SRC Energy Inc. (NYSE American: SRCI) (“SRC”, the “Company”, “we”,
“us” or “our”), a U.S. oil and gas exploration and production
company with operations focused on the Wattenberg Field in the
Denver-Julesburg Basin, reports its financial and operating results
for the three and nine months ended September 30, 2018.
Third Quarter 2018 Highlights
- Revenues were $161.0 million for the three months ended
September 30, 2018
- Net income was $62.6 million or $0.26 per diluted share for the
three months ended September 30, 2018
- Adjusted EBITDA was $121.5 million and $344.9 million for the
three and nine months ended September 30, 2018, respectively
(see further discussion regarding the presentation of adjusted
EBITDA in "About Non-GAAP Financial Measures" below)
- Drilling and completion capital expenditures were $177.1
million and $408.3 million for the three and nine months ended
September 30, 2018, respectively
Third Quarter 2018 Financial ResultsThe
following tables present certain per unit metrics that compare
results of the corresponding reporting periods:
|
Three Months Ended |
|
Nine Months Ended |
Net Volumes |
9/30/2018 |
|
9/30/2017 |
|
% Chg. |
|
9/30/2018 |
|
9/30/2017 |
|
% Chg. |
Crude
Oil (MBbls) |
|
1,915 |
|
|
1,726 |
|
11 |
% |
|
|
5,802 |
|
|
3,668 |
|
58 |
% |
Natural Gas Liquids (MBbls) |
|
1,030 |
|
|
753 |
|
37 |
% |
|
|
2,780 |
|
|
1,758 |
|
58 |
% |
Natural Gas (MMcf) |
|
9,471 |
|
|
7,412 |
|
28 |
% |
|
|
26,177 |
|
|
17,122 |
|
53 |
% |
Sales Volumes: (MBOE) |
|
4,523 |
|
|
3,714 |
|
22 |
% |
|
|
12,945 |
|
|
8,280 |
|
56 |
% |
Average Daily Volumes |
|
|
|
|
|
|
|
|
|
|
|
Daily Production (BOE) |
|
49,165 |
|
|
40,378 |
|
22 |
% |
|
|
47,416 |
|
|
30,331 |
|
56 |
% |
Product Price Received |
|
|
|
|
|
|
|
|
|
|
|
Crude Oil ($/Bbl) |
$ |
63.48 |
|
$ |
41.89 |
|
52 |
% |
|
$ |
60.13 |
|
$ |
41.73 |
|
44 |
% |
Natural Gas Liquids ($/Bbl) |
$ |
19.93 |
|
|
17.32 |
|
15 |
% |
|
$ |
18.91 |
|
|
15.49 |
|
22 |
% |
Natural Gas ($/Mcf) |
$ |
1.79 |
|
$ |
2.35 |
|
(24 |
)% |
|
$ |
1.84 |
|
$ |
2.39 |
|
(23 |
)% |
Avg. Realized Price ($/BOE) |
$ |
35.15 |
|
$ |
27.66 |
|
27 |
% |
|
$ |
34.73 |
|
$ |
26.72 |
|
30 |
% |
Per Unit Cost Information
($/BOE) |
Lease Operating Exp. |
$ |
2.29 |
|
$ |
1.17 |
|
96 |
% |
|
$ |
2.31 |
|
$ |
1.57 |
|
47 |
% |
Production Tax |
$ |
2.83 |
|
$ |
2.71 |
|
4 |
% |
|
$ |
3.19 |
|
$ |
2.54 |
|
26 |
% |
DD&A Expense |
$ |
9.99 |
|
$ |
9.08 |
|
10 |
% |
|
$ |
9.59 |
|
$ |
8.86 |
|
8 |
% |
Total G&A Expense |
$ |
2.36 |
|
$ |
2.29 |
|
3 |
% |
|
$ |
2.29 |
|
$ |
2.93 |
|
(22 |
)% |
|
Revenues for the three months ended September 30, 2018 increased
55% compared to the three months ended September 30, 2017.
This increase was driven by growth in sales volumes, combined with
an improvement in realized oil and natural gas liquids prices,
which were partially offset by a decrease in realized natural gas
prices. The decreased gas price was primarily due to wide
differentials to the Colorado Interstate Gas index.
The Company's 2018 third quarter net income totaled $62.6
million, or $0.26 per diluted share, compared to a net income of
$43.8 million, or $0.22 per diluted share, in the year ago
quarter. Adjusted EBITDA in the third quarter of 2018 was
$121.5 million as compared to $83.5 million in the year ago
quarter.
Credit AgreementOn October 30, 2018 the Company
closed on the semi-annual redetermination of its borrowing base
under its revolving credit facility. As a result, the borrowing
base under the facility was increased to $650 million from $550
million while the aggregate elected commitments were increased to
$500 million from $450 million. As of September 30, 2018, the
Company had $115 million drawn on the facility.
Management CommentLynn A. Peterson, Chairman
and CEO of SRC Energy Inc. commented, "When the dust settles from
the midstream and political issues that have surrounded our Company
this year, I hope that everyone will focus on the fact that we are
on track to deliver 45% growth on a year over year basis which is
being funded largely through internally generated cash flow.
Our industry is more unified than ever as we remind voters,
leading into the November 6th election, about the significant
contributions of a strong oil and gas industry in Colorado.
The process of educating Colorado communities about our industry
from a perspective of health and safety has galvanized our strong
pride in what we do every day. Once the election results are
known, it will be at that moment that we need to move forward and
work to develop a cohesive relationship with the executive and
legislative branches as well as the communities where we
operate."
Conference CallThe Company will host a
conference call on Thursday, November 1, 2018 at 11:00 a.m. Eastern
time (9:00 a.m. Mountain time) to discuss the results. The
call will be conducted by Chairman and CEO Lynn A. Peterson, CFO
James Henderson, Chief Development Officer Nick Spence, Chief
Operations Officer Mike Eberhard, and Manager of Investor Relations
John Richardson. A Q&A session will immediately follow
the discussion of the results for the quarter. Please refer
to SRC's website at www.srcenergy.com for the most recent
corporate presentation and other news and information.
To participate in this call please
dial:Domestic Dial-in Number: (877)
407-9122International Dial-in Number: (201)
493-6747Webcast:
https://78449.themediaframe.com/dataconf/productusers/srci/mediaframe/26936/indexl.html
Replay Information:Conference ID #:
411931Replay Dial-In (Toll Free US & Canada):
877-660-6853Replay Dial-In (International):
201-612-7415Expiration Date: 11/16/18
About SRC Energy Inc.
SRC Energy Inc. is a Denver based oil and natural gas
exploration and production company. SRC's core area of operations
is in the Greater Wattenberg Field of the Denver-Julesburg Basin of
Colorado. More company news and information about SRC is available
at www.srcenergy.com.
Important Cautions Regarding Forward Looking
Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact
are forward-looking statements. The use of words such as
"believes", "expects", "anticipates", "intends", "plans",
"estimates", "should", "likely", “guidance” or similar expressions
indicates a forward-looking statement. Forward-looking statements
in the release relate to, among other things, the ability to
operate in Colorado in the future. These statements are
subject to risks and uncertainties and are based on the beliefs and
assumptions of management, and information currently available to
management. The actual results could differ materially from a
conclusion, forecast or projection in the forward-looking
information. Certain material factors or assumptions were applied
in drawing a conclusion or making a forecast or projection as
reflected in the forward-looking information. The identification in
this press release of factors that may affect the Company's future
performance and the accuracy of forward-looking statements is meant
to be illustrative and by no means exhaustive. All forward-looking
statements should be evaluated with the understanding of their
inherent uncertainty. Factors that could cause the Company's actual
results to differ materially from those expressed or implied by
forward-looking statements include, but are not limited to: risks
associated with the construction of new midstream facilities, the
impact of those facilities and other risks associated with the
availability of adequate midstream infrastructure; the success of
the Company's exploration and development efforts; the price of oil
and gas; worldwide economic situation; change in interest rates or
inflation; willingness and ability of third parties to honor their
contractual commitments; the Company's ability to raise additional
capital, as it may be affected by current conditions in the stock
market and competition in the oil and gas industry for risk
capital; the Company's capital costs, which may be affected by
delays or cost overruns; costs of production; environmental and
other regulations, as the same presently exist or may later be
amended; the Company's ability to identify, finance and integrate
any future acquisitions; the volatility of the Company's stock
price; and the other factors described in the “Risk Factors”
sections of the Company’s filings with the Securities and Exchange
Commission, all of which are incorporated by reference in this
release. Please see our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2018 for discussion of the potential
effects on our business of Proposition 112, which will be voted on
in November 2018. We cannot predict the outcome of the vote
on that or any other matter.
Reconciliation of Non-GAAP Financial MeasuresWe
define adjusted EBITDA, a non-GAAP financial measure, as net income
adjusted to exclude the impact of the items set forth in the table
below. We exclude those items because they can vary
substantially from company to company within our industry depending
upon accounting methods and book values of assets, capital
structures, and the method by which the assets were acquired.
We believe that adjusted EBITDA is widely used in our industry as a
measure of operating performance and may also be used by investors
to measure our ability to meet debt covenant requirements.
The following table presents a reconciliation of adjusted EBITDA to
net income, its nearest GAAP measure:
SRC ENERGY
INC. |
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
(unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Adjusted EBITDA: |
|
|
|
|
|
|
|
Net income |
$ |
62,628 |
|
|
$ |
43,848 |
|
|
$ |
178,048 |
|
|
$ |
91,664 |
|
Depreciation, depletion, and accretion |
45,188 |
|
|
33,740 |
|
|
124,146 |
|
|
73,396 |
|
Stock-based compensation |
3,405 |
|
|
3,030 |
|
|
9,347 |
|
|
8,390 |
|
Mark-to-market of commodity derivative
contracts: |
|
|
|
|
|
|
|
Total gain on commodity derivatives contracts |
8,529 |
|
|
2,383 |
|
|
28,604 |
|
|
(2,324 |
) |
Cash settlements on commodity derivative
contracts |
(7,142 |
) |
|
544 |
|
|
(13,263 |
) |
|
778 |
|
Interest income |
(23 |
) |
|
(16 |
) |
|
(37 |
) |
|
(47 |
) |
Income tax expense |
8,918 |
|
|
— |
|
|
18,076 |
|
|
— |
|
Adjusted EBITDA |
$ |
121,503 |
|
|
$ |
83,529 |
|
|
$ |
344,921 |
|
|
$ |
171,857 |
|
Condensed Consolidated Financial
StatementsCondensed consolidated financial statements are
included below. Additional financial information, including
footnotes that are considered an integral part of the condensed
consolidated financial statements, can be found in SRC's Quarterly
Report on Form 10-Q for the period ended September 30, 2018, which
is available at www.sec.gov.
SRC ENERGY
INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(unaudited; in thousands) |
|
|
|
|
ASSETS |
September 30, 2018 |
|
December 31, 2017 |
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
19,236 |
|
|
$ |
48,772 |
|
Other current assets |
152,467 |
|
|
111,263 |
|
Total current assets |
171,703 |
|
|
160,035 |
|
|
|
|
|
Oil and gas properties and other equipment |
2,362,919 |
|
|
1,876,576 |
|
Goodwill |
40,711 |
|
|
40,711 |
|
Other assets |
3,599 |
|
|
2,242 |
|
|
|
|
|
Total assets |
$ |
2,578,932 |
|
|
$ |
2,079,564 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
Current liabilities |
353,077 |
|
|
202,307 |
|
|
|
|
|
Revolving credit facility |
115,000 |
|
|
— |
|
Notes payable, net of issuance costs |
539,050 |
|
|
538,186 |
|
Asset retirement obligations |
48,951 |
|
|
28,376 |
|
Other liabilities |
22,055 |
|
|
2,261 |
|
Total liabilities |
1,078,133 |
|
|
771,130 |
|
|
|
|
|
Shareholders' equity: |
|
|
|
Common stock and paid-in capital |
1,488,831 |
|
|
1,474,514 |
|
Retained earnings (deficit) |
11,968 |
|
|
(166,080 |
) |
Total shareholders' equity |
1,500,799 |
|
|
1,308,434 |
|
|
|
|
|
Total liabilities and shareholders' equity |
$ |
2,578,932 |
|
|
$ |
2,079,564 |
|
|
Nine Months Ended September 30, |
|
2018 |
|
2017 |
Cash flows from operating activities: |
|
|
|
Net income |
$ |
178,048 |
|
|
$ |
91,664 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
Depletion, depreciation, and accretion |
124,146 |
|
|
73,396 |
|
Provision for deferred taxes |
18,076 |
|
|
— |
|
Other, non-cash items |
19,454 |
|
|
2,767 |
|
Changes in operating assets and liabilities |
3,830 |
|
|
(25,010 |
) |
Net cash provided by operating activities |
343,554 |
|
|
142,817 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Acquisitions of oil and gas properties and
leaseholds |
(129,069 |
) |
|
(62,562 |
) |
Capital expenditures for drilling and completion
activities |
(331,702 |
) |
|
(305,636 |
) |
Other capital expenditures |
(29,353 |
) |
|
(15,256 |
) |
Proceeds from sales of oil and gas properties and
other |
1,233 |
|
|
77,017 |
|
Net cash used in investing activities |
(488,891 |
) |
|
(306,437 |
) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
Equity financing activities |
3,039 |
|
|
(517 |
) |
Debt financing activities |
112,762 |
|
|
148,628 |
|
Net cash provided by financing activities |
115,801 |
|
|
148,111 |
|
|
|
|
|
Net decrease in cash, cash equivalents, and restricted cash |
(29,536 |
) |
|
(15,509 |
) |
Cash, cash equivalents, and restricted cash at beginning of
period |
48,772 |
|
|
36,834 |
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
19,236 |
|
|
$ |
21,325 |
|
|
Three Months Ended September
30, |
|
Nine Months Ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Oil, natural gas, and NGL revenues |
$ |
160,978 |
|
|
$ |
103,593 |
|
|
$ |
455,298 |
|
|
$ |
222,419 |
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
Lease operating expenses |
10,360 |
|
|
4,316 |
|
|
29,868 |
|
|
13,008 |
|
Transportation and gathering |
1,994 |
|
|
838 |
|
|
5,729 |
|
|
1,136 |
|
Production taxes |
12,824 |
|
|
10,083 |
|
|
41,325 |
|
|
21,013 |
|
Depreciation, depletion, and accretion |
45,188 |
|
|
33,740 |
|
|
124,146 |
|
|
73,396 |
|
Unused commitment charge |
— |
|
|
— |
|
|
— |
|
|
669 |
|
General and administrative |
10,685 |
|
|
8,484 |
|
|
29,691 |
|
|
24,289 |
|
Total expenses |
81,051 |
|
|
57,461 |
|
|
230,759 |
|
|
133,511 |
|
|
|
|
|
|
|
|
|
Operating income |
79,927 |
|
|
46,132 |
|
|
224,539 |
|
|
88,908 |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Commodity derivatives gain (loss) |
(8,529 |
) |
|
(2,383 |
) |
|
(28,604 |
) |
|
2,324 |
|
Interest expense, net of amounts capitalized |
— |
|
|
— |
|
|
— |
|
|
— |
|
Interest income |
23 |
|
|
16 |
|
|
37 |
|
|
47 |
|
Other income |
125 |
|
|
83 |
|
|
152 |
|
|
385 |
|
Total other income (expense) |
(8,381 |
) |
|
(2,284 |
) |
|
(28,415 |
) |
|
2,756 |
|
|
|
|
|
|
|
|
|
Income before income taxes |
71,546 |
|
|
43,848 |
|
|
196,124 |
|
|
91,664 |
|
|
|
|
|
|
|
|
|
Income tax expense |
8,918 |
|
|
— |
|
|
18,076 |
|
|
— |
|
Net income |
$ |
62,628 |
|
|
$ |
43,848 |
|
|
$ |
178,048 |
|
|
$ |
91,664 |
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
Basic |
$ |
0.26 |
|
|
$ |
0.22 |
|
|
$ |
0.74 |
|
|
$ |
0.46 |
|
Diluted |
$ |
0.26 |
|
|
$ |
0.22 |
|
|
$ |
0.73 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
Basic |
242,536,781 |
|
|
200,881,447 |
|
|
242,184,348 |
|
|
200,807,436 |
|
Diluted |
243,560,046 |
|
|
201,460,915 |
|
|
243,207,058 |
|
|
201,326,129 |
|
Company Contact:
John Richardson (Investor Relations Manager)
SRC Energy Inc.
Tel 720-616-4308
E-mail: jrichardson@srcenergy.com
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