Quarterly Report (10-q)

Date : 11/08/2018 @ 10:21PM
Source : Edgar (US Regulatory)
Stock : Approach Resources Inc (AREX)
Quote : 0.12828  0.00528 (4.29%) @ 1:00AM
Approach Resources share price Chart

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                       

Commission File Number: 001-33801

 

APPROACH RESOURCES INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

51-0424817

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

One Ridgmar Centre

6500 West Freeway, Suite 800

Fort Worth, Texas

 

 

76116

(Address of principal executive offices)

(Zip Code)

(817) 989-9000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes       No

Indicate by check mark whether the registrant has submitted electronically if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)       Yes       No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes       No

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 1, 2018, was 94,506,674.

 

 

 


PART I―FINANCI AL INFORMATION

Item 1. Financial Statements.

Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(In thousands, except shares and per-share amounts) 

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22

 

 

$

21

 

Accounts receivable:

 

 

 

 

 

 

 

 

Joint interest owners

 

 

79

 

 

 

117

 

Oil, NGLs and gas sales

 

 

10,687

 

 

 

9,678

 

Derivative instruments

 

 

90

 

 

 

1,398

 

Prepaid expenses and other current assets

 

 

3,618

 

 

 

5,486

 

Total current assets

 

 

14,496

 

 

 

16,700

 

 

 

 

 

 

 

 

 

 

PROPERTIES AND EQUIPMENT:

 

 

 

 

 

 

 

 

Oil and gas properties, at cost, using the successful efforts method of accounting

 

 

1,976,842

 

 

 

1,930,577

 

Furniture, fixtures and equipment

 

 

5,689

 

 

 

5,658

 

Total oil and gas properties and equipment

 

 

1,982,531

 

 

 

1,936,235

 

Less accumulated depletion, depreciation and amortization

 

 

(899,686

)

 

 

(853,359

)

Net oil and gas properties and equipment

 

 

1,082,845

 

 

 

1,082,876

 

Total assets

 

$

1,097,341

 

 

$

1,099,576

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,969

 

 

$

9,450

 

Oil, NGLs and gas sales payable

 

 

6,105

 

 

 

5,363

 

Derivative instruments

 

 

4,117

 

 

 

2,181

 

Accrued liabilities

 

 

18,061

 

 

 

8,073

 

Total current liabilities

 

 

41,252

 

 

 

25,067

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Senior secured credit facility, net

 

 

294,321

 

 

 

289,275

 

Senior notes, net

 

 

84,411

 

 

 

84,185

 

Derivative instruments

 

 

80

 

 

 

 

Deferred income taxes

 

 

77,361

 

 

 

82,102

 

Asset retirement obligations

 

 

11,302

 

 

 

11,065

 

Other non-current liabilities

 

 

819

 

 

 

466

 

Total liabilities

 

 

509,546

 

 

 

492,160

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none outstanding

 

 

 

 

Common stock, $0.01 par value, 180,000,000 shares authorized,

     94,478,333 and 94,533,246 issued and outstanding, respectively

 

 

945

 

 

 

945

 

Additional paid-in capital

 

 

743,503

 

 

 

742,391

 

Accumulated other comprehensive income

 

 

46

 

 

 

 

Accumulated deficit

 

 

(156,699

)

 

 

(135,920

)

Total stockholders’ equity

 

 

587,795

 

 

 

607,416

 

Total liabilities and stockholders’ equity

 

$

1,097,341

 

 

$

1,099,576

 

 

See accompanying notes to these unaudited consolidated financial statements

1


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(In thousands, except shares and per-share amounts) 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

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

 

 

See accompanying notes to these unaudited consolidated financial statements

 


2


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Loss

(In thousands) 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

NET LOSS

 

$

(4,261

)

 

$

(8,512

)

 

$

(20,779

)

 

$

(158,176

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on cash flow hedges (1)

 

 

202

 

 

 

 

 

 

46

 

 

 

 

Other comprehensive loss

 

 

202

 

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(4,059

)

 

$

(8,512

)

 

$

(20,733

)

 

$

(158,176

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Includes income tax expense as follows:

 

$

(54

)

 

$

 

 

$

(13

)

 

$

 

 

See accompanying notes to these unaudited consolidated financial statements

 


3


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except shares)

 

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, June 30, 2018

 

 

94,470,636

 

 

$

945

 

 

$

742,863

 

 

$

(156

)

 

$

(152,438

)

 

$

591,214

 

Issuance of common shares to directors for compensation

 

 

16,213

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

37

 

Restricted stock issuance, net of cancellations

 

 

(8,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

603

 

 

 

 

 

 

 

 

 

603

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,261

)

 

 

(4,261

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

202

 

 

 

 

 

 

202

 

BALANCES, September 30, 2018

 

 

94,478,333

 

 

$

945

 

 

$

743,503

 

 

$

46

 

 

$

(156,699

)

 

$

587,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, January 1, 2018

 

 

94,533,246

 

 

$

945

 

 

$

742,391

 

 

$

 

 

$

(135,920

)

 

$

607,416

 

Issuance of common shares to directors for compensation

 

 

122,214

 

 

 

1

 

 

 

354

 

 

 

 

 

 

 

 

 

355

 

Restricted stock issuance, net of cancellations

 

 

164,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,769

 

 

 

 

 

 

 

 

 

1,769

 

Surrender of restricted shares for payment of income taxes

 

 

(199,730

)

 

 

 

 

 

(632

)

 

 

 

 

 

 

 

 

(632

)

Retirement of common shares in connection with acquisition

 

 

(142,362

)

 

 

(1

)

 

 

(379

)

 

 

 

 

 

 

 

 

(380

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,779

)

 

 

(20,779

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

46

 

 

 

 

 

 

46

 

BALANCES, September 30, 2018

 

 

94,478,333

 

 

$

945

 

 

$

743,503

 

 

$

46

 

 

$

(156,699

)

 

$

587,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, June 30, 2017

 

 

86,480,629

 

 

$

851

 

 

$

722,696

 

 

$

 

 

$

(173,225

)

 

$

550,322

 

Issuance of common shares to directors for compensation

 

 

22,661

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

78

 

Restricted stock issuance, net of cancellations

 

 

(1,327

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,252

 

 

 

 

 

 

 

 

 

1,252

 

Equity issuance costs

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

(5

)

Surrender of restricted shares for payment of income taxes

 

 

(463

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,512

)

 

 

(8,512

)

BALANCES, September 30, 2017

 

 

86,501,500

 

 

$

851

 

 

$

724,020

 

 

$

 

 

$

(181,737

)

 

$

543,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, January 1, 2017

 

 

41,764,770

 

 

$

418

 

 

$

586,095

 

 

$

 

 

$

(23,561

)

 

$

562,952

 

Issuance of common shares to directors for compensation

 

 

161,748

 

 

 

1

 

 

 

403

 

 

 

 

 

 

 

 

 

404

 

Restricted stock issuance, net of cancellations

 

 

1,436,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,114

 

 

 

 

 

 

 

 

 

3,114

 

Issuance of common shares in exchange for senior notes

 

 

43,175,328

 

 

 

432

 

 

 

134,526

 

 

 

 

 

 

 

 

 

134,958

 

Surrender of restricted shares for payment of income taxes

 

 

(36,372

)

 

 

 

 

 

(118

)

 

 

 

 

 

 

 

 

(118

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(158,176

)

 

 

(158,176

)

BALANCES, September 30, 2017

 

 

86,501,500

 

 

$

851

 

 

$

724,020

 

 

$

 

 

$

(181,737

)

 

$

543,134

 

 

See accompanying notes to these unaudited consolidated financial statements

 

4


Approach Res ources Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(In thousands) 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(20,779

)

 

$

(158,176

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depletion, depreciation and amortization

 

 

47,029

 

 

 

54,348

 

Amortization of debt issuance costs

 

 

786

 

 

 

640

 

Gain on debt extinguishment

 

 

 

 

 

(5,053

)

Commodity derivative loss (gain)

 

 

10,068

 

 

 

(1,115

)

Settlements of commodity derivatives

 

 

(6,685

)

 

 

(1,481

)

Exploration expense

 

 

 

 

 

3,154

 

Share-based compensation expense

 

 

2,124

 

 

 

3,518

 

Deferred income tax (benefit) provision

 

 

(4,753

)

 

 

129,933

 

Other non-cash items

 

 

30

 

 

 

(32

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(966

)

 

 

980

 

Prepaid expenses and other current assets

 

 

(1,573

)

 

 

(240

)

Accounts payable

 

 

(1,418

)

 

 

(1,076

)

Oil, NGLs and gas sales payable

 

 

739

 

 

 

522

 

Accrued liabilities

 

 

4,748

 

 

 

3,620

 

Cash provided by operating activities

 

 

29,350

 

 

 

29,542

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions to oil and gas properties

 

 

(46,493

)

 

 

(45,712

)

Additions to furniture, fixtures and equipment, net

 

 

(31

)

 

 

(14

)

Change in working capital related to investing activities

 

 

14,513

 

 

 

(968

)

Cash used in investing activities

 

 

(32,011

)

 

 

(46,694

)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings under credit facility

 

 

90,100

 

 

 

76,750

 

Repayment of amounts outstanding under credit facility

 

 

(85,600

)

 

 

(57,750

)

Equity issuance costs

 

 

 

 

 

(2,767

)

Tax withholdings related to restricted stock

 

 

(632

)

 

 

(118

)

Debt issuance costs

 

 

(14

)

 

 

 

Change in working capital related to financing activities

 

 

(1,192

)

 

 

1,037

 

Cash provided by financing activities

 

 

2,662

 

 

 

17,152

 

 

 

 

 

 

 

 

 

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

 

1

 

 

 

 

CASH AND CASH EQUIVALENTS , beginning of period

 

$

21

 

 

$

21

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS , end of period

 

$

22

 

 

$

21

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

16,267

 

 

$

14,024

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION:

 

 

 

 

 

 

 

 

Asset retirement obligations capitalized

 

$

19

 

 

$

31

 

 

See accompanying notes to these unaudited consolidated financial statements

 

 

 

5


Approach Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2018

 

 

1.  Summary of Significant Accounting Policies

Organization and Nature of Operations

Approach Resources Inc. (“Approach,” the “Company,” “we,” “us” or “our”) is an independent energy company engaged in the exploration, development, production and acquisition of oil and gas properties.  We focus on finding and developing oil and natural gas reserves in oil shale and tight gas sands.  Our properties are primarily located in the Permian Basin in West Texas. We also own interests in the East Texas Basin.

Consolidation, Basis of Presentation and Significant Estimates

The interim consolidated financial statements of the Company are unaudited and contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full year, due in part to the volatility in prices for oil, natural gas liquids (“NGLs”) and gas, future commodity prices for commodity derivative contracts, global economic and financial market conditions, interest rates, access to sources of liquidity, estimates of reserves, drilling risks, geological risks, transportation restrictions, the timing of acquisitions, product supply and demand, market competition and interruptions of production. You should read these consolidated interim financial statements in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 9, 2018.

The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions are eliminated.  In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Actual results may differ from those estimates. Significant assumptions are required in the valuation of proved oil and gas reserves, which affect our estimate of depletion expense as well as our impairment analyses. Significant assumptions also are required in our estimation of accrued liabilities, commodity derivatives, income tax provision, share-based compensation and asset retirement obligations. It is at least reasonably possible these estimates could be revised in the near term, and these revisions could be material.  Certain prior-year amounts have been reclassified to conform to current-year presentation.  These classifications have no impact on the net loss reported.

Recent Accounting Pronouncements

On January 1, 2018, we adopted the Financial Accounting Standards Boa