Approach Resources Inc. (NASDAQ: AREX) today reported
first quarter 2019 financial and operational results.
Financial and operational highlights for first quarter
2019
- Production of 906 MBoe or 10.1
MBoe/day
- Net loss was $16.8 million or $0.18 per
diluted share, and adjusted net loss (non-GAAP) was $8.2 million or
$0.09 per diluted share
- Generated $9.8 million of EBITDAX
(non-GAAP)
- Streamlined senior management
structure, significantly decreasing current management compensation
expenses
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
Sergei Krylov, Approach’s CEO, commented, “The Company’s primary
near-term focus is improving our balance sheet and liquidity. We
continue to have constructive conversations with our largest
stakeholders, including the lenders in our revolving credit
facility, with respect to potential deleveraging transactions and
our efforts to improve our leverage and liquidity. In order to
manage liquidity, we have temporarily suspended our drilling and
completion activity and have taken decisive steps to reduce our
corporate overhead. We have also undertaken a comprehensive
operational review to optimize and improve our operating practices
and evaluate capital deployment options focusing on increasing
investment returns.”
Company Continues to Explore Deleveraging
Alternatives
As of March 31, 2019, we were not in compliance with certain of
our financial covenants under our revolving credit facility. In
order to improve our leverage position, 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 bondholders.
As part of our review of deleveraging transactions, we are
currently engaged in discussions with Wilks Brothers, LLC, and its
affiliate SDW Investments, LLC (collectively, “Wilks”) regarding
their investment in the Company, including, without limitation, a
possible debt for equity exchange and additional capital infusion
into Approach. There can be no assurance that these discussions
will result in the consummation of any transaction in a timely
matter, if at all.
We have also reached an agreement with our credit facility
lenders to forgo enforcement of remedies for an event of default
caused by our failure to comply with certain financial covenants in
the credit facility for a period of 45 days. This agreement will
terminate on June 22, 2019, unless earlier terminated due to
additional events of default under our credit facility, or a
default under the agreement. In addition, we are in continuing
discussions with the lenders regarding a potential extension of and
amendments to the existing credit agreement.
As we have previously disclosed, our Board has formed a
committee of independent directors (the “Committee”) to evaluate a
potential exchange transaction with the Wilks (the “Exchange
Transaction”) as well as 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 evaluate 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; and (iii) merging with a strategic partner.
There can be no assurance that we will be able to implement any
of these plans successfully, or that any of these discussions will
result in an agreement.
First Quarter 2019 Results
Production for first quarter 2019 totaled 906 Mboe, or 10.1
MBoe/d, made up of 24% oil, 36% NGLs and 40% natural gas. Average
realized commodity prices for first quarter 2019, before the effect
of commodity derivatives, were $51.64 per Bbl of oil, $15.95 per
Bbl of NGLs and $1.25 per Mcf of natural gas. Our average realized
price, including the effect of commodity derivatives, was $22.87
per Boe for first quarter 2019. Our realized prices for natural gas
have been adversely impacted by the extreme WAHA discount in the
basin, and we expect our realized natural gas prices to be
depressed until the fourth quarter of 2019.
Net loss for first quarter 2019 was $16.8 million, or $0.18 per
diluted share, on revenues of $19.2 million. Excluding the decrease
in the fair value of our commodity derivatives of $4.3 million,
restructuring expenses of $6.3 million and an impairment of $0.3
million adjusted net loss (non-GAAP) for the first quarter 2019 was
$8.2 million, or $0.09 per diluted share. EBITDAX (non-GAAP) for
the first quarter 2019 was $9.8 million. See “Supplemental Non-GAAP
Financial and Other Measures” below for our reconciliation of
adjusted net loss and EBITDAX to net loss.
Lease operating expense ("LOE") averaged $5.38 per Boe.
Production and ad valorem taxes averaged $2.13 per Boe, or 10.1% of
oil, NGL and gas sales. Total general and administrative
(“G&A”) costs averaged $4.15 per Boe, including cash G&A
costs of $4.58 per Boe. Depletion, depreciation and amortization
expense averaged $15.02 per Boe. Interest expense totaled $6.8
million.
Operations and Capital Budget
As we evaluate our deleveraging alternatives, and in light of
changes to company management, we are reevaluating our development
plan. This includes a review of our capital expenditure budget, the
rates of return across our portfolio of assets, the pace of
development, drilling and completion techniques and workovers. We
initially set our 2019 capital expenditure budget at a range of $30
million to $60 million, and provided production and operating
expense guidance assuming a capital budget of $30 million. Our
actual capital expenditures for 2019 will depend on the results of
our potential deleveraging transactions. The previously provided
production and operating expense guidance will be revised after we
update our annual capital expenditures budget. Assuming no new well
completions during 2019, we would still anticipate our annual
production to average 9.4 to 9.6 MBoe per day.
Liquidity
We have historically defined liquidity as funds available under
our revolving credit facility and cash and cash equivalents.
However, due to our non-compliance with financial covenants under
our revolving credit facility, our current liquidity is limited to
our available cash of $15.7 million as of March 31, 2019.
Commodity Derivatives
We enter into commodity derivatives positions to reduce the risk
of commodity price fluctuations. The table below is a summary of
our current derivatives positions.
Contract
Commodity and Period Type Volume Transacted
Contract Price Crude Oil April 2019 – December 2019
Collar 500 Bbls/day $65.00/Bbl - $71.00/Bbl
NGLs (C3 -
Propane) April 2019 – June 2019 Swap 75 Bbls/day $42.00/Bbl
NGLs (C5 - Pentane) April 2019 – December 2019 Swap 200
Bbls/day $65.205/Bbl
Conference Call Information and Summary Presentation
The Company will host a conference call on May 10, 2019, at
10:00 AM CT (11:00 AM ET) to discuss first quarter 2019 financial
and operating results.
Those wishing to listen to the conference call, may do so by
visiting the Events and Presentations page under the Investor
Relations section of the Company’s website,
www.approachresources.com, or by phone:
Conference ID 7965058 Participant Toll-Free Dial-In
Number: (844) 884-9950 Participant International Dial-In Number:
(661) 378-9660
A replay of the call will be available on the Company’s website
or by dialing:
Replay Toll-Free: (855) 859-2056 Replay
International: (404) 537-3406 Conference ID: 7965058
In addition, a first quarter 2019 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 execute plans, the result of such plans
if executed, our ability to reach agreements with our lenders, our
ability to comply with the covenants in our revolving credit
facility, our leverage negatively affecting a redetermination or
amendment 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 may 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 and
subsequent quarterly reports on Form 10-Q. 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 March 31,
2019 2018
Revenues (in thousands): Oil $ 11,356 $ 16,343 NGLs 5,169
7,332 Gas 2,718 5,097 Total oil, NGLs
and gas sales 19,243 28,772 Net cash receipt (payment) on
derivative settlements 1,477 (1,531 ) Total
oil, NGLs and gas sales including derivative
impact
$ 20,720 $ 27,241
Production: Oil
(MBbls) 220 272 NGLs (MBbls) 324 352 Gas (MMcf) 2,172
2,376 Total (MBoe) 906 1,020 Total (MBoe/d) 10.1 11.3
Average prices: Oil (per Bbl) $ 51.64 $ 60.04 NGLs
(per Bbl) 15.95 20.84 Gas (per Mcf) 1.25 2.15
Total (per Boe) 21.24 28.21 Net cash receipt
(payment) on derivative settlements (per Boe) 1.63
(1.50 ) Total including derivative impact (per Boe) $ 22.87
$ 26.71
Costs and expenses (per Boe):
Lease operating $ 5.38 $ 5.16 Production and ad valorem taxes 2.13
2.45 Exploration 0.01 — General and administrative (1) 4.15 6.44
Depletion, depreciation and amortization 15.02 15.37 (1)
Below is a summary of general and administrative expense: General
and administrative - cash component $ 4.58 $ 5.63 General and
administrative - noncash component (share-based compensation) (0.43
) 0.81
APPROACH RESOURCES INC. AND
SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except shares and per-share
amounts) Three Months Ended
March 31, 2019
2018 REVENUES: Oil, NGLs and gas sales $
19,243 $ 28,772
EXPENSES: Lease operating 4,871 5,268
Production and ad valorem taxes 1,935 2,500 Exploration 9 — General
and administrative (1) 3,762 6,567 Restructuring expenses 6,282 —
Depletion, depreciation and amortization 13,606 15,680 Impairment
300 — Gain on sale of assets (66 ) — Total
expenses 30,699 30,015
OPERATING LOSS (11,456 ) (1,243 )
OTHER:
Interest expense, net (6,773 ) (5,886 ) Commodity derivative loss
(2,846 ) (1,928 ) Other income — 1
LOSS BEFORE INCOME TAX BENEFIT (21,075 ) (9,056 )
INCOME TAX BENEFIT (4,279 ) (1,610 )
NET LOSS $ (16,796 ) $ (7,446 )
LOSS PER
SHARE: Basic $ (0.18 ) $ (0.08 ) Diluted $ (0.18 ) $ (0.08 )
WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 94,757,311
70,409,303 Diluted 94,757,311 70,409,303 (1) Includes non-cash
share-based compensation expense as follows: (394 ) 828
Unaudited Consolidated Balance Sheet
Data (in thousands) March 31, 2019 December
31, 2018 Cash and cash equivalents $ 15,721 $ 22 Other current
assets 13,009 16,203 Property and equipment, net, successful
efforts method 1,053,808 1,068,422 Other assets 13,903
— Total assets $ 1,096,441 $ 1,084,647 Current
liabilities (1) $ 347,464 $ 21,077 Long-term debt (2) 84,562
384,993 Deferred income taxes 73,542 77,821 Other long-term
liabilities 18,983 11,511 Stockholders' equity 571,890
589,245 Total liabilities and stockholders' equity $
1,096,441 $ 1,084,647
(1) Current liabilities at March 31, 2019
includes $322 million in outstanding borrowings under our revolving
credit facility, net of issuance costs of $0.8 million.
(2) Long-term debt at March 31, 2019, is
comprised of $85.2 million in 7% senior notes due 2021 net of
issuance costs of $0.7 million. 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 $0.8 million and $1 million,
respectively.
Supplemental Non-GAAP Financial and Other Measures
This release contains certain financial measures that are
non-GAAP measures. We have provided reconciliations below of the
non-GAAP financial measures to the most directly comparable GAAP
financial measures and on the Non-GAAP Financial Information page
in the Investor Relations section of our website at
www.approachresources.com.
Adjusted Net Loss
This release contains the non-GAAP financial measures adjusted
net loss and adjusted net loss per diluted share, which exclude (1)
non-cash fair value loss on derivatives, (2) restructuring
expenses, (3) impairment, (4) tax effect and other discrete tax
items. The amounts included in the calculation of adjusted net loss
and adjusted net loss per diluted share below were computed in
accordance with GAAP. We believe adjusted net loss and adjusted net
loss per diluted share are useful to investors because they provide
readers with a meaningful measure of our profitability before
recording certain items whose timing or amount cannot be reasonably
determined. However, these measures are provided in addition to,
and not as an alternative for, and should be read in conjunction
with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in
our SEC filings and posted on our website.
The table below provides a reconciliation of adjusted net loss
to net loss for the three months ended March 31, 2019 and 2018 (in
thousands, except per-share amounts).
Three Months Ended March 31,
2019 2018 Net
Loss $ (16,796 ) $ (7,446 )
Adjustments for certain
items: Non-cash fair value loss on derivatives 4,323 397
Restructuring expenses 6,282 — Impairment 300 — Tax effect and
other discrete tax items (1) (2,301 ) (13 )
Adjusted net loss $ (8,192 ) $ (7,062 )
Adjusted net loss
per diluted share $ (0.09 ) $ (0.07 ) (1) The estimated income
tax impacts on adjustments to net loss are computed based upon a
statutory rate of 21%, for the three months ended March 31, 2019,
and March 31, 2018, respectively. Additionally, this includes the
tax impact of an excess tax benefit related to share-based
compensation of $11,000 and a tax shortfall related to share-based
compensation of $0.1 million for the three months ended March 31,
2019, and March 31, 2018, respectively.
EBITDAX
We define EBITDAX as net loss, plus (1) exploration expense, (2)
depletion, depreciation and amortization expense, (3) share-based
compensation expense, (4) non-cash fair value loss on derivatives,
(5) restructuring expenses, (6) impairment, (7) interest expense,
net, and (8) 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 months ended March 31, 2019 and 2018 (in
thousands).
Three Months Ended March 31,
2019 2018 Net
Loss $ (16,796 ) $ (7,446 ) Exploration 9 — Depletion,
depreciation and amortization 13,606 15,680 Share-based
compensation (394 ) 828 Non-cash fair value loss on derivatives
4,323 397 Restructuring expenses 6,282 — Impairment 300 — Interest
expense, net 6,773 5,886 Income tax benefit (4,279 )
(1,610 )
EBITDAX $ 9,824 $ 13,735
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version on businesswire.com: https://www.businesswire.com/news/home/20190509006031/en/
INVESTOR CONTACTSergei KrylovChief Executive
Officerir@approachresources.com817.989.9000
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