FORT WORTH, Texas, Aug. 5, 2008 (PRIME NEWSWIRE) -- Approach Resources Inc. (Nasdaq:AREX) (the "Company") today reported its second quarter 2008 financial and operating results.

Highlights

 Highlights from the second quarter 2008 (compared to the same
 period last year) include:
 * Production increased 63% to 2.0 Bcfe (22.4 MMcfe/d),
 * Revenues increased 149% to $24.1 million,
 * Net income decreased 69% to $0.9 million, or $0.04 per diluted
   share,
 * Excluding a pre-tax, unrealized loss on commodity derivatives of
   $9.7 million, adjusted net income (a non-GAAP measure) rose 295%
   to $7.3 million, or $0.35 per diluted share, and
 * EBITDAX (a non-GAAP measure) increased 163% to $19.0 million, or
   $0.91 per diluted share.

Second Quarter 2008

Production for the second quarter of 2008 totaled 2.0 Bcfe (22.4 MMcfe/d), compared to 1.3 Bcfe (13.7 MMcfe/d) produced in the second quarter of 2007, an increase of 63%. Second quarter 2008 production was 82.2% natural gas and 17.8% oil and NGLs, compared to 91.5% natural gas and 8.5% oil and NGLs in the second quarter of 2007.

Net income for the second quarter of 2008 was $0.9 million, or $0.04 per diluted share, on revenues of $24.1 million, compared to net income of $3.0 million, or $0.29 per diluted share, on revenues of $9.7 million for the second quarter of 2007. A pre-tax, unrealized loss on commodity derivatives decreased net income for the second quarter of 2008 by $9.7 million. Excluding the unrealized loss on commodity derivatives and the related income taxes, adjusted net income (a non-GAAP measure) for the second quarter of 2008 was $7.3 million, or $0.35 per diluted share, compared to $1.9 million, or $0.18 per diluted share, for the second quarter of 2007.

EBITDAX (a non-GAAP measure) for the second quarter of 2008 was $19.0 million, or $0.91 per diluted share, compared to $7.2 million, or $0.70 per diluted share, for the second quarter of 2007.

The Company's average realized natural gas, oil and NGL prices for the second quarter of 2008, before the effect of commodity derivatives, were $11.10 per Mcf, $121.29 per Bbl and $53.93 per Bbl, respectively, compared to $7.57 per Mcf, $59.76 per Bbl and $36.92 per Bbl for the second quarter of 2007.

While the Company benefited from higher commodity prices, the Company also experienced increased operating costs in the three months ended June 30, 2008 that have partially offset these higher commodity prices. The Company expects that its operating costs, specifically its lease operating, general and administrative and depletion, depreciation and amortization expenses will, for the foreseeable future, be higher than those historically experienced.

For the second quarter of 2008, lease operating expenses were $1.9 million, or $0.91 per Mcfe, compared to $1.0 million, or $0.83 per Mcfe, in the second quarter of 2007. The increase in lease operating expenses over the prior year quarter was primarily a result of an increase in the number of wells from the ongoing development of Cinco Terry and North Bald Prairie as well as the acquisition of the Neo Canyon working interest in Ozona Northeast. On a per Mcfe basis, the increase in lease operating expenses was primarily due to increased compression and treating costs in Cinco Terry and North Bald Prairie as well as an increase in general maintenance costs in Ozona Northeast. The Company expects that, on a per Mcfe basis, lease operating expenses for Cinco Terry and North Bald Prairie will decrease over time as production from those fields increases.

Depletion, depreciation and amortization, or DD&A, expense for the second quarter of 2008 was $6.0 million, or $2.93 per Mcfe, compared to $3.0 million, or $2.41 per Mcfe, for the prior year quarter. The increase in DD&A was primarily attributable to increased production and higher capital costs in the 2008 period. The higher DD&A expense per Mcfe was primarily attributable to higher capital costs in North Bald Prairie and reserve revisions in Ozona Northeast at December 31, 2007. In North Bald Prairie, the Company paid capital costs attributable to the 50% working interest owned by the Company's working interest partner pursuant to the Company's farm-in agreement on the first five wells drilled.

In the second quarter of 2008, exploration expense totaled $987,000, or $0.48 per Mcfe, compared to $10,000, or $0.01 per Mcfe, for the second quarter of 2007. Exploration expense in the second quarter of 2008 resulted primarily from the extension of lease terms in Ozona Northeast. General and administrative expenses for the second quarter of 2008 were $1.8 million, or $0.89 per Mcfe, compared to $1.2 million, or $0.97 per Mcfe, in the second quarter of 2007. Severance and production taxes for the second quarter of 2008 were $1.2 million, or 5% of revenues, compared to $373,000, or 3.8% of revenues, for the second quarter of 2007.

Capital expenditures for drilling and development in the second quarter of 2008 were $20.3 million. For the second quarter of 2008, the Company drilled or participated in a total of 28 (18 net) wells, 17 (10 net) of which were completed as producers, six (4.5 net) of which were in various stages of completion and five (3.5 net) of which were drilled and abandoned. Five (three net) wells that were in various stages of completion at the end of the second quarter have since been completed as producers.

The increase in production over the prior year quarter was partially offset by compressor downtime in the second quarter. Also, the Company postponed drilling in Ozona Northeast during portions of April and May, 2008, while the Company was reprocessing 3-D seismic data and closing the previously-announced acquisition of deep rights in Ozona Northeast. Further, the Company delayed the drilling of its second series of five wells in North Bald Prairie during parts of the first and second quarters of 2008, pending partner approval of drilling locations. The Company currently has five rigs running, with two in Ozona Northeast, two in Cinco Terry and one in North Bald Prairie.

Average daily production for the month of July 2008 was 24.3 MMcfe/d, with an exit rate at July 31, 2008 of 25.1 MMcfe/d.

First Six Months of 2008 Results

Production for the first six months of 2008 totaled 4.0 Bcfe (22.1 MMcfe/d), compared to 2.6 Bcfe (14.4 MMcfe/d) produced in the same period in 2007, an increase of 54%. The Company's average realized natural gas, oil and NGL prices for the six months ended June 30, 2008, before the effect of commodity derivatives, were $10.02 per Mcf, $110.10 per Bbl and $52.61 per Bbl, respectively, compared to $7.12 per Mcf, $57.83 per Bbl and $33.39 per Bbl for the six months ended June 30, 2007.

Net income for the six months ended June 30, 2008 was $3.7 million, or $0.18 per diluted share, on revenues of $43.2 million, compared to net income of $2.4 million, or $0.25 per diluted share, on revenues of $19.1 million for the same period in 2007. A pre-tax, unrealized loss on commodity derivatives decreased net income for the first six months of 2008 by $14.6 million. Excluding the unrealized loss on commodity derivatives and the related income taxes, adjusted net income (a non-GAAP measure) for the first six months of 2008 was $13.3 million, or $0.64 per diluted share, compared to $4.3 million, or $0.44 per diluted share, for the first six months of 2007. Both net income and adjusted net income were impacted by higher lease operating, depletion, depreciation and amortization and exploration expenses in the first six months of 2008.

EBITDAX (a non-GAAP measure) for the first six months of 2008 was $34.2 million, or $1.64 per diluted share, compared to $15.9 million, or $1.61 per diluted share, for the first six months of 2007.

While the Company benefited from higher commodity prices, the Company also experienced increased operating costs in the six months ended June 30, 2008 that have partially offset these higher commodity prices. The Company expects that its operating costs, specifically its lease operating, general and administrative and depletion, depreciation and amortization expenses will, for the foreseeable future, be higher than those historically experienced.

For the six months ended June 30, 2008, lease operating expenses were $3.3 million, or $0.81 per Mcfe, compared to $2.0 million, or $0.78 per Mcfe, in the six months ended June 30, 2007. The primary factors in the increase in lease operating expense were the acquisition of the Neo Canyon interest and the increase in the number of wells from our ongoing development of our three producing fields. On a per Mcfe basis, the increase in lease operating expenses was primarily due to increased compression and treating costs in Cinco Terry and North Bald Prairie as well as an increase in general maintenance costs in Ozona Northeast. The Company expects that, on a per Mcfe basis, lease operating expenses for Cinco Terry and North Bald Prairie will decrease over time as production from those fields increases.

Depletion, depreciation and amortization, or DD&A, expense for the six months ended June 30, 2008 was $11.2 million, or $2.78 per Mcfe, compared to $6.1 million, or $2.34 per Mcfe, for the prior year period. The increase in DD&A expense was primarily attributable to increased production and higher capital costs during the year ended December 31, 2008. The higher DD&A expense per Mcfe was primarily attributable to higher capital costs in North Bald Prairie and reserve revisions in Ozona Northeast at December 31, 2007. In North Bald Prairie, the Company paid capital costs attributable to the 50% working interest owned by the Company's working interest partner pursuant to the Company's farm-in agreement on the first five wells drilled.

In the first six months of 2008, exploration expense totaled $1.5 million, or $0.37 per Mcfe, compared to $633,000, or $0.24 per Mcfe, for the first six months of 2007. Exploration expense for the first six months of 2008 resulted primarily from lease extensions in Ozona Northeast and one dry hole drilled in Ozona Northeast, while exploration expense for the prior year period resulted from the drilling of a test well in the Company's Boomerang project.

General and administrative expenses for the first six months of 2008 were $3.8 million, or $0.94 per Mcfe, compared to $2.7 million, or $1.05 per Mcfe, for the first six months of 2007. Severance and production taxes for the first six months of 2008 were $1.9 million, or 4.4% of revenues, compared to $748,000, or 3.9% of revenues, for the prior year period. The increase in general and administrative expense was principally due to increased staffing, salaries, professional fees, share-based compensation, insurance and travel costs in the 2008 period over the 2007 period.

Management Comments

J.