Approach Resources Inc. (NASDAQ: AREX) today reported
financial and operational results for the fourth quarter and
full-year 2018, estimated year-end 2018 proved reserves and
provided an update on its efforts to pursue deleveraging
alternatives.
Fourth Quarter 2018 Highlights
- Fourth quarter production of 963 MBoe
or 10.5 MBoe/d
- Net income was $0.9 million, or $0.01
per diluted share. Adjusted net loss (non-GAAP) was $6.9 million,
or $0.07 per diluted share
- EBITDAX (non-GAAP) of $13.5
million
- Cash operating expenses (non-GAAP) of
$8.85 per Boe, a 28% decrease over the prior quarter
Full-Year 2018 Highlights
- Full year production of 4,082 MBoe or
11.2 MBoe/d
- Year-end 2018 proved reserves 180.1
MMBoe, an increase in oil reserves of 5% over the prior year
- Drilled six and completed nine
horizontal Wolfcamp wells during the year with an inventory of
seven drilled and uncompleted wells at year-end
- Net loss was $19.9 million, or $0.21
per diluted share. Adjusted net loss (non-GAAP) was $25 million, or
$0.26 per diluted share
- EBITDAX (non-GAAP) of $59 million, a 7%
increase over the prior year
- Revenue of $114 million, an 8% increase
over the prior year
- Unhedged cash margin (non-GAAP) of
$16.19 per Boe, a 16% increase over the prior year
Adjusted net loss, EBITDAX, cash operating expenses 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 and EBITDAX to net income
(loss) and unhedged cash margin to revenues.
Management Comment
Ross Craft, Approach’s Chairman and CEO, commented, “Due in part
to the sharp decline in commodity prices and extreme WAHA gas
discount in the basin in the fourth quarter, we focused on
conserving capital and reducing our cash operating expenses during
the quarter. Additionally, we continued to evaluate alternatives to
reduce our leverage. In 2019, we will continue to focus on
alternatives to strengthen our balance sheet and manage our
covenants under our credit facility. Our capital expenditure budget
is designed to be funded primarily through cash flows from
operations. As a result of the current commodity price environment,
as well as our focus on addressing our leverage, we do not expect
any significant drilling and completion activity in the first
quarter of 2019.”
Company Continues to Explore Deleveraging
Alternatives
In order to improve our leverage position to meet upcoming
financial covenants under the revolving credit facility, we have
been, and currently are, pursuing or considering a number of
deleveraging and strategic actions, which in certain cases may
require the consent of current lenders, stockholders or bond
holders. If we do not accomplish one or more of the deleveraging
transactions discussed below, we do not believe we will be able to
comply with the total leverage ratio covenant in our revolving
credit facility beginning with the measurement date of March 31,
2019.
On April 12, 2018, our largest shareholder, Wilks Brothers, LLC,
and its affiliate SDW Investments, LLC (collectively, “Wilks”),
disclosed on Schedule 13D/A that they intended to engage in
discussions with the Company regarding their investment in the
Company, including the possible acquisition of additional shares of
common stock through the exchange of approximately $60 million of
7% Senior Notes due 2021 (the “Senior Notes”) currently held by
Wilks (the “Exchange Transaction”). In April 2018, our board of
directors formed a committee of independent directors (the
“Committee”) to evaluate a potential Exchange Transaction as well
as other strategic alternatives (the “Competing Transactions”). The
Committee hired financial and legal advisors to advise the
Committee on these matters. The Committee engaged in discussions
with Wilks regarding an Exchange Transaction in 2018, but in
mid-2018 the Wilks and the Committee deferred further discussions
regarding a stand-alone Exchange Transaction pending resolution of
the Company’s discussions regarding the potential transaction
described in the following paragraph.
In addition, management has reviewed numerous cash flow
producing properties for potential acquisition over the last
several years in order to grow our production base and reduce our
leverage ratio to a sustainable level and one that is in compliance
with our financial covenants. In early 2018, we retained a
financial advisor, separate from the Committee’s advisor, and began
discussions with a potential seller and multiple financing
counterparties for the purchase of a set of substantial cash flow
producing properties. Despite a deteriorating commodity price
market, discussions with both the seller and financing parties
progressed throughout 2018. However, no definitive agreements
ultimately were executed, and the negotiations currently are not
active.
In March 2019, our board of directors expanded the scope of the
Committee to explore, in addition to an Exchange Transaction, other
financing alternatives and deleveraging transactions, including
without limitation (i) amendments or waivers to the covenants or
other provisions of our revolving credit facility, (ii) raising new
capital in private or public markets and (iii) restructuring our
balance sheet either in court or through an out of court agreement
with creditors. We are also considering operational matters such as
adjusting our capital budget and improving cash flows from
operations by continuing to reduce costs, and intend to continue to
pursue and consider other strategic alternatives, including: (i)
acquiring assets with existing production and cash flows by issuing
preferred and common equity to finance such acquisitions; (ii)
selling existing producing or midstream assets; (iii) merging with
a strategic partner. The Committee has re-commenced discussions
with the Wilks regarding an Exchange Transaction and intends to
continue those discussions as part of its review of financing
alternatives and deleveraging transactions. We currently are in
discussions with our CEO regarding his separation from the Company.
We expect to engage in discussions with our President and Chief
Administrative Officer regarding their continued employment or
potential separation. The Company is evaluating plans for
succession. There can be no assurance that we will be able to
implement any of these plans successfully, or that such plans, if
executed, will result in compliance with our credit facility
covenants.
If an event of default under our credit facility occurred, our
lenders could accelerate the maturity of the outstanding
indebtedness, making it immediately due and payable, and we would
not have sufficient liquidity to repay those amounts. However, we
believe we have adequate liquidity for current, near-term working
capital needs from cash generated from operations and, to the
extent available, unused borrowing capacity under our revolving
credit facility, each assuming (i) no reduction in our borrowing
base from our semi-annual borrowing base redetermination and (ii)
no acceleration of amounts due under our revolving credit
facility.
Fourth Quarter 2018 Results
Production for fourth quarter 2018 totaled 963 MBoe (10.5
MBoe/d), made up of 26% oil, 35% NGLs and 39% natural gas. Average
realized commodity prices for fourth quarter 2018, before the
effect of commodity derivatives, were $55.23 per Bbl of oil, $19.91
per Bbl of NGLs and $0.79 per Mcf of natural gas. Our average
realized price, including the effect of commodity derivatives, was
$22.86 per Boe for fourth quarter 2018.
Net income for fourth quarter 2018 was $0.9 million, or $0.01
per diluted share, on revenues of $22.4 million. Excluding the
increase in the fair value of our commodity derivatives of $10.1
million, adjusted net loss (non-GAAP) for fourth quarter 2018 was
$6.9 million, or $0.07 per diluted share. EBITDAX (non-GAAP) for
fourth quarter 2018 was $13.5 million. See “Supplemental Non-GAAP
Financial and Other Measures” below for our reconciliation of
adjusted net loss and EBITDAX to net income.
Lease operating expense (“LOE”) averaged $5.21 per Boe.
Production and ad valorem taxes averaged $1.80 per Boe, or 7.7% of
oil, NGLs and gas sales. Exploration costs were $0.43 per Boe.
Total general and administrative (“G&A”) costs averaged $2.80
per Boe, including cash G&A costs of $1.84 per Boe. Depletion,
depreciation and amortization expense averaged $14.96 per Boe.
Interest expense totaled $6.6 million.
Full-Year 2018 Results
Production for 2018 was 4,082 MBoe (11.2 MBoe/d), made up of 26%
oil, 36% NGLs and 38% natural gas. Average realized commodity
prices for 2018, before the effect of commodity derivatives, were
$62.04 per Bbl of oil, $23.28 per Bbl of NGLs and $1.49 per Mcf of
natural gas. Our average realized price, including the effect of
commodity derivatives, was $26.21 per Boe for 2018.
Net loss for 2018 was $19.9 million, or $0.21 per diluted share,
on revenues of $114 million. Excluding the increase in fair value
of our commodity derivatives of $6.7 million, adjusted net loss
(non-GAAP) for 2018 was $25 million, or $0.26 per diluted share.
EBITDAX (non-GAAP) for 2018 was $59 million. See “Supplemental
Non-GAAP Financial and Other Measures” below for our reconciliation
of adjusted net loss and EBITDAX to net loss.
LOE averaged $5.18 per Boe. Production and ad valorem taxes
averaged $2.19 per Boe, or 7.8% of oil, NGLs and gas sales.
Exploration costs were $0.10 per Boe. Total G&A costs averaged
$5.13 per Boe, including cash G&A costs of $4.38 per Boe.
Depletion, depreciation and amortization expense averaged $15.05
per Boe. Interest expense totaled $25.1 million.
Operations Update
In light of continued commodity price deterioration and the
extreme WAHA gas discount in the basin, we deferred third and
fourth quarter 2018 drilling and completion activities, and
incurred capital expenditures of $0.2 million in the fourth
quarter.
In 2018, we focused on executing a disciplined capital budget
and managing natural production decline through surface facility
optimization, operating efficiencies and investment in well
repairs, workovers and maintenance. During 2018, we drilled six and
completed nine horizontal Wolfcamp wells. Of these, three wells
were completed in the A bench, three wells were completed in the B
bench and three wells were completed in the C bench. At December
31, 2018, we had seven horizontal wells waiting on completion.
Our extensive infrastructure network of centralized production
facilities, water transportation, handling and recycling system,
gas lift lines and salt water disposal wells continues to provide
sustainable competitive advantages and environmentally responsible
facility operations. In 2018, we maintained an industry leading
average drilling and completion cost of $4.6 million per horizontal
well and LOE per Boe of $5.18.
Fourth Quarter and Full-Year 2018 Production
Fourth quarter 2018 production totaled 963 MBoe (10.5 MBoe/d).
Full-year 2018 production totaled 4,082 MBoe (11.2 MBoe/d).
Three and 12 Months Ended December 31,
2018 Three months 12 months
Production: Oil (MBbls) 251 1,070 NGLs (MBbls) 338 1,443 Gas
(MMcf) 2,240 9,408 Total (MBoe) 963 4,082 Total (Mboe/d) 10.5 11.2
2018 Estimated Proved Reserves and Costs Incurred
Year-end 2018 proved reserves totaled 180.1 MMBoe. Year-end 2018
proved reserves were 29% oil, 31% NGLs and 40% natural gas. Proved
developed reserves represent approximately 37% of total year-end
2018 proved reserves.
At December 31, 2018, substantially all of our proved reserves
were located in our core operating area in the southern Midland
Basin. Year-end 2018 estimated proved reserves included 168.2 MMBoe
attributable to the horizontal Wolfcamp shale play.
Extensions and discoveries for 2018 were 35 MMBoe, primarily
attributable to our development project in the Wolfcamp shale oil
resource play in the Permian Basin. During 2018, we reclassified
33.1 MMBoe of proved undeveloped reserves to unproved reserves. The
reclassified reserves are attributable to horizontal well locations
in Project Pangea that are no longer expected to be developed
within five years from their initial booking, as required by SEC
rules. Revisions included an increase of 0.2 MMBoe resulting from
updated well performance and technical parameters, and an increase
of 1.9 MMBoe due to higher commodity prices, partially offset by a
decrease of 1.4 MMBoe due to an increase in operating expenses and
natural gas price differentials.
The following table summarizes the changes in our estimated
proved reserves during 2018.
Oil NGLs
Natural Gas Total (MBbls)
(MBbls) (MMcf) (MBoe) Balance — December
31, 2017 50,060 57,948 441,228 181,545 Extensions and
discoveries 14,572 8,819 69,362 34,951 Production(1) (1,070 )
(1,443 ) (10,793 ) (4,312 ) Revisions to previous estimates (11,104
) (8,788 ) (73,359 ) (32,117 )
Balance — December 31, 2018
52,458 56,536 426,438 180,067
(1) Production includes 1,385 MMcf related to
field fuel.
Our preliminary, unaudited estimate of the standardized
after-tax measure of discounted future net cash flows
(“standardized measure”) of our proved reserves at December 31,
2018, was $660 million. The PV-10 (non-GAAP), or pre-tax present
value of our proved reserves discounted at 10%, of our proved
reserves at December 31, 2018, was $761.8 million.
The independent engineering firm DeGolyer and MacNaughton
prepared our estimates of year-end 2018 proved reserves and PV-10
at SEC pricing. PV-10 is a non-GAAP measure. See “Supplemental
Non-GAAP Financial and Other Measures” below for our definition of
PV-10 and reconciliation to the standardized measure (GAAP). Our
reserve estimates and our calculation of standardized measure and
PV-10 are based on the 12-month average of the
first-day-of-the-month pricing of $65.68 per Bbl of oil, $24.12 per
Bbl of NGLs and $3.17 per MMBtu of natural gas during 2018.
Capital Expenditures
Fourth quarter capital expenditures were $0.2 million. Net
capital expenditures incurred during 2018 totaled $46.8 million and
were attributable to drilling and development ($39.4 million),
infrastructure projects and equipment ($6.6 million), exploratory
project ($0.4 million) and acreage acquisitions and extensions
($0.4 million).
Liquidity Update
At December 31, 2018, we had a $1 billion senior secured
revolving credit facility in place with a borrowing base of $325
million, and liquidity of $23.2 million. Our credit facility is
subject to scheduled redeterminations of our borrowing base
semi-annually, based on our reserves. Our next anticipated
redetermination is expected to take place in the second quarter of
2019, although our lender has the option to redetermine our
borrowing base outside of our anticipated schedule. Continued low
commodity prices may adversely impact the results of the upcoming
redetermination, and have a significant negative impact on the
Company’s liquidity. If our borrowing base is reduced below the
amount outstanding under our credit agreement, we may be required
to repay a portion of our outstanding borrowings, and we may not
have sufficient liquidity to meet this requirement. 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. At present, approximately 19% of
2019 forecasted oil and 19% of NGL production is hedged. The table
below is a summary of our current derivatives positions.
Contract
Commodity and Period Type Volume Transacted
Contract Price Crude Oil January 2019 — December 2019
Collar 500 Bbls/day $65.00/Bbl - $71.00/Bbl
NGLs (C2 -
Ethane) January 2019 — March 2019 Swap 900 Bbls/day $14.123/Bbl
NGLs (C3 - Propane) January 2019 — March 2019 Swap 600
Bbls/day $35.165/Bbl January 2019 — June 2019 Swap 75 Bbls/day
$42.00/Bbl
NGLs (NC4 - Butane) January 2019 — March 2019
Swap 200 Bbls/day $38.63/Bbl
NGLs (C5 - Pentane) January
2019 — December 2019 Swap 100 Bbls/day $65.10/Bbl January 2019 —
December 2019 Swap 100 Bbls/day $65.31/Bbl
Guidance
The Company’s capital budget for 2019 is a range of $30 million
to $60 million, depending on commodity prices. The table below sets
forth our production and operating costs and expenses guidance for
2019, anticipating a capital budget of $30 million funded primarily
through cash flows from operations. The eventual results of our
strategic and deleveraging efforts may have a substantial impact on
the Company’s ability to achieve the guidance set forth below.
2019 Guidance Capital Expenditures (in
millions) $30
Production: Oil (MBbls) 925 − 975
NGLs (MBbls) 1,250 − 1,350 Gas (MMcf) 8,650 − 8,750 Total (MBoe)
3,600 − 3,800
Cash operating costs (per Boe): Lease
operating $5.00 − 6.00 Production and ad valorem taxes 8.5% of oil
and gas revenues Cash general and administrative $4.50 − 5.50
Non-cash operating costs (per Boe): Non-cash general and
administrative $0.75 − 1.25 Exploration $0.25 − 0.75 Depletion,
depreciation and amortization $15.00 − 17.00
As further discussed below under “Forward-Looking and Cautionary
Statements,” our guidance is forward-looking information that is
subject to a number of risks and uncertainties, many of which are
beyond our control. In addition, our 2019 capital budget excludes
acquisitions and lease extensions and renewals and is subject to
change depending upon a number of factors, including prevailing and
anticipated prices for oil, NGLs and natural gas, results of
horizontal drilling and completions, economic and industry
conditions at the time of drilling, the availability of sufficient
capital resources for drilling prospects, our financial results and
the availability of lease extensions and renewals on reasonable
terms.
Conference Call Information and Summary Presentation
The Company will host a conference call on Tuesday, March 19,
2019, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to
discuss fourth quarter and full-year 2018 financial and operational
results. Those wishing to listen to the conference call, may do so
by visiting the Events page under the Investor Relations section of
the Company’s website, www.approachresources.com, or by phone:
Dial in: (844) 884-9950 / Conference ID: 6089010
International Dial In: (661) 378-9660 A replay of the call
will be available on the Company’s website or by dialing:
Dial in: (855) 859-2056 / Passcode: 6089010
In addition, a fourth quarter and full-year 2018 summary
presentation will be available on the Company’s website.
About Approach Resources
Approach Resources Inc. is an independent energy company
focused on the exploration, development, production and acquisition
of unconventional oil and natural gas reserves in the Midland Basin
of the greater Permian Basin in West Texas. For more information
about the Company, please visit www.approachresources.com. Please
note that the Company routinely posts important information about
the Company under the Investor Relations section of its
website.
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements,
other than statements of historical facts, included in this press
release that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the
future are forward-looking statements. Without limiting the
generality of the foregoing, forward-looking statements contained
in this press release specifically include expectations of
anticipated financial and operating results. These statements are
based on certain assumptions made by the Company based on
management’s experience, perception of historical trends and
technical analyses, current conditions, anticipated future
developments and other factors believed to be appropriate and
reasonable by management. When used in this press release, the
words “will,” “potential,” “believe,” “estimate,” “intend,”
“expect,” “may,” “should,” “anticipate,” “could,” “plan,”
“predict,” “project,” “profile,” “model” or their negatives, other
similar expressions or the statements that include those words, are
intended to identify forward-looking statements, although not all
forward-looking statements contain such identifying words. Such
statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the Company.
These assumptions, risks and uncertainties include, but are not
limited to, our ability to comply with the covenants in our
revolving credit facility, our leverage negatively affecting a
redetermination under our credit facility, oil, NGL and natural gas
prices, our ability to obtain financing to fund our long-term
forecasted capital budget, and our ability to access capital
markets. Should one or more of these risks or uncertainties occur,
or should underlying assumptions prove incorrect, our actual
results to differ materially from those implied or expressed by the
forward-looking statements. Further information on assumptions,
risks and uncertainties related to the Company is available in the
Company’s SEC filings, including our Annual Report on Form 10-K.
The Company’s SEC filings are also 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
Twelve Months Ended December 31, December 31,
2018 2017
2018 2017
Revenues (in thousands): Oil $ 13,874 $ 14,082 $ 66,398 $
52,748 NGLs 6,730 8,530 14,033 27,702 Gas 1,771
5,805 33,604 24,899 Total
oil, NGLs and gas sales 22,375 28,417 114,035 105,349 Net cash
payment on derivative settlements (364 ) (2,878 )
(7,050 ) (4,359 )
Total oil, NGLs and gas sales including
derivative impact
$ 22,011 $ 25,539 $ 106,985 $ 100,990
Production: Oil (MBbls) 251 270 1,070 1,107 NGLs (MBbls) 338
377 1,443 1,486 Gas (MMcf) 2,240 2,498
9,408 9,829 Total (MBoe) 963 1,064
4,082 4,232 Total (MBoe/d) 10.5 11.6 11.2 11.6
Average
prices: Oil (per Bbl) $ 55.23 $ 52.09 $ 62.04 $ 47.63 NGLs (per
Bbl) 19.91 22.61 23.28 18.64 Gas (per Mcf) 0.79
2.32 1.49 2.53 Total (per
Boe) $ 23.24 $ 26.71 $ 27.94 $ 24.89 Net cash payment on derivative
settlements (per Boe) (0.38 ) (2.70 ) (1.73 )
(1.03 ) Total including derivative impact (per Boe) $ 22.86
$ 24.01 $ 26.21 $ 23.86
Costs and expenses (per Boe): Lease
operating $ 5.21 $ 4.77 $ 5.18 $ 4.23 Production and ad valorem
taxes 1.80 2.09 2.19 2.04 Exploration 0.43 0.38 0.10 0.86 General
and administrative (1) 2.80 5.16 5.13 5.75 Depletion, depreciation
and amortization 14.96 15.20 15.05 16.66 (1) Below is a summary of
general and administrative expense: General and administrative -
cash component $ 1.84 $ 4.09 $ 4.38 $ 4.65 General and
administrative - noncash component (share-based compensation) 0.96
1.07 0.75 1.10
APPROACH RESOURCES INC. AND
SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except shares and per-share
amounts) Three Months Ended
Twelve Months Ended December 31, December
31, 2018 2017
2018 2017
REVENUES: Oil, NGLs and gas sales $ 22,375 $ 28,417 $
114,035 $ 105,349
EXPENSES: Lease operating 5,013 5,076
21,129 17,902 Production and ad valorem taxes 1,734 2,219 8,923
8,644 Exploration 411 406 420 3,657 General and administrative
2,693 5,491 20,922 24,333 Depletion, depreciation and amortization
14,403 16,173 61,432
70,521 Total expenses 24,254
29,365 112,826 125,057
OPERATING (LOSS) INCOME (1,879 ) (948 ) 1,209 (19,708 )
OTHER: Interest expense, net (6,595 ) (5,370 ) (25,117 )
(21,053 ) Gain on debt extinguishment — — — 5,053 Commodity
derivative gain (loss) 9,747 (1,377 ) (321 ) (262 ) Other income
(expense) 1 — (29 ) 32
INCOME (LOSS) BEFORE INCOME TAX
(BENEFIT) PROVISION
1,274 (7,695 ) (24,258 ) (35,938 )
INCOME TAX (BENEFIT)
PROVISION: Current (66 ) — (66 ) (66 ) Deferred 472
(53,512 ) (4,281 ) 76,487
NET
INCOME (LOSS) $ 868 $ 45,817 $ (19,911 ) $
(112,359 )
EARNINGS (LOSS) PER SHARE: Basic $ 0.01 $
0.51 $ (0.21 ) $ (1.35 ) Diluted $ 0.01 $ 0.51
$ (0.21 ) $ (1.35 )
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 94,739,926 90,114,659 94,581,294 83,404,104 Diluted
94,736,926 90,114,659 94,581,294 83,404,104
UNAUDITED SELECTED FINANCIAL
DATA
Unaudited
Consolidated Balance Sheet Data
December 31, (in thousands) 2018
2017 Cash and cash equivalents $ 22 $ 21 Other
current assets 16,203 16,679 Property and equipment, net,
successful efforts method 1,068,422 1,082,876 Total
assets $ 1,084,647 $ 1,099,576 Current liabilities $ 21,077
$ 25,067 Long-term debt (1) 384,993 373,460 Deferred income taxes
77,821 82,102 Other long-term liabilities 11,511 11,531
Stockholders' equity 589,245 607,416 Total
liabilities and stockholders' equity $ 1,084,647 $ 1,099,576
(1) Long-term debt at December 31, 2018, is
comprised of $85.2 million in 7% senior notes due 2021 and $301.5
million in outstanding borrowings under our revolving credit
facility, net of issuance costs of $0.7 million and $1 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.
Unaudited
Consolidated Cash Flow Data
Year Ended December 31, (in thousands)
2018 2017
Net cash provided by (used in): Operating activities $ 34,744 $
37,454 Investing activities (42,764 ) (52,409 ) Financing
activities 8,021 14,955
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
under the Financial Reporting subsection of 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 excludes
(1) non-cash fair value gain commodity derivatives, (2) gain on
debt extinguishment, (3) write-off of deferred tax assets, (4)
acquisition related costs, (5) tax benefit related to federal tax
law change, and (6) related income tax effect on adjustments 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 income (loss) for the three and twelve months ended December
31, 2018 and 2017 (in thousands, except per-share amounts).
Three Months Ended Twelve
Months Ended December 31, December 31,
2018 2017
2018 2017 Net
income (loss) $ 868 $ 45,817 $ (19,911 ) $ (112,359 )
Adjustments for certain items: Non-cash fair value (gain)
loss on derivatives (10,111 ) (1,500 ) (6,729 ) (4,097 ) Gain on
debt extinguishment — — — (5,053 ) Write-off of deferred tax assets
— — — 139,090 Acquisition related costs — 110 — 110 Tax benefit
related to change in federal tax law — (51,939 ) — (51,939 ) Tax
effect and other discrete tax items (1) 2,318
1,446 1,677 4,443
Adjusted net loss $ (6,925 ) $ (6,066 ) $ (24,963 ) $
(29,805 )
Adjusted net loss per diluted share $ (0.07 ) $
(0.07 ) $ (0.26 ) $ (0.36 )
(1) The estimated income tax impacts on
adjustments to net income (loss) are computed based upon a
statutory rate of 21% and 35%, applicable to 2018 and 2017,
respectively. Additionally, this includes the tax impact of a tax
shortfall related to share-based compensation of $0.2 million, and
$1 million for the three months ended December 31, 2018, and
December 31, 2017, respectively; and $0.3 million and $1.3 million
for the years ended December 31, 2018, and December 31, 2017,
respectively.
EBITDAX
We define EBITDAX as net income (loss), plus (1) exploration
expense, (2) depletion, depreciation and amortization expense, (3)
share-based compensation expense, (4) non-cash fair value (gain)
loss on derivatives, (5) gain on debt extinguishment, (6) interest
expense, net, and (7) income tax provision (benefit). 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 income (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
income (loss) for the three and twelve months ended December 31,
2018 and 2017 (in thousands).
Three Months Ended Twelve
Months Ended December 31, December 31,
2018 2017
2018 2017 Net
income (loss) $ 868 $ 45,817 $ (19,911 ) $ (112,359 )
Exploration 411 406 420 3,657 Depletion, depreciation and
amortization 14,403 16,173 61,432 70,521 Share-based compensation
923 1,138 3,047 4,656 Non-cash fair value (gain) loss on
derivatives (10,111 ) (1,500 ) (6,729 ) (4,097 ) Gain on debt
extinguishment — — — (5,053 ) Interest expense, net 6,595 5,370
25,117 21,053 Income tax provision (benefit) 406
(53,512 ) (4,347 ) 76,421
EBITDAX $ 13,495 $ 13,892 $ 59,029 $
54,799
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 twelve months ended December 31, 2018
and 2017 (in thousands, except per-Boe amounts).
Three Months Ended Twelve
Months Ended December 31, December 31,
2018 2017
2018 2017
Revenues $ 22,375 $ 28,417 $ 114,035 $ 105,349
Production
(Mboe) 963 1,064 4,082 4,232
Average realized price (per
Boe) $ 23.24 $ 26.71 $ 27.94 $ 24.89
Operating
expenses $ 24,254 $ 29,365 $ 112,826 $ 125,057 Exploration (411
) (406 ) (420 ) (3,657 ) Depletion, depreciation and amortization
(14,403 ) (16,173 ) (61,432 ) (70,521 ) Share-based compensation
(923 ) (1,138 ) (3,047 ) (4,656 )
Cash operating expenses $ 8,517 $ 11,648 $ 47,927 $ 46,223
Cash operating expenses per Boe $ 8.85 $ 10.95
$ 11.75 $ 10.92
Unhedged cash margin $
13,858 $ 16,769 $ 66,108 $ 59,126
Unhedged cash margin per
Boe $ 14.39 $ 15.76 $ 16.19 $ 13.97
PV-10
The present value of our proved reserves, discounted at 10%
(“PV-10”), was estimated at $761.8 million at December 31, 2018,
and was calculated based on the first-of-the-month, 12-month
average prices for oil, NGLs and gas, of $65.68 per Bbl of oil,
$24.12 per Bbl of NGLs and $3.17 per MMBtu of natural gas price
during 2018, adjusted for basis differentials, grade and
quality.
PV-10 is our estimate of the present value of future net
revenues from proved oil and gas reserves after deducting estimated
production and ad valorem taxes, future capital costs and operating
expenses, but before deducting any estimates of future income
taxes. The estimated future net revenues are discounted at an
annual rate of 10% to determine their “present value.” We believe
PV-10 to be an important measure for evaluating the relative
significance of our oil and gas properties and that the
presentation of the non-GAAP financial measure of PV-10 provides
useful information to investors because it is widely used by
professional analysts and investors in evaluating oil and gas
companies. Because there are many unique factors that can impact an
individual company when estimating the amount of future income
taxes to be paid, we believe the use of a pre-tax measure is
valuable for evaluating the Company. We believe that PV-10 is a
financial measure routinely used and calculated similarly by other
companies in the oil and gas industry.
The table below reconciles PV-10 to our standardized measure of
discounted future net cash flows, the most directly comparable
measure calculated and presented in accordance with GAAP. PV-10
should not be considered as an alternative to the standardized
measure as computed under GAAP.
(in millions) December 31, 2018 PV-10 $
761.8 Less income taxes: Undiscounted future income taxes (478.2 )
10% discount factor 376.4 Future discounted income
taxes (101.8 ) Standardized measure of discounted
future net cash flows $ 660
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.
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 December 31, 2018
and 2017 (in thousands).
Year Ended December 31, 2018
2017 Credit Facility
commitments $ 325,000 $ 325,000 Cash and cash equivalents 22 21
Long-term debt — Credit Facility (301,500 ) (291,000 ) Undrawn
letters of credit (325 ) (325 ) Liquidity $ 23,197
$ 33,696
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190318005810/en/
Sergei KrylovExecutive Vice President & Chief Financial
Officerir@approachresources.com817.989.9000
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