Approach Resources Inc. Reports First Quarter 2019 Results

Source Press Release
Company Approach Resources Inc 
Tags Capital Spending, Strategy - Corporate, Financial & Operating Data
Date May 09, 2019

Approach Resources Inc. (NASDAQ: AREX) today reported first quarter 2019financial 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 capitalbudget 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, , 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.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd