Average fourth quarter production of 27,595 Boe
per day and full year 2017 production of 25,086 Boe per
day
Resolute Energy Corporation (“Resolute” or the “Company”)
(NYSE:REN) today provided a business update, including a review of
the Company’s 2017 production and operational performance, year-end
2017 reserves and full year 2018 guidance.
Rick Betz, Resolute’s Chief Executive Officer, said, “2017 was a
year of significant accomplishments at Resolute. We successfully
divested non-core assets in Utah and New Mexico to further
strengthen our balance sheet and complete our transformation to a
Delaware Basin pure play. At the same time, we completed a
significant acquisition within the Delaware Basin that expanded our
core acreage position by nearly 30 percent. During the year we spud
28 new horizontal wells and brought 27 wells on line. The new wells
drove year-over-year Permian Basin production growth of 151 percent
while delivering some of the strongest returns on capital employed
in the basin. As we look at 2018, we have a well-formed plan which
we expect will increase Permian Basin production by more than 50
percent while further strengthening our returns and unlocking the
full potential of the Company's assets to create compelling value
for all stockholders.”
2017 Production and Operational Performance
Fourth quarter 2017 Company production increased 41 percent
year-over-year to 27,595 barrels of oil equivalent (“Boe”) per day
and full year production grew by 77 percent to 25,086 Boe per day.
Fourth quarter 2017 production included a contribution of
approximately 2,100 Boe per day from the Company’s recently
divested Aneth Field properties. Fourth quarter production exceeded
the high end of the Company’s updated guidance, as announced on
November 6, 2017, by 595 Boe per day and full year production was
approximately at the midpoint.
Fourth quarter Permian Basin production increased 89 percent
year-over-year to 25,481 Boe per day and full year production grew
by 151 percent to 20,112 Boe per day.
For the fourth quarter, Company production consisted of 52
percent oil, 75 percent liquids and 25 percent gas, and Permian
Basin production consisted of 49 percent oil, 74 percent liquids
and 26 percent gas.
The Company expects to report cash-based lease operating expense
(“LOE”) per Boe for the full year 2017 of $8.64, or approximately
$79 million, a reduction of 29 percent from the prior year. Full
year LOE is below the midpoint of Resolute’s November 2017 updated
guidance. Permian Basin LOE for the full year 2017 is expected to
be approximately $40 million, or $5.46 per Boe.
Net capital spending for 2017 is expected to be approximately
$277 million, after earnout payments of $26 million received from
Caprock Midstream.
Resolute’s 2017 plan for its Mustang and Appaloosa assets
contemplated drilling 22 wells, completing and bringing on line 21
wells, including two wells that were drilled but uncompleted
(“DUC”) at year-end 2016, and exiting the year with two DUCs. As a
result of increased drilling and completion efficiency, Resolute
was able to complete drilling operations on 25 wells and had three
wells drilling over year-end, while still completing and bringing
on line 21 wells in these areas. Excluding the three wells that
were drilling over year-end, Resolute carried six DUCs into 2018.
During 2017, the Company set spud-to-TD records of 14 days drilling
mid-length laterals in Mustang and 17 days drilling long laterals
in Appaloosa.
In May 2017 Resolute completed the acquisition of the Bronco
acreage, which expanded the Company’s Reeves County holdings by 28
percent. As part of the transaction Resolute acquired two producing
wells and six DUCs. All six DUCs were completed and on production
by September 2017, bringing the total number of wells brought on
line in 2017 to 27.
Wells placed on production in 2017 included fourteen mid-length
laterals, nine long length laterals, and four standard length
laterals acquired as part of the Bronco acquisition. The Wolfcamp A
and Upper Wolfcamp B horizontal wells in Reeves County had average
peak 24-hour rates between 2,400 and 2,800 Boe per day.
In addition to Resolute’s successful Wolfcamp A and Upper B
drilling programs, during 2017 the Company also tested the lower
Wolfcamp B and the Wolfcamp C in Appaloosa and Mustang. To date,
Resolute has drilled two lower Wolfcamp B wells and four Wolfcamp C
wells, three of which are producing. The remaining three wells are
expected to be on production in the coming weeks.
The Uinta C101H, a Wolfcamp C well, had a recent 24-hour rate of
approximately 2,900 Boe per day, of which 29 percent was oil and 65
percent was liquids. This is an early-time rate and the final peak
rate may be higher. The South Elephant C207SL, also a Wolfcamp C
well, had a peak 24-hour rate of 2,294 Boe per day, of which
approximately 31 percent was oil and 68 percent was liquids. The
South Elephant B307SL, a lower Wolfcamp B well, had a peak 24-hour
rate of 2,254 Boe per day of which approximately 41 percent was oil
and 73 percent was liquids. While these results are encouraging,
Resolute intends to complete additional testing and observe
production over a longer period of time before pursuing full scale
development of these deeper zones.
Resolute currently has approximately 21,000 net acres in the
Delaware Basin. In the heart of the Company’s operating areas,
Mustang, Appaloosa and Bronco, 89 percent of the acreage is held by
production. Resolute has approximately 430 gross (375 net)
drillable locations in the Wolfcamp A and Upper B zones in these
areas, representing a ten year inventory assuming a three rig
drilling program. Using moderate density assumptions in the lower
Wolfcamp B and the Wolfcamp C, and assuming only one zone in the
Wolfcamp C, successful results from our deeper tests could add more
than 160 gross locations representing an incremental four years of
development inventory.
Year-End 2017 Proved Reserves
At December 31, 2017, Resolute's estimated proved reserves
were 53.4 MMBoe, compared to year-end 2016 proved reserves of 60.3
MMBoe, after reducing proved reserves by 23.0 MMBoe for
dispositions in Aneth and New Mexico and 9.1 MMBoe for production
during 2017. Permian Basin reserves grew from 35.4 MMBoe to 53.4
MMBoe as a direct result of Resolute’s successful Delaware Basin
drilling program. Approximately 47 percent of the Company's 2017
year-end proved reserves were oil and 70 percent were
liquids. Proved undeveloped reserves comprise 51 percent of
total proved reserves. This category includes less than 10 percent
of our total inventory of 430 Wolfcamp A and upper Wolfcamp B
locations.
The present value of the Company's estimated future net revenues
from proved reserves was approximately $433 million after-tax as of
December 31, 2017, using SEC pricing guidelines for year-end 2017,
discounted at ten percent. Benchmark pricing used in calculating
the year-end 2017 present value of the Company’s reserves was
$51.34 per barrel of oil and $2.98 per MMBtu of gas. All prices
were adjusted for differentials and NGL content, and the analysis
excluded the impact of hedges.
2018 Drilling and Completion Plan to Optimize
Development and Drive Value Creation
Mr. Betz continued, “After carefully evaluating the results of
our 2017 drilling activity we have formulated a 2018 operating plan
which places Resolute at the forefront of those Delaware Basin
operators in full field development. Our 2018 plan is built around
the twin pillars of pad drilling and batch completions. By using
two and three rigs drilling three-well pads in close proximity and
then completing all of these wells together, we expect to deliver
even stronger well performance at lower costs than the previous
operational approach we employed through most of 2017. We are
confident in our ability to execute on this plan and believe the
resulting production growth will position us to generate positive
free cash flow in the fourth quarter of 2018 and for full year
2019.”
Resolute’s 2018 plan includes net capital spending of $365
million to $395 million, including $350 million to $375 million in
drilling and completion capital to support two rigs throughout the
year, and a third rig which commenced work in late February and is
expected to be released in mid-September. Additionally, the Company
expects to spend an incremental $42 million to $49 million on field
facilities and other corporate capital, and to receive estimated
earnout payments of $27 million to $29 million from Caprock
Midstream. Overall, Resolute expects to drill 42 wells during the
year and bring 38 wells on production, carry six DUCs and have two
wells drilling over year-end 2018.
Each of the three rigs will be primarily pad drilling three-well
stacks with all the rigs in the same spacing unit at the same time.
Operations will focus in the Sandlot unit in Mustang and the
Mitre/Ranger units in Appaloosa, with Wolfcamp Upper A, Lower A,
and Upper B as the primary target zones. This approach to pad
drilling will provide Resolute with the opportunity to batch
complete groups of up to nine wells simultaneously. In addition to
the production and reservoir benefits of pad drilling and batch
completions, the opportunity to be more efficient with rig time,
frac crew utilization and supply management will allow the Company
to be more effective in managing costs throughout the year.
The Company estimates that full-year Delaware Basin production
will increase more than 50 percent year-over-year, to an average of
30,000 to 33,000 Boe per day, and will grow more than 90 percent
from the first quarter of 2018 to the fourth quarter, with a
projected fourth quarter 2018 production rate of 42,000 to 44,000
Boe per day.
Beginning in late 2017 the Company shifted focus to building an
inventory of drilled wells to batch complete. As a result, two
completions are expected in first quarter 2018, and in mid-March
Resolute will begin completing its first nine-well group.
Consequently, the Company expects first quarter 2018 production to
be 22,000 to 23,000 Boe per day. With the first nine-well group
coming on line in May and another nine-well group coming on line in
July Resolute expects production to ramp significantly in the
middle part of the year. Further groups of completed wells will
come on line throughout the remainder of the year driving rapid
production growth.
This development plan was put in place based on the Company’s
experience with the impact of infill drilling on well performance.
In estimating its 2018 total production, Resolute has fully
incorporated the anticipated effects of frac interference on older
wells and the expected modestly reduced production from newly
drilled infill wells. In addition the Company has taken into
consideration potential operational events that could reduce
production further such as power outages, weather, well shut-ins
and downstream gas constraints.
2018 Guidance and Capital Budget
Production: For 2018, Resolute expects production to be 10,950
to 12,045 MBoe, or an average of 30,000 to 33,000 Boe per day. The
Company expects average quarterly production to ramp from 22,000 to
23,000 Boe per day in the first quarter to an estimated fourth
quarter rate of 42,000 to 44,000 Boe per day.
Mix: Oil is expected to make up approximately 52 percent of
production, while total liquids are expected to make up
approximately 75 percent of production.
Lease Operating Expense: Resolute projects annual cash LOE for
2018 to be between $60 million and $68 million, or $5.57 per Boe at
the mid-point of the range. This represents approximately 36
percent decrease in LOE per Boe compared to expected 2017
expenditures.
General & Administrative Expense: Resolute anticipates that
annual cash general and administrative expense for 2018 will be
between $30 million and $34 million, net of COPAS reimbursements
and capitalization and before one-time costs associated with the
previously announced Aneth sale, or $2.78 per Boe at the mid-point
of the range, down approximately 15 percent from the expected $3.27
per Boe in 2017. The Company’s estimate of 2018 cash general and
administrative expense does not include potentially material costs
related to stockholder activism.
Capital Expenditures: Resolute expects capital expenditures of
between $365 million and $395 million in 2018, net of estimated
earnout payments of $27 to $29 million receivable from Caprock
Midstream.
Liquidity: At December 31, 2017 the Company had $30 million
outstanding under its revolving credit facility. This facility
currently has a $210 million borrowing base. In addition to
availability under the Company’s revolving credit facility,
Resolute believes its balance sheet provides financial flexibility
and optionality to fund the 2018 development plan. Resolute expects
to exit the year with a debt-to-EBITDA ratio of between 2.80x and
2.95x with further declines over a five-year outlook when using
free cash flow to pay down debt.
These expectations do not include the anticipated positive
impact from up to $10 million of contingency payments from the
Aneth purchaser, payable in the fourth quarter of 2017, all of
which has been or would be earned at today’s strip, nor do they
include any potential proceeds from a midstream transaction
involving the Bronco properties, which is currently being
explored.
Investor Presentation
The Company also filed an investor presentation today with
additional information, which can be found on Resolute’s website
at www.resoluteenergy.com.
Free cash flow
Free cash flow is a non-GAAP measure. We define free cash flow
as cash flows from operations before changes in working capital
items less capital expenditures excluding acquisitions and
divestitures. Free cash flow is not a measure of net income
(loss) or cash flows as determined by U.S. GAAP. Management
believes that these measures are useful to management and investors
as a measure of a company's ability to internally fund its capital
expenditures and to service or incur additional debt.
About Resolute Energy Corporation
Resolute is an independent oil and gas company focused on the
acquisition and development of unconventional oil and gas
properties in the Delaware Basin portion of the Permian Basin of
west Texas. The Company's common stock is traded on the NYSE under
the ticker symbol
"REN."
Cautionary Statements
This press release includes “forward-looking statements” within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Words such as
“expect,” “estimate,” “project,” “budget,” “forecast,”
“anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,”
“poised,” “believes,” “predicts,” “potential,” “continue,” and
similar expressions are intended to identify such forward-looking
statements; however the absence of these words does not mean the
statements are not forward-looking. Such forward looking statements
include statements regarding 2018 production, lease operating
expense, corporate G&A and capital expenditure guidance;
expected production growth from 2017 to 2018; future oil and
liquids percentage and NGL yields; future leverage ratios; future
drilling plans and activity, including production that may result
from our 2018 program; future financial and operating results;
future liquidity and availability of capital; future infrastructure
and other capital projects, the anticipated costs thereof and the
percentage of cash flow outspend; future production, reserve growth
and decline rates; the impact of well interference and the
effectiveness of drilling and completion adjustments with respect
thereto; the anticipated benefits of our 2018 development strategy;
expected timing of drilling and completion of pad wells and the
timing of the production contribution thereof; our plans and
expectations regarding our future development activities including
drilling and completing wells; the spacing of such wells; the
number of such potential projects, locations and productive
intervals; our projection of free cash flow in 4Q18 and 2019; the
prospectivity of our properties and acreage; estimated ultimate
recoveries of oil and gas (EURs); performance of wells against type
curves; and anticipated rates of return (IRRs), net asset values
and PV-10 values of our projects and properties. Resolute will
evaluate its capital expenditures in relation to its liquidity and
cash flow and may adjust its activity and capital spending levels
based on acquisitions, changes in commodity prices, the cost of
goods and services, production results and other considerations.
Forward-looking statements in this press release include matters
that involve known and unknown risks, uncertainties and other
factors that may cause actual results, levels of activity,
performance or achievements to differ materially from results
expressed or implied by this press release. Such risk factors
include, among others: uncertainties regarding future actions that
may be taken by Monarch in furtherance of its intent to nominate
director candidates for election at the Company’s 2018 annual
meeting of stockholders; potential operational disruption caused by
Monarch’s future actions; the Company’s ability to successfully
implement its strategy to create long-term stockholder value;
depressed commodity prices; the volatility of oil and gas prices
including the price realized by Resolute; inaccuracy in reserve
estimates and expected production rates; potential write downs of
the carrying value and volumes of reserves as a result of low
commodity prices; the discovery, estimation, development and
replacement by Resolute of oil and gas reserves; the future cash
flow, liquidity and financial position of Resolute; Resolute’s
level of indebtedness and our ability to fulfill our obligations
under the senior notes, our credit facility and any additional
indebtedness that we may incur; potential borrowing base reductions
under our revolving credit facility; the success of the business
and financial strategy, hedging strategies and plans of Resolute;
the amount, nature and timing of capital expenditures of Resolute,
including future development costs; the availability of additional
capital and financing, including the capital needed to pursue our
drilling and development plans for our properties, on terms
acceptable to us or at all; uncertainty surrounding timing of
identifying drilling locations and necessary capital to drill such
locations; the potential for downspacing, infill or multi-lateral
drilling in the Permian Basin or obstacles thereto; the timing of
issuance of permits and rights of way; the timing and amount of
future production of oil and gas; availability of drilling,
completion and production personnel, supplies and equipment; the
completion and success of exploratory drilling on our properties;
potential delays in the completion, commissioning and optimization
schedule of Resolute’s facilities construction projects or any
potential breakdown of such facilities; operating costs and other
expenses of Resolute; the success of prospect development and
property acquisition of Resolute; Resolute’s dependence on third
parties for installation of gas gathering and processing
infrastructure, oil gathering facilities and water disposal
facilities and potential delays relating thereto; the success
of Resolute in marketing oil and gas; competition in the oil and
gas industry; the impact of weather and the occurrence of
disasters, such as fires, floods and other events and natural
disasters; environmental liabilities; potential power supply
limitations or delays; operational problems or uninsured or
underinsured losses affecting Resolute’s operations or financial
results; adverse changes in government regulation and taxation of
the oil and gas industry, including the potential for increased
regulation of underground injection, fracing operations and
venting/flaring; potential climate related change regulations;
risks and uncertainties associated with horizontal drilling and
completion techniques; the availability of water and our ability to
adequately treat and dispose of water during and after drilling and
completing wells; changes in derivatives regulation; developments
in oil-producing and gas-producing countries; and cyber security
risks. Actual results may differ materially from those
contained in the forward looking statements in this press release.
Resolute undertakes no obligation and does not intend to update
these forward-looking statements to reflect events or circumstances
occurring after the date of this press release. You are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date of this press release. You are
encouraged to review “Cautionary Note Regarding Forward Looking
Statements” and “Item 1A - Risk Factors” and all other disclosures
appearing in the Company’s Form 10-K for the year ended December
31, 2016, subsequent quarterly reports on Form 10-Q and subsequent
filings with the Securities and Exchange Commission (the “SEC”) for
further information on risks and uncertainties that could affect
the Company’s businesses, financial condition and results of
operations. All forward-looking statements are qualified in their
entirety by this cautionary statement. Furthermore, the SEC
prohibits oil and gas companies, in their filings with the SEC,
from disclosing estimates of oil or gas resources other than
“reserves,” as that term is defined by the SEC. In this press
release, Resolute includes estimates of quantities of oil and gas
using certain terms, such as “resource,” “resource potential,”
“EUR,” “oil in place,” or other descriptions of volumes of
reserves, which terms include quantities of oil and gas that may
not meet the SEC definitions of proved, probable and possible
reserves, and which the SEC guidelines strictly prohibit Resolute
from including in filings with the SEC. These estimates are
by their nature more speculative than estimates of proved reserves
and accordingly are subject to substantially greater risk of being
recovered by Resolute. Finally, reserve estimates mentioned in this
press release were prepared internally using price and cost
assumptions and methodologies that are different from what would be
required if prepared in accordance with guidelines established by
the SEC for the estimation of proved reserves, and such reserve
estimates do not include probable and possible reserves. Such
reserve estimates have not been audited by our independent reserves
auditor. Production rates, including “early time” rates, 24‐hour
peak IP rates, 30, 60, 90, 120 and 150 day peak IP rates, for both
our wells and for those wells that are located near to our
properties are limited data points in each well’s productive
history and represent three stream gross production. These rates
are sometimes actual rates and sometimes extrapolated or normalized
rates. As such, the rates for a particular well may change as
additional data becomes available. Peak production rates are not
necessarily indicative or predictive of future production rates,
EUR or economic rates of return from such wells and should not be
relied upon for such purpose. Equally, the way we calculate and
report peak IP rates and the methodologies employed by others may
not be consistent, and thus the values reported may not be directly
and meaningfully comparable. Lateral lengths described are
indicative only. Actual completed lateral lengths depend on various
considerations such as leaseline offsets. Standard length laterals,
sometimes referred to as 5,000 foot laterals, are laterals with
completed length generally between 4,000 feet and 5,500 feet.
Mid‐length laterals, sometimes referred to as 7,500 foot laterals,
are laterals with completed length generally between 6,000 feet and
8,000 feet. Long laterals, sometimes referred to as 10,000 foot
laterals, are laterals with completed length generally longer than
8,000 feet. This press release may include certain non-GAAP
financial measures. When applicable, a reconciliation of these
measures to the most directly comparable GAAP measure is
presented.
Contact: HB Juengling Vice President - Investor
Relations Resolute Energy Corporation 303-534-4600, extension 1555
hbjuengling@resoluteenergy.com
Andrew Siegel or Joseph Sala Joele Frank, Wilkinson Brimmer
Katcher 212-355-4449
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