Quarterly Report (10-q)

Date : 08/09/2019 @ 8:16PM
Source : Edgar (US Regulatory)
Stock : Approach Resources Inc (AREX)
Quote : 0.0791  0.0 (0.00%) @ 12:00AM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                        to                       

Commission File Number: 001-33801

 

APPROACH RESOURCES INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

51-0424817

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

One Ridgmar Centre

6500 West Freeway, Suite 800

Fort Worth, Texas

 

 

76116

(Address of principal executive offices)

(Zip Code)

(817) 989-9000

(Registrant’s telephone number, including area code)

N/A

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

 

 

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)

(Trading Symbol(s))

(Name of each exchange on which registered)

Common stock, $0.01 par value

AREX

NASDAQ Global Select Market

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

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

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

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of August 1, 2019, was 93,664,421.

 

 

 


PART I―FINANCI AL INFORMATION

Item 1. Financial Statements.

Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

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

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,198

 

 

$

22

 

Accounts receivable:

 

 

 

 

 

 

 

 

Joint interest owners

 

 

82

 

 

 

89

 

Oil, NGLs and gas sales

 

 

4,326

 

 

 

6,710

 

Derivative instruments

 

 

1,340

 

 

 

5,946

 

Prepaid expenses and other current assets

 

 

4,554

 

 

 

3,458

 

Assets held for sale

 

 

1,188

 

 

 

 

Total current assets

 

 

18,688

 

 

 

16,225

 

 

 

 

 

 

 

 

 

 

PROPERTIES AND EQUIPMENT:

 

 

 

 

 

 

 

 

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

 

 

1,976,505

 

 

 

1,976,699

 

Furniture, fixtures and equipment

 

 

3,855

 

 

 

5,689

 

Total oil and gas properties and equipment

 

 

1,980,360

 

 

 

1,982,388

 

Less accumulated depletion, depreciation and amortization

 

 

(939,386

)

 

 

(913,966

)

Net oil and gas properties and equipment

 

 

1,040,974

 

 

 

1,068,422

 

Right of use operating lease assets

 

 

12,419

 

 

 

 

Total assets

 

$

1,072,081

 

 

$

1,084,647

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,099

 

 

$

9,768

 

Oil, NGLs and gas sales payable

 

 

4,251

 

 

 

4,968

 

Operating lease liabilities

 

 

6,599

 

 

 

 

Accrued liabilities

 

 

5,813

 

 

 

6,341

 

Senior secured credit facility, net

 

 

321,379

 

 

 

 

Total current liabilities

 

 

341,141

 

 

 

21,077

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Senior secured credit facility, net

 

 

 

 

 

300,507

 

Senior notes, net

 

 

84,637

 

 

 

84,486

 

Deferred income taxes

 

 

70,122

 

 

 

77,821

 

Asset retirement obligations

 

 

11,672

 

 

 

11,424

 

Operating lease liabilities

 

 

5,929

 

 

 

 

Other non-current liabilities

 

 

8

 

 

 

87

 

Total liabilities

 

 

513,509

 

 

 

495,402

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

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

     93,679,776 and 95,030,569 issued and outstanding, respectively

 

 

937

 

 

 

950

 

Additional paid-in capital

 

 

743,859

 

 

 

744,126

 

Accumulated deficit

 

 

(186,224

)

 

 

(155,831

)

Total stockholders’ equity

 

 

558,572

 

 

 

589,245

 

Total liabilities and stockholders’ equity

 

$

1,072,081

 

 

$

1,084,647

 

See accompanying notes to these unaudited consolidated financial statements

1


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil, NGLs and gas sales

 

$

14,720

 

 

$

30,326

 

 

$

33,963

 

 

$

59,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

 

4,178

 

 

 

5,032

 

 

 

9,049

 

 

 

10,300

 

Production and ad valorem taxes

 

 

1,539

 

 

 

2,569

 

 

 

3,474

 

 

 

5,069

 

Exploration

 

 

1,439

 

 

 

3

 

 

 

1,448

 

 

 

3

 

General and administrative (1)

 

 

4,315

 

 

 

6,086

 

 

 

8,077

 

 

 

12,653

 

Restructuring expenses

 

 

142

 

 

 

 

 

 

6,424

 

 

 

 

Depletion, depreciation and amortization

 

 

13,068

 

 

 

16,849

 

 

 

26,674

 

 

 

32,529

 

Impairment

 

 

 

 

 

 

 

 

300

 

 

 

 

Gain on sale of assets

 

 

(1

)

 

 

 

 

 

(67

)

 

 

 

Total expenses

 

 

24,680

 

 

 

30,539

 

 

 

55,379

 

 

 

60,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(9,960

)

 

 

(213

)

 

 

(21,416

)

 

 

(1,456

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(7,412

)

 

 

(6,184

)

 

 

(14,185

)

 

 

(12,070

)

Commodity derivative gain (loss)

 

 

355

 

 

 

(4,884

)

 

 

(2,491

)

 

 

(6,812

)

Other income

 

 

 

 

 

(13

)

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX BENEFIT

 

 

(17,017

)

 

 

(11,294

)

 

 

(38,092

)

 

 

(20,350

)

INCOME TAX BENEFIT

 

 

(3,420

)

 

 

(2,222

)

 

 

(7,699

)

 

 

(3,832

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$

(13,597

)

 

$

(9,072

)

 

$

(30,393

)

 

$

(16,518

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.15

)

 

$

(0.10

)

 

$

(0.32

)

 

$

(0.17

)

Diluted

 

$

(0.15

)

 

$

(0.10

)

 

$

(0.32

)

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

93,693,117

 

 

 

94,470,636

 

 

 

94,222,277

 

 

 

94,548,898

 

Diluted

 

 

93,693,117

 

 

 

94,470,636

 

 

 

94,222,277

 

 

 

94,548,898

 

(1)  Includes non-cash share-based compensation expense (benefit) as follows:

 

 

281

 

 

 

656

 

 

 

(113

)

 

 

1,484

 

 

See accompanying notes to these unaudited consolidated financial statements

 


2


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Loss

(In thousands)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

NET LOSS

 

$

(13,597

)

 

$

(9,072

)

 

$

(30,393

)

 

$

(16,518

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on cash flow hedges (1)

 

 

 

 

 

(156

)

 

 

 

 

 

(156

)

Other comprehensive loss

 

 

 

 

 

(156

)

 

 

 

 

 

(156

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(13,597

)

 

$

(9,228

)

 

$

(30,393

)

 

$

(16,674

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Includes income tax benefit as follows:

 

$

 

 

$

41

 

 

$

 

 

$

41

 

 

 

See accompanying notes to these unaudited consolidated financial statements


3


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except shares)

 

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, March 31, 2019:

 

 

93,706,945

 

 

$

937

 

 

$

743,580

 

 

$

 

 

$

(172,627

)

 

$

571,890

 

Restricted stock issuance, net of cancellations

 

 

(19,061

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

281

 

 

 

 

 

 

 

 

 

281

 

Surrender of restricted shares for payment of income taxes

 

 

(8,108

)

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,597

)

 

 

(13,597

)

BALANCES, June 30, 2019:

 

 

93,679,776

 

 

 

937

 

 

 

743,859

 

 

 

 

 

 

(186,224

)

 

 

558,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, January 1, 2019:

 

 

95,030,569

 

 

$

950

 

 

$

744,126

 

 

$

 

 

$

(155,831

)

 

$

589,245

 

Issuance of common shares to directors for compensation

 

 

27,644

 

 

 

1

 

 

 

28

 

 

 

 

 

 

 

 

 

29

 

Restricted stock issuance, net of cancellations

 

 

(1,205,627

)

 

 

(14

)

 

 

14

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

(142

)

 

 

 

 

 

 

 

 

(142

)

Surrender of restricted shares for payment of income taxes

 

 

(172,810

)

 

 

 

 

 

(167

)

 

 

 

 

 

 

 

 

(167

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,393

)

 

 

(30,393

)

BALANCES, June 30, 2019:

 

 

93,679,776

 

 

 

937

 

 

 

743,859

 

 

 

 

 

 

(186,224

)

 

 

558,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, March 31, 2018:

 

 

94,605,086

 

 

$

946

 

 

$

742,614

 

 

$

 

 

$

(143,366

)

 

$

600,194

 

Issuance of common shares to directors for compensation

 

 

22,176

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

55

 

Restricted stock issuance, net of cancellations

 

 

(4,360

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

601

 

 

 

 

 

 

 

 

 

601

 

Retirement of common shares in connection with acquisition

 

 

(142,362

)

 

 

(1

)

 

 

(379

)

 

 

 

 

 

 

 

 

(380

)

Surrender of restricted shares for payment of income taxes

 

 

(9,904

)

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

(28

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,072

)

 

 

(9,072

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(156

)

 

 

 

 

 

(156

)

BALANCES, June 30, 2018:

 

 

94,470,636

 

 

 

945

 

 

 

742,863

 

 

 

(156

)

 

 

(152,438

)

 

 

591,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, January 1, 2018:

 

 

94,533,246

 

 

$

945

 

 

$

742,391

 

 

$

 

 

$

(135,920

)

 

$

607,416

 

Issuance of common shares to directors for compensation

 

 

106,001

 

 

 

1

 

 

 

317

 

 

 

 

 

 

 

 

 

318

 

Restricted stock issuance, net of cancellations

 

 

173,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,166

 

 

 

 

 

 

 

 

 

1,166

 

Retirement of common shares in connection with acquisition

 

 

(142,362

)

 

 

(1

)

 

 

(379

)

 

 

 

 

 

 

 

 

(380

)

Surrender of restricted shares for payment of income taxes

 

 

(199,730

)

 

 

 

 

 

(632

)

 

 

 

 

 

 

 

 

(632

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,518

)

 

 

(16,518

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(156

)

 

 

 

 

 

(156

)

BALANCES, June 30, 2018:

 

 

94,470,636

 

 

 

945

 

 

 

742,863

 

 

 

(156

)

 

 

(152,438

)

 

 

591,214

 

 

See accompanying notes to these unaudited consolidated financial statements

 

4


Approach Resources Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(In thousands) 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(30,393

)

 

$

(16,518

)

Adjustments to reconcile net loss to cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depletion, depreciation and amortization

 

 

26,674

 

 

 

32,529

 

Impairment

 

 

300

 

 

 

 

Exploration expense

 

 

1,399

 

 

 

 

Amortization of debt issuance costs

 

 

523

 

 

 

525

 

Commodity derivative loss

 

 

2,491

 

 

 

6,812

 

Settlements of commodity derivatives

 

 

2,115

 

 

 

(3,513

)

Share-based compensation expense

 

 

(113

)

 

 

1,484

 

Deferred income tax benefit

 

 

(7,699

)

 

 

(3,832

)

Other non-cash items

 

 

(67

)

 

 

12

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,390

 

 

 

(1,123

)

Prepaid expenses and other current assets

 

 

1,051

 

 

 

(811

)

Accounts payable

 

 

(4,751

)

 

 

(4,047

)

Oil, NGLs and gas sales payable

 

 

(717

)

 

 

620

 

Accrued liabilities

 

 

(363

)

 

 

2,112

 

Cash (used in) provided by operating activities

 

 

(7,160

)

 

 

14,250

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions to oil and gas properties

 

 

(1,683

)

 

 

(27,142

)

Additions to furniture, fixtures and equipment

 

 

(185

)

 

 

(31

)

Sale of equipment

 

 

70

 

 

 

 

Change in working capital related to investing activities

 

 

(433

)

 

 

7,710

 

Cash used in investing activities

 

 

(2,231

)

 

 

(19,463

)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings under credit facility

 

 

23,500

 

 

 

60,850

 

Repayment of amounts outstanding under credit facility

 

 

(3,000

)

 

 

(54,350

)

Tax withholdings related to restricted stock

 

 

(167

)

 

 

(632

)

Debt issuance costs

 

 

 

 

 

(14

)

Change in working capital related to financing activities

 

 

(3,766

)

 

 

(640

)

Cash provided by financing activities

 

 

16,567

 

 

 

5,214

 

 

 

 

 

 

 

 

 

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

 

7,176

 

 

 

1

 

CASH AND CASH EQUIVALENTS , beginning of period

 

$

22

 

 

$

21

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS , end of period

 

$

7,198

 

 

$

22