Approach Resources Inc. (NASDAQ: AREX) today reported
third quarter 2018 financial and operational results.
Financial and operational highlights for third quarter
2018
- Drilled six wells and completed two
horizontal Wolfcamp wells
- Production of 1,043 MBoe or 11.3
MBoe/day
- Revenues of $32.6 million, a 27%
increase over prior year quarter
- Generated $4.5 million of operating
income
- Net loss was $4.3 million or $0.05 per
diluted share, and adjusted net loss (non-GAAP) was $4.2 million or
$0.04 per diluted share
- Generated $16.5 million of EBITDAX
(non-GAAP), a 19% increase over prior year quarter
- Improved unhedged cash margin per Boe
(non-GAAP) to $18.88 per Boe, 40% over the prior year quarter
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, “I am
pleased with our execution during the first nine months of the year
relative to commodity prices and basin dynamics. This quarter we
delivered revenue, earnings and EBITDAX growth. The strengthened
price in oil and NGLs and expiration of legacy hedges, combined
with a disciplined focus on controlling costs, drove $4.5 million
of operating income. We drilled six horizontal wells, fulfilling
our 2018 drilling program ahead of schedule. In addition, we
completed two wells in the second half of the quarter and
maintained our industry leading drilling and completion cost
average of $4.6 million per well.
“Despite improved oil and NGL prices, the extreme WAHA natural
gas price discount in the Permian Basin has persisted. In light of
this, we elected to defer several third quarter completions and
reschedule planned fourth quarter completions. We understand that
the market often demands production growth under any circumstances,
but we believe growth for the sake of growth is shortsighted. We
have a healthy inventory of drilled but uncompleted wells,
positioning us to accelerate activity in 2019, when we expect the
basin gas differentials to improve. In the meantime, we will stay
focused on delivering a strengthened balance sheet and on
disciplined and profitable execution.”
Third Quarter 2018 Results
Production for third quarter 2018 totaled 1,043 Mboe, or 11.3
MBoe/d, made up of 26% oil, 36% NGLs and 38% natural gas. Average
realized commodity prices for third quarter 2018, before the effect
of commodity derivatives, were $67.28 per Bbl of oil, $28.38 per
Bbl of NGLs and $1.59 per Mcf of natural gas. Our average realized
price, including the effect of commodity derivatives, was $28.17
per Boe for third quarter 2018.
Net loss for third quarter 2018 was $4.3 million, or $0.05 per
diluted share, on revenues of $32.6 million. Excluding the decrease
in the fair value of our commodity derivatives of $0.1 million,
adjusted net loss (non-GAAP) for third quarter 2018 was $4.2
million, or $0.04 per diluted share. EBITDAX (non-GAAP) for third
quarter 2018 was $16.5 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 ("LOE") averaged $5.57 per Boe. LOE in
the third quarter included strategic spending on certain workovers
and maintenance and we expect LOE to decrease in the fourth
quarter. Production and ad valorem taxes averaged $2.03 per Boe, or
6.5% of oil, NGL and gas sales. Total general and administrative
(“G&A”) costs averaged $5.35 per Boe, including cash G&A
costs of $4.73 per Boe. Depletion, depreciation and amortization
expense averaged $13.90 per Boe. Interest expense totaled $6.5
million.
Operations Update
In the third quarter we drilled six horizontal Wolfcamp wells:
four in the A bench, one in the B bench and one in the C bench.
During the second half of the third quarter we completed two
horizontal Wolfcamp wells, both in Project Pangea. Of the completed
wells, one well was in the B bench and one well was in the C bench.
At September 30, 2018, we had seven horizontal wells waiting on
completion.
As noted above, in light of the extreme WAHA gas discount in the
basin, we deferred third quarter completions and rescheduled fourth
quarter completions to preserve capital until basin gas
differentials show signs of improvement. We now expect full year
capital expenses to be $47 million, or 21% below the mid-point of
prior guidance, and full year production to be approximately 4,100
MBoe, or 6% below the mid-point of prior guidance.
Capital expenditures incurred during third quarter 2018 totaled
$19.3 million, consisting of $17 million for drilling and
completion activities, $2.2 million for infrastructure projects and
equipment and $0.1 million for lease acquisitions and extensions.
For the nine months ended September 30, 2018, our capital
expenditures totaled $46.5 million, consisting of $40.6 million for
drilling and completion activities, $5.5 million for infrastructure
projects and equipment and $0.4 million for lease acquisitions.
Liquidity Update
At September 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 $29.2 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.
Contract
Commodity and Period Type Volume Transacted
Contract Price Crude Oil October 2018 – December 2018
Swap 300 Bbls/day $50.00/Bbl October 2018 – December 2019 Collar
500 Bbls/day $65.00/Bbl - $71.00/Bbl
CMA Roll October
2018 – December 2018 Swap 2,000 Bbls/day $0.66/Bbl
Natural Gas October 2018 – December 2018 Swap 200,000
MMBtu/month $3.085/MMBtu October 2018 – December 2018 Swap 250,000
MMBtu/month $3.084/MMBtu
NGLs (C2 - Ethane) October
2018 – December 2018 Swap 1,000 Bbls/day $11.424/Bbl October 2018 –
December 2018 Swap 400 Bbls/day $14.70/Bbl January 2019 – March
2019 Swap 900 Bbls/day $14.123/Bbl
NGLs (C3 - Propane)
October 2018 – December 2018 Swap 600 Bbls/day $32.991/Bbl October
2018 – December 2018 Swap 400 Bbls/day $40.74/Bbl October 2018 –
June 2019 Swap 75 Bbls/day $42.00/Bbl January 2019 – March 2019
Swap 600 Bbls/day $35.165/Bbl
NGLs (IC4 - Isobutane) October
2018 – December 2018 Swap 50 Bbls/day $38.262/Bbl
NGLs (NC4 -
Butane) October 2018 – December 2018 Swap 200 Bbls/day
$38.22/Bbl January 2019 – March 2019 Swap 200 Bbls/day $38.63/Bbl
NGLs (C5 - Pentane) October 2018 – December 2018 Swap 200
Bbls/day $56.364/Bbl January 2019 – December 2019 Swap 100 Bbls/day
$65.10/Bbl January 2019 – December 2019 Swap 100 Bbls/day
$65.31/Bbl
Conference Call Information and Summary Presentation
The Company will host a conference call on November 9, 2018, at
10:00 AM CT (11:00 AM ET) to discuss third 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 3063487 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 on the
Company’s website or by dialing: Replay Toll-Free: (855)
859-2056 Replay International: (404) 537-3406 Conference ID:
3063487
In addition, a third quarter 2018 summary presentation,
including updated guidance, 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
Nine Months Ended September 30, September 30,
2018 2017
2018 2017
Revenues (in thousands): Oil $ 18,075 $ 12,464 $ 52,524 $
38,666 NGLs 10,690 7,093 26,874 19,172 Gas 3,797
6,051 12,262 19,094 Total
oil, NGLs and gas sales 32,562 25,608 91,660 76,932 Net cash
(payment) receipt on derivative settlements (3,172 )
(523 ) (6,685 ) (1,481 ) Total oil, NGLs and gas
sales including derivative impact $ 29,390 $ 25,085 $
84,975 $ 75,451
Production: Oil (MBbls)
269 278 819 837 NGLs (MBbls) 377 374 1,105 1,109 Gas (MMcf)
2,388 2,455 7,168 7,331
Total (MBoe) 1,043 1,061 3,119 3,168 Total (MBoe/d) 11.3
11.5 11.4 11.6
Average prices: Oil (per Bbl) $ 67.28
$ 44.91 $ 64.13 $ 46.19 NGLs (per Bbl) 28.38 18.96 24.31 17.28 Gas
(per Mcf) 1.59 2.46 1.71
2.60 Total (per Boe) 31.21 24.14 29.39 24.28
Net cash (payment) receipt on derivative settlements (per Boe)
(3.04 ) (0.49 ) (2.14 ) (0.47 ) Total
including derivative impact (per Boe) $ 28.17 $ 23.65
$ 27.25 $ 23.81
Costs and expenses (per
Boe): Lease operating $ 5.57 $ 4.16 $ 5.17 $ 4.05 Production
and ad valorem taxes 2.03 1.71 2.30 2.03 Exploration — 0.09 — 1.03
General and administrative (1) 5.35 6.00 5.84 5.95 Depletion,
depreciation and amortization 13.90 15.88 15.08 17.15 (1)
Below is a summary of general and administrative expense: General
and administrative - cash component $ 4.73 $ 4.75 $ 5.16 $ 4.84
General and administrative - noncash component (share-based
compensation) 0.62 1.25 0.68 $ 1.11
APPROACH
RESOURCES INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except shares and
per-share amounts) Three Months
Ended Nine Months Ended September
30, September 30, 2018
2017 2018
2017 REVENUES: Oil, NGLs and gas
sales $ 32,562 $ 25,608 $ 91,660 $ 76,932
EXPENSES:
Lease operating 5,816 4,418 16,116 12,826 Production and ad valorem
taxes 2,120 1,816 7,189 6,425 Exploration 6 100 9 3,251 General and
administrative (1) 5,576 6,366 18,229 18,842 Depletion,
depreciation and amortization 14,500 16,843
47,029 54,348 Total expenses
28,018 29,543 88,572
95,692
OPERATING INCOME (LOSS) 4,544
(3,935 ) 3,088 (18,760 )
OTHER: Interest expense, net
(6,452 ) (5,304 ) (18,522 ) (15,683 ) Gain on debt extinguishment —
— — 5,053 Commodity derivative (loss) gain (3,256 ) (3,560 )
(10,068 ) 1,115 Other (expense) income (18 ) 29
(30 ) 32
LOSS BEFORE INCOME
TAX (BENEFIT) PROVISION (5,182 ) (12,770 ) (25,532 ) (28,243 )
INCOME TAX (BENEFIT) PROVISION (921 ) (4,258 )
(4,753 ) 129,933
NET LOSS $
(4,261 ) $ (8,512 ) $ (20,779 ) $ (158,176 )
LOSS PER
SHARE: Basic $ (0.05 ) $ (0.10 ) $ (0.22 ) $ (1.95 ) Diluted $
(0.05 ) $ (0.10 ) $ (0.22 ) $ (1.95 )
WEIGHTED AVERAGE
SHARES OUTSTANDING: Basic 94,486,395 86,501,242 94,527,831
81,142,672 Diluted 94,486,395 86,501,242 94,527,831 81,142,672 (1)
Includes non-cash share-based compensation expense as follows: 640
1,330 2,124 3,518
Unaudited
Consolidated Balance Sheet Data (in thousands)
September 30, 2018 December 31, 2017 Cash and cash
equivalents $ 22 $ 21 Other current assets 14,474 16,679 Property
and equipment, net, successful efforts method 1,082,845
1,082,876 Total assets $ 1,097,341 $ 1,099,576
Current liabilities $ 41,252 $ 25,067 Long-term debt (1) 378,732
373,460 Deferred income taxes 77,361 82,102 Other long-term
liabilities 12,201 11,531 Stockholders' equity 587,795
607,416 Total liabilities and stockholders' equity $
1,097,341 $ 1,099,576
(1) Long-term debt at September 30, 2018, is comprised of $85.2
million in 7% senior notes due 2021 and $295.5 million in
outstanding borrowings under our revolving credit facility, net of
issuance costs of $0.8 million and $1.2 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 nine months ended September 30, 2018
and 2017 (in thousands, except per-share amounts).
Three Months Ended Nine
Months Ended September 30, September 30,
2018 2017
2018 2017 Net
Loss $ (4,261 ) $ (8,512 ) $ (20,779 ) $ (158,176 )
Adjustments for certain items: Non-cash fair value loss
(gain) on derivatives 84 3,037 3,383 (2,596 ) Gain on debt
extinguishment — — — (5,053 ) Write-off of deferred tax assets — —
— 139,090 Tax effect and other discrete tax items (1) (17 )
(1,055 ) (640 ) 2,997
Adjusted net
loss $ (4,194 ) $ (6,530 ) $ (18,036 ) $ (23,738 )
Adjusted
net loss per diluted share $ (0.04 ) $ (0.08 ) $ (0.19 ) $
(0.29 )
(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 nine months ended September 30, 2018, and three and nine
months ended September 30, 2017, respectively. Additionally, this
includes the tax impact of a tax shortfall related to share-based
compensation of $8,000, $0.3 million, and $70,000, for the three
months ended September 30, 2017, nine months ended September 30,
2017, and nine months ended September 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 nine months ended September 30, 2018 and 2017 (in
thousands).
Three Months Ended Nine
Months Ended September 30, September 30,
2018 2017
2018 2017 Net
Loss $ (4,261 ) $ (8,512 ) $ (20,779 ) $ (158,176 ) Exploration
6 100 9 3,251 Depletion, depreciation and amortization 14,500
16,843 47,029 54,348 Share-based compensation 640 1,330 2,124 3,518
Non-cash fair value loss (gain) on derivatives 84 3,037 3,383
(2,596 ) Gain on debt extinguishment — — — (5,053 ) Interest
expense, net 6,452 5,304 18,522 15,683 Income tax (benefit)
provision (921 ) (4,258 ) (4,753 )
129,933
EBITDAX $ 16,500 $ 13,844 $
45,535 $ 40,908
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 nine months ended September 30,
2018 and 2017 (in thousands, except per-Boe amounts).
Three Months Ended Nine
Months Ended September 30, September 30,
2018 2017
2018 2017
Revenues $ 32,562 $ 25,608 $ 91,660 $ 76,932
Production
(Mboe) 1,043 1,061 3,119 3,168
Average realize price per
Boe $ 31.21 $ 24.14 $ 29.39 $ 24.28
Operating
expenses $ 28,018 $ 29,543 $ 88,572 $ 95,692 Exploration (6 )
(100 ) (9 ) (3,251 ) Depletion, depreciation and amortization
(14,500 ) (16,843 ) (47,029 ) (54,348 ) Share-based compensation
(640 ) (1,330 ) (2,124 ) (3,518 )
Cash operating expenses $ 12,872 $ 11,270 $ 39,410 $ 34,575
Cash operating expenses per Boe $ 12.33 $ 10.62
$ 12.63 $ 10.92
Unhedged cash
margin $ 19,690 $ 14,338 $ 52,250 $ 42,357
Unhedged cash
margin per Boe $ 18.88 $ 13.52 $ 16.76 $
13.36
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 September 30, 2018
(in thousands).
Liquidity at September 30,
2018 Borrowing base $ 325,000 Cash and cash
equivalents 22 Long-term debt – Credit Facility (295,500 ) Undrawn
letters of credit (325 ) Liquidity $ 29,197
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181108006032/en/
Approach Resources Inc.Suzanne Ogle, 817-989-9000Vice President
– Investor Relations & Corporate
Communicationsir@approachresources.com
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