Approach Resources Inc. (NASDAQ:AREX) today reported second quarter
2017 financial and operational results.
Second Quarter 2017 Highlights
- Produced 11.9 MBoe/d, exceeding guidance for the quarter, and
resumed production growth
- Lease operating expense of $3.92 per Boe, below guidance
- Drilled eight horizontal wells and completed five horizontal
wells
- Average producing rate of the five new completions performing
in line with a 700 MBoe type curve
Management Comment
Ross Craft, Approach’s Chairman and CEO, commented, “Fundamental
execution is our theme this quarter. We made substantial
progress on our path to creating long-term value for our
shareholders by returning to efficient production growth.
Over the course of the quarter, the operations team continued to
demonstrate top-tier execution. With the increase in drilling
and completion activity in the Permian since late 2016, the basin
has experienced an increase in service costs. This is typical for a
cyclical industry like ours; however, our team mitigated this
escalation with continued efficiency gains, proactive contract
negotiation and by exploiting the benefits of our water handling
and other infrastructure. Consequently, we have been able to
hold our drilling and completion cost for a typical Wolfcamp well
to around $4 million, and our lease operating expense to $3.92 per
Boe, below guidance. In addition, we have validated the
repeatability of exceptional well results from our enhanced
completion design. So, while the lower for longer commodity
scenario tests the mettle of our industry, we are confident in our
ability to manage through the current environment and deliver
production and cash flow growth as oil prices recover.”
Second Quarter 2017 Results
Production for second quarter 2017 totaled 1,080 MBoe (11.9
MBoe/d), made up of 26% oil, 35% NGLs and 39% natural gas.
Average realized commodity prices for second quarter 2017,
before the effect of commodity derivatives, were $44.50 per Bbl of
oil, $15.72 per Bbl of NGLs and $2.58 per Mcf of natural gas.
Our average realized price, including the effect of commodity
derivatives, was $23.11 per Boe for second quarter 2017.
Net loss for second quarter 2017 was $8.9 million, or $0.10 per
diluted share, on revenues of $25 million. Net loss for
second quarter 2017 included an unrealized gain on commodity
derivatives of $1.2 million. Excluding the unrealized gain on
commodity derivatives adjusted net loss (non-GAAP) for second
quarter 2017 was $9.7 million, or $0.11 per diluted share.
EBITDAX (non-GAAP) for second quarter 2017 was $13 million.
See “Supplemental Non-GAAP Financial and Other Measures” below for
our reconciliation of adjusted net loss and EBITDAX to net
loss.
Lease operating expenses averaged $3.92 per Boe.
Production and ad valorem taxes averaged $2.09 per Boe, or 9.0% of
oil, NGL and gas sales. Exploration costs were $1.95 per Boe,
primarily related to non-cash lease expirations. Total
general and administrative (“G&A”) costs averaged $6.06 per
Boe, including cash G&A costs of $5.11 per Boe.
Depletion, depreciation and amortization expense averaged $18.09
per Boe. Interest expense totaled $4.9 million.
Operations
Update
During second quarter 2017, we drilled eight wells and completed
five horizontal wells: one well in the Wolfcamp A bench, two wells
in the Wolfcamp B bench and two in the Wolfcamp C bench. The
average producing rate of the five wells completed in second
quarter 2017 is tracking a 700 MBoe type curve. When
normalized to a 7,500’ lateral, the wells are performing 10% above
the 700 MBoe type curve. At June 30, 2017, we had ten
horizontal wells waiting on completion and one well being
drilled.
Capital expenditures incurred during second quarter 2017 totaled
$24.4 million and included $23.8 million for drilling and
completion activities and $1.5 million for infrastructure projects
and equipment, partially offset by $0.9 million of sales tax
refunds. In the third quarter 2017, we plan to complete two
to four wells, depending on commodity prices, and expect third
quarter production to average approximately 11.8-12.0 MBoe/d.
Liquidity Update
At June 30, 2017, we had a $1 billion revolving credit facility
in place, with a borrowing base and lender commitment amount of
$325 million, and liquidity of $37.9 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.
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Commodity and Period |
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Contract Type |
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Volume Transacted |
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Contract Price |
Crude Oil |
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August
2017 – December 2017 |
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Swap |
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1,000
Bbls/day |
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$50.20/Bbl |
January
2018 – December 2018 |
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Swap |
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300 Bbls/day |
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$50.00/Bbl |
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Natural Gas |
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July 2017—December 2017 |
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Collar |
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100,000 MMBtu/month |
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$3.00/MMBtu - $3.65/MMBtu |
July 2017—December 2017 |
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Collar |
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200,000 MMBtu/month |
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$2.30/MMBtu - $2.60/MMBtu |
July 2017—December 2017 |
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Collar |
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200,000 MMBtu/month |
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$3.00/MMBtu - $3.44/MMBtu |
July 2017—December 2017 |
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Collar |
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200,000 MMBtu/month |
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$3.00/MMBtu - $3.50/MMBtu |
January 2018—December 2018 |
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Swap |
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450,000 MMBtu/month |
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$3.084/MMBtu |
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NGLs (C2 – Ethane) |
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July 2017—December 2017 |
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Swap |
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1,050
Bbls/day |
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$11.34/Bbl |
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NGLs (C3 – Propane) |
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July 2017—December 2017 |
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Swap |
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750
Bbls/day |
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$27.916/Bbl |
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NGLs (IC4 – Isobutane) |
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July 2017—December 2017 |
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Swap |
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75
Bbls/day |
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$36.7325/Bbl |
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NGLs (NC4 – Butane) |
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July 2017—December 2017 |
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Swap |
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250
Bbls/day |
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$35.9205/Bbl |
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Conference Call Information and Summary
Presentation
The Company will host a conference call on Thursday, August 3,
2017, at 9:00 AM CT (10:00 AM ET) to discuss second quarter 2017
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:
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Conference ID |
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49023256 |
Participant Toll-Free
Dial-In Number: |
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(844) 884-9950 |
Participant
International Dial-In Number: |
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(661) 378-9660 |
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A replay
of the call will be available on the Company’s website or by
dialing: |
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Replay Toll-Free |
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(855) 859-2056 |
Replay
International: |
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(404) 537-3406 |
Conference ID: |
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49023256 |
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In addition, a second quarter 2017 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.
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UNAUDITED RESULTS OF OPERATIONS |
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Three Months EndedJune
30, |
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Six Months EndedJune
30, |
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2017 |
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2016 |
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2017 |
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2016 |
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Revenues (in thousands): |
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Oil |
$ |
12,508 |
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$ |
12,556 |
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$ |
26,202 |
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$ |
22,243 |
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NGLs |
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6,019 |
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5,497 |
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12,079 |
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8,721 |
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Gas |
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6,442 |
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4,380 |
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13,043 |
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9,084 |
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Total oil, NGL and gas sales |
24,969 |
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22,433 |
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51,324 |
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40,048 |
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Realized gain (loss) on commodity derivatives |
3 |
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1,409 |
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(958 |
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4,909 |
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Total
oil, NGL and gas sales including derivative impact |
$ |
24,972 |
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$ |
23,842 |
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$ |
50,366 |
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$ |
44,957 |
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Production: |
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Oil
(MBbls) |
281 |
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315 |
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560 |
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673 |
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NGLs
(MBbls) |
383 |
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392 |
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735 |
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755 |
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Gas
(MMcf) |
2,499 |
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2,644 |
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4,875 |
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5,317 |
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Total
(MBoe) |
1,080 |
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1,148 |
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2,107 |
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2,314 |
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Total
(MBoe/d) |
11.9 |
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12.6 |
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11.6 |
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12.7 |
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Average
prices: |
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Oil (per
Bbl) |
$ |
44.50 |
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$ |
39.84 |
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$ |
46.83 |
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$ |
33.07 |
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NGLs (per
Bbl) |
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15.72 |
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14.00 |
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16.43 |
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11.55 |
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Gas (per
Mcf) |
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2.58 |
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1.66 |
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2.68 |
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1.71 |
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Total
(per Boe) |
$ |
23.11 |
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$ |
19.53 |
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$ |
24.36 |
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$ |
17.31 |
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Realized gain (loss) on
commodity derivatives (per Boe) |
— |
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1.23 |
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(0.46 |
) |
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2.12 |
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Total
including derivative impact (per Boe) |
$ |
23.11 |
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$ |
20.76 |
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$ |
23.90 |
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$ |
19.43 |
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Costs and
expenses (per Boe): |
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Lease
operating |
$ |
3.92 |
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$ |
4.56 |
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$ |
3.99 |
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$ |
5.01 |
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Production and ad valorem taxes |
2.09 |
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1.62 |
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2.19 |
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1.52 |
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Exploration |
1.95 |
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1.41 |
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1.50 |
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0.95 |
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General
and administrative(1) |
6.06 |
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5.08 |
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5.92 |
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5.14 |
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Depletion, depreciation and amortization |
18.09 |
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17.41 |
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17.80 |
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17.38 |
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(1) Below is a summary
of general and administrative expense: |
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General and administrative – cash component |
$ |
5.11 |
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$ |
3.88 |
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$ |
4.88 |
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$ |
3.88 |
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General
and administrative – noncash component (share-based compensation)
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0.95 |
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1.20 |
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1.04 |
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1.26 |
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APPROACH RESOURCES INC. AND
SUBSIDIARIES |
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UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS |
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(In thousands, except shares and per-share
amounts) |
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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REVENUES: |
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Oil, NGLs
and gas sales |
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$ |
24,969 |
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$ |
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22,433 |
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$ |
|
51,324 |
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$ |
|
40,048 |
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EXPENSES: |
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Lease
operating |
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4,238 |
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5,234 |
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8,408 |
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11,590 |
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Production and ad valorem taxes |
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2,252 |
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1,855 |
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4,609 |
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3,519 |
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Exploration |
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2,108 |
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1,622 |
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3,151 |
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2,191 |
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General
and administrative (1) |
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6,548 |
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5,832 |
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12,476 |
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11,883 |
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Depletion, depreciation and amortization |
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|
19,543 |
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19,991 |
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37,505 |
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40,220 |
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Total
expenses |
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34,689 |
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34,534 |
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66,149 |
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69,403 |
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OPERATING
LOSS |
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(9,720 |
) |
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(12,101 |
) |
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|
(14,825 |
) |
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(29,355 |
) |
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OTHER: |
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Interest
expense, net |
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(4,916 |
) |
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(6,808 |
) |
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(10,379 |
) |
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|
(13,106 |
) |
Gain on
debt extinguishment |
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– |
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– |
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5,053 |
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|
– |
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Write-off
of debt issuance costs |
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– |
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(563 |
) |
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– |
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(563 |
) |
Realized
gain (loss) on commodity derivatives |
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|
3 |
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|
1,409 |
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(958 |
) |
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|
4,909 |
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Unrealized gain (loss) on commodity derivatives |
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|
1,228 |
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(8,076 |
) |
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|
5,633 |
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(9,033 |
) |
Other
income |
|
|
– |
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|
1,417 |
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|
3 |
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|
|
1,521 |
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LOSS BEFORE
INCOME TAX (BENEFIT) PROVISION |
|
|
(13,405 |
) |
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|
(24,722 |
) |
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|
(15,473 |
) |
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|
(45,627 |
) |
INCOME TAX
(BENEFIT) PROVISION |
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|
(4,509 |
) |
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|
(8,687 |
) |
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|
134,191 |
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|
(15,932 |
) |
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NET
LOSS |
|
$ |
(8,896 |
) |
|
$ |
(16,035 |
) |
|
$ |
(149,664 |
) |
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$ |
(29,695 |
) |
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EARNINGS PER
SHARE: |
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Basic |
|
$ |
(0.10 |
) |
|
$ |
(0.39 |
) |
|
$ |
(1.91 |
) |
|
$ |
(0.72 |
) |
Diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.39 |
) |
|
$ |
(1.91 |
) |
|
$ |
(0.72 |
) |
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WEIGHTED
AVERAGE SHARES OUTSTANDING: |
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Basic |
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|
86,340,634 |
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|
|
41,564,482 |
|
|
|
78,418,977 |
|
|
|
41,316,777 |
|
Diluted |
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|
86,340,634 |
|
|
|
41,564,482 |
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|
78,418,977 |
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|
41,316,777 |
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(1)
Includes non-cash share-based compensation expense as follows: |
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|
1,029 |
|
|
|
1,374 |
|
|
|
2,188 |
|
|
|
2,924 |
|
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Unaudited Consolidated Balance Sheet
Data |
|
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|
June 30, |
|
December 31, |
(in thousands) |
|
|
|
2017 |
|
2016 |
Cash and cash equivalents |
|
|
|
$ |
178 |
|
$ |
21 |
Other current assets |
|
|
|
|
13,737 |
|
|
12,473 |
Property and equipment, net, successful efforts
method |
|
|
|
|
1,089,463 |
|
|
1,092,061 |
Other non-current assets |
|
|
|
|
2,889 |
|
|
– |
Total assets |
|
|
|
$ |
1,106,267 |
|
$ |
1,104,555 |
|
|
|
|
|
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Current liabilities |
|
|
|
$ |
34,536 |
|
$ |
26,369 |
Long-term debt (1) |
|
|
|
|
370,000 |
|
|
498,349 |
Deferred income taxes |
|
|
|
|
139,806 |
|
|
5,615 |
Other long-term liabilities |
|
|
|
|
11,603 |
|
|
11,270 |
Stockholders’ equity |
|
|
|
|
550,322 |
|
|
562,952 |
Total liabilities and stockholders’ equity |
|
|
|
$ |
1,106,267 |
|
$ |
1,104,555 |
|
(1) |
|
Long-term debt at June 30,
2017, is comprised of $85.2 million in 7% senior notes due 2021 and
$287 million in outstanding borrowings under our revolving credit
facility, net of issuance costs of $1.2 million and $1 million,
respectively. Long-term debt at December 31, 2016, 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 $3.7 million and $1.3 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 (gain) loss on commodity derivatives, (2) gain on debt
extinguishment, (3) write-off of debt issuance costs, (4) write-off
of deferred tax assets and (5) 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, 2017 and
2016 (in thousands, except per-share amounts).
|
|
|
|
|
Three Months Ended June
30, |
|
|
Six Months Ended June
30, |
|
|
2017 |
|
|
|
2016 |
|
|
2017 |
|
|
|
2016 |
|
Net loss |
$ |
(8,896 |
) |
|
|
$ |
(16,035 |
) |
|
$ |
(149,664 |
) |
|
|
$ |
(29,695 |
) |
Adjustments for certain items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on commodity derivatives |
|
(1,228 |
) |
|
|
|
8,076 |
|
|
|
(5,633 |
) |
|
|
|
9,033 |
|
Gain on debt extinguishment |
|
— |
|
|
|
|
— |
|
|
|
(5,053 |
) |
|
|
|
— |
|
Write-off of debt issuance costs |
|
— |
|
|
|
|
563 |
|
|
|
— |
|
|
|
|
563 |
|
Write-off of deferred tax assets |
|
— |
|
|
|
|
— |
|
|
|
139,090 |
|
|
|
|
— |
|
Tax
effect |
|
430 |
|
|
|
|
(3,024 |
) |
|
|
3,740 |
|
|
|
|
(3,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
$ |
(9,694 |
) |
|
|
$ |
(10,420 |
) |
|
$ |
(17,520 |
) |
|
|
$ |
(23,458 |
) |
Adjusted net income per diluted share |
$ |
(0.11 |
) |
|
|
$ |
(0.25 |
) |
|
$ |
(0.22 |
) |
|
|
$ |
(0.57 |
) |
|
|
|
|
EBITDAX
We define EBITDAX as net loss, plus (1) exploration expense, (2)
depletion, depreciation and amortization expense, (3) share-based
compensation expense, (4) unrealized (gain) loss on commodity
derivatives, (5) gain on debt extinguishment, (6) write-off of debt
issuance costs, (7) interest expense, net, and (8) 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 six months ended June 30, 2017 and 2016 (in
thousands).
|
|
|
Three Months EndedJune
30, |
|
Six Months EndedJune
30, |
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Net loss |
$ |
(8,896 |
) |
|
$ |
(16,035 |
) |
|
$ |
(149,664 |
) |
|
$ |
(29,695 |
) |
Exploration |
|
2,108 |
|
|
|
1,622 |
|
|
|
3,151 |
|
|
|
2,191 |
|
Depletion, depreciation and amortization |
|
19,543 |
|
|
|
19,991 |
|
|
|
37,505 |
|
|
|
40,220 |
|
Share-based compensation |
|
1,029 |
|
|
|
1,374 |
|
|
|
2,188 |
|
|
|
2,924 |
|
Unrealized (gain) loss on commodity derivatives |
|
(1,228 |
) |
|
|
8,076 |
|
|
|
(5,633 |
) |
|
|
9,033 |
|
Gain on debt extinguishment |
|
– |
|
|
|
– |
|
|
|
(5,053 |
) |
|
|
– |
|
Write-off of debt issuance costs |
|
– |
|
|
|
563 |
|
|
|
– |
|
|
|
563 |
|
Interest expense |
|
4,916 |
|
|
|
6,808 |
|
|
|
10,379 |
|
|
|
13,106 |
|
Income tax (benefit) provision |
|
(4,509 |
) |
|
|
(8,687 |
) |
|
|
134,191 |
|
|
|
(15,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDAX |
$ |
12,963 |
|
|
$ |
13,712 |
|
|
$ |
27,064 |
|
|
$ |
22,410 |
|
|
|
|
|
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 June 30, 2017 (in
thousands).
|
|
|
|
|
Liquidity atJune 30,
2017 |
|
Borrowing base |
$ |
325,000 |
|
|
Cash and
cash equivalents |
|
178 |
|
|
Revolving credit facility – outstanding borrowings
|
|
(287,000 |
) |
|
Outstanding letters of credit |
|
(325 |
) |
|
Liquidity |
$ |
37,853 |
|
|
|
|
INVESTOR CONTACT
Suzanne Ogle
Vice President – Investor Relations & Corporate Communications
ir@approachresources.com
817.989.9000
APPROACH RESOURCES INC.
One Ridgmar Centre
6500 West Freeway, Suite 800
Fort Worth, Texas 76116
www.approachresources.com
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