Approach Resources reports 4Q, year-end results; in talks for restructuring

FORT WORTH, Texas (AP) _ Approach Resources Inc. (AREX) on Monday reported fourth-quarter profit of $868,000. The company also said it was in discussions with its president about succession plans as well as ways to reduce company debt.

The Fort Worth-based company said it had net income of 1 cent per share. Losses, adjusted for non-recurring gains, came to 7 cents per share.

The oil and gas company posted revenue of $22.4 million in the period.

For the year, the company reported that its loss narrowed to $19.9 million, or 21 cents per share. Revenue was reported as $114 million.

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In the final minutes of trading on Monday, the company’s shares hit $1.08. A year ago, they were trading at $2.62.

Fourth Quarter 2018 Highlights

Fourth quarter production of 963 MBoe or 10.5 MBoe/d

Net income was $0.9 million, or $0.01 per diluted share. Adjusted net loss (non-GAAP) was $6.9 million, or $0.07 per diluted share

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EBITDAX (non-GAAP) of $13.5 million

Cash operating expenses (non-GAAP) of $8.85 per Boe, a 28% decrease over the prior quarter.

In order to improve our leverage position to meet upcoming financial covenants under the revolving credit facility, the company said it has been, and currently are, pursuing or considering a number of deleveraging and strategic actions, which in certain cases may require the consent of current lenders, stockholders or bond holders. With those actions, the company said it will not be able to comply with the total leverage ratio covenant in its revolving credit facility beginning with the measurement date of March 31, 2019.

On April 12, 2018, Approach Resource’s largest shareholder, Wilks Brothers LLC, and its affiliate SDW Investments LLC, disclosed on Schedule 13D/A that they intended to engage in discussions with the company regarding their investment in the company, including the possible acquisition of additional shares of common stock through the exchange of approximately $60 million of 7 percent Senior Notes due 2021 currently held by Wilks. In April 2018, Approach’s board of directors formed a committee of independent directors to evaluate a potential Exchange Transaction as well as other strategic alternatives. The committee hired financial and legal advisors to advise the committee on these matters. The Committee engaged in discussions with Wilks regarding an Exchange Transaction in 2018, but in mid-2018 the Wilks and the committee deferred further discussions regarding a stand-alone Exchange Transaction pending resolution of the company’s discussions regarding the potential transaction.

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In March 2019, the board of directors expanded the scope of the Committee to explore, in addition to an Exchange Transaction, other financing alternatives and deleveraging transactions, including without limitation (i) amendments or waivers to the covenants or other provisions of the company’s revolving credit facility, (ii) raising new capital in private or public markets and (iii) restructuring its balance sheet either in court or through an out of court agreement with creditors.

The committee has re-commenced discussions with the Wilks regarding an Exchange Transaction and intends to continue those discussions as part of its review of financing alternatives and deleveraging transactions. The company is currently are in discussions with our CEO regarding his separation from the company. We expect to engage in discussions with our president and chief administrative officer regarding their continued employment or potential separation. The company is evaluating plans for succession. There can be no assurance that we will be able to implement any of these plans successfully, or that such plans, if executed, will result in compliance with our credit facility covenants.

“Due in part to the sharp decline in commodity prices and extreme WAHA gas discount in the basin in the fourth quarter, we focused on conserving capital and reducing our cash operating expenses during the quarter,” said Ross Craft, Approach’s chairman and CEO. “Additionally, we continued to evaluate alternatives to reduce our leverage. In 2019, we will continue to focus on alternatives to strengthen our balance sheet and manage our covenants under our credit facility. Our capital expenditure budget is designed to be funded primarily through cash flows from operations. As a result of the current commodity price environment, as well as our focus on addressing our leverage, we do not expect any significant drilling and completion activity in the first quarter of 2019.”

Full-Year 2018 Highlights

Full year production of 4,082 MBoe or 11.2 MBoe/d

Year-end 2018 proved reserves 180.1 MMBoe, an increase in oil reserves of 5% over the prior year

Drilled six and completed nine horizontal Wolfcamp wells during the year with an inventory of seven drilled and uncompleted wells at year-end

Net loss was $19.9 million, or $0.21 per diluted share. Adjusted net loss (non-GAAP) was $25 million, or $0.26 per diluted share

EBITDAX (non-GAAP) of $59 million, a 7% increase over the prior year

Revenue of $114 million, an 8% increase over the prior year

Unhedged cash margin (non-GAAP) of $16.19 per Boe, a 16% increase over the prior year

Adjusted net loss, EBITDAX, cash operating expenses and unhedged cash margin are non-GAAP measures. See “Supplemental Non-GAAP Financial and Other Measures” below for our definitions and reconciliations of adjusted net loss and EBITDAX to net income (loss) and unhedged cash margin to revenues._____

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