Approach Resources Inc. (NASDAQ: AREX) today reported
results for second quarter 2016. Highlights for second quarter 2016
include:
- Average initial production (IP) for two
wells completed late second quarter was 861 Boe/d (59% oil and 82%
liquids), or 987 Boe/d when normalized to a 7,500’ lateral
- Production was 12.6 MBoe/d, exceeding
prior guidance for the quarter
- Record low lease operating expense
(LOE) of $4.56 per Boe since we began horizontal Wolfcamp
development
- Net loss was $16.0 million, or $0.39
per diluted share, and adjusted net loss (non-GAAP) was $10.4
million, or $0.25 per diluted share
- Revenues totaled $22.4 million, EBITDAX
(non-GAAP) was $13.7 million
Adjusted net loss and EBITDAX 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 loss.
Management Comment
Ross Craft, Approach’s Chairman and CEO, commented, “In August
2015, we took the proactive step to suspend all drilling and
completion activity as commodity prices continued a precipitous
decline to decade-plus lows. As you may recall, Approach is in a
unique position in that most of our core Wolfcamp acreage is held
by production, and therefore maintenance capital requirements are
very low when compared to other Permian Basin operators. From
August 2015 through May 2016, we did not bring any new wells
on-line, and during those nine months our production has been on a
normal, forecasted decline.
“Beginning in late February 2016, we observed a noticeable
flattening of the PDP decline rate. Production for the second
quarter averaged 12.6 Mboe/d, representing a decline of only 1.5%
from the previous quarter. The shallower decline rates are driven
by natural gas and NGLs performing above projections. In late 2Q16,
we completed two horizontal wells in the Baker area (B&C bench
completions) utilizing our 2015 enhanced completion design. The
average IP rate for the two wells was 861 Boe/d (59% oil and 82%
liquids), with an average 30-day IP rate of 603 Boe/d (51% oil and
82% liquids). We believe early indications from these wells
continue to support a 633 MBoe EUR, similar to our 3Q15 wells.
“Equally important to generating improved returns is our
continued focus on efficiencies and operating cost reductions, as
shown by our record low quarterly LOE of $4.56 per Boe. Our two
wells completed during the quarter were in line with our current
estimated well cost of $3.7 million, the Company’s lowest ever
horizontal well cost. We expect these promising early well results
and further cost reductions will help the Company deliver
competitive rates of return on investment as the pace of
development begins to accelerate. Additionally, due to our balanced
production mix of oil, NGLs and natural gas, pricing improvement in
any of the three commodity streams has a positive impact on the
Company’s profitability.”
Second Quarter 2016 Results
Production for second quarter 2016 totaled 1,148 MBoe (12.6
MBoe/d), made up of 28% oil, 34% NGLs and 38% natural gas. Average
realized commodity prices for second quarter 2016, before the
effect of commodity derivatives, were $39.84 per Bbl of oil, $14.00
per Bbl of NGLs and $1.66 per Mcf of natural gas. Our average
realized price, including the effect of commodity derivatives, was
$20.76 per Boe for second quarter 2016 ($40.54 per Bbl of oil,
$14.00 per Bbl of NGLs and $2.10 per Mcf of natural gas).
Net loss for second quarter 2016 was $16.0 million, or $0.39 per
diluted share, on revenues of $22.4 million. Net loss for second
quarter 2016 included an unrealized loss on commodity derivatives
of $8.1 million, a realized gain on commodity derivatives of $1.4
million and a write-off of debt issuance costs of $0.6 million.
Excluding the unrealized loss on commodity derivatives and
write-off of debt issuance costs, adjusted net loss (non-GAAP) for
second quarter 2016 was $10.4 million, or $0.25 per diluted share.
EBITDAX (non-GAAP) for second quarter 2016 was $13.7 million. See
“Supplemental Non-GAAP Financial and Other Measures” below for our
reconciliation of adjusted net loss and EBITDAX to net loss.
LOE averaged $4.56 per Boe. Production and ad valorem taxes
averaged $1.62 per Boe, or 8.3% of oil, NGL and gas sales.
Exploration costs were $1.41 per Boe. Total general and
administrative (G&A) costs averaged $5.08 per Boe, including
cash G&A costs of $3.88 per Boe. Depletion, depreciation and
amortization expense averaged $17.41 per Boe. Interest expense
totaled $6.8 million.
Operations Update
During second quarter 2016, we completed two horizontal wells,
one well in the Wolfcamp B bench and one well in the Wolfcamp C
bench. The average IP rate was 861 Boe/d (59% oil and 82% liquids)
with an average completed lateral length of 6,541 feet. At June 30,
2016, we had seven horizontal wells waiting on completion.
Capital expenditures incurred during second quarter 2016 totaled
$6.9 million and included $5.4 million for completion activities
and $1.5 million for infrastructure projects and equipment. We plan
to complete three wells in third quarter 2016, and expect third
quarter production to average around 11.9 MBoe/d. Third quarter
production guidance includes the effect of two days of partial
production shut-ins for DCP plant maintenance during the month of
July and anticipated production downtime for shut-ins of nine
producing wells to perform planned third quarter completions.
Liquidity Update
At June 30, 2016, we had a $1 billion revolving credit facility
in place, with a borrowing base and lender commitment amount of
$325 million. Our liquidity and long-term debt-to-capital ratio
were approximately $50.6 million and 46.2%, respectively. See
“Supplemental Non-GAAP Financial and Other Measures” below for our
definitions and calculation of liquidity and long-term
debt-to-capital.
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.
Commodity and
Period
ContractType
Volume Transacted Contract Price Crude Oil
July 2016 – December 2016 Swap 750 Bbls/d $62.52/Bbl July 2016 –
September 2016 Swap 750 Bbls/d $43.00/Bbl
Natural Gas
July 2016 – March 2017 Swap 400,000 MMBtu/month $2.45/MMBtu July
2016 – December 2016 Swap 200,000 MMBtu/month $2.93/MMBtu November
2016 – March 2017 Swap 200,000 MMBtu/month $3.29/MMBtu April 2017 –
December 2017 Collar 200,000 MMBtu/month $2.30/MMBtu - $2.60/MMBtu
Conference Call Information and Summary Presentation
The Company will host a conference call on Thursday, August 4,
2016, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to
discuss second quarter 2016 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: (877) 201-0168Intl. dial in: (647)
788-4901Passcode: Approach/49459145
A replay of the call will be available on the
Company’s website or by dialing:
Dial in: (855) 859-2056Passcode: 49459145
In addition, a second quarter 2016 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,
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 EndedJune
30,
Six Months EndedJune 30,
2016 2015 2016
2015 Revenues (in
thousands): Oil $ 12,556 $ 25,627 $ 22,243 $ 46,930 NGLs 5,497
5,603 8,721 10,755 Gas 4,380 7,375
9,084 14,218 Total oil, NGL and gas
sales 22,433 38,605 40,048 71,903 Realized gain on commodity
derivatives 1,409 9,281 4,909
25,182 Total oil, NGL and gas sales including
derivative impact $ 23,842 $ 47,886 $ 44,957
$ 97,085
Production: Oil (MBbls) 315 499 673
993 NGLs (MBbls) 392 408 755 778 Gas (MMcf) 2,644
2,897 5,317 5,436 Total
(MBoe) 1,148 1,391 2,314 2,677 Total (MBoe/d) 12.6 15.3 12.7 14.8
Average prices: Oil (per Bbl) $ 39.84 $ 51.31 $ 33.07
$ 47.27 NGLs (per Bbl) 14.00 13.72 11.55 13.82 Gas (per Mcf)
1.66 2.55 1.71
2.62 Total (per Boe) $ 19.53 $ 27.76 $ 17.31 $ 26.86
Realized gain on commodity derivatives (per Boe) 1.23
6.68 2.12 9.41 Total
including derivative impact (per Boe) $ 20.76 $ 34.44 $ 19.43 $
36.27
Costs and expenses (per Boe): Lease operating $
4.56 $ 4.97 $ 5.01 $ 5.25 Production and ad valorem taxes 1.62 2.14
1.52 2.17 Exploration 1.41 0.84 0.95 0.84 General and
administrative(1) 5.08 5.40 5.14 5.83 Depletion, depreciation and
amortization 17.41 20.43 17.38 20.51 (1) Below is a
summary of general and administrative expense: General and
administrative – cash component $ 3.88 $ 3.91 $ 3.88 $ 4.23 General
and administrative – noncash component (share-based compensation)
1.20 1.49 1.26 1.60
APPROACH
RESOURCES INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except shares and
per-share amounts) Three Months Ended Six
Months Ended June 30, June 30, 2016
2015 2016 2015
REVENUES: Oil, NGL and gas sales $ 22,433 $ 38,605 $ 40,048
$ 71,903
EXPENSES: Lease operating 5,234 6,917 11,590
14,063 Production and ad valorem taxes 1,855 2,974 3,519 5,802
Exploration 1,622 1,165 2,191 2,255 General and administrative
5,832 7,510 11,883 15,612 Depletion, depreciation and amortization
19,991 28,404 40,220
54,924 Total expenses 34,534
46,970 69,403 92,656
OPERATING LOSS (12,101 ) (8,365 ) (29,355 ) (20,753 )
OTHER: Interest expense, net (6,808 ) (6,243 ) (13,106 )
(12,165 ) Write-off of debt issuance costs (563 ) ― (563 ) ―
Realized gain on commodity derivatives 1,409 9,281 4,909 25,182
Unrealized loss on commodity derivatives (8,076 ) (13,904 ) (9,033
) (23,225 ) Other income 1,417 12
1,521 38
LOSS BEFORE INCOME
TAX BENEFIT (24,722 ) (19,219 ) (45,627 ) (30,923 )
INCOME
TAX BENEFIT (8,687 ) (7,369 ) (15,932 )
(11,365 )
NET LOSS $ (16,035 ) $ (11,850 ) $
(29,695 ) $ (19,558 )
LOSS PER SHARE: Basic $ (0.39 )
$ (0.29 ) $ (0.72 ) $ (0.48 ) Diluted $ (0.39 ) $ (0.29 ) $ (0.72 )
$ (0.48 )
WEIGHTED AVERAGE SHARES OUTSTANDING: Basic
41,564,482 40,554,758 41,316,777 40,357,059 Diluted 41,564,482
40,554,758 41,316,777 40,357,059
UNAUDITED SELECTED FINANCIAL
DATA
Unaudited Consolidated Balance Sheet Data June
30, December 31, (in thousands) 2016
2015 Cash and cash equivalents $ 893 $ 600 Other current
assets 11,280 19,838 Property and equipment, net, successful
efforts method 1,124,282 1,154,546 Total assets $
1,136,455 $ 1,174,984 Current liabilities $ 28,304 $ 28,508
Long-term debt (1) 499,677 496,587 Other long-term liabilities
27,292 41,922 Stockholders’ equity 581,182 607,967
Total liabilities and stockholders’ equity $ 1,136,455 $ 1,174,984
(1) Long-term debt at June 30, 2016, is comprised of $230.3
million in 7% senior notes due 2021 and $275 million in outstanding
borrowings under our revolving credit facility, net of issuance
costs of $4.1 million and $1.6 million, respectively. Long-term
debt at December 31, 2015, is comprised of $230.3 million in 7%
senior notes due 2021 and $273 million in outstanding borrowings
under our revolving credit facility, net of issuance costs of $4.5
million and $2.2 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)
unrealized loss on commodity derivatives, (2) write-off of debt
issuance costs, (3) rig termination fees, and (4) related income
tax effect. 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 six months ended June 30, 2016 and
2015 (in thousands, except per-share amounts).
Three Months EndedJune
30,
Six Months EndedJune 30,
2016 2015 2016
2015 Net loss $ (16,035 ) $ (11,850 ) $
(29,695 ) $ (19,558 )
Adjustments for certain
items: Unrealized loss on commodity derivatives 8,076 13,904
9,033 23,225 Write-off of debt issuance costs 563 — 563 — Rig
termination fee — — — 498 Related income tax effect (3,024 )
(4,866 ) (3,359 )
(8,303 )
Adjusted net loss $ (10,420 )
$ (2,812 ) $ (23,458 ) $ (4,138 )
Adjusted net
loss per diluted share $ (0.25 ) $ (0.07 ) $
(0.57 ) $ (0.10 )
EBITDAX
We define EBITDAX as net loss, plus (1) exploration expense, (2)
depletion, depreciation and amortization expense, (3) share-based
compensation expense, (4) unrealized loss on commodity derivatives,
(5) write-off of debt issuance costs, (6) interest expense, net,
and (7) income tax 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 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 six months ended June 30, 2016 and 2015 (in
thousands).
Three Months EndedJune
30,
Six Months EndedJune 30,
2016 2015 2016
2015 Net loss $ (16,035 ) $ (11,850 ) $
(29,695 ) $ (19,558 ) Exploration 1,622 1,165 2,191
2,255 Depletion, depreciation and amortization 19,991 28,404 40,220
54,924 Share-based compensation 1,374 2,075 2,924 4,292 Unrealized
loss on commodity derivatives 8,076 13,904 9,033 23,225 Write-off
of debt issuance costs 563 — 563 — Interest expense, net 6,808
6,243 13,106 12,165 Income tax benefit (8,687 )
(7,369 ) (15,932 )
(11,365 )
EBITDAX $ 13,712 $
32,572 $ 22,410 $ 65,938
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.
Cash operating expenses is not a measure of operating expenses as
determined by GAAP. The amounts included in the calculation of cash
operating expenses were computed in accordance with GAAP. Cash
operating expenses is presented herein and reconciled to the GAAP
measure of operating expenses. We use cash operating expenses as an
indicator of the Company’s ability to manage its operating expenses
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 cash operating
expenses to operating expenses for the three and six months ended
June 30, 2016 and 2015 (in thousands, except per-Boe amounts).
Three Months EndedJune
30,
Six Months EndedJune 30,
2016 2015 2016
2015 Operating expenses $ 34,534 $
46,970 $ 69,403 $ 92,656 Exploration (1,622 ) (1,165
) (2,191 ) (2,255 ) Depletion, depreciation and amortization
(19,991 ) (28,404 ) (40,220 ) (54,924 ) Share-based compensation
(1,374 ) (2,075 ) (2,924 )
(4,292 )
Cash operating expenses
$ 11,547 $ 15,326 $ 24,068
$ 31,185
Cash operating expenses per
Boe $ 10.06 $ 11.02 $ 10.40
$ 11.65
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 June 30, 2016 (in
thousands).
Liquidity atJune 30,
2016
Borrowing base $ 325,000 Cash and cash equivalents 893 Revolving
credit facility – outstanding borrowings (275,000 ) Outstanding
letters of credit (325 )
Liquidity $ 50,568
Long-Term Debt-to-Capital
Long-term debt-to-capital ratio is calculated by dividing
long-term debt (GAAP) by the sum of total stockholders’ equity
(GAAP) and long-term debt (GAAP). We use the long-term
debt-to-capital ratio as a measurement of our overall financial
leverage. However, this ratio has limitations. This ratio can vary
from year-to-year for the Company and can vary among companies
based on what is or is not included in the ratio on a company’s
financial statements. This ratio 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 long-term debt-to-capital ratio
at June 30, 2016, and December 31, 2015 (in thousands).
June 30,2016
December 31,2015
Long-term debt (1) $ 499,677 $ 496,587 Total stockholders’ equity
581,182 607,967 $ 1,080,859 $ 1,104,554
Long-term debt-to-capital 46.2 % 45.0 %
(1) Long-term debt is net of debt issuance costs of $5.6
million and $6.7 million at June 30, 2016 and December 31, 2015,
respectively.
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Approach Resources Inc.Suzanne Ogle, 817.989.9000Vice President
- Investor Relations & Corporate
Communicationsir@approachresources.com
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