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Approach Resources Inc. Reports Third Quarter 2012 Results

Liquidity and Commodity Derivatives Update

At September 30, 2012, we had a $300.0 million revolving credit agreement with a $270.0 million borrowing base and $47.6 million outstanding. At September 30, 2012, our liquidity and long-term debt-to-capital ratio were $222.9 million and 7.1%, respectively. See “Supplemental Non-GAAP Financial and Other Measures” below for our calculation of “liquidity” and “long-term debt-to-capital ratio.”

On September 19, 2012, we completed a public offering of 5,000,000 shares of our common stock at $30.50 per share. Subsequent to September 30, 2012, the underwriters exercised their option to purchase an additional 325,000 shares of our common stock. After deducting underwriting discounts and transaction costs of approximately $8 million, we received net proceeds of approximately $154.4 million, of which $145.0 million was received prior to September 30, 2012. We intend to use the proceeds to fund our capital expenditures for the Wolfcamp oil shale resource play and general working capital needs. Pending these uses, we used the proceeds of the 2012 equity offering to repay outstanding borrowings under our revolving credit facility.

Effective October 11, 2012, the lenders in our credit facility increased the borrowing base under the credit agreement to $280.0 million from $270.0 million.

We enter into commodity derivatives positions to reduce the risk of commodity price fluctuations. Please refer to the “Unaudited Commodity Derivatives Information” table below for a detailed summary of the Company’s current derivatives positions.

Capital Expenditures and Guidance Update

Capital expenditures during third quarter 2012 totaled $77.1 million, and included $60.3 million for drilling and completions, $11.7 million for pipeline and infrastructure projects, $4.4 million for acreage acquisitions and $0.7 million for 3-D seismic data acquisition. We have increased our estimated 2012 capital budget to $295.0 million. The $35.0 million increase in capital expenditures is made up of $16.6 million for pipeline and infrastructure projects, $12.2 million for drilling and completions, $5.0 million for acreage acquisitions and $1.2 million for 3-D seismic data acquisition. The table below sets forth the Company’s current production and operating costs and expenses guidance for 2012. The guidance is forward-looking information that is subject to a number of risks and uncertainties, many of which are beyond the Company’s control.
Prior 2012 Guidance Current 2012 Guidance
Total (MBoe) 2,900 – 3,100 2,800 – 3,000
Percent oil and NGLs 65% 65%
Operating costs and expenses (per Boe):
Lease operating $ 5.50 – 6.50 $ 6.50 – 7.50
Severance and production taxes $ 2.50 – 4.00 $ 2.50 – 4.00
Exploration $ 4.00 – 5.00 $ 4.00 – 5.00
General and administrative $ 7.00 – 8.00 $ 7.00 – 8.00
Depletion, depreciation and amortization $ 15.00 – 18.00 $ 18.00 – 22.00
Capital expenditures (in millions) Approximately $260 Approximately $295

In September 2012, we announced that we plan to add a third horizontal rig to our drilling program in January 2013 to accelerate the development of our Wolfcamp oil shale play. Our preliminary 2013 capital expenditure budget is $260.0 million and includes operating three horizontal rigs and one vertical rig to drill approximately 35 to 40 horizontal wells and 12 vertical wells, respectively. We also plan to recomplete 10 wells in the Wolfcamp and Clearfork zones in 2013. The preliminary 2013 capital budget excludes acquisitions. We expect to provide 2013 production and operating costs and expenses guidance in January 2013.

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