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Approach Resources Inc. Reports Third Quarter 2012 Results

Our 2012 and 2013 capital budgets are subject to change depending upon a number of factors, including additional data on the Company’s Wolfcamp oil shale resource play, results of horizontal and vertical drilling and recompletions, economic and industry conditions at the time of drilling, prevailing and anticipated prices for oil, NGLs and gas, the availability of sufficient capital resources for drilling prospects, the Company’s financial results and the availability of lease extensions and renewals on reasonable terms.

Third Quarter 2012 Conference Call

Approach will host a conference call on Tuesday, November 6, 2012, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss third quarter 2012 financial and operating results. The conference call can be accessed by dialing (800) 901-5217 (U.S. domestic) or (617) 786-2964 (International). Additionally, the conference call will be broadcast live over the internet and can be accessed through the Investor Relations section of the Company’s website, www.approachresources.com. The webcast will be archived for replay on the Company’s website until February 4, 2013. An accompanying slide presentation also is available on the Company’s website.

In addition, the Company will host a telephone replay of the call, which will be available for one week. U.S. callers may access the telephone replay by dialing (888) 286-8010 and international callers may dial (617) 801-6888. The passcode is 64514392.

Participation in Upcoming Conference

The Company will participate in Bank of America’s 2012 Global Energy Conference in Miami, Florida on Tuesday, November 13, 2012, at 8:15 AM ET. The slide presentation for the event will be available on the Investor Relations section of the Company’s website, www.approachresources.com. Additionally, the live presentation will be webcast and accessible through the Company’s website.

Approach Resources Inc. is an independent oil and gas company with core operations, production and reserves located in the Permian Basin in West Texas. The Company targets multiple oil and liquids-rich formations in the Permian Basin, where the Company operates approximately 148,000 net acres. The Company’s estimated proved reserves as of June 30, 2012, total 83.7 million barrels of oil equivalent, made up of 64% oil and NGLs and 36% natural gas. 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.

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 management regarding the Company’s 2012 and 2013 capital budgets, development program and 2012 production and operating expenses guidance. These statements are based on certain assumptions made by the Company based on management's experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words “will,” “potential,” “believe,” “estimate,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “project,” “profile,” “model” or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. 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 the Company’s 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.

For a glossary of oil and gas terms and abbreviations used in this release, please see our Annual Report on Form 10-K filed with the SEC on March 12, 2012.
           
 

UNAUDITED RESULTS OF OPERATIONS
 
Three Months Ended

September 30,
Nine Months Ended

September 30,
2012   2011 2012   2011
   
Revenues (in thousands):
Oil $ 21,575 $ 9,568 $ 58,689 $ 27,792
NGLs 7,143 12,128 23,797 29,416
Gas 4,320       6,262 11,097       20,056
Total oil, NGL and gas sales 33,038 27,958 93,583 77,264
 
Realized gain on commodity derivatives 423     1,392 300     1,654
Total oil, NGL and gas sales including derivative impact $ 33,461     $ 29,350 $ 93,883     $ 78,918
 
Production:
Oil (MBbls) 250 117 670 310
NGLs (MBbls) 234 233 672 574
Gas (MMcf) 1,580     1,569 4,567     4,829
Total (MBoe) 747 612 2,103 1,689
Total (MBoe/d) 8.1 6.7 7.7 6.2
 
Average prices:
Oil (per Bbl) $ 86.38 $ 81.51 $ 87.57 $ 89.63
NGLs (per Bbl) 30.50 52.08 35.41 51.26
Gas (per Mcf)   2.73       3.99     2.43       4.15
Total (per Boe) $ 44.21 $ 45.70 $ 44.49 $ 45.75
 
Realized gain on commodity derivatives (per Boe) 0.57     2.28 0.14     0.98
Total including derivative impact (per Boe) $ 44.78 $ 47.98 $ 44.63 $ 46.73
 
Costs and expenses (per Boe):
Lease operating (1) $ 8.24 $ 5.82 $ 7.33 $ 5.81
Severance and production taxes 2.21 2.32 2.22 2.50
Exploration 1.57 3.22 1.15 4.07
General and administrative 7.54 6.18 7.82 7.03
Depletion, depreciation and amortization 22.39 13.65 20.14 13.26
 

(1) Lease operating expense per Boe includes ad valorem taxes.
 
 
           
 

APPROACH RESOURCES INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except shares and per-share amounts)
 
Three Months Ended September 30, Nine Months Ended September 30,
 
2012     2011 2012     2011
REVENUES:
Oil, NGL and gas sales $ 33,038 $ 27,958 $ 93,583 $ 77,264
 
EXPENSES:
Lease operating 6,155 3,564 15,426 9,820
Severance and production taxes 1,654 1,419 4,667 4,223
Exploration 1,170 1,969 2,419 6,877
General and administrative 5,633 3,785 16,448 11,878
Depletion, depreciation and amortization   16,728   8,355   42,354   22,394
Total expenses   31,340   19,092   81,314   55,192
 
OPERATING INCOME 1,698 8,866 12,269 22,072
 
OTHER:
Interest expense, net (1,544 ) (1,016 ) (3,811 ) (2,391 )
Realized gain on commodity derivatives 423 1,392 300 1,654
Unrealized (loss) gain on commodity derivatives (4,185 ) 1,739 2,582 3,821
Gain on sale of oil and gas properties         491
 
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) PROVISION (3,608 ) 10,981 11,340 25,647
INCOME TAX (BENEFIT) PROVISION   (1,253 )   3,908   4,119   9,121
 
NET (LOSS) INCOME $ (2,355 ) $ 7,073 $ 7,221 $ 16,526
 
(LOSS) EARNINGS PER SHARE:
Basic $ (0.07 ) $ 0.25 $ 0.21 $ 0.58
Diluted $ (0.07 ) $ 0.25 $ 0.21 $ 0.58
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 34,190,192 28,440,909 33,656,726 28,398,152
Diluted 34,190,192 28,652,211 33,736,119 28,628,074
 
 
 
           
 

UNAUDITED SELECTED FINANCIAL DATA
 
Unaudited Consolidated Balance Sheet Data September 30, December 31,
(in thousands) 2012 2011
Cash and cash equivalents $ 841 $ 301
Other current assets 13,874 11,085
Property and equipment, net, successful efforts method 776,444 595,284
Other assets   2,255   1,224
Total assets $ 793,414 $ 607,894
 
Current liabilities $ 64,006 $ 43,625
Long-term debt 47,600 43,800
Other long-term liabilities 57,467 53,020
Stockholders’ equity   624,341   467,449
Total liabilities and stockholders’ equity $ 793,414 $ 607,894
 
 
Unaudited Consolidated Cash Flow Data         Nine Months Ended September 30,
(in thousands) 2012   2011
Net cash provided (used) by:
Operating activities $ 76,464 $ 74,214
Investing activities $ (225,435 ) $ (218,546 )
Financing activities $ 149,511 $ 121,630
Effect of foreign currency translation $ $ (27 )
 
 
                 
 

UNAUDITED COMMODITY DERIVATIVES INFORMATION
 
Commodity and Time Period Contract Type Volume Transacted Contract Price
 
Crude Oil
2012 Collar 700 Bbls/d $85.00/Bbl – $97.50/Bbl
2012 Collar 500 Bbls/d $90.00/Bbl – $106.10/Bbl
September 2012 – December 2012 Collar 350 Bbls/d $90.00/Bbl – $102.30/Bbl
2013 Collar 650 Bbls/d $90.00/Bbl – $105.80/Bbl
2013 Collar 450 Bbls/d $90.00/Bbl – $101.45/Bbl
2014 Collar 550 Bbls/d $90.00/Bbl – $105.50/Bbl
 
Natural Gas Liquids
Natural Gasoline

February 2012 – December 2012
Swap 225 Bbls/d $95.55/Bbl
Normal Butane

March 2012 – December 2012
Swap 225 Bbls/d $73.92/Bbl
 
Natural Gas
2012 Call 230,000 MMBtu/month $6.00/MMBtu
July 2012 – December 2012 Swap 360,000 MMBtu/month $2.70/MMBtu
2013 Swap 200,000 MMBtu/month $3.54/MMBtu
2013 Swap 190,000 MMBtu/month $3.80/MMBtu
 
 

Supplemental Non-GAAP Financial and Other Measures

This release contains certain financial measures that are non-GAAP measures. We have provided reconciliations below of the non-GAAP financial measures to the most directly comparable GAAP financial measures 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 net income per diluted share, which excludes (1) unrealized loss (gain) on commodity derivatives, (2) gain on sale of oil and gas properties, and (3) related income tax effect. The amounts included in the calculation of adjusted net income and adjusted net income per diluted share below were computed in accordance with GAAP. We believe adjusted net income and adjusted net income 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.

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