Disciplined Execution Drives Approach Resources Third Quarter 2018 Results

Source Press Release
Company Approach Resources Inc 
Tags Financial & Operating Data
Date November 08, 2018

Approach Resources Inc. (NASDAQ: AREX) today reported third quarter 2018 financial and operational results.

Financial and operational highlights for third quarter 2018

  • Drilled six wells and completed two horizontal Wolfcamp wells
  • Production of 1,043 MBoe or 11.3 MBoe/day
  • Revenues of $32.6 million, a 27% increase over prior year quarter
  • Generated $4.5 million of operating income
  • Net loss was $4.3 million or $0.05 per diluted share, and adjusted net loss (non-GAAP) was $4.2 million or $0.04 per diluted share
  • Generated $16.5 million of EBITDAX (non-GAAP), a 19% increase over prior year quarter
  • Improved unhedged cash margin per Boe (non-GAAP) to $18.88 per Boe, 40% over the prior year quarter

Adjusted net loss, EBITDAX and unhedged cash margin are non-GAAP measures. See “Supplemental Non-GAAP Financial and Other Measures” below for our definitions and reconciliations of adjusted net loss, EBITDAX to net loss and unhedged cash margin.

Management Comment

Ross Craft, Approach’s Chairman and CEO, commented, “I am pleased with our execution during the first nine months of the year relative to commodity prices and basin dynamics. This quarter we delivered revenue, earnings and EBITDAX growth. The strengthened price in oil and NGLs and expiration of legacy hedges, combined with a disciplined focus on controlling costs, drove $4.5 million of operating income. We drilled six horizontal wells, fulfilling our 2018 drilling program ahead of schedule. In addition, we completed two wells in the second half of the quarter and maintained our industry leading drilling and completion cost average of $4.6 million per well.

“Despite improved oil and NGL prices, the extreme WAHA natural gas price discount in the Permian Basin has persisted. In light of this, we elected to defer several third quarter completions and reschedule planned fourth quarter completions. We understand that the market often demands production growth under any circumstances, but we believe growth for the sake of growth is shortsighted. We have a healthy inventory of drilled but uncompleted wells, positioning us to accelerate activity in 2019, when we expect the basin gas differentials to improve. In the meantime, we will stay focused on delivering a strengthened balance sheet and on disciplined and profitable execution.”

Third Quarter 2018 Results

Production for third quarter 2018 totaled 1,043 Mboe, or 11.3 MBoe/d, made up of 26% oil, 36% NGLs and 38% natural gas. Average realized commodity prices for third quarter 2018, before the effect of commodity derivatives, were $67.28 per Bbl of oil, $28.38 per Bbl of NGLs and $1.59 per Mcf of natural gas. Our average realized price, including the effect of commodity derivatives, was $28.17 per Boe for third quarter 2018.

Net loss for third quarter 2018 was $4.3 million, or $0.05 per diluted share, on revenues of $32.6 million. Excluding the decrease in the fair value of our commodity derivatives of $0.1 million, adjusted net loss (non-GAAP) for third quarter 2018 was $4.2 million, or $0.04 per diluted share. EBITDAX (non-GAAP) for third quarter 2018 was $16.5 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 $5.57 per Boe. LOE in the third quarter included strategic spending on certain workovers and maintenance and we expect LOE to decrease in the fourth quarter. Production and ad valorem taxes averaged $2.03 per Boe, or 6.5% of oil, NGL and gas sales. Total general and administrative (“G&A”) costs averaged $5.35 per Boe, including cash G&A costs of $4.73 per Boe. Depletion, depreciation and amortization expense averaged $13.90 per Boe. Interest expense totaled $6.5 million.

Operations Update

In the third quarter we drilled six horizontal Wolfcamp wells: four in the A bench, one in the B bench and one in the C bench. During the second half of the third quarter we completed two horizontal Wolfcamp wells, both in Project Pangea. Of the completed wells, one well was in the B bench and one well was in the C bench. At September 30, 2018, we had seven horizontal wells waiting on completion.

As noted above, in light of the extreme WAHA gas discount in the basin, we deferred third quarter completions and rescheduled fourth quarter completions to preserve capital until basin gas differentials show signs of improvement. We now expect full year capital expenses to be $47 million, or 21% below the mid-point of prior guidance, and full year production to be approximately 4,100 MBoe, or 6% below the mid-point of prior guidance.

Capital expenditures incurred during third quarter 2018 totaled $19.3 million, consisting of $17 million for drilling and completion activities, $2.2 million for infrastructure projects and equipment and $0.1 million for lease acquisitions and extensions. For the nine months ended September 30, 2018, our capital expenditures totaled $46.5 million, consisting of $40.6 million for drilling and completion activities, $5.5 million for infrastructure projects and equipment and $0.4 million for lease acquisitions.

Liquidity Update

At September 30, 2018, we had a $1 billion revolving credit facility in place, with a borrowing base and lender commitment amount of $325 million, and liquidity of $29.2 million. See “Supplemental Non-GAAP Financial and Other Measures” below for our definition and calculation of liquidity.

Commodity Derivatives Update

We enter into commodity derivatives positions to reduce the risk of commodity price fluctuations. The table below is a summary of our current derivatives positions.

      Contract             
Commodity and Period      Type      Volume Transacted      Contract Price 
Crude Oil                   
October 2018 – December 2018      Swap      300 Bbls/day      $50.00/Bbl 
October 2018 – December 2019      Collar      500 Bbls/day      $65.00/Bbl - $71.00/Bbl 
                   
CMA Roll                   
October 2018 – December 2018      Swap      2,000 Bbls/day      $0.66/Bbl 
                   
Natural Gas                   
October 2018 – December 2018      Swap      200,000 MMBtu/month      $3.085/MMBtu 
October 2018 – December 2018      Swap      250,000 MMBtu/month      $3.084/MMBtu 
                   
NGLs (C2 - Ethane)                   
October 2018 – December 2018      Swap      1,000 Bbls/day      $11.424/Bbl 
October 2018 – December 2018      Swap      400 Bbls/day      $14.70/Bbl 
January 2019 – March 2019      Swap      900 Bbls/day      $14.123/Bbl 
NGLs (C3 - Propane)                   
October 2018 – December 2018      Swap      600 Bbls/day      $32.991/Bbl 
October 2018 – December 2018      Swap      400 Bbls/day      $40.74/Bbl 
October 2018 – June 2019      Swap      75 Bbls/day      $42.00/Bbl 
January 2019 – March 2019      Swap      600 Bbls/day      $35.165/Bbl 
NGLs (IC4 - Isobutane)                   
October 2018 – December 2018      Swap      50 Bbls/day      $38.262/Bbl 
NGLs (NC4 - Butane)                   
October 2018 – December 2018      Swap      200 Bbls/day      $38.22/Bbl 
January 2019 – March 2019      Swap      200 Bbls/day      $38.63/Bbl 
NGLs (C5 - Pentane)                   
October 2018 – December 2018      Swap      200 Bbls/day      $56.364/Bbl 
January 2019 – December 2019      Swap      100 Bbls/day      $65.10/Bbl 
January 2019 – December 2019      Swap      100 Bbls/day      $65.31/Bbl 
                   

Conference Call Information and Summary Presentation

The Company will host a conference call on November 9, 2018, at 10:00 AM CT (11:00 AM ET) to discuss third quarter 2018 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, , or by phone:

       
Conference ID      3063487 
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:      3063487 
       

In addition, a third quarter 2018 summary presentation, including updated guidance, will be available on the Company’s website

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd