* Proved reserves increased 17% over year-end 2007 proved reserves to 211.1 Bcfe * Production increased 65% over 2007 production to 8,755 MMcfe * From drilling alone, Approach replaced 483% of production and had drill-bit finding and development ("F&D") cost of
$2.11per Mcfe * From all sources, Approach replaced 450% of production and had all-in F&D cost of $2.64per Mcfe
"Given the current commodity price environment and economic uncertainties, we plan to focus on reducing overall costs, increasing the efficiencies of our drilling programs and reducing drilling activity where necessary. Preservation of our financial flexibility will allow Approach to be in a good position to take advantage of potential 2009 drilling and acquisition opportunities."
F&D cost is a non-GAAP measure. See "Supplemental Non-GAAP Measures" below for our definition of F&D costs and a reconciliation to the information required by paragraphs 11 and 21 of Statement of Financial Accounting Standards No. 69.
2008 Proved Reserves
The following table is a reconciliation of the changes in our proved reserves between
Natural Gas Oil Total (MMcf) (MBbl) (MMcfe) ---------------------------- Balance - December 31, 2007 161,151 3,208 180,400 Extensions and discoveries 22,879 3,228 42,249 Purchases of minerals in place 7,312 67 7,711 Production (7,092) (277) (8,755) Revisions to previous estimates Performance-related revisions (5,724) 432 (3,132) Price-related revisions (5,659) (291) (7,405) ---------------------------- Balance - December 31, 2008 172,867 6,367 211,068
The PV-10, or pre-tax present value of our proved reserves discounted at 10%, was estimated at
Total costs incurred for oil and gas properties were
Information in this release regarding the standardized measure and costs incurred for oil and gas properties is preliminary and unaudited. Final and audited results will be provided in our annual report on Form 10-K for the year ended
Liquidity and Commodity Derivatives Update
We have a
Volume (MMBtu) $/MMBtu ------------------ --------------------- Period Monthly Total Floor Ceiling Fixed -------------------------- NYMEX - Henry Hub Costless collars 2009 180,000 2,160,000 $7.50 $10.50 Costless collars 2009 130,000 1,560,000 $8.50 $11.70 WAHA differential Fixed price swaps 2009 200,000 2,400,000 (0.61)
2008 Expected Impairments
In accordance with Statement of Financial Accounting Standards No. 144, we review our long-lived assets to be held and used, including proved and unproved oil and gas properties, accounted for under the successful efforts method of accounting. As a result of the review of the recoverability of the carrying value of our assets, we expect to report a non-cash impairment charge to unproved oil and gas properties of
The expected impairment charges discussed above are preliminary and unaudited. We will report final impairment charges in our audited financial statements to be included in our annual report on Form 10-K for the year ended
Forward-Looking Statements and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include the expectations of plans, strategies, objectives and estimates of proved reserves, and estimated financial results from 2008. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include, but are not limited to risks relating to financial performance and results, price volatility, supply and demand for oil and gas, global economic and financial market conditions, availability of drilling equipment and personnel, availability of sufficient capital to execute the Company's business plan, risks associated with drilling of oil and gas wells, the Company's ability to replace reserves and efficiently develop its current reserves, inaccuracies in the Company's assumptions regarding items of income and expense and the level of capital expenditures, production downtime due to maintenance, weather or other factors outside the Company's control and other important factors that could cause actual results to differ materially from projected results. Additional information on these and other risks and uncertainties are described in the Company's annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC on
Supplemental Non-GAAP Measures
This release contains certain financial measures that are non-GAAP measures. We have provided reconciliations within this release of the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, measures of financial performance prepared in accordance with GAAP that are presented in this release.
Finding and Development Costs
Drill-bit finding and development ("F&D") costs are calculated by dividing the sum of exploration costs and development costs for the year, by the total of reserve extensions and discoveries for the year.
All-in F&D costs, including revisions, are calculated by dividing the sum of property acquisition costs, exploration costs and development costs for the year, by the total of reserve extensions, discoveries, purchases and all revisions for the year.
All-in F&D costs, including revisions and the change in future development costs, are calculated by dividing the sum of property acquisition costs, exploration costs, development costs and the change in future development costs from the prior year, by the total of reserve extensions, discoveries, purchases and all revisions for the year.
We believe that providing the above measures of F&D cost is useful to assist an evaluation of how much it costs the Company, on a per Mcfe basis, to add proved reserves. However, these measures are provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our previous SEC filings and to be included in our annual report on Form 10-K to be filed with the SEC on or before
As a result of the above factors and various factors that could materially affect the timing and amounts of future increases in reserves and the timing and amounts of future costs, including factors disclosed in our filings with the SEC, we cannot assure you that the Company's future F&D costs will not differ materially from those set forth above. Further, the methods used by Approach to calculate its F&D costs may differ significantly from methods used by other companies to compute similar measures. As a result, Approach's F&D costs may not be comparable to similar measures provided by other companies.
The following table reflects the reconciliation of our estimated finding and development costs for the year ended
Cost summary (in thousands) Property acquisition costs Unproved properties $ 2,695 Proved properties 12,189 Exploration costs 5,007 Development costs(1) 84,193 ---------- Total costs incurred $ 104,084 Future development costs (in thousands) 2007 $ 191,738 2008 201,259 ---------- Change in future development costs $ 9,521 Reserve summary (MMcfe) Balance-December 31, 2007 180,400 Extensions and discoveries 42,249 Purchases of minerals in place 7,711 Production (8,755) Revisions to previous estimates (10,537) ---------- Balance-December 31, 2008 211,068 Finding and development costs ($/Mcfe) Drill-bit finding and development cost $ 2.11 All-in finding and development cost, including revisions $ 2.64 All-in finding and development costs, including revisions and change in future development costs $ 2.88 (1) Includes
$3.5 millionin non-cash asset retirement obligations recorded in 2008.
PV-10 is our estimate of the present value of future net revenues from proved oil and gas reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of future income taxes. The estimated future net revenues are discounted at an annual rate of 10% to determine their "present value." We believe PV-10 to be an important measure for evaluating the relative significance of our oil and gas properties and that the presentation of the non-GAAP financial measure of PV-10 provides useful information to investors because it is widely used by professional analysts and investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating the Company. We believe that PV-10 is a financial measure routinely used and calculated similarly by other companies in the oil and gas industry.
The following table reconciles PV-10 to our standardized measure of discounted future net cash flows (the most directly comparable measure calculated and presented in accordance with GAAP). PV-10 should not be considered as an alternative to the standardized measure of discounted future net cash flows as computed under GAAP.
As of December 31, ------------------ 2008 ------------------ (In thousands) PV-10 $ 221,080 Less income taxes: Undiscounted future income taxes (157,503) 10% discount factor 79,058 ------------------ Future discounted income taxes (78,445) Standardized measure of discounted future net cash flows $ 142,635
Production Replacement Calculation
Production replaced from all sources is calculated by dividing net proved reserve additions of 39.4 Bcfe (the sum of extensions and discoveries, purchases and revisions) by production of 8.8 Bcfe. Production replaced from drilling alone is calculated by dividing extensions and discoveries by production of 8.8 Bcfe. The Company uses production replacement ratios as an indicator of the Company's potential ability to replace annual production volumes and grow its reserves. However, these production replacement ratios have limitations. Theses ratios can vary from year to year for the Company and among other oil and gas companies based on the extent and timing of discoveries and property acquisitions. In addition, since these ratios do not incorporate the cost or timing of future production of new reserves, they should not be used as a measure of value creation.
Bbl. One stock tank barrel, of 42 U.S. gallons liquid volume, used in reference to oil, condensate or NGLs.
Bcfe. Billion cubic feet of natural gas equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or NGLs.
GAAP. Generally accepted accounting principles in the
MBbl. Thousand barrels of oil, condensate or NGLs.
Mcf. Thousand cubic feet of natural gas.
Mcfe. Thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or NGLs.
MMcf. Million cubic feet of natural gas.
MMcfe. Million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or NGLs.
NGLs. Natural gas liquids.
Reserve life index. An index calculated by dividing year-end 2008 reserves by 2008 production of 8,755 MMcfe to estimate the number of years of remaining production.
Approach Resources Inc. J. Ross Craft, President and CEO Steven P. Smart, Executive Vice President and CFO J. Curtis Henderson, Executive Vice President and General Counsel Megan P. Brown, Investor Relations and Corporate Communications817.989.9000