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 CommentLynn 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)
407-9122International Dial-in Number: (201) 493-6747Webcast:
https://78449.themediaframe.com/dataconf/productusers/srci/mediaframe/25642/indexl.html
Replay Information:Conference ID #:
411931Replay Dial-In (Toll Free US & Canada):
877-660-6853Replay Dial-In (International):
201-612-7415Expiration Date: 8/16/18
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
StatementsThis 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 MeasuresWe
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
StatementsCondensed 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
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