Current REN Stock Info

Resolute may divest Aneth field to accelerate Delaware program; could expand to 4 rigs

Resolute Energy (ticker: REN) reported fourth quarter results today, showing a net loss of $20.6 million, or ($1.23) per share. Full year results are a net loss of $161.7 million, or ($10.33) per share.

Operations Update

Annual production for 2016 averaged 14,157 Boe per day, 7,996 and 6,161 Boe per day from the Permian Basin and Aneth Field, respectively. In 2015 production averaged 12,427 Boe per day, 4,883, 6,279 and 1,265 Boe per day from the Permian Basin, Aneth Field and Wyoming, respectively.

Production for the fourth quarter increased 91 percent to 19,583 Boe per day, 13,495 and 6,086 Boe per day from the Permian Basin and Aneth Field, respectively. Production for the fourth quarter ended December 31, 2015, was 10,278 Boe per day, comprised of 3,961, 6,229 and 88 Boe per day from the Permian Basin, Aneth Field and other properties, respectively. Sequential production for the fourth quarter increased 22 percent to 19,583 from 16,085 Boe per day.

In December Resolute announced the results of its first upper Wolfcamp A down-spacing test, the Uinta 0204H and Boucher 0203H. These wells came on with strong initial production rates and have continued to outperform the type curve for this area (specific production numbers are provided in the table below). In late February Resolute brought on line a second infill pair, the Renegade U03H and the Renegade L02H. These wells are down-spaced wells in the upper and lower Wolfcamp A. It is too early to publish initial production rates for these wells, but based on pressures and early flow back data the company believes these wells will further support denser development within the acreage block.

Currently Resolute is drilling two Pipeworks wells, which will be a down-spaced test in the lower Wolfcamp A and the Wolfcamp B in Mustang. These wells are scheduled to be completed in mid to late April.

In addition to testing the Wolfcamp A/B spacing design, this will also be Resolute’s first Wolfcamp B well utilizing more current completion designs as well as refined landing zone targeting. Additional data on the Wolfcamp B will allow the company to refine type curves, which are currently based on older completions in this area using less intensive completion designs. Based on observations from recent offsetting Wolfcamp B wells, Resolute believes this zone could prove to be competitive with the Wolfcamp A.

Following is an update of certain operating activities since the last operations update on December 19:

Drilling activity:

  • Harpoon L05H – Mustang, Wolfcamp A (“WCA”), 7,629 foot lateral, flowing back
  • South Elephant U04H – Appaloosa, WCA, 8,694 foot lateral, waiting on completion
  • North Mitre L07H – Appaloosa, WCA, 10,129 foot lateral, completing
  • Pipeworks B05H – Mustang, WCA, planned mid-length lateral, drilling
  • Pipeworks L06H – Mustang, WCA, planned mid-length lateral, drilling
  • South Goat 2 Unit U01H – Appaloosa, WCA, planned long lateral, drilling

Completion activity:

  • Renegade U03H – Mustang, WCA, 8,072 foot lateral, flowing back
    • 33 frac stages, 13.7 million pounds of proppant
  • Renegade L02H – Mustang, WCA, 8,064 foot lateral, flowing back
    •  33 frac stages, 13.8 million pounds of proppant
  • Harpoon L05H – Mustang, WCA, 7,629 foot lateral, flowing back
    • 31 frac stages, 13.6 million pounds of proppant
  • North Mitre L07H – Appaloosa, WCA, 10,129 foot lateral, completing
    • 37 stages, 18.2 million pounds of proppant

Production update on recent wells:

  • Boucher 2-3H – Mustang, WCA, 7,474 foot lateral, producing
    • peak 24 hour rate: 2,651 Boe per day
    • peak 30 day rate: 2,292 Boe per day
    • peak 60 day rate: 2,107 Boe per day
  • Uinta 0204H – Mustang, WCA, 7,438 foot lateral, producing
    • peak 24 hour rate: 2,481 Boe per day
    • peak 30 day rate: 2,128 Boe per day
    • peak 60 day rate: 2,061 Boe per day
  • Harrison State C20 1402H – Appaloosa, WCA, 6,953 foot lateral, producing
    • peak 24 hour rate: 2,906 Boe per day
    • peak 30 day rate: 2,431 Boe per day
    • peak 60 day rate: 2,099 Boe per day

Fourth Quarter and Annual Comparative Results

Resolute recorded a net loss of $20.6 million, or $1.23 per share, on revenue of $62.7 million during the three months ended December 31, 2016. Included in this net loss was $8.0 million of commodity derivative losses. This compares to a net loss of $92.2 million, or $6.15 per share, on revenue of $28.5 million during the three months ended December 31, 2015. The 2015 loss included commodity derivative gains of $22.4 million and a non-cash impairment charge of $77 million.

During 2016, Resolute recorded a net loss of $161.7 million, or $10.33 per share, on revenue of $164.5 million. The 2016 loss included $19.8 million of commodity derivative losses and a non-cash impairment charge of $58 million. This compares to net loss of $742.3 million, or $49.55 per share, on revenue of $154.6 million during the year ended December 31, 2015. The 2015 loss included commodity derivative gains of $76.5 million and a non-cash impairment charge of $705 million.

Adjusted EBITDA (a non-GAAP measure)

During the fourth quarter of 2016, Resolute generated $49.0 million of Adjusted EBITDA, or $27.19 per Boe, a 76 percent increase from the prior year, during which Resolute generated $27.8 million of Adjusted EBITDA, or $29.39 per Boe. The increase in Adjusted EBITDA was the result of increased revenue due to increased production, partially offset by an increase in cash-settled incentive award expense.

During 2016, Resolute generated $140.8 million of Adjusted EBITDA, or $27.17 per Boe, a nine percent increase from the prior year period during which Resolute generated $129.3 million of Adjusted EBITDA, or $28.50 per Boe. The increase in Adjusted EBITDA was the result of decreased lease operating expense and increased revenue due to increased production. These items were partially offset by increased general and administrative expense as well as cash-settled incentive award expense.

Production

Production for the quarter ended December 31, 2016, increased 91 percent to 1,802 MBoe, or 19,583 Boe per day, as compared to 946 MBoe, or 10,278 Boe per day, during the fourth quarter of 2015. Production for 2016 increased fourteen percent to 5,182 MBoe, or 14,157 Boe per day, from the 4,536 MBoe, or 12,427 Boe per day, during 2015. Pro forma for the property sales completed in 2015, production increased by more than 100 percent for the quarter and 50 percent for 2016.

Production from the company’s Permian Basin properties increased 241 percent to 13,495 Boe per day, as compared to the 3,961 Boe per day produced in the fourth quarter of 2015, and increased 37 percent from the 9,834 Boe per day produced during the third quarter of 2016. During 2016, production increased 64 percent to 7,996 Boe per day from the 4,883 Boe per day during 2015. Pro forma for property sales completed in 2015, production increased almost 400 percent for the quarter and more than 150 percent during 2016.

Fourth quarter 2016 production from the company’s Aneth Field properties remained relatively unchanged at 6,086 Boe per day as compared to the 6,229 Boe per day produced in the fourth quarter of 2015, and the 6,250 Boe per day produced during the third quarter of 2016. During 2016, production also remained relatively unchanged at 6,161 Boe per day as compared to the 6,279 Boe per day during 2015.

Revenue

During the fourth quarter of 2016 Resolute realized a 47 percent increase in adjusted revenue (revenue including commodity derivative settlements), a non-GAAP measure, as compared to the prior year quarter due to increased production attributable to positive results from the 2016 drilling program in the Permian Basin offset by decreased derivative settlement gains. Adjusted revenue for the quarter was $81.0 million, including the effect of commodity derivative settlement gains of $18.4 million. During the fourth quarter of 2015, Resolute had adjusted revenue of $55.1 million, including the effect of commodity derivative settlement gains of $26.6 million.

During 2016, Resolute realized a two percent increase in adjusted revenue as compared to 2015, due to the reasons noted for the quarterly increase. Adjusted revenue for 2016 was $252.5 million, including the effect of commodity derivative settlement gains of $88.0 million. During 2015, Resolute had adjusted revenue of $247.8 million, including the effect of commodity derivative settlement gains of $93.1 million.

Capital Expenditures

During the quarter ended December 31, 2016, Resolute incurred oil and gas related capital expenditures of approximately $34.3 million, excluding acquisitions of $158.5 million, proceeds from divestitures of $3.6 million and capitalized interest of $2.7 million. During 2016, Resolute incurred oil and gas related capital expenditures of approximately $132.9 million, excluding acquisitions of $158.5 million, proceeds from divestitures of $38.9 million and capitalized interest of $4.1 million. These capital investments were primarily for drilling and completion projects in the Delaware Basin.

Rick Betz, Resolute’s CEO, said: “2016 was a transformational year for Resolute. Today we are positioned as one of the premier Delaware Basin operators with a strong balance sheet and an operational footprint in one of the best areas in the basin. With the completion of our fourteen well 2016 program, we exited the year producing 20,800 Boe per day, more than double fourth quarter 2015 average production. Fourth quarter 2016 lease operating expense per Boe was reduced by 52 percent and Adjusted EBITDA was substantially higher, when compared to the prior year period. Year-end Permian Basin production was 14,500 Boe per day, representing more than 70 percent of our total. Thus far in 2017, we have continued to make strong operational and strategic progress. We have solidified our development inventory through successful down-spacing tests, have accelerated our development activity with the addition of a second drilling rig and plan to expand our Reeves County acreage footprint to 21,000 net acres upon closing of our recently announced acquisition.

“During 2016 we also focused on reducing debt and enhancing liquidity. We issued common and preferred equity in conjunction with our October 2016 Firewheel acquisition, a transaction that added significantly to our operated acreage position in the Delaware Basin. In December we sold common shares to the market with net proceeds to us of $160 million, primarily to retire our second lien debt facility. By year-end our total net debt to Adjusted EBITDA was 2.9x, with only $10 million outstanding on our revolving credit facility.

“Operationally, 2017 is off to a fast start for Resolute. Since the beginning of the year, with two rigs running in Reeves County, we have finished drilling operations on three wells, completed three wells, we have two wells waiting on completion and have three wells in various stages of drilling. Our second rig is operating in our Mustang area and is proving to be as efficient as the rig we have been running since October 2015. In Appaloosa we recently drilled a long lateral from spud to total depth in seventeen days, a new record for the company.

“One of our primary areas of focus this year has been the continuing evaluation of down-spaced drilling of the Wolfcamp A and B formations. More details on these tests are provided in the Operations Update below. We expect these tests to support development with 24 wells per section in the Wolfcamp A and B zones in Mustang and Appaloosa, resulting in drillable inventory of approximately 375 locations. This inventory will grow by 30 percent to 487 gross locations upon the closing of our recently announced acquisition. Further down-spacing tests, plus the potential addition of the Wolfcamp C and D zones, as well as the X/Y and other formations, would add significantly to our inventory. A necessary operational byproduct of these spacing tests is to defer initial production from the pair wells as we complete the wells sequentially and then bring them on production simultaneously. As a result, we do not have our normal complement of new production rates to announce at this time. We do expect, however, that a disproportionate number of wells will be brought on line and establish initial production rates as we move through March and into mid-April. This includes at least three long lateral Wolfcamp A wells in Appaloosa. We believe these wells will contribute significantly to second quarter production growth. With the completion of the currently-drilling Pipeworks wells we expect to resume a more normal schedule of drilling, completing and bringing individual wells on production.

“While we are not ready to announce plans and provide guidance for 2018, we currently expect to keep our existing two rigs, continue with a third rig on the newly acquired acreage, and potentially add a fourth rig to our legacy position. These activities should continue our significant growth in production, cash flow and proved reserves.

“With the results of our successful acquisition, divestiture and drilling programs, Resolute has transitioned to a Delaware Basin focused operator. To complete our repositioning as a pure-play company, Resolute’s board of directors has directed management to explore and take preparatory steps toward a disposition of the company’s Aneth Field assets. Aneth has provided years of steady production and it remains a cash-flow generating, long lived oil project with solid growth potential in the hands of a party that can focus on those upside projects. For Resolute, though, the center of activity is Reeves County. The proceeds from a disposition of Aneth Field would provide meaningful additional capital that we would deploy either to accelerate drilling in the Delaware Basin, where we see our highest rates of return, or as a component of the optimal long-term financing for our recently announced Delaware Basin acquisition. We will provide further information on the disposition process in the coming weeks.”


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