Resolute Energy Corporation (“Resolute” or the “Company”)
(NYSE:REN) today reported financial and operating results for the
quarter and nine months ended September 30, 2017, and issued
updated guidance.
Highlights:
- Announced closing of the sale of Aneth Field assets to Elk
Petroleum for total consideration of up to $195 million. Our
borrowing base was set at $210 million after giving effect to the
sale.
- 3Q 2017 production was 28.6 MBoe per day, up 78 percent over
the prior year quarter and up seventeen percent sequentially.
- During the quarter, Resolute spud seven wells, completed eight
wells and turned seven wells to sales.
- 3Q 2017 net loss available to common shareholders was $14.6
million or $0.71 per diluted share. Adjusted net income (a non-GAAP
measure as reconciled below) was $4.6 million, or $0.15 per diluted
share.
- 3Q 2017 Adjusted EBITDA (a non-GAAP measure as reconciled
below) was $42.9 million, essentially flat to 3Q 2016 despite a
$19.0 million reduction in derivative settlement gains for the
quarter.
- Continued exceptional drilling results including the Uinta
L04HR, which established a new Company record peak 24-hour rate of
3,470 barrels of oil equivalent (“Boe”) per day, and the Long
Yuengling U04H which established a new Company record for spud to
TD time of fourteen days.
- Drilled the South Elephant C207SL our first Wolfcamp C well and
the South Elephant B307SL our first Lower Wolfcamp B well, both of
which are currently flowing back.
- With the closing of the Aneth Field transaction, our Board has
approved an expansion of our 2017 Permian Basin capital program
allowing us to maintain our current level of drilling activity in
the Basin through year-end.
Rick Betz, Resolute’s Chief Executive Officer, said: “The third
quarter marked a true inflection point in the future of Resolute
Energy. With the sale of our Aneth Field EOR property we have
now completed a multi-year strategic plan to transform Resolute
into a Delaware Basin pure play company. This strategy has
resulted in a company that is more focused, better capitalized and
more competitive from an operating cost perspective. Our
results in Reeves County for the third quarter bear out the
benefits of this focused strategy as we turned in yet another
quarter of impressive production growth. More importantly we
achieved this growth while generating returns on invested capital
competitive with the best operators in the Delaware Basin. As we
look to the fourth quarter and beyond, our strategy is simple -
continue to be one of the top operators in the basin both in terms
of production growth and capital efficiency. To achieve this,
our capital plan will focus on the efficient long term development
of our assets. We expect this strategy will bear fruit in the
coming quarters in terms of lowering costs, improving well
performance and continued strong returns on capital.”
The Company has posted to its website www.resoluteenergy.com an
updated investor relations presentation which supplements the
information provided in this release.
Financial Highlights
During the quarter we continued to drive down unit operating
costs, with lease operating costs down fifteen percent from the
prior year quarter to $9.55 per Boe and cash-based general and
administrative expenses down 38 percent to $2.45 per Boe. Year to
date, 2017 Permian Basin lease operating expenses were $5.64 per
Boe, down eighteen percent from the first nine months of 2016. This
cost level is more representative of our operating costs moving
forward.
3Q 2017 Adjusted EBITDA of $42.9 million was essentially flat to
3Q 2016. However, Adjusted EBITDA for the current quarter was
of significantly higher quality as it reflects cash generated by
our operations. The prior year quarter benefited from an
incremental $19.0 million contribution from realized derivative
gains above those realized in 3Q 2017.
Capital investment for the third quarter was $97.2 million,
excluding acquisitions, divestitures and capitalized interest, of
which approximately 50 percent was funded through internally
generated cash flow (including the earn out payments described
below). Permian investment for the quarter accounted for 93
percent of our total capital activity. Included in Permian capital
were $69.5 million of drilling and completions expenditures and
$20.7 million spent on facilities and infrastructure. These
infrastructure investments support current production and also will
benefit future field development both from a timing and capital
expenditure standpoint.
Year to date 2017 capital investment, excluding acquisitions,
divestitures and capitalized interest was $243.4 million. Permian
investment accounted for 90 percent of this total and included
$176.3 million for drilling and completions capital and $43.4
million spent on facilities and infrastructure.
Under our midstream agreements with Caprock Midstream we are
entitled to receive earn-out and supplemental payments with respect
to wells completed and put online during any individual quarter,
subject to certain aggregate caps. During the third quarter we
earned $6.3 million and year-to-date we earned $19.5 million. While
not accounted for as reductions in capital expenditures, internally
we consider these as offsets to our total capital investment.
At October 31, 2017, pro forma for the closing of the sale of
Aneth Field and the use of proceeds thereof to pay down amounts
outstanding under our revolving credit facility, we would have had
less than $20 million outstanding under our revolving credit
facility which has a borrowing base of $210 million. We expect
year-end borrowings under our revolver to be at substantially the
same level as the pro forma October 31 amount.
Third quarter 2017 average realized prices in the Permian were
$45.24 per barrel of oil, $2.53 per Mcf of natural gas and $10.59
per barrel of NGL.
Operational Highlights
Resolute’s 3Q 2017 production was 28.6 thousand barrels of oil
equivalent (“MBoe”) per day (59 percent oil and 77 percent
liquids), up 78 percent over the prior year quarter and up
seventeen percent sequentially. This included 22.6 MBoe per
day from our Permian Basin properties, up 130 percent over the
prior year quarter and up 23 percent sequentially, and 5.9 MBoe per
day from Aneth Field. This strong performance was achieved
notwithstanding certain weather related stresses on field
infrastructure and personnel, which reduced production by
approximately 400 Boe per day over the quarter, as well as the
ongoing shift in our operating posture to pad drilling.
We expect that the effect of the mid-period sale of Aneth Field
will reduce fourth quarter production by 4,000 Boe per day.
This is partially offset by contribution from the Delaware Basin
assets acquired in the Bronco acquisition in the second quarter as
well as capital activity across our Reeves County asset base.
Combining these factors, fourth quarter production is anticipated
to be between 26,000 and 27,000 Boe per day.
Full year production is expected to be between 24,500 to 25,500
Boe per day including the full year impact of the Aneth Field sale
of approximately 1,000 Boe per day.
We currently are running two rigs in the Delaware Basin with a
dedicated frac spread from our primary completions vendor.
During the quarter we spud seven gross horizontal wells, consisting
of three long laterals and four mid-length laterals. Included in
these wells were three Wolfcamp A wells, one Wolfcamp B well and
three Wolfcamp C wells. Eight wells were completed during the
quarter, including four Wolfcamp B wells and seven wells were
turned to production. Post quarter-end we completed our first Lower
Wolfcamp B well and our first Wolfcamp C well, both of which are
currently flowing back.
During the third quarter, eight wells established peak 24-hour
rates. These wells averaged 356 Boe per day per 1,000 feet of
completed lateral. Notable among these wells were the Uinta
L04H which established a peak 24-hour rate of 3,470 Boe per day
from 7,510 completed lateral feet, or approximately 462 Boe per day
per 1,000 feet of lateral. Four of the wells that established
peak 24-hour rates were Wolfcamp B completions that averaged 334
Boe per day per 1,000 feet of completed lateral. These wells
included the Durham Smith Fuente 209HL in Bronco, with 4,663 feet
of completed lateral, which established a peak 24-hour rate of 464
Boe per day per 1,000 feet of completed lateral. Seven of the wells
also established peak 30-day rates during the quarter and averaged
313 Boe per day per 1,000 feet of completed lateral.
Due to the continuing efficiency of our drilling to date we have
now completed the 22 wells originally contemplated in our 2017
plan. With the closing of the Aneth Field sale our Board has
approved an expansion to our 2017 capital program, which will allow
us to retain the rigs and completion crews that have provided these
excellent results. Under the extended plan we will spud an
incremental five wells and complete one incremental well beyond our
original program. This should result in our carrying eight
drilled but uncompleted wells into the first quarter of 2018. We
expect these wells will be completed in early 2018 providing
significant momentum to our first quarter production growth.
The total capital required to execute the extended capital plan
will be approximately $19 million. In addition to executing
the extended plan, we are currently completing the planning process
necessary to potentially add a third rig in early 2018.
The following tables provide an update of certain operating
activities since August 1:
Drilling Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Length |
|
|
|
|
|
|
Spud to TD |
Well Name |
|
Area1 |
|
Zone2 |
|
(feet) |
|
|
Status |
|
TD date |
|
(days) |
Ranger
L07H |
|
A |
|
LWCA |
|
9,681 |
|
|
Producing |
|
7/2/2017 |
|
19 |
Uinta
L04HR |
|
M |
|
LWCA |
|
7,620 |
|
|
Producing |
|
7/11/2017 |
|
15 |
Ranger
B106H |
|
A |
|
WCB |
|
9,786 |
|
|
Producing |
|
7/17/2017 |
|
23 |
Ace
L06H |
|
M |
|
LWCA |
|
7,805 |
|
|
Producing |
|
8/3/2017 |
|
15 |
South
Elephant B307SL |
|
A |
|
LWCB |
|
9,577 |
|
|
Flowing back |
|
9/2/2017 |
|
27 |
Long
Yuengling U04H |
|
M |
|
UWCA |
|
7,833 |
|
|
Completing |
|
9/5/2017 |
|
14 |
South
Elephant C207SL |
|
A |
|
WCC |
|
9,808 |
|
|
Flowing back |
|
9/14/2017 |
|
20 |
Long
Yuengling L03H |
|
M |
|
LWCA |
|
7,730 |
|
|
Completing |
|
9/15/2017 |
|
18 |
Ranger
U06SL |
|
A |
|
UWCA |
|
9,700 |
|
|
WOC |
|
11/1/2017 |
|
18 |
Ranger
L05H |
|
A |
|
LWCA |
|
10,000 |
|
|
Drilling |
|
- |
|
- |
Ranger
C205SL |
|
A |
|
WCC |
|
10,000 |
|
|
Drilling |
|
- |
|
- |
Thunder Canyon C107SL |
|
M |
|
WCC |
|
7,500 |
|
|
Drilling |
|
- |
|
- |
Uinta
C101H |
|
M |
|
WCC |
|
8,066 |
|
|
WOC |
|
10/29/2017 |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Area abbreviation legend: M – Mustang and A – Appaloosa and B
– Bronco2. Zone abbreviation legend: LWCA – Lower Wolfcamp A; UWCA
– Upper Wolfcamp A; WCB –Wolfcamp B; LWCB – Lower Wolfcamp B; WCC
–Wolfcamp C
Completion Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Length |
|
|
First |
|
Frac |
|
Proppant per |
|
Well Name |
|
Area1 |
|
Zone2 |
|
(feet) |
|
|
sales |
|
stages |
|
foot (lbs) |
|
Breckenridge L06H |
|
M |
|
LWCA |
|
|
7,720 |
|
|
7/8/2017 |
|
29 |
|
1,803 |
|
Durham Smith Fuente
209HL |
|
B |
|
WCB |
|
|
4,663 |
|
|
7/27/2017 |
|
22 |
|
2,022 |
|
Uinta L04HR |
|
M |
|
LWCA |
|
|
7,510 |
|
|
8/4/2017 |
|
27 |
|
1,796 |
|
Durham Smith Fuente
207HL |
|
B |
|
WCB |
|
|
4,541 |
|
|
8/28/2017 |
|
19 |
|
2,084 |
|
Ranger B106H |
|
A |
|
WCB |
|
|
9,685 |
|
|
9/5/2017 |
|
36 |
|
1,786 |
|
Ranger L07H |
|
A |
|
LWCA |
|
|
9,557 |
|
|
9/5/2017 |
|
36 |
|
1,808 |
|
North Goat 2 Unit
B101SL |
|
A |
|
WCB |
|
|
10,062 |
|
|
9/15/2017 |
|
39 |
|
1,810 |
|
Ace L06H |
|
M |
|
LWCA |
|
|
7,699 |
|
|
10/3/2017 |
|
31 |
|
1,804 |
|
South Elephant
C207SL |
|
A |
|
WCC |
|
|
9,403 |
|
|
Flowing back |
|
35 |
|
1,809 |
|
South Elephant
B307SL |
|
A |
|
LWCB |
|
|
9,567 |
|
|
Flowing back |
|
38 |
|
1,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Area abbreviation legend: M – Mustang and A – Appaloosa and B
– Bronco2. Zone abbreviation legend: LWCA – Lower Wolfcamp A; UWCA
– Upper Wolfcamp A; WCB –Wolfcamp B; LWCB – Lower Wolfcamp B
Production Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peak rate |
|
|
Peak rate |
|
|
Peak rate |
|
|
|
|
|
|
|
Length |
|
|
24 hour |
|
|
30 day |
|
|
60 day |
|
Well Name |
|
Area1 |
|
Zone2 |
|
(feet) |
|
|
Boe per day |
|
|
Boe per day |
|
|
Boe per day |
|
Breckenridge L06H |
|
M |
|
LWCA |
|
7,720 |
|
|
3,047 |
|
|
2,894 |
|
|
2,667 |
|
Durham Smith Fuente
209HL |
|
B |
|
WCB |
|
4,663 |
|
|
2,164 |
|
|
1,829 |
|
|
1,405 |
|
Uinta L04HR |
|
M |
|
LWCA |
|
7,510 |
|
|
3,470 |
|
|
3,005 |
|
|
2,671 |
|
Durham Smith Fuente
207HL |
|
B |
|
WCB |
|
4,541 |
|
|
1,629 |
|
|
1,378 |
|
|
1,065 |
|
Ranger B106H |
|
A |
|
WCB |
|
9,685 |
|
|
2,825 |
|
|
2,433 |
|
|
- |
|
Ranger L07H |
|
A |
|
LWCA |
|
9,557 |
|
|
2,907 |
|
|
2,577 |
|
|
- |
|
North Goat 2 Unit
B101SL |
|
A |
|
WCB |
|
10,062 |
|
|
2,236 |
|
|
1,998 |
|
|
- |
|
Ace L06H |
|
M |
|
LWCA |
|
7,699 |
|
|
2,706 |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Area abbreviation legend: M – Mustang and A – Appaloosa and B
– Bronco2. Zone abbreviation legend: LWCA – Lower Wolfcamp A; UWCA
– Upper Wolfcamp A; WCB –Wolfcamp B
See “Cautionary Statements” below for a discussion of the nature
of these production metrics.
Updated Full Year 2017 Guidance
As described above, Resolute’s full year 2017 guidance range has
been narrowed with respect to production to 24,500 to 25,500 Boe
per day, which accounts for the full year impact of the Aneth Field
sale and the Bronco activities.
During the third quarter, we experienced a modest shift in our
oil percentage resulting from our mix of producing wells. Of the
seven wells turned to production, four of them were in our Bronco
and Mustang areas where we have higher initial gas to oil ratios.
Based on our mix of producing wells and the sale of Aneth Field,
which is 99 percent oil, we expect that our 2017 oil percentage
will be between 60 and 62 percent.
Lease operating costs are currently expected to be $78 million
to $82 million or $8.75 per Boe at the midpoint of the respective
ranges. This represents an approximate seventeen percent reduction
in per unit lease operating expense from the midpoint of our prior
guidance.
Currently we expect cash-based general and administrative
expenses to be $28 million to $29 million, or $3.12 per Boe at the
midpoint of our updated production and G&A guidance ranges,
compared to $2.85 per Boe at the midpoint of our prior guidance
ranges.
We now expect total capital for the year to be $290 million to
$305 million.
Third Quarter and Nine-Month Comparative
Results
Resolute recorded a net loss available to common shareholders of
$14.6 million, or $0.71 per share, on revenue of $81.6 million
during the three months ended September 30, 2017. Included in
the net loss was $13.7 million of commodity derivative
losses. This compares to a net loss available to common
shareholders of $18.9 million, or $1.24 per share, on revenue of
$47.4 million during the three months ended September 30,
2016. The 2016 loss included commodity derivative gains of
$4.0 million. Resolute recorded adjusted net income (net
income excluding non-cash derivative mark-to-market gain (loss) and
non-cash stock-based compensation expense), a non-GAAP measure, of
$4.6 million, or $0.15 per diluted share, for the quarter.
This compares to an adjusted net loss for the comparable prior
period of $0.1 million, or $0 per share.
For the nine months ended September 30, 2017, Resolute recorded
a net loss available to common shareholders of $3.8 million, or
$0.22 per share, on revenue of $217.8 million. Included in
the net loss was $4.6 million of commodity derivative gains.
This compares to a net loss available to common shareholders of
$141.1 million, or $9.33 per share, on revenue of $101.8 million
during the nine months ended September 30, 2016. The 2016
loss included a non-cash impairment charge of $58 million and
commodity derivative losses of $11.7 million. During the
first nine months of 2017, Resolute recorded adjusted net income of
$4.4 million, or $0.15 per diluted share. This compares to an
adjusted net loss for the comparable prior period of $54.5 million,
or $3.61 per share.
|
Third Quarter and Nine Months 2017 Results
Compared to |
Third Quarter and Nine Months 2016
Results |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands, except per-Boe
amounts) |
|
Production (MBoe): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian |
|
2,082 |
|
|
|
905 |
|
|
|
4,997 |
|
|
|
1,685 |
|
Aneth |
|
546 |
|
|
|
575 |
|
|
|
1,621 |
|
|
|
1,695 |
|
Total production |
|
2,628 |
|
|
|
1,480 |
|
|
|
6,618 |
|
|
|
3,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily rate (Boe) |
|
28,566 |
|
|
|
16,085 |
|
|
|
24,240 |
|
|
|
12,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per Boe
(excluding commodity derivative settlements) |
$ |
31.03 |
|
|
$ |
32.04 |
|
|
$ |
32.91 |
|
|
$ |
30.12 |
|
Revenue per Boe
(including commodity derivative settlements) |
$ |
31.93 |
|
|
$ |
46.47 |
|
|
$ |
33.48 |
|
|
$ |
50.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
81,552 |
|
|
$ |
47,419 |
|
|
$ |
217,804 |
|
|
$ |
101,810 |
|
Commodity derivative
settlements |
|
2,354 |
|
|
|
21,357 |
|
|
|
3,760 |
|
|
|
69,649 |
|
Adjusted revenue |
|
83,906 |
|
|
|
68,776 |
|
|
|
221,564 |
|
|
|
171,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
operating expense |
$ |
25,093 |
|
|
$ |
16,572 |
|
|
$ |
63,339 |
|
|
$ |
46,078 |
|
Production and ad valorem taxes |
|
8,767 |
|
|
|
4,839 |
|
|
|
21,701 |
|
|
|
12,229 |
|
Depletion, depreciation, amortization and asset retirement
obligation accretion |
|
25,521 |
|
|
|
12,474 |
|
|
|
63,889 |
|
|
|
33,700 |
|
Impairment of proved oil and gas properties |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,000 |
|
General
and administrative expense |
|
9,546 |
|
|
|
7,161 |
|
|
|
29,433 |
|
|
|
23,659 |
|
Cash-settled incentive awards |
|
4,996 |
|
|
|
16,043 |
|
|
|
9,010 |
|
|
|
18,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to
common shareholders |
$ |
(14,602 |
) |
|
$ |
(18,856 |
) |
|
$ |
(3,836 |
) |
|
$ |
(141,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
(loss) |
$ |
4,573 |
|
|
$ |
(62 |
) |
|
$ |
(4,398 |
) |
|
$ |
(54,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
$ |
42,929 |
|
|
$ |
41,727 |
|
|
$ |
114,162 |
|
|
$ |
94,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (a non-GAAP measure): During the third
quarter of 2017, Resolute generated $42.9 million of Adjusted
EBITDA, or $16.33 per Boe, a three percent increase from the prior
year period, during which Resolute generated $41.7 million of
Adjusted EBITDA, or $28.20 per Boe. The increase in Adjusted
EBITDA was the result of increased revenue due to increased
production, partially offset by decreased commodity derivative
settlements as compared to the prior period.
During the first nine months of 2017, Resolute generated $114.2
million of Adjusted EBITDA, or $17.25 per Boe, a twenty percent
increase from the prior period, during which Resolute generated
$94.8 million of Adjusted EBITDA, or $28.04 per Boe. The
increase in Adjusted EBITDA resulted primarily from the reasons
noted above as well as increased revenue from increased commodity
pricing as compared to the 2016 period.
Production: Production for the quarter ended September 30,
2017, increased 78 percent to 2,628 MBoe, or 28,566 Boe per day, as
compared to 1,480 MBoe, or 16,085 Boe per day, during the third
quarter of 2016. During the first nine months of 2017,
production increased 96 percent to 6,618 MBoe, or 24,240 Boe per
day, from 3,380 MBoe, or 12,336 Boe per day, during the first nine
months of 2016. The increases from the comparable prior year
periods were attributable to positive results from our 2017 Permian
Basin drilling and completion program.
Third quarter 2017 production from the Company’s Permian Basin
properties increased 130 percent to 22,629 Boe per day, as compared
to the 9,834 Boe per day produced in the third quarter of 2016, and
increased 23 percent from the 18,383 Boe per day produced during
the second quarter of 2017. During the first nine months of
2017, production increased approximately 200 percent to 18,302 Boe
per day from the 6,150 Boe per day produced during the first nine
months of 2016.
Third quarter 2017 production from the Company’s Aneth Field
properties decreased five percent to 5,937 Boe per day as compared
to the 6,250 Boe per day produced in the third quarter of 2016, and
remained relatively unchanged from the 5,972 Boe per day produced
during the second quarter of 2017. During the first nine
months of 2017, production decreased four percent to 5,938 Boe per
day from the 6,186 per day produced during the first nine months of
2016.
Revenue: During the third quarter of 2017, Resolute
realized a 72 percent increase in revenue as compared to the prior
year quarter due to increased production attributable to positive
results from the drilling and completion program in the Delaware
Basin. Revenue for the quarter was $81.6 million as compared
to $47.4 million in the prior year period. Resolute realized
a 22 percent increase in adjusted revenue as compared to the prior
year quarter. Adjusted revenue (revenue including commodity
derivative settlements), a non-GAAP measure, for the quarter was
$83.9 million, including the effect of commodity derivative
settlement gains of $2.3 million. Adjusted revenue for the
comparable prior period was $68.8 million, including the effect of
commodity derivative settlement gains of $21.4 million.
During the first nine months of 2017, Resolute realized a 114
percent increase in revenue as compared to the prior year period
due to increased production attributable to positive results from
the drilling and completion program in the Delaware Basin as well
as increased commodity pricing as compared to the 2016
period. Revenue for the nine months ended September 30, 2017
was $217.8 million as compared to $101.8 million during the nine
months ended September 30, 2016. During the first nine months
of 2017, Resolute realized a 29 percent increase in adjusted
revenue as compared to the first nine months of 2016.
Adjusted revenue for the nine months ended September 30, 2017 was
$221.6 million, including the effect of commodity derivative
settlement gains of $3.8 million. For the nine months ended
September 30, 2016, Resolute had adjusted revenue of $171.4
million, including the effect of commodity derivative settlement
gains of $69.6 million.
Operating Expenses: For the third quarter of 2017, lease
operating expense (“LOE”) increased $8.5 million, or 51 percent, to
$25.1 million, or $9.55 per Boe, as compared to third quarter 2016
LOE of $16.6 million, or $11.20 per Boe. The decrease in unit
operating expense is due to the significant increase in production
from mid-length and long lateral horizontal wells in the Delaware
Basin, which increased by a greater percentage than the associated
LOE. Production taxes increased by $4.0 million, or 81
percent, to $8.8 million (eleven percent of revenue) from $4.8
million (ten percent of revenue) in 2016. On a per Boe basis,
production taxes remained relatively unchanged at $3.34 per Boe in
2017 compared to $3.27 per Boe in 2016.
For the first nine months of 2017, LOE increased 37 percent to
$63.3 million, or $9.57 per Boe, from 2016 LOE of $46.1 million, or
$13.63 per Boe. The decrease in unit operating expense is due
to the reasons noted above. Production taxes increased by
$9.5 million, or 77 percent, to $21.7 million (ten percent of
revenue) as compared to $12.2 million (twelve percent of revenue)
in 2016, and decreased on a Boe basis to $3.28 per Boe in 2017 from
$3.62 per Boe in 2016. The lower production and ad valorem
taxes as a percentage of revenue in 2017 as compared to 2016 is
attributable to the increase in the percentage of revenue realized
in the state of Texas, which has a lower tax rate than the Aneth
Field properties in Utah. This decrease is also the result of
the timing of the assessment of ad valorem taxes, as they are
assessed on January 1st of each year, based on the producing wells
at that point in time and are not updated for wells that come
online throughout the year.
For the third quarter of 2017, depletion, depreciation,
amortization and accretion (“DD&A”) expenses increased more
than 100 percent to $25.5 million as compared to the third quarter
of 2016 DD&A expenses of $12.5 million as a result of the 78
percent increase in production period over period. On a Boe
basis, DD&A expenses increased to $9.71 per Boe in 2017
compared to $8.43 per Boe in 2016. The increase on a per unit
basis was attributable to the ratio of capitalized costs increasing
by a greater percentage than the associated proved reserve
quantities between the two periods.
For the first nine months of 2017, DD&A expenses increased
90 percent to $63.9 million as compared to the first nine months of
2016 expenses of $33.7 million principally as a result of the 96
percent increase in production. Conversely, DD&A expenses
remained relatively unchanged on a per Boe basis at $9.65 per Boe
in 2017 compared to $9.97 per Boe in 2016.
Pursuant to full cost accounting rules, we perform a ceiling
test each quarter on our proved oil and gas assets. No
impairment was recorded during the three or nine months ended
September 30, 2017. However, we recorded a $58 million
non-cash impairment of the carrying value of our proved oil and gas
properties during the nine months ended September 30, 2016 as a
result of the ceiling test limitation.
General and Administrative Expense: Resolute’s general and
administrative expenses increased 33 percent to $9.5 million during
the third quarter of 2017, as compared to $7.2 million during the
same period in 2016. The $2.3 million increase primarily
resulted from increases in share based compensation due to a shift
from granting principally cash-based incentive awards to
equity-based long-term incentive awards. Cash-based general
and administrative expense for the third quarter of 2017 was $6.4
million compared to $5.8 million in the comparable 2016
period. Share-based compensation expense, a non-cash item,
represented $3.1 million for the third quarter of 2017 and $1.4
million for the third quarter of 2016.
For the first nine months of 2017, general and administrative
expenses increased to $29.4 million, as compared to $23.7 million
during 2016. The $5.7 million, or 24 percent, increase
primarily resulted from the reason noted above as well as a
restoration of short-term incentive compensation awards, which had
been reduced during 2016 in response to lower commodity prices,
offset by an increase in the portion of general and administrative
expenses capitalized. Cash-based general and administrative
expense for the first nine months of 2017 was $20.6 million
compared to $18.8 million in the comparable 2016 period.
Share-based compensation expense represented $8.8 million for the
first nine months of 2017 and $4.9 million for the first nine
months of 2016.
Cash-settled Incentive Awards: Cash-settled incentive
award expense decreased to $5.0 million during the third quarter of
2017 as compared to $16.0 million in the third quarter of
2016. This decrease was the result of the achievement of
multiple performance targets, which primarily occurred in 2016,
that are based on the Company’s stock price under the
performance-based restricted cash awards as well as a decrease in
expense related to the fair value of the cash-settled stock
appreciation rights under the long-term incentive program.
Actual cash payments during the 2017 period were $0.6
million.
For the nine months ended September 30, 2017, cash-settled
incentive award expenses decreased to $9.0 million as compared to
$18.3 million for the nine months ended September 30, 2016.
The 2017 decrease in expense is a result of the reasons noted
above. Actual cash payments during the 2017 period were $11.9
million.
Capital Expenditures: During the quarter ended September
30, 2017, Resolute incurred oil and gas related capital
expenditures of approximately $97.2 million, excluding capitalized
interest of $4.7 million. During the first nine months of
2017, Resolute incurred oil and gas related capital expenditures of
approximately $243.4 million, excluding the Delaware Basin Bronco
Acquisition of $161.3 million and capitalized interest of $10.9
million. These capital investments were primarily for
drilling and completion, and facility and infrastructure projects
in the Delaware Basin.
Liquidity and Capital Resources: Outstanding indebtedness
of $650 million at September 30, 2017, consisted of $125 million in
revolving credit facility debt and $525 million of senior notes,
compared to total indebtedness of $538.3 million at December 31,
2016, an increase of $111.7 million. During 2017 we repaid
all amounts outstanding on the Secured Term Loan Facility. In
May 2017, Resolute issued an additional $125 million aggregate
principal amount of the Company’s 8.50% senior notes due 2020,
under the same indenture as the $400 million senior notes that were
previously issued. On October 18, 2017 we entered into the
Second Amendment to the Third Amended and Restated Credit
Agreement. This amendment reaffirmed our borrowing base under
the Credit Agreement at $218.8 million. As a result of the
disposition of the Aneth Field assets, our borrowing base was
reduced to $210 million.
|
RESOLUTE ENERGY CORPORATION |
Condensed Consolidated Statements of
Operations (Unaudited) |
($ in thousands, except per share
data) |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
$ |
67,665 |
|
|
$ |
42,394 |
|
|
$ |
186,027 |
|
|
$ |
93,672 |
|
Gas |
|
8,805 |
|
|
|
3,574 |
|
|
|
20,978 |
|
|
|
5,761 |
|
Natural
gas liquids |
|
5,082 |
|
|
|
1,451 |
|
|
|
10,799 |
|
|
|
2,377 |
|
Total
revenue |
|
81,552 |
|
|
|
47,419 |
|
|
|
217,804 |
|
|
|
101,810 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
operating |
|
25,093 |
|
|
|
16,572 |
|
|
|
63,339 |
|
|
|
46,078 |
|
Production and ad valorem taxes |
|
8,767 |
|
|
|
4,839 |
|
|
|
21,701 |
|
|
|
12,229 |
|
Depletion, depreciation, amortization, and asset retirement
obligation accretion |
|
25,521 |
|
|
|
12,474 |
|
|
|
63,889 |
|
|
|
33,700 |
|
Impairment of proved oil and gas properties |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,000 |
|
General
and administrative |
|
9,546 |
|
|
|
7,161 |
|
|
|
29,433 |
|
|
|
23,659 |
|
Cash-settled incentive awards |
|
4,996 |
|
|
|
16,043 |
|
|
|
9,010 |
|
|
|
18,275 |
|
Total
operating expenses |
|
73,923 |
|
|
|
57,089 |
|
|
|
187,372 |
|
|
|
191,941 |
|
Income (loss) from
operations |
|
7,629 |
|
|
|
(9,670 |
) |
|
|
30,432 |
|
|
|
(90,131 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net |
|
(8,527 |
) |
|
|
(13,272 |
) |
|
|
(35,003 |
) |
|
|
(39,330 |
) |
Commodity
derivative instruments gain (loss) |
|
(13,719 |
) |
|
|
3,972 |
|
|
|
4,579 |
|
|
|
(11,739 |
) |
Other
income (expense) |
|
(13 |
) |
|
|
114 |
|
|
|
63 |
|
|
|
126 |
|
Total
other expense |
|
(22,259 |
) |
|
|
(9,186 |
) |
|
|
(30,361 |
) |
|
|
(50,943 |
) |
Income (loss) before
income taxes |
|
(14,630 |
) |
|
|
(18,856 |
) |
|
|
71 |
|
|
|
(141,074 |
) |
Income
tax benefit |
|
28 |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
Net income (loss) |
|
(14,602 |
) |
|
|
(18,856 |
) |
|
|
99 |
|
|
|
(141,074 |
) |
Preferred
stock dividends |
|
— |
|
|
|
— |
|
|
|
(3,935 |
) |
|
|
— |
|
Net loss available to
common shareholders |
$ |
(14,602 |
) |
|
$ |
(18,856 |
) |
|
$ |
(3,836 |
) |
|
$ |
(141,074 |
) |
Net loss per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted |
$ |
(0.71 |
) |
|
$ |
(1.24 |
) |
|
$ |
(0.22 |
) |
|
$ |
(9.33 |
) |
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted |
|
21,941 |
|
|
|
15,173 |
|
|
|
21,866 |
|
|
|
15,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income (Loss) to Adjusted Net
Income
In this press release, the term “adjusted net income (loss)” is
used. Adjusted net income (loss) is a non-GAAP financial
measure and is equivalent to net income available to common
shareholders excluding non-cash items identified as affecting
comparability of earnings between periods, which are non-cash
mark-to-market gains (losses) and non-cash stock-based compensation
expense. Resolute’s management uses adjusted net income
(loss) to evaluate the Company’s operating performance and believes
that investors’ understanding of our performance is enhanced by
disclosing this measure, which excludes certain items that
management believes are not directly related to ongoing operations
and are not indicative of future trends and operations. This
information differs from measures of performance determined in
accordance with GAAP and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with GAAP. This measure is not necessarily indicative of
operating profit or cash flow from operating activities as
determined under GAAP and may not be equivalent to similarly titled
measures of other companies. The table below reconciles
Resolute’s net income (loss) available to common shareholders to
adjusted net income (loss).
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
($ in thousands) |
|
|
|
|
|
|
|
Net loss available to
common shareholders |
$ |
(14,602 |
) |
|
$ |
(18,856 |
) |
|
$ |
(3,836 |
) |
|
$ |
(141,074 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market (gain) loss |
|
16,073 |
|
|
|
17,385 |
|
|
|
(819 |
) |
|
|
81,388 |
|
Stock-based compensation |
|
3,102 |
|
|
|
1,409 |
|
|
|
9,053 |
|
|
|
5,142 |
|
Adjusted net income
(loss) |
$ |
4,573 |
|
|
$ |
(62 |
) |
|
$ |
4,398 |
|
|
$ |
(54,544 |
) |
Adjusted net income
(loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.16 |
|
|
$ |
— |
|
|
$ |
0.15 |
|
|
$ |
(3.61 |
) |
Diluted |
|
0.15 |
|
|
|
— |
|
|
|
0.15 |
|
|
|
(3.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income (Loss) to Adjusted
EBITDA
In this press release, the term “Adjusted EBITDA” is used.
Adjusted EBITDA is a non-GAAP financial measure and is equivalent
to earnings before interest, income taxes, depreciation, depletion,
amortization and accretion expenses, stock-based compensation,
nonrecurring cash-settled incentive awards, mark-to-market
commodity derivative gain (loss), gains and losses on the sale of
assets and ceiling write-down of oil and gas properties.
Resolute’s management believes Adjusted EBITDA is an important
financial measurement tool that facilitates comparison of our
operating performance, and provides information about the Company’s
ability to service or incur indebtedness and pay for its capital
expenditures. This information differs from measures of
performance determined in accordance with GAAP and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. This measure is
not necessarily indicative of operating profit or cash flow from
operating activities as determined under GAAP and may not be
equivalent to similarly titled measures of other companies.
The table below reconciles Resolute’s net income (loss) to Adjusted
EBITDA.
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
|
($ in thousands) |
|
|
|
|
|
|
|
Net income (loss) |
$ |
(14,602 |
) |
|
$ |
(18,856 |
) |
|
$ |
99 |
|
|
$ |
(141,074 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net |
|
8,527 |
|
|
|
13,272 |
|
|
|
35,003 |
|
|
|
39,330 |
|
Income
tax (benefit) loss |
|
(28 |
) |
|
|
— |
|
|
|
(28 |
) |
|
|
— |
|
Depletion, depreciation, amortization and asset retirement
obligation accretion |
|
25,521 |
|
|
|
12,474 |
|
|
|
63,889 |
|
|
|
33,700 |
|
Impairment of proved oil and gas properties |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,000 |
|
Stock-based compensation |
|
3,102 |
|
|
|
1,409 |
|
|
|
9,053 |
|
|
|
5,142 |
|
Cash-settled incentive awards accrued |
|
4,996 |
|
|
|
16,043 |
|
|
|
9,010 |
|
|
|
18,275 |
|
Cash-settled incentive awards paid |
|
(660 |
) |
|
|
— |
|
|
|
(2,045 |
) |
|
|
— |
|
Mark-to-market (gain) loss |
|
16,073 |
|
|
|
17,385 |
|
|
|
(819 |
) |
|
|
81,388 |
|
Total
adjustments |
|
57,531 |
|
|
|
60,583 |
|
|
|
114,063 |
|
|
|
235,835 |
|
Adjusted EBITDA |
$ |
42,929 |
|
|
$ |
41,727 |
|
|
$ |
114,162 |
|
|
$ |
94,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Call Information
Resolute will host an investor call on November 7, 2017, at
11:00 AM EDT. To participate in the call please dial (877) 857-6161
from the United States and Canada or (719) 325-4925 from outside
the U.S. and Canada. Participants should dial in five to ten
minutes before the scheduled time and must be on a touchtone
telephone to ask questions. A replay of the call will be available
through November 13, 2017, by dialing (844) 512-2921 from the U.S.
and Canada, or (412) 317-6671 from outside the U.S. and Canada. The
conference call replay number is 3410719.
Cautionary Statements
This press release includes “forward-looking statements” within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Words such as
“expect,” “estimate,” “project,” “budget,” “forecast,”
“anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,”
“poised,” “believes,” “predicts,” “potential,” “continue,” and
similar expressions are intended to identify such forward-looking
statements. Such forward looking statements include statements
regarding 2017 production guidance and anticipated fourth quarter
production; 2017 oil percentage guidance; anticipated capital
expenditures and activity in 2017 and 2018, including our 2017
extended capital plan; 2017 lease operating expense and
general and administrative expense expectations; future financial
and operating results; the expected benefits from the disposition
of Aneth Field; year-end borrowing expectations under our revolver;
anticipated benefits of our recently completed infrastructure
investments; expected timing of drilling and completion of pad
wells and plans to potentially add a third rig in early 2018; and
our plans and expectations regarding our strategy. Forward-looking
statements in this press release include matters that involve known
and unknown risks, uncertainties and other factors that may cause
actual results, levels of activity, performance or achievements to
differ materially from results expressed or implied by this press
release. Such risk factors include, among others: commodity prices;
the volatility of oil and gas prices including the price realized
by Resolute for the oil and gas it sells; inaccuracy in reserve
estimates and expected production rates; the discovery, estimation,
development and replacement by Resolute of oil and gas reserves and
the risks associated with the potential writedown of reserves; the
future cash flow, liquidity and financial position of Resolute;
Resolute’s level of indebtedness and our ability to fulfill our
obligations under the senior notes, our credit facility, and any
additional indebtedness that we may incur; potential borrowing base
reductions under our revolving credit facility; the success of the
business and financial strategy, hedging strategies and plans of
Resolute; the amount, nature and timing of capital expenditures of
Resolute, including future development costs; the availability of
additional capital and financing, including the capital needed to
pursue our acquisition strategy and our drilling and development
plans for our properties, on terms acceptable to us or at all;
uncertainty surrounding timing of identifying drilling locations
and necessary capital to drill such locations; the potential for
down-spacing, infill or multi-lateral drilling in the Permian Basin
or obstacles thereto; the timing of issuance of permits and rights
of way; the timing and amount of future production of oil and gas;
availability of drilling, completion and production personnel,
supplies and equipment; the completion and success of exploratory
drilling on our properties; potential delays in the completion,
commissioning and optimization schedule of Resolute’s facilities
construction projects or any potential breakdown of such
facilities; operating costs and other expenses of Resolute; the
success of prospect development and property acquisition of
Resolute; timing of installation of gathering and processing
infrastructure in new areas of development, including Resolute’s
dependence on third parties for such items; the success of Resolute
in marketing oil and gas; competition in the oil and gas industry;
the impact of weather and the occurrence of disasters, such as
fires, floods and other events and natural disasters; environmental
liabilities; potential power supply interruptions, limitations or
delays; operational problems or uninsured or underinsured losses
affecting Resolute’s operations or financial results; adverse
changes in government regulation and taxation of the oil and gas
industry, including the potential for increased regulation of
underground injection, fracing operations and venting/flaring;
potential climate related change regulations; risks and
uncertainties associated with horizontal drilling and completion
techniques; the availability of water and our ability to adequately
treat and dispose of water during and after drilling and completing
wells; changes in derivatives regulation; developments in
oil-producing and gas- producing countries; and cyber security
risks. Actual results may differ materially from those contained in
the forward looking statements in this press release. Resolute
undertakes no obligation and does not intend to update these
forward-looking statements to reflect events or circumstances
occurring after the date of this press release. You are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date of this press release. You are
encouraged to review “Cautionary Note Regarding Forward Looking
Statements” and “Item 1A - Risk Factors” and all other disclosures
appearing in the Company’s Form 10-K for the year ended December
31, 2016, and subsequent filings with the Securities and Exchange
Commission for further information on risks and uncertainties that
could affect the Company’s businesses, financial condition and
results of operations. All forward-looking statements are qualified
in their entirety by this cautionary statement.
Lateral lengths of wells described in this release are
indicative only. Actual completed lateral lengths depend on various
considerations such as leaseline offsets. Standard length laterals,
sometimes referred to as 5,000 foot laterals, are laterals with
completed length generally between 4,000 feet and 5,500 feet.
Mid‐length laterals, sometimes referred to as 7,500 foot laterals,
are laterals with completed length generally between 6,500 feet and
8,000 feet. Long laterals, sometimes referred to as 10,000 foot
laterals, are laterals with completed length generally longer than
8,000 feet.
Finally, production rates, including 24 hour, 30 day and 60 day
peak IP rates, for both our wells and for wells that are operated
by others are limited data points in each well’s productive
history. Also, different operators have different operating
philosophies, particularly early in the life of a well. Finally,
the way we calculate and report 24 hour, 30 day and 60 day peak IP
rates and the methodologies used by others may not be consistent,
thus the values reported may not be directly and meaningfully
comparable. As a result, these metrics may not be indicative or
predictive of future production rates, EUR or economic rates of
return from such wells and should not be relied upon for such
purpose. You are urged to consider closely the disclosure in
Resolute’s Annual Report on Form 10- K for the year ended December
31, 2016, filed on March 13, 2017, in particular the factors
described under “Risk Factors.”
About Resolute Energy Corporation
Resolute is an independent oil and gas company focused on the
acquisition and development of unconventional oil and gas
properties in the Delaware Basin portion of the Permian Basin of
west Texas. For more information, visit www.resoluteenergy.com. The
Company routinely posts important information about the Company
under the Investor Relations section of its website. The Company's
common stock is traded on the NYSE under the ticker symbol
"REN."
Contact:HB JuenglingVice President - Investor
RelationsResolute Energy Corporation303-534-4600, extension
1555hbjuengling@resoluteenergy.com
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