FORT WORTH, Texas, March 10, 2009 (GLOBE NEWSWIRE) -- Approach Resources Inc. (Nasdaq:AREX) today reported year end and fourth quarter 2008 financial and operating results.
Highlights
Highlights for the year ended December 31, 2008 (compared to 2007) include:
-- Proved reserves increased 17% to 211.1 Bcfe
-- Production increased 65% to 8.8 Bcfe (23.9 MMcfe/d)
-- Revenues increased 104% to $79.9 million
-- Net income increased 763% to $23.4 million, or $1.12 per
diluted share
-- Adjusted net income (a non-GAAP measure) rose 344% to
$23.5 million, or $1.13 per diluted share
-- EBITDAX (a non-GAAP measure) increased 108% to $63.2 million,
or $3.03 per diluted share
Year End and Fourth Quarter 2008 Operating Results
As previously reported, for the year ended December 31, 2008, proved reserves increased 17% to 211.1 Bcfe. At December 31, 2008, proved reserves were composed of 82% natural gas and 18% oil, condensate and NGLs, and had a reserve life index of over 20 years based on 2008 production of 8.8 Bcfe. The proved developed portion of total proved reserves at year end 2008 was 48%, compared to 43% at year end 2007.
Production for 2008 totaled 8.8 Bcfe (23.9 MMcfe/d), compared to 5.3 Bcfe (14.5 MMcfe/d) produced in 2007, an increase of 65%. 2008 production was 81% natural gas and 19% oil and NGLs, compared to 90% natural gas and 10% oil and NGLs in 2007.
Production for the fourth quarter 2008 totaled 2.7 Bcfe (28.9 MMcfe/d), compared to 1.6 Bcfe (17.4 MMcfe/d) produced in the fourth quarter 2007, an increase of 66%. Fourth quarter 2008 production was 81% natural gas and 19% oil and NGLs, compared to 89% natural gas and 11% oil and NGLs in the fourth quarter of 2007.
Year End 2008 Financial Results
Net income for 2008 was $23.4 million, or $1.12 per diluted share, on revenues of $79.9 million, compared to net income for 2007 of $2.7 million, or $0.24 per diluted share, on revenues of $39.1 million. Net income for 2008 included the effect of:
-- An impairment of non-producing properties of $6.4 million
relating to drilling and completion costs of three wells in
Northeast British Columbia and drilling costs of three wells in
Southwest Kentucky,
-- An impairment of $917,000 relating to the write-off of our
equity investment in the Canadian operator of our Northeast
British Columbia project, and
-- A pre-tax, unrealized gain on commodity derivatives of
$7.1 million.
Excluding impairments, an unrealized gain on commodity derivatives and related income taxes, adjusted net income (a non-GAAP measure) for 2008 was $23.5 million, or $1.13 per diluted share, compared to $5.3 million, or $0.47 per diluted share, for 2007. See "Supplemental Non-GAAP Financial Measures" below for our reconciliation of adjusted net income to net income.
EBITDAX (a non-GAAP measure) for 2008 was $63.2 million, or $3.03 per diluted share, compared to $30.4 million, or $2.71 per diluted share, for 2007. See "Supplemental Non-GAAP Financial Measures" below for our reconciliation of EBITDAX to net income.
Average realized natural gas, oil and NGL prices for 2008, before the effect of commodity derivatives, were $8.29 per Mcfe, $93.79 per Bbl and $45.46 per Bbl, respectively, compared to $6.98 per Mcf, $70.31 per Bbl and $46.25 per Bbl for 2007.
Lease operating expense ("LOE") for 2008 was $7.6 million ($0.87 per Mcfe), compared to $3.8 million ($0.72 per Mcfe) for 2007. The increase in LOE over the prior year was primarily a result of the acquisition of the Neo Canyon 30% working interest and Strawn/Ellenburger deep rights in Ozona Northeast. The increase in 2008 was also attributable to initial startup costs, including compression and treating costs in Cinco Terry and North Bald Prairie, as well as a rise in repair and maintenance costs in Ozona Northeast.
Severance and production taxes for 2008 were $4.2 million, or 5.3% of oil and gas sales, compared to $1.7 million, or 4.2% of oil and gas sales, in 2007. The increase in severance and production taxes as a percentage of oil and gas sales is due to higher severance tax rates for NGL revenues from Cinco Terry and higher estimated taxes after abatements for newer wells in Ozona Northeast and Cinco Terry.
Exploration expense in 2008 was $1.5 million, compared to $883,000 in 2007. Exploration expense in 2008 resulted from one dry hole drilled in Ozona Northeast and $965,000 of lease extensions in Ozona Northeast.
Impairment of non-producing properties for 2008 was $6.4 million, compared to $267,000 in 2007. The 2008 impairment resulted from the write-off of drilling and completion costs of three wells in Northeast British Columbia and drilling costs of three wells in Southwest Kentucky.
General and administrative expense ("G&A") for 2008 was $8.9 million ($1.01 per Mcfe), compared to $12.7 million ($2.39 per Mcfe) in 2007. We recorded higher G&A expenses in 2007 because of certain non-recurring share-based and cash incentive compensation related in part to our initial public offering ("IPO") and other pre-IPO expenses. Increased salaries and benefits related to an increase in staff, professional fees, share-based compensation and cash incentive compensation in 2008 partially offset higher G&A in 2007.
Depletion, depreciation and amortization expense ("DD&A") for 2008 was $23.7 million ($2.71 per Mcfe), compared to $13.1 million ($2.47 per Mcfe) in 2007. The increase in total DD&A expense was primarily attributable to increased production and higher capital costs, partially offset by an increase in estimated proved reserves at December 31, 2008. The higher DD&A expense per Mcfe was primarily attributable to higher capital costs incurred in North Bald Prairie and reserve revisions in Ozona Northeast at December 31, 2007. In North Bald Prairie, we paid capital costs attributable to the 50% working interest owned by the Company's working interest partner under our carry and earning agreement on the first five wells drilled.
We recognized an impairment of investment of $917,000 in 2008 relating to the write-off of our equity investment in the Canadian operator of our Northeast British Columbia project.
Total capital expenditures during 2008 totaled $100.1 million, including $85.4 million for exploration and drilling activities and $14.7 for property acquisitions (including $10.3 million for the acquisition of deep rights in Ozona Northeast).
Fourth Quarter 2008 Results
Net loss for the fourth quarter 2008 was $152,000, or $0.01 per diluted share, on revenues of $14.7 million, compared to a net loss of $1.8 million, or $0.12 per diluted share, on revenues of $11.7 million for the fourth quarter 2007. Net loss for the fourth quarter 2008 included the effect of a $6.4 million impairment of non-producing properties and $917,000 impairment of investment discussed above, as well as a pre-tax, unrealized gain on commodity derivatives of $3.1 million.
Excluding impairments, an unrealized gain on commodity derivatives and related income taxes, adjusted net income (a non-GAAP measure) for the fourth quarter 2008 was $2.6 million, or $0.13 per diluted share, compared to a loss of $614,000, or $0.04 per diluted share, for the fourth quarter 2007.
EBITDAX (a non-GAAP measure) for the fourth quarter 2008 was $11.6 million, or $0.56 per diluted share, compared to $7.5 million, or $0.49 per diluted share, for the fourth quarter 2007.
Average realized natural gas, oil and NGL prices for the fourth quarter 2008, before the effect of commodity derivatives, were $5.04 per Mcf, $58.00 per Bbl and $21.59 per Bbl, respectively, compared to $6.60 per Mcf, $90.32 per Bbl and $52.29 per Bbl for the fourth quarter 2007.
LOE for the fourth quarter 2008 was $2.5 million ($0.95 per Mcfe), compared to $1.0 million ($0.65 per Mcfe) in the fourth quarter 2007. The increase in LOE over the prior year quarter was primarily a result of the acquisition of the Neo Canyon 30% working interest and Strawn/Ellenburger deep rights in Ozona Northeast. The increase in 2008 was also attributable to initial startup costs, including compression and treating costs in Cinco Terry and North Bald Prairie, as well as a rise in repair and maintenance costs in Ozona Northeast.
Severance and production taxes for fourth quarter 2008 were $1.3 million, or 8.9% of oil and gas sales, compared to $511,000, or 4.4% of oil and gas sales, in 2007.
Impairment of non-producing properties for the fourth quarter 2008 was $6.4 million, compared to $267,000 in 2007. The 2008 impairment resulted from the write-off of drilling and completion costs of three wells in Northeast British Columbia and drilling costs of three wells in Southwest Kentucky.
G&A for the fourth quarter of 2008 was $3.2 million ($1.20 per Mcfe), compared to $8.6 million ($5.36 per Mcfe) in the fourth quarter 2007. We recorded higher G&A expenses in the fourth quarter of 2007 because of certain non-recurring share-based and cash incentive compensation related in part to our initial public offering ("IPO") and other pre-IPO expenses. Increased salaries and benefits related to an increase in staff, professional fees, share-based compensation and cash incentive compensation in the fourth quarter of 2008 partially offset higher G&A in the fourth quarter of 2007.
DD&A for the fourth quarter of 2008 was $7.5 million ($2.80 per Mcfe), compared to $3.9 million ($2.43 per Mcfe) for the prior year quarter. The increase in DD&A was primarily due to increased production and higher capital costs compared to the prior year period, which were partially offset by an increase in the Company's estimated proved reserves at December 31, 2008.
Drilling Operations
For the year ended December 31, 2008, we drilled or participated in a total of 96.0 (62.5 net) wells, 73.0 (49.5 net) of which had been completed as producers, 10.0 (five net) of which were in various stages of completion at year end and 13.0 (eight net) of which were non-productive. The 10.0 (five net) wells that were waiting on completion at year end have now been completed.
