DENVER, Aug. 01, 2018 -- SRC Energy Inc. (NYSE American: SRCI) (“SRC”, the “Company”, “we”, “us” or “our”), a U.S. oil and gas exploration and production company with operations focused on the Wattenberg Field in the Denver-Julesburg Basin, reports its financial and operating results for the three and six months ended June 30, 2018.
Second Quarter 2018 Highlights
Revenues were $147.1 million for the three months ended June 30, 2018
Net income was $49.6 million or $0.20 per diluted share for the three months ended June 30, 2018
Adjusted EBITDA was $107.7 million and $223.4 million for the three and six months ended June 30, 2018 , respectively (see further discussion regarding the presentation of adjusted EBITDA in "About Non-GAAP Financial Measures" below)
Drilling and completion capital expenditures were $120.2 million and $231.2 million for the three and six months ended June 30, 2018, respectively
Second Quarter 2018 Financial Results
The following tables present certain per unit metrics that compare results of the corresponding reporting periods:
Three Months Ended
Six Months Ended
Net Volumes
6/30/2018
6/30/2017
% Chg.
6/30/2018
6/30/2017
% Chg.
Crude Oil (MBbls)
1,846
1,262
46
%
3,887
1,942
100
%
Natural Gas Liquids (MBbls)
992
662
50
%
1,750
1,005
74
%
Natural Gas (MMcf)
8,987
6,264
43
%
16,706
9,710
72
%
Sales Volumes: (MBOE)
4,336
2,969
46
%
8,422
4,566
84
%
Average Daily Volumes
Daily Production (BOE)
47,646
32,624
46
%
46,528
25,224
84
%
Product Price Received
Crude Oil ($/Bbl)
$
61.22
$
41.11
49
%
$
58.48
$
41.60
41
%
Natural Gas Liquids ($/Bbl)
$
17.65
13.18
34
%
$
18.30
14.12
30
%
Natural Gas ($/Mcf)
$
1.64
$
2.29
(28
)%
$
1.87
$
2.42
(23
)%
Avg. Realized Price ($/BOE)
$
33.50
$
25.26
33
%
$
34.50
$
25.96
33
%
Per Unit Cost Information ($/BOE)
Lease Operating Exp.
$
2.68
$
1.67
60
%
$
2.31
$
1.91
21
%
Production Tax
$
3.47
$
3.19
9
%
$
3.38
$
2.39
41
%
DD&A Expense
$
9.66
$
8.90
9
%
$
9.38
$
8.69
8
%
Total G&A Expense
$
2.17
$
2.56
(15
)%
$
2.26
$
3.46
(35
)%
Revenues for the three months ended June 30, 2018 increased 96% compared to the three months ended June 30, 2017. This increase was driven by growth in sales volumes, combined with an improvement in realized oil price, which was partially offset by a decrease in realized gas prices. The decreased gas price was primarily due to widening of differentials to the Colorado Interstate Gas index.
Lease operating expense for the three months ended June 30, 2018 increased due to the Company’s ongoing growth and expanding asset base. Elevated line pressures temporarily drove operating costs on a unit basis higher as the Company incurred incremental costs without the benefit of flush production from new wells.
The Company's 2018 second quarter net income totaled $49.6 million, or $0.20 per diluted share, compared to a net income of $27.9 million, or $0.14 per diluted share, in the year ago quarter. Adjusted EBITDA in the second quarter of 2018 was $107.7 million as compared to $55.9 million in the year ago quarter.
During the second quarter of 2018, SRC entered into an agreement to purchase leasehold acreage and associated production for $31 million. This transaction increases the Company's working interest in existing operations and planned wells. Following the 2018 second quarter end, SRC reached an agreement to trade approximately 2,500 net acres with an undisclosed party. These transactions further enhance the contiguous nature of the Company's acreage position.
Management Comment Lynn A. Peterson, Chairman and CEO of SRC Energy Inc. commented, "As announced today by DCP Midstream, the Mewbourn 3 plant has been placed into service and is processing gas. This is the first of several significant, new natural gas processing plants that have been announced for the DJ Basin over the next few quarters leading to a near doubling of capacity and a bright future for the Basin. We now have line of sight on increased gas processing for several years and we look forward to a more stable operating environment. Despite the curtailed production during the first half of 2018 the Company’s capital expenditures have principally been funded by internally generated cash flows."
Concluding, Mr. Peterson added, "I would like to commend our field team for all of their hard work around the constraints associated with the lack of gas processing and our land team for the recent acreage transactions that have further enhanced SRC's acreage position"
Conference Call
The Company will host a conference call on Thursday, August 2, 2018 at 11:00 a.m. Eastern time (9:00 a.m. Mountain time) to discuss the results. The call will be conducted by Chairman and CEO Lynn A. Peterson, CFO James Henderson, Chief Development Officer Nick Spence, Chief Operations Officer Mike Eberhard, and Manager of Investor Relations John Richardson. A Q&A session will immediately follow the discussion of the results for the quarter. Please refer to SRC's website at www.srcenergy.com for the most recent corporate presentation and other news and information.
To participate in this call please dial: Domestic Dial-in Number: (877) 407-9122 International Dial-in Number: (201) 493-6747 Webcast: https://78449.themediaframe.com/dataconf/productusers/srci/mediaframe/25642/indexl.html
About SRC Energy Inc. SRC Energy Inc. is a domestic oil and natural gas exploration and production company. SRC's core area of operations is in the Greater Wattenberg Field of the Denver-Julesburg Basin. The Denver-Julesburg Basin encompasses parts of Colorado, Wyoming, Kansas and Nebraska. The Company's corporate offices are located in Denver, Colorado. More company news and information about SRC is available at www.srcenergy.com.
Important Cautions Regarding Forward Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. The use of words such as "believes", "expects", "anticipates", "intends", "plans", "estimates", "should", "likely", “guidance” or similar expressions indicates a forward-looking statement. Forward-looking statements in the release relate to, among other things, the construction and impact of new midstream facilities in the DJ Basin. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, and information currently available to management. The actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. The identification in this press release of factors that may affect the Company's future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Factors that could cause the Company's actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: risks associated with the construction of new midstream facilities, the impact of those facilities and other risks associated with the availability of adequate midstream infrastructure; the success of the Company's exploration and development efforts; the price of oil and gas; worldwide economic situation; change in interest rates or inflation; willingness and ability of third parties to honor their contractual commitments; the Company's ability to raise additional capital, as it may be affected by current conditions in the stock market and competition in the oil and gas industry for risk capital; the Company's capital costs, which may be affected by delays or cost overruns; costs of production; environmental and other regulations, as the same presently exist or may later be amended; the Company's ability to identify, finance and integrate any future acquisitions; the volatility of the Company's stock price; and the other factors described in the “Risk Factors” sections of the Company’s filings with the Securities and Exchange Commission, all of which are incorporated by reference in this release.
Reconciliation of Non-GAAP Financial Measures We define adjusted EBITDA, a non-GAAP financial measure, as net income adjusted to exclude the impact of the items set forth in the table below. We exclude those items because they can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. We believe that adjusted EBITDA is widely used in our industry as a measure of operating performance and may also be used by investors to measure our ability to meet debt covenant requirements. The following table presents a reconciliation of adjusted EBITDA to net income, its nearest GAAP measure:
SRC ENERGY INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Adjusted EBITDA:
Net income
$
49,624
$
27,936
$
115,420
$
47,816
Depreciation, depletion, and accretion
41,877
26,427
78,958
39,656
Stock-based compensation
3,146
2,685
5,942
5,360
Mark-to-market of commodity derivative contracts:
Total gain on commodity derivatives contracts
14,294
(1,328
)
20,075
(4,707
)
Cash settlements on commodity derivative contracts
(4,566
)
153
(6,121
)
234
Interest income, net of interest expense
(5
)
(20
)
(14
)
(31
)
Income tax expense
3,347
—
9,158
—
Adjusted EBITDA
$
107,717
$
55,853
$
223,418
$
88,328
Condensed Consolidated Financial Statements Condensed consolidated financial statements are included below. Additional financial information, including footnotes that are considered an integral part of the condensed consolidated financial statements, can be found in SRC's Quarterly Report on Form 10-Q for the period ended June 30, 2018, which is available at www.sec.gov.
SRC ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
ASSETS
June 30, 2018
December 31, 2017
Current assets:
Cash and cash equivalents
$
53,145
$
48,772
Other current assets
110,067
111,263
Total current assets
163,212
160,035
Oil and gas properties and other equipment
2,072,329
1,876,576
Goodwill
40,711
40,711
Other assets
6,294
2,242
Total assets
$
2,282,546
$
2,079,564
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
249,949
202,307
Revolving credit facility
25,000
—
Notes payable, net of issuance costs
538,762
538,186
Asset retirement obligations
23,154
28,376
Other liabilities
11,556
2,261
Total liabilities
848,421
771,130
Shareholders' equity:
Common stock and paid-in capital
1,484,785
1,474,514
Retained deficit
(50,660
)
(166,080
)
Total shareholders' equity
1,434,125
1,308,434
Total liabilities and shareholders' equity
$
2,282,546
$
2,079,564
SRC ENERGY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands)
Six Months Ended June 30,
2018
2017
Cash flows from operating activities:
Net income
$
115,420
$
47,816
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation, and accretion
78,958
39,656
Provision for deferred taxes
9,158
—
Other, non-cash items
15,807
(505
)
Changes in operating assets and liabilities
16,419
(12,509
)
Net cash provided by operating activities
235,762
74,458
Cash flows from investing activities:
Acquisitions of oil and gas properties and leaseholds
(16,402
)
(29,998
)
Capital expenditures for drilling and completion activities
(213,906
)
(178,606
)
Other capital expenditures
(25,404
)
(12,666
)
Proceeds from sales of oil and gas properties and other
766
77,155
Net cash used in investing activities
(254,946
)
(144,115
)
Cash flows from financing activities:
Equity financing activities
3,025
(451
)
Debt financing activities
22,857
89,745
Net cash provided by financing activities
25,882
89,294
Net increase in cash, cash equivalents, and restricted cash
6,698
19,637
Cash, cash equivalents, and restricted cash at beginning of period
48,772
36,834
Cash, cash equivalents, and restricted cash at end of period
$
55,470
$
56,471
SRC ENERGY INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands, except share and per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Oil, natural gas, and NGL revenues
$
147,087
$
75,036
$
294,320
$
118,826
Expenses:
Lease operating expenses
11,612
4,970
19,508
8,692
Transportation and gathering
1,880
48
3,735
298
Production taxes
15,058
9,464
28,501
10,930
Depreciation, depletion, and accretion
41,877
26,427
78,958
39,656
Unused commitment charge
—
—
—
669
General and administrative
9,406
7,605
19,006
15,805
Total expenses
79,833
48,514
149,708
76,050
Operating income
67,254
26,522
144,612
42,776
Other income (expense):
Commodity derivatives gain (loss)
(14,294
)
1,328
(20,075
)
4,707
Interest expense, net of amounts capitalized
—
—
—
—
Interest income
5
20
14
31
Other income
6
66
27
302
Total other income (expense)
(14,283
)
1,414
(20,034
)
5,040
Income before income taxes
52,971
27,936
124,578
47,816
Income tax expense
3,347
—
9,158
—
Net income
$
49,624
$
27,936
$
115,420
$
47,816
Net income per common share:
Basic
$
0.20
$
0.14
$
0.48
$
0.24
Diluted
$
0.20
$
0.14
$
0.47
$
0.24
Weighted-average shares outstanding:
Basic
242,255,724
200,831,063
242,005,211
200,769,817
Diluted
244,464,776
201,224,172
243,954,673
201,266,609
Company Contact: John Richardson (Investor Relations Manager) SRC Energy Inc. Tel 720-616-4308 E-mail: jrichardson@srcenergy.com
