DATA AS OF
08.04.19 12:49 AM EDT


News Release

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FORT WORTH, Texas, Aug 4, 2009 (GlobeNewswire via COMTEX) -- Approach Resources Inc. (Nasdaq:AREX) today reported second quarter 2009 financial and operating results.

Highlights



 Highlights for the second quarter of 2009 (compared to second quarter
 of 2008) include:

 * Production increased 12% to 2.3 Bcfe (25.1 MMcfe/d)

 * Production was 71% natural gas and 29% oil and NGLs, compared to
   82% natural gas and 18% oil and NGLs in the second quarter of 2008

 * Revenues decreased 59% to $9.9 million, on a 63% drop in average
   realized commodity prices (before the effect of commodity
   derivatives) to $4.35 per Mcfe and a 46% drop in average realized
   commodity prices (after the effect of commodity derivatives) to
   $6.30 per Mcfe

 * Net loss was $671,000, or $(0.03) per diluted share, compared to
   net income of $928,000, or $0.04 per diluted share, for the second
   quarter of 2008, a 172% decrease

 * Adjusted net income (a non-GAAP measure) was $2.2 million, or $0.10
   per diluted share, a 70% decrease

 * EBITDAX (a non-GAAP measure) was $10.2 million, or $0.49 per
   diluted share, a 46% decrease

Second Quarter 2009 Results

Production for the second quarter of 2009 totaled 2.3 Bcfe (25.1 MMcfe/d), compared to 2.0 Bcfe (22.4 MMcfe/d) produced in the second quarter of 2008, an increase of 12%. Production decreased 10% in the second quarter of 2009, compared to first quarter 2009 production of 2.5 Bcfe. Second quarter 2009 production was 71% natural gas and 29% oil and NGLs, compared to 82% natural gas and 18% oil and NGLs in the second quarter of 2008.

Revenues for the second quarter of 2009 totaled $9.9 million, compared to revenues of $24.1 million for the second quarter of 2008. Revenues for the second quarter of 2009 were negatively impacted by a sharp decline in realized commodity prices over the prior year quarter. Average realized natural gas, oil and NGL prices for the second quarter of 2009, before the effect of commodity derivatives, were $3.28 per Mcf, $55.60 per Bbl and $26.84 per Bbl, respectively, versus $11.10 per Mcf, $121.29 per Bbl and $53.93 per Bbl, respectively, for the second quarter of 2008. The Company's average realized price, including the effect of commodity derivatives, was $6.30 per Mcfe for the second quarter of 2009, compared to $11.59 per Mcfe for the second quarter of 2008, a decrease of 46%. Of the $14.2 million decrease in revenues, approximately $16.0 million was attributable to a decrease in oil and gas prices, which was partially offset by approximately $1.8 million attributable to an increase in production from Cinco Terry.

Net loss for the second quarter of 2009 was $671,000, or $(0.03) per diluted share, compared to net income of $928,000, or $0.04 per diluted share, for the second quarter of 2008. Net loss for the second quarter of 2009 included a pre-tax, unrealized loss on commodity derivatives of $4.3 million.

Excluding the unrealized loss on commodity derivatives and related income taxes, adjusted net income (a non-GAAP measure) for the second quarter of 2009 was $2.2 million, or $0.10 per diluted share, compared to adjusted net income of $7.3 million, or $0.35 per diluted share, for the second quarter of 2008. See "Supplemental Non-GAAP Financial and Other Measures" below for our reconciliation of adjusted net income to net income.

EBITDAX (a non-GAAP measure) for the second quarter of 2009 was $10.2 million, or $0.49 per diluted share, compared to $19.0 million, or $0.91 per diluted share, for the second quarter of 2008. See "Supplemental Non-GAAP Financial and Other Measures" below for our reconciliation of EBITDAX to net income.

Lease operating expenses ("LOE") for the second quarter of 2009 were $1.8 million ($0.77 per Mcfe), compared to $1.9 million ($0.91 per Mcfe) in the second quarter of 2008. The decrease in LOE over the prior year period was due in part to lower expenses related to well repair and maintenance costs as well as a $235,000 reduction of our estimated ad valorem tax accrual for the three months ended March 31, 2009, which we recognized during the second quarter of 2009.

Severance and production taxes for the second quarter of 2009 were $507,000, or 5.1% of oil and gas sales, compared to $1.2 million, or 4.8% of oil and gas sales, in the second quarter of 2008.

General and administrative ("G&A") expenses for the second quarter of 2009 were $2.2 million ($0.98 per Mcfe), compared to $1.8 million ($0.89 per Mcfe) for the second quarter of 2008. The increase in G&A expenses was principally due to increased staffing, share-based compensation and an increase in franchise taxes partially due to the timing of payment compared to 2008.

Depletion, depreciation and amortization ("DD&A") expenses for the second quarter of 2009 were $6.2 million ($2.73 per Mcfe), compared to $6.0 million ($2.93 per Mcfe) for the second quarter of 2008. The decrease in DD&A expenses per Mcfe was primarily attributable to an increase in our estimated proved reserves partially offset by an increase in production over the prior year quarter.

Our income tax benefit was $460,000 for the second quarter of 2009. Our provision for income taxes was $804,000 for the second quarter of 2008. Our effective income tax rate for the second quarter of 2009 was 40.7%, compared with 46.4% for the second quarter of 2008.

Capital Expenditures and Drilling Operations

Capital expenditures for drilling and development in the second quarter of 2009 totaled $3.1 million, and included the completion of seven gross (3.5 net) wells that were waiting on completion at March 31, 2009, all of which were completed as producers. Our estimated average daily net production for the month of July 2009 was 22.8 MMcfe/d.

As previously announced, due to the continued weakness in commodity prices, we did not extend the contracts for our two remaining drilling rigs after March 31, 2009, and we released these rigs during the first week of April 2009. We currently expect that our capital expenditures for the year ending December 31, 2009 will not exceed $25 million. We intend to fund our 2009 capital expenditures with internally-generated cash flows, with any excess cash flows applied to debt, working capital obligations or strategic acquisitions. Our capital expenditure budget is subject to change depending upon a number of factors, including economic and industry conditions at the time of drilling, prevailing and anticipated prices for oil and gas, the results of our development and exploration efforts, the availability of sufficient capital resources to us and other participants for drilling prospects, our financial results, the availability of leases on reasonable terms and our ability to obtain permits for the drilling locations.

Liquidity and Commodity Derivatives Update

We have a $200 million revolving credit facility with a $100 million borrowing base, of which $46.2 million and $42.9 million were drawn at June 30, 2009 and July 31, 2009, respectively. As of June 30, 2009, our long-term debt-to-capital ratio (a non-GAAP measure) was 17%. See "Supplemental Non-GAAP Financial and Other Measures" below for our definition of "long-term debt-to-capital ratio."

As of July 31, 2009, we had the following commodity derivatives positions outstanding:



                              Volume (MMBtu)             $/MMBtu
                           --------------------  ----------------------
 Period                      Monthly     Total    Floor  Ceiling  Fixed
 --------------------------
 NYMEX - Henry Hub
  Costless collars 2009      180,000    900,000  $ 7.50  $10.50
  Costless collars 2009      130,000    650,000  $ 8.50  $11.70
  Fixed price swaps 3rd -
   4th quarter 2009          150,000    750,000                  $ 4.50
  Fixed price swaps 2010     150,000  1,800,000                  $ 5.85
  Fixed price swaps 2010     150,000  1,800,000                  $ 6.40
 WAHA differential
  Fixed price swaps 2009     200,000  1,000,000                  $(0.61)
  Fixed price swaps 3rd
   quarter 2009              300,000    600,000                  $(0.58)
  Fixed price swaps 4th
   quarter 2009              300,000    900,000                  $(0.67)
  Fixed price swaps 2010     415,000  4,980,000                  $(0.71)
  Fixed price swaps 2011     300,000  3,600,000                  $(0.53)

Management Comments

J. Ross Craft, the Company's President and Chief Executive Officer, commented, "The significant decline in natural gas prices continued to affect our revenues and net income during the second quarter of 2009. We do not anticipate an appreciable improvement in natural gas pricing for the remainder of 2009 and have increased our 2010 hedge position through two fixed price swaps with an average price of $6.13 per MMBtu. However, we remain positive on the long-term outlook for natural gas, a clean, abundant fuel source.

"We continue to be a low-cost operator and have implemented several cost-saving measures in the field that contributed to a reduction in operating expenses over both the prior-year quarter and the past quarter. The reduction in operating expenses, along with the continued reduction in service costs, helped offset current commodity prices. We plan to resume our Cinco Terry drilling program, where we can benefit from higher oil and natural gas liquids production, during the fourth quarter of 2009. We have restarted the permitting process for a 106-square mile 3-D seismic shoot over Cinco Terry and expect data collection to begin in January 2010. When completed, we should be able to high grade Ellenburger, Canyon and Wolfcamp targets. We also continue to focus on optimizing our Ozona Northeast asset base through low-cost, high-return projects. We have identified several Strawn and Ellenburger deepening projects as a result of our reprocessed 3-D seismic data and are currently on our first well of a four-well test program."

Conference Call Information

The Company will host a conference call on Wednesday, August 5, 2009, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss second quarter 2009 results. To participate in the conference call, domestic participants should dial (800) 299-8538 and international participants should dial (617) 786-2902 approximately 15 minutes before the scheduled conference time. To access the simultaneous webcast of the conference call, please visit the Calendar of Events page under the Investor Relations section of the Company's website, www.approachresources.com, 15 minutes before the scheduled conference time to register for the webcast and install any necessary software. A replay of the webcast will be available for one year on the Company's website.

Forward-Looking 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 anticipated financial and operating results of the Company, including as to the Company's expected capital expenditures, drilling program, 3-D seismic shoot, well costs and well results. 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. Further information on such assumptions, risks and uncertainties is available in the Company's Securities and Exchange Commission ("SEC") filings. The Company's SEC filings are available on its website at www.approachresources.com. Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

About Approach Resources Inc.

Approach Resources Inc. is an independent energy company engaged in the exploration, development, production and acquisition of unconventional natural gas and oil properties in the United States. The Company focuses on natural gas and oil reserves in tight sands and shale. The Company operates in Texas, Kentucky and New Mexico and has non-operated interests in British Columbia. For more information about the Company, please visit www.approachresources.com. Please note that the Company routinely posts important information about the Company under the Investor Relations section of its website.

The Approach Resources Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4320



                   UNAUDITED RESULTS OF OPERATIONS

                          Three Months Ended        Six Months Ended
                               June 30,                 June 30,
                        ----------------------  ----------------------
                           2009        2008        2009        2008
                        ----------------------  ----------------------
 Revenues
 (in thousands):
  Gas                   $    5,326  $   18,572  $   11,936  $   33,444
  Oil                        3,182       4,165       5,210       7,250
  NGLs                       1,407       1,407       2,834       2,468
                        ----------------------  ----------------------
   Total oil and gas
    sales                    9,915      24,144      19,980      43,162

 Realized gain (loss)
  on commodity
  derivatives                4,444        (542)      7,625        (481)
                        ----------------------  ----------------------
   Total oil and gas
    sales including
    derivative impact   $   14,359  $   23,602  $   27,605  $   42,681
                        ----------------------  ----------------------
 Production:
  Gas (MMcf)                 1,624       1,674       3,395       3,339
  Oil (MBbls)                   57          34         116          66
  NGLs (MBbls)                  52          26         120          47
                        ----------------------  ----------------------
   Total (MMcfe)             2,282       2,036       4,815       4,016
   Total (MMcfe/d)            25.1        22.4        26.6        22.1

 Average prices:
  Gas (per Mcf)         $     3.28  $    11.10  $     3.52  $    10.02
  Oil (per Bbl)              55.60      121.29       44.83      110.10
  NGLs (per Bbl)             26.84       53.93       23.54       52.61
                        ----------------------  ----------------------
   Total (per Mcfe)     $     4.35  $    11.86  $     4.15  $    10.75

  Realized gain (loss)
   on commodity
   derivatives
   (per Mcfe)                 1.95       (0.27)       1.58       (0.12)
                        ----------------------  ----------------------
   Total per Mcfe
    including
    derivative impact   $     6.30  $    11.59  $     5.73  $    10.63

 Costs and expenses
  (per Mcfe):
  Lease operating       $     0.77  $     0.91  $     0.86  $     0.81
  Severance and
   production taxes           0.22        0.57        0.19        0.48
  Exploration                   --        0.48          --        0.37
  General and
   administrative             0.98        0.89        1.05        0.94
  Depletion,
   depreciation
   and amortization           2.73        2.93        2.74        2.78


                 APPROACH RESOURCES INC. AND SUBSIDIARIES
             UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
           (In thousands, except shares and per-share amounts)

                          Three Months Ended        Six Months Ended
                                June 30,                June 30,
                        ----------------------  ----------------------
                           2009        2008         2009       2008
                        ----------------------  ----------------------
 REVENUES:
  Oil and gas sales     $    9,915  $   24,144  $   19,980  $   43,162

 EXPENSES:
  Lease operating            1,753       1,856       4,122       3,253
  Severance and
   production taxes            507       1,170         937       1,923
  Exploration                   --         987          --       1,478
  General and
   administrative            2,230       1,817       5,040       3,763
  Depletion,
   depreciation and
   amortization              6,223       6,025      13,171      11,241
                        ----------------------  ----------------------
   Total expenses           10,713      11,855      23,270      21,658
                        ----------------------  ----------------------

 OPERATING (LOSS)
  INCOME                      (798)     12,289      (3,290)     21,504

 OTHER:
  Interest expense, net       (457)       (343)       (902)       (491)
  Realized gain (loss)
   on commodity
   derivatives               4,444        (542)      7,625        (481)
  Unrealized (loss)
   on commodity
   derivatives              (4,320)     (9,672)     (2,175)    (14,551)
                        ----------------------  ----------------------

 (LOSS) INCOME BEFORE
  INCOME TAX PROVISION      (1,131)      1,732       1,258       5,981
 INCOME TAX (BENEFIT)
  PROVISION                   (460)        804       1,061       2,291
                        ----------------------  ----------------------

 NET (LOSS) INCOME      $     (671) $      928  $      197  $    3,690
                        ======================  ======================

 (LOSS) EARNINGS PER
  SHARE:
   Basic                $    (0.03) $     0.04  $     0.01  $     0.18
                        ======================  ======================
   Diluted              $    (0.03) $     0.04  $     0.01  $     0.18
                        ======================  ======================

 WEIGHTED AVERAGE
  SHARES OUTSTANDING:
  Basic                 20,827,745  20,646,519  20,794,121  20,634,633
  Diluted               20,827,745  20,913,832  20,847,284  20,921,994



                   UNAUDITED SELECTED FINANCIAL DATA


 Unaudited Consolidated Balance Sheet Data
  (in thousands):                              June 30,   December 31,
                                             -----------  -----------
                                                 2009         2008
                                             -----------  -----------

 Cash and cash equivalents                   $     1,417  $     4,077
 Other current assets                             15,815       30,760
 Property and equipment, net, successful
  efforts method                                 307,066      303,404
                                             -----------  -----------
  Total assets                               $   324,298  $   338,241
                                             ===========  ===========

 Current liabilities                         $    10,377  $    30,775
 Long-term debt                                   46,237       43,537
 Other long-term liabilities                      42,623       40,116
 Stockholders' equity                            225,061      223,813
                                             -----------  -----------
  Total liabilities and stockholders' equity $   324,298  $   338,241
                                             ===========  ===========


                                                  Six Months Ended
                                                      June 30,
                                             ------------------------
                                                 2009         2008
                                             ------------------------
 Unaudited Consolidated Cash Flow Data
  (in thousands):

 Operating activities                        $    11,186  $    23,921
 Investing activities                        $   (16,545) $   (36,180)
 Financing activities                        $     2,700  $     7,650
 Effect of foreign
  currency translation                       $        (1) $       (36)

Supplemental Non-GAAP Financial and Other 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 here and on the Non-GAAP Financial Information page in the Investor Relations section of our website at www.approachresources.com.

Adjusted Net Income

This release contains the non-GAAP financial measures adjusted net income and adjusted earnings per diluted share, which exclude the unrealized, pre-tax loss on commodity derivatives and related income taxes.

The amounts included in the calculation of adjusted net income and adjusted earnings per diluted share below were computed in accordance with GAAP. We believe adjusted net income and adjusted earnings per diluted share are useful to investors because they provide readers with a more meaningful measure of our profitability before recording certain items whose timing or amount cannot be reasonably determined. 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 SEC filings and posted on our website.

The following table provides a reconciliation of adjusted net income to net (loss) income for the three and six months ended June 30, 2009 and 2008, respectively (in thousands, except per-share metrics):



                                 Three Months Ended   Six Months Ended
                                       June 30,           June 30,
                                 ------------------  ------------------
                                   2009      2008      2009      2008
                                 ------------------  ------------------

 Net (loss) income               $   (671) $    928  $    197  $  3,690
  Unrealized loss on commodity
   derivatives                      4,320     9,672     2,175    14,551
  Related income tax effect        (1,469)   (3,288)     (740)   (4,947)
                                 ------------------  ------------------
 Adjusted net income             $  2,180  $  7,312  $  1,632  $ 13,294
                                 ==================  ==================
 Adjusted earnings per diluted
  share                          $   0.10  $   0.35  $   0.08  $   0.64
                                 ==================  ==================

EBITDAX

We define EBITDAX as net (loss) income, plus (1) exploration expense, (2) depletion, depreciation and amortization expense, (3) share-based compensation expense, (4) unrealized loss on commodity derivatives, (5) interest expense and (6) income taxes. EBITDAX is not a measure of net income or cash flow as determined by GAAP. The amounts included in the calculation of EBITDAX were computed in accordance with GAAP. EBITDAX is presented herein and reconciled to the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator of a company's ability to internally fund development and exploration activities. This measure is 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 SEC filings and posted on our website.

The following table provides a reconciliation of EBITDAX to net (loss) income for the three and six months ended June 30, 2009 and 2008, respectively (in thousands, except per-share metrics):



                                Three Months Ended   Six Months Ended
                                     June 30,            June 30,
                                ------------------  ------------------
                                  2009      2008      2009      2008
                                ------------------  ------------------

 Net (loss) income              $   (671) $    928  $    197  $  3,690
 Exploration                          --       987        --     1,478
 Depletion, depreciation and
  amortization                     6,223     6,025    13,171    11,241
 Share-based compensation            341       270     1,020       496
 Unrealized loss on commodity
  derivatives                      4,320     9,672     2,175    14,551
 Interest expense, net               457       343       902       491
 Income tax (benefit) provision     (460)      804     1,061     2,291
                                ------------------  ------------------
 EBITDAX                        $ 10,210  $ 19,029  $ 18,526  $ 34,238
                                ==================  ==================
 EBITDAX per diluted share      $   0.49  $   0.91  $   0.89  $   1.64
                                ==================  ==================

Long-Term Debt-to-Capital Ratio

Long-term debt-to-capital ratio is calculated as of June 30, 2009, and by dividing long-term debt (GAAP) of $46.2 million by the sum of total stockholders' equity (GAAP) and long-term debt (GAAP) of $271.3 million. We use the long-term debt-to-capital ratio as a measurement of our overall financial leverage. However, this ratio has limitations. This ratio can vary from year to year for the Company and can vary among companies based on what is or is not included in the ratio on a company's financial statements. This ratio is 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 SEC filings and posted on our website.

Glossary:

Bbl. One stock tank barrel, of 42 U.S. gallons liquid volume, used herein to reference 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 United States.

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.

/d. "Per day" when used with volumetric units or dollars.

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: Approach Resources Inc.

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
Communications
(817) 989-9000

IR Contacts

Request more information here.



Anna Wadsworth

ir@approachresources.com

Tel: 817.989.9000

 
 
Contact Us
  • Approach Resources Inc.
    One Ridgmar Centre
    6500 West Freeway, Ste 800
    Fort Worth, Texas 76116USA
  • Workp 1 (817) 989-9000
  • Faxf 1 (817) 989-9001