment/modification of debt and impairment charges.
Below is a reconciliation of our consolidated net income (loss)
to EBITDAX and Adjusted EBITDAX:
|
|
Quarter
ended
|
|
|
September
30,
|
December
31,
|
|
March
31,
|
June
30,
|
|
|
2017
|
|
2018
|
|
|
($ in millions)
|
Net (loss)
income
|
|
$
|
(72)
|
|
(72)
|
|
|
$
|
18
|
|
$
|
(58)
|
|
Income tax
benefit
|
|
(2)
|
|
(2)
|
|
|
—
|
|
—
|
|
Interest expense, net
of capitalized interest
|
|
80
|
|
81
|
|
|
85
|
|
88
|
|
Depreciation,
depletion and amortization
|
|
118
|
|
119
|
|
|
120
|
|
129
|
|
Exploration
expense
|
|
3
|
|
2
|
|
|
1
|
|
1
|
|
EBITDAX
|
|
127
|
|
128
|
|
|
224
|
|
160
|
|
Mark-to-market on
financial derivatives(1)
|
|
23
|
|
51
|
|
|
14
|
|
64
|
|
Cash settlements and
cash premiums on financial derivatives(2)
|
|
27
|
|
7
|
|
|
(10)
|
|
(10)
|
|
Non-cash portion of
compensation expense(3)
|
|
5
|
|
(29)
|
|
|
2
|
|
2
|
|
Transition, severance
and other costs(4)
|
|
—
|
|
19
|
|
|
—
|
|
6
|
|
Fees paid to
Sponsors(5)
|
|
—
|
|
5
|
|
|
—
|
|
—
|
|
Gain on
extinguishment/modification of debt
|
|
(24)
|
|
—
|
|
|
(41)
|
|
(7)
|
|
Impairment
charges
|
|
1
|
|
—
|
|
|
—
|
|
—
|
|
Adjusted
EBITDAX
|
|
$
|
159
|
|
181
|
|
|
$
|
189
|
|
$
|
215
|
|
|
|
|
|
|
|
(1)
|
Represents the income
statement impact of financial derivatives.
|
(2)
|
Represents actual
cash settlements related to financial derivatives. There were no
cash premiums received or paid for the periods
presented.
|
(3)
|
Non-cash portion of
compensation expense represents compensation expense (net of
forfeitures) under long-term incentive programs adjusted for cash
payments made under these plans.
|
(4)
|
Reflects transition
and severance costs related to workforce reductions.
|
(5)
|
Represents fees paid
in connection with the release of members of the new leadership
team from a portfolio company of funds managed by Apollo Global
Management LLC and payment of certain legal expenses.
|
Adjusted cash operating costs is a non-GAAP measure that is
defined as total operating expenses, excluding depreciation,
depletion and amortization expense, exploration expense, impairment
charges, the non-cash portion of compensation expense (which
represents compensation expense under our long-term incentive
programs adjusted for cash payments made under these plans) and
transition, severance and other costs that affect
comparability. We use this measure to describe the costs
required to directly or indirectly operate our existing assets and
produce and sell our oil and natural gas, including the costs
associated with the delivery and purchases and sales of produced
commodities. Accordingly, we exclude depreciation, depletion, and
amortization and impairment charges as such costs are non-cash in
nature. We exclude exploration expense from our measure as it is
substantially non-cash in nature and is not related to the costs to
operate our existing assets. We exclude the non-cash portion of
compensation expense as well as transition, severance and other
costs that affect comparability, as we believe such adjustments
allow investors to evaluate our costs against others in our
industry and this item can vary across companies due to different
ownership structures, compensation objectives or the occurrence of
transactions.
Below is a reconciliation of our GAAP operating expenses to
non-GAAP adjusted cash operating costs:
|
|
Quarter
ended
|
|
|
June 30,
2018
|
|
March 31,
2018
|
|
September 30,
2017
|
|
|
Total
|
|
Per-Unit(1)
|
|
Total
|
|
Per-Unit(1)
|
|
Total
|
|
Per-Unit(1)
|
|
|
($ in millions,
except per unit costs)
|
Oil and natural gas
purchases
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Transportation
costs
|
|
26
|
|
|
3.49
|
|
|
25
|
|
|
3.43
|
|
|
29
|
|
|
3.91
|
|
Lease operating
expense
|
|
38
|
|
|
4.95
|
|
|
39
|
|
|
5.48
|
|
|
42
|
|
|
5.66
|
|
General and
administrative
|
|
28
|
|
|
3.74
|
|
|
19
|
|
|
2.58
|
|
|
25
|
|
|
3.28
|
|
Depreciation,
depletion and amortization
|
|
129
|
|
|
17.20
|
|
|
120
|
|
|
16.69
|
|
|
118
|
|
|
15.92
|
|
Impairment
charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
0.09
|
|
Exploration
and other expense
|
|
—
|
|
|
—
|
|
|
1
|
|
|
0.18
|
|
|
6
|
|
|
0.83
|
|
Taxes, other
than income taxes
|
|
21
|
|
|
2.82
|
|
|
20
|
|
|
2.75
|
|
|
16
|
|
|
2.10
|
|
Total operating
expenses
|
|
$
|
242
|
|
|
$
|
32.20
|
|
|
$
|
224
|
|
|
$
|
31.11
|
|
|
$
|
237
|
|
|
$
|
31.79
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
$
|
(129)
|
|
|
$
|
(17.20)
|
|
|
$
|
(120)
|
|
|
$
|
(16.69)
|
|
|
$
|
(118)
|
|
|
$
|
(15.92)
|
|
Impairment
charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(0.09)
|
|
Exploration
expense
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(0.18)
|
|
|
(3)
|
|
|
(0.40)
|
|
Non-cash portion of
compensation expense(2)
|
|
(2)
|
|
|
(0.38)
|
|
|
(2)
|
|
|
(0.27)
|
|
|
(5)
|
|
|
(0.65)
|
|
Transition, severance
and other costs(2)
|
|
(6)
|
|
|
(0.77)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted cash
operating costs and per-unit adjusted cash costs
|
|
$
|
105
|
|
|
$
|
13.85
|
|
|
$
|
101
|
|
|
$
|
13.97
|
|
|
$
|
110
|
|
|
$
|
14.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
equivalent volumes (MBoe)
|
|
|
|
7,512
|
|
|
|
|
7,208
|
|
|
|
|
7,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Per unit costs are
based on actual total amounts rather than the rounded totals
presented.
|
(2)
|
Amounts are excluded
in the calculation of adjusted general and administrative
expense.
|
Adjusted general and administrative expenses are defined as
general and administrative expenses excluding the non-cash portion
of compensation expense which represents compensation expense (net
of forfeitures) under our long-term incentive programs adjusted for
cash payments under these plans and transition, severance and other
costs.
Below is a reconciliation of our GAAP general and administrative
expense to non-GAAP adjusted general and administrative
expense:
|
Actuals
|
|
FY 2018
Estimate
|
|
|
|
Quarter
ended
|
|
|
June 30,
2018
|
|
March 31,
2018
|
|
September 30,
2017
|
|
Low
|
|
High
|
|
Total
|
|
($/Boe)
|
|
Total
|
|
($/Boe)
|
|
Total
|
|
($/Boe)
|
|
($/Boe)
|
|
($/Boe)
|
|
($ in millions,
except per Boe costs)
|
GAAP general and
administrative expense
|
$
|
28
|
|
|
$
|
3.74
|
|
|
$
|
19
|
|
|
$
|
2.58
|
|
|
$
|
25
|
|
|
$
|
3.28
|
|
|
$
|
2.90
|
|
|
$
|
3.25
|
|
Less non-cash
compensation expense
|
2
|
|
|
0.38
|
|
|
2
|
|
|
0.27
|
|
|
5
|
|
|
0.65
|
|
|
0.60
|
|
|
0.65
|
|
Less transition,
severance and other costs
|
6
|
|
|
0.77
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted general and
administrative expense
|
$
|
20
|
|
|
$
|
2.59
|
|
|
$
|
17
|
|
|
$
|
2.31
|
|
|
$
|
20
|
|
|
$
|
2.63
|
|
|
$
|
2.30
|
|
|
$
|
2.60
|
|
|
|
|
(1)
|
Per unit costs are
based on actual total amounts rather than the rounded totals
presented.
|
Net Debt is a non-GAAP measure defined as long-term debt less
cash and cash equivalents.
EBITDAX and Adjusted EBITDAX are used by management and we
believe provide investors with additional information (i) to
evaluate our ability to service debt adjusting for items required
or permitted in calculating covenant compliance under our debt
agreements, (ii) to provide an important supplemental
indicator of the operational performance of our business without
regard to financing methods and capital structure, (iii) for
evaluating our performance relative to our peers, (iv) to
measure our liquidity (before cash capital requirements and working
capital needs) and (v) to provide supplemental information
about certain material non-cash and/or other items that may not
continue at the same level in the future. Adjusted EPS is used by
management and we believe is a valuable measure of operating
performance. Adjusted Cash Operating Costs per unit is used by
management as a performance measure, and we believe provides
investors valuable information related to our operating performance
and our operating efficiency relative to other industry
participants and comparatively over time across our historical
results. Adjusted General and Administrative expense is used
by management and investors as additional information. Net Debt is
used by management for analysis of the company's financial position
and/or liquidity. In addition, the company believes that these
measures are widely used by professional research analysts and
others in the valuation, comparison and investment recommendations
of companies in the oil and gas exploration and production
industry.
Adjusted EPS, EBITDAX, Adjusted EBITDAX, Adjusted Cash Operating
Costs, Adjusted General and Administrative expense and Net Debt
have limitations as analytical tools and should not be considered
in isolation or as a substitute for analysis of our results as
reported under U.S. GAAP. Adjusted EPS should not be used as
an alternative to earnings (loss) per share or other measure of
financial performance presented in accordance with GAAP. EBITDAX
and Adjusted EBITDAX should not be used as an alternative to net
income (loss), operating income (loss), operating cash flows or
other measures of financial performance or liquidity presented in
accordance with GAAP. Adjusted Cash Operating Costs should not be
used as an alternative to operating expenses, operating cash flows
or other measures of financial performance or liquidity presented
in accordance with GAAP. Adjusted General and Administrative
expense should not be used as an alternative to GAAP general and
administrative expense. Our presentation of Adjusted EPS,
EBITDAX, Adjusted EBITDAX, Adjusted Cash Operating Costs, Adjusted
General and Administrative expense and Net Debt may not be
comparable to similarly titled measures used by other companies in
our industry. Furthermore, our presentation of Adjusted EPS,
EBITDAX, Adjusted EBITDAX, Adjusted Cash Operating Costs, Adjusted
General and Administrative expense and Net Debt should not be
construed as an inference that our future results will be
unaffected by the items noted above or what we believe to be other
unusual items, or that in the future we may not incur expenses that
are the same as or similar to some of the adjustments in this
presentation.
Cautionary Statement Regarding Forward-Looking
Statements
This release includes certain forward-looking statements and
projections of EP Energy. We have made every reasonable effort to
ensure that the information and assumptions on which these
statements and projections are based are current, reasonable, and
complete. However, a variety of factors could cause actual results
to differ materially from the projections, anticipated results or
other expectations expressed, including, without limitation, the
volatility of and potential for sustained low oil, natural gas and
NGL prices; the supply and demand for oil, natural gas and
NGLs; the company's ability to meet production volume
targets; changes in commodity prices and basis differentials for
oil and natural gas; the uncertainty of estimating proved reserves
and unproved resources; the future level of operating and capital
costs; the availability and cost of financing to fund future
exploration and production operations; the success of drilling
programs with regard to proved undeveloped reserves and unproved
resources; the company's ability to comply with the covenants in
various financing documents; the company's ability to obtain
necessary governmental approvals for proposed E&P projects and
to successfully construct and operate such projects; actions by the
credit rating agencies; credit and performance risk of our lenders,
trading counterparties, customers, vendors, suppliers and third
party operators; general economic and weather conditions in
geographic regions or markets served by the company, or where
operations of the company are located, including the risk of a
global recession and negative impact on oil and natural gas demand;
the uncertainties associated with governmental regulation,
including any potential changes in federal and state tax laws and
regulations; competition; and other factors described in the
company's Securities and Exchange Commission filings. While the
company makes these statements and projections in good faith,
neither the company nor its management can guarantee that
anticipated future results will be achieved. Reference must be made
to those filings for additional important factors that may affect
actual results. EP Energy assumes no obligation to publicly update
or revise any forward-looking statements made herein or any other
forward-looking statements made by EP Energy, whether as a result
of new information, future events, or otherwise.
Contact
Investor and Media
Relations
Jordan Strauss
713-997-6791
jordan.strauss@epenergy.com
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SOURCE EP Energy Corporation