We have audited the accompanying consolidated balance sheets of Approach Resources Inc. and subsidiaries (collectively, the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Approach Resources Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 10, 2017, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Notes to Consolidated Financial Statements
1.
|
Summary of Significant Accounting Policies
|
Organization and Nature of Operations
Approach Resources Inc. (“Approach,” the “Company,” “we,” “us” or “our”) is an independent energy company focused on the exploration, development, production and acquisition of unconventional oil and gas properties. We focus on finding and developing oil and natural gas reserves in oil shale and tight gas sands. Our properties are primarily located in the Permian Basin in West Texas. We also own interests in the East Texas Basin.
Consolidation, Basis of Presentation and Significant Estimates
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions are eliminated. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Actual results may differ from those estimates. Significant assumptions are required in the valuation of proved oil and natural gas reserves, which affect our estimate of depletion expense as well as our impairment analyses. Significant assumptions also are required in our estimation of accrued liabilities, commodity derivatives, income tax provision, share-based compensation and asset retirement obligations. It is at least reasonably possible these estimates could be revised in the near term, and these revisions could be material. Certain prior-year amounts have been reclassified to conform to current-year presentation. These classifications have no impact on the net loss reported.
Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At times, the amount of cash and cash equivalents on deposit in financial institutions exceeds federally insured limits. We monitor the soundness of the financial institutions and believe the Company’s risk is negligible.
Oil and Gas Properties
Capitalized Costs
. Our oil and gas properties comprised the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Mineral interests in properties:
|
|
|
|
|
|
|
|
|
Unproved leasehold costs
|
|
$
|
33,596
|
|
|
$
|
37,853
|
|
Proved leasehold costs
|
|
|
44,643
|
|
|
|
44,122
|
|
Wells and related equipment and facilities
|
|
|
1,774,314
|
|
|
|
1,753,649
|
|
Support equipment
|
|
|
8,002
|
|
|
|
9,545
|
|
Uncompleted wells, equipment and facilities
|
|
|
9,219
|
|
|
|
8,612
|
|
Total costs
|
|
|
1,869,774
|
|
|
|
1,853,781
|
|
Less accumulated depreciation, depletion and
amortization
|
|
|
(780,412
|
)
|
|
|
(702,139
|
)
|
Net capitalized costs
|
|
$
|
1,089,362
|
|
|
$
|
1,151,642
|
|
F-9
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
We follow the successful efforts method of accounting for our oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties and to drill and equip development wells and related asset retirement costs are capitalized. Costs
to drill exploratory wells are capitalized pending determination of whether the wells have proved reserves. If we determine that the wells do not have proved reserves, the costs are charged to exploration expense. There were no exploratory wells capitalize
d, pending determination of whether the wells have proved reserves, at December 31, 2016 or 2015. Geological and geophysical costs, including seismic studies are charged to exploration expense as incurred. We capitalize interest on expenditures for signifi
cant exploration and development projects that last more than six months while activities are in progress to bring the assets to their intended use and while these expenditures are excluded from our depletable base. Through December 31, 2016, we have capit
alized no interest costs because our individual wells and infrastructure projects are generally developed in less than six months. Costs incurred to maintain wells and related equipment are charged to expense as incurred.
On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion and amortization are eliminated from the property accounts, and the resulting gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion and amortization with no gain or loss recognized in income.
Capitalized amounts attributable to proved oil and gas properties are depleted by the unit-of-production method over proved reserves using the unit conversion ratio of six Mcf of gas to one barrel of oil equivalent (“Boe”), and one barrel of NGLs to one Boe. The ratios of six Mcf of natural gas to one Boe and one barrel of NGLs to one Boe do not assume price equivalency and, given price differentials, the price for a Boe for natural gas may differ significantly from the price for a barrel of oil. Depreciation, depletion and amortization expense for oil and gas producing property and related equipment was $78.7 million, $108.8 million and $106.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Capitalized costs related to proved oil and gas properties, including wells and related equipment and facilities, are periodically evaluated for impairment based on an analysis of undiscounted future net cash flows in accordance with ASC 360,
Accounting for the Impairment or Disposal of Long-Lived Assets
, as events or changes in circumstances indicate that the carrying values of those assets may not be recoverable. If undiscounted cash flows are insufficient to recover the net capitalized costs related to proved properties, then we recognize an impairment charge equal to the difference between the net capitalized costs related to proved properties and their estimated fair values based on the present value of the related future net cash flows. Estimating future net cash flows involves the use of judgments, including estimation of the proved and unproved oil and natural gas reserve quantities, timing of development and production, expected future commodity prices, capital expenditures and production costs. We recorded no impairment of our proved properties for the years ended December 31, 2016 and 2014. During the year ended December 31, 2015, we recognized an impairment loss of $214.7 million related primarily to our vertical Canyon wells. See Note 7 for proved property impairment disclosures.
Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. We recorded no impairment of our unproved properties for the years ended December 31, 2016 and 2014. Certain leases that we consider non-core to our development of Project Pangea were impaired during the year ended December 31, 2015, as we did not plan to develop them. As a result, we recorded a non-cash impairment loss of unproved property of $5.5 million for the year ended December 31, 2015.
The total impairment loss of $220.2 million for the year ended December 31, 2015, is recorded in impairment of oil and gas properties on our consolidated statements of operations, and in accumulated depletion, depreciation and amortization on our consolidated balance sheets.
On the sale of an entire interest in an unproved property for cash or cash equivalents, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.
F-10
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Other Property
Furniture, fixtures and equipment are carried at cost. Depreciation of furniture, fixtures and equipment is provided using the straight-line method over estimated useful lives ranging from three to 15 years. Gain or loss on retirement or sale or other disposition of assets is included in income in the period of disposition. Depreciation expense for other property and equipment was $343,000, $563,000 and $588,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Financial Instruments
The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value, as of December 31, 2016 and 2015. See Note 7 for fair value disclosures.
Income Taxes
We are subject to U.S. federal income taxes along with state income taxes in Texas. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes on the consolidated statements of operations.
Based on our analysis, we did not have any uncertain tax positions as of December 31, 2016 or 2015. The Company’s income tax returns are subject to examination by the relevant taxing authorities as follows: U.S. Federal income tax returns for tax years 2013 and forward and Texas income and margin tax returns for tax years 2013 and forward. There are currently no income tax examinations underway for these jurisdictions.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the year of the enacted tax rate change.
We monitor our deferred tax assets by jurisdiction to assess their potential realization, and a valuation allowance is recognized on deferred tax assets when we believe that certain of these assets are more likely than not to be realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies. To the extent that a valuation allowance is established or changed during any period, we would recognize expense or benefit within our consolidated tax expense. We do not currently have a valuation allowance on our federal net operating loss carryforwards (“NOLs”).
Derivative Activity
We record our open derivative instruments at fair value on our consolidated balance sheets as either unrealized gains or losses on commodity derivatives. We record changes in such fair value in earnings on our consolidated statements of operations under the caption entitled “unrealized (loss) gain on commodity derivatives.”
F-11
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Although we have not designated our derivative instruments as cash-flow hedges, we use those instruments to reduce our exposure to fluctuations in commodity prices related to our natural gas and oil production. Unrealized gains and losses, at fai
r value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts are re
corded in earnings as they occur and included in income (expense) on our consolidated statements of operations. Realized gains and losses are also included in income (expense) on our consolidated statements of operations.
Accrued Liabilities
The following is a summary of our accrued liabilities at December 31, 2016 and 2015 (in thousands):
|
|
2016
|
|
|
2015
|
|
Capital expenditures accrual
|
|
$
|
1,067
|
|
|
$
|
3,476
|
|
Operating expenses and other
|
|
|
6,750
|
|
|
|
9,988
|
|
Total
|
|
$
|
7,817
|
|
|
$
|
13,464
|
|
Asset Retirement Obligations
Our asset retirement obligations relate to future plugging and abandonment expenses on oil and gas properties. Based on the expected timing of payments, the full asset retirement obligation is classified as non-current. There were no significant changes to the asset retirement obligations for the years ended December 31, 2016, 2015 and 2014.
Share-Based Compensation
We measure and record compensation expense for share-based payment awards to employees and outside directors based on estimated grant date fair values. We recognize compensation costs for awards granted over the requisite service period based on the grant date fair value in general and administrative expenses on our consolidated statements of operations.
In 2016, we awarded cash-settled performance awards, subject to certain performance conditions, to our executive officers.
The cash-settled performance awards represent a non-equity unit with a conversion value equal to the fair market value of a share of the Company’s common stock at the vesting date. These awards are classified as liability awards due to the cash settlement feature. Compensation costs associated with the cash-settled performance awards are re-measured at each interim reporting period and an adjustment is recorded in general and administrative expenses on our consolidated statements of operations.
F-12
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Earnings Per Common Share
We report basic earnings per common share, which excludes the effect of potentially dilutive securities, and diluted earnings per common share, which includes the effect of all potentially dilutive securities unless their impact is antidilutive. The following are reconciliations of the numerators and denominators of our basic and diluted earnings per share, (dollars in thousands, except per-share amounts):
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income (numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income — basic
|
|
$
|
(52,243
|
)
|
|
$
|
(174,104
|
)
|
|
$
|
56,172
|
|
Weighted average shares (denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares — basic
|
|
|
41,488,206
|
|
|
|
40,464,283
|
|
|
|
39,407,733
|
|
Dilution effect of share-based compensation,
treasury method (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,132
|
|
Weighted average shares — diluted
|
|
|
41,488,206
|
|
|
|
40,464,283
|
|
|
|
39,419,865
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.26
|
)
|
|
$
|
(4.30
|
)
|
|
$
|
1.43
|
|
Diluted
|
|
$
|
(1.26
|
)
|
|
$
|
(4.30
|
)
|
|
$
|
1.42
|
|
(1)
|
Approximately 39,000 options to purchase our common stock were excluded from this calculation because they were antidilutive for the years ended December 31, 2016 and 2015.
|
Oil and Gas Operations
Revenue and Accounts Receivable
. We recognize revenue for our production when the quantities are delivered to or collected by the respective purchaser. Prices for such production are defined in sales contracts and are readily determinable based on certain publicly available indices.
Accounts receivable, joint interest owners, consist of uncollateralized joint interest owner obligations due within 30 days of the invoice date. Accounts receivable, oil, NGLs and gas sales, consist of uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 to 60 days of production. No interest is charged on past-due balances. Payments made on all accounts receivable are applied to the earliest unpaid items. We review accounts receivable periodically and reduce the carrying amount by a valuation allowance that reflects our best estimate of the amount that may not be collectible. No such allowance was considered necessary at December 31, 2016 or 2015. Accounts receivable related to oil, NGLs and gas sales includes $0.2 million and $4.8 million from realized gains on commodity derivatives at December 31, 2016 and 2015, respectively.
Oil, NGLs and Gas Sales Payable.
Oil, NGLs and gas sales payable represents amounts collected from purchasers for oil, NGLs and gas sales which are either revenues due to other revenue interest owners or severance taxes due to the respective state or local tax authorities. Generally, we are required to remit amounts due under these liabilities within 60 days of the end of the month in which the related production occurred.
Production Costs.
Production costs, including compressor rental and repair, pumpers’ and supervisors’ salaries, saltwater disposal, insurance, repairs and maintenance, expensed workovers and other operating expenses are expensed as incurred and included in lease operating expenses on our consolidated statements of operations.
Exploration expenses.
Exploration expenses include lease expirations, delay rentals, geological and geophysical costs and dry hole costs. For the year ended December 31, 2015 exploration expense includes $2.2 million related to the early termination of daywork drilling contracts.
Dependence on Major Customers.
For the year ended December 31, 2016, sales to JP Energy Development, LP (“JP Energy”) and DCP Midstream, LP (“DCP”) accounted for approximately 54% and 46%, respectively, of our total sales. As of December 31, 2016, we had dedicated all of our oil production from northern Project Pangea and
F-13
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Pangea West through
September
2022 to JP Energy. In addition, as of December 31, 2016, we had contracted to sell all of our NGLs and natural gas production from Project Pangea to DCP through
August
2023. For the year ended December 31, 2015, sales to DCP and JP Energy accounted for app
roximately 36% and 63%, respectively of our total sales. For the year ended December 31, 2014, sales to DCP and JP Energy accounted for approximately 30% and 69%, respectively of our total sales. We believe that there are potential alternative purchasers a
nd that it may be necessary to establish relationships with new purchasers. However, there can be no assurance that we can establish such relationships and that those relationships will result in increased purchasers. Although we are exposed to a concentra
tion of credit risk, we believe that all of our purchasers are credit worthy.
Segment Reporting
The Company presently operates in one business segment, the exploration and production of oil, NGLs and natural gas.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update for “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Topic 605, Revenue Recognition.” This accounting standard update provides new guidance concerning recognition and measurement of revenue and requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. This new guidance permits adoption through the use of either a full retrospective approach or a modified retrospective approach for annual reporting periods beginning on or after December 15, 2016, with early adoption not permitted. In August 2015, FASB delayed the effective date one year, making the new standard effective for interim periods and annual periods beginning after December 15, 2017. We have not determined which transition method we will use and are continuing to evaluate our existing revenue recognition policies to determine whether any of our contracts will be affected by the new requirements. This evaluation will continue throughout 2017, and we are currently planning to adopt this new standard in the first quarter of 2018.
In September 2015, FASB issued an accounting standards update for “Business Combinations,” which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. We adopted this new guidance prospectively in the first quarter of 2016. This new guidance did not have a significant impact on the consolidated financial statements.
In February 2016, FASB issued an accounting standards update for “Leases,” which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This new guidance is effective for interim and annual periods beginning after December 15, 2018, and we will adopt it using a modified retrospective approach. The Company is evaluating the impact of this new guidance on its consolidated financial statements.
In March 2016, FASB issued an accounting standards update for “Compensation — Stock Compensation,”
which amends existing guidance related to the accounting for forfeitures, employer tax withholding on share-based compensation and financial statement presentation of excess tax benefits or deficiencies. This standard is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We applied this standard u
sing a modified retrospective approach. We have elected to (i) recognize forfeitures of share-based compensation as they occur, (ii) permit tax withholdings in excess of the minimum statutory requirements and (iii) recognize previously un-recognized excess tax benefits related to share-based compensation in the current year. As a result, we have recognized an increase in accumulated earnings in the current year of $1.7 million related to the change in accounting principal as of January 1, 2016. Adoption of this guidance did not impact our consolidated statements of operations or cash flows.
In January 2017, the FASB issued an accounting standards update for “Clarifying the Definition of a Business,” which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard requires entities to use a screen test to determine when an integrated set of assets and activities is not a business or if the integrated set of assets and activities needs to
F-14
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
be further evaluated agai
nst the framework. This standard is effective for interim and annual reporting periods beginning after December 15, 2016.
The Company is evaluating the impact of this new guidance on its consolidated financial statements.
On November 2, 2016, we entered into an exchange agreement with the largest holder of our
7% Senior Notes due 2021 (the “Senior Notes”)
to exchange $130,552,000 principal amount of our Senior Notes for 39,165,600 newly issued shares of common stock, par value $0.01 per share (the “Initial Exchange”).
On January 26, 2017, our stockholders approved the Initial Exchange and an increase in our authorized common stock from 90 million shares to 180 million shares. We closed the Initial Exchange on January 27, 2017, and paid $1.1 million of accrued interest on the Senior Notes held by the exchanging noteholder. In connection with the Initial Exchange, a second supplemental indenture became effective, which removed certain covenants and events of default from the indenture governing our Senior Notes, and eliminated certain restrictive covenants discussed in Note 3. As of December 31, 2016, we have incurred approximately $2.1 million in costs related to the Initial Exchange, which are recorded in prepaid expenses and other current assets.
On January 30, 2017, we offered to exchange our remaining
$99,768,000
principal amount of outstanding Senior Notes for shares of our common stock at a ratio of 276 shares of common stock per $1,000 principal amount of our Senior Notes (the “Follow-On Exchange”).
There are no minimum subscription requirements for the Follow-On Exchange, and we cannot predict participation levels.
Depending on the participation levels in the Follow-On Exchange, we may further reduce our long-term debt. Additionally, use of our federal NOLs may be limited as a result of the Follow-On Exchange.
The following table provides a summary of our long-term debt at December 31, 2016, and December 31, 2015 (in thousands).
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
Outstanding borrowings
|
|
$
|
273,000
|
|
|
$
|
273,000
|
|
Debt issuance costs
|
|
|
(1,304
|
)
|
|
|
(2,252
|
)
|
Senior secured credit facility, net
|
|
|
271,696
|
|
|
|
270,748
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
Principal
|
|
|
230,320
|
|
|
|
230,320
|
|
Debt issuance costs
|
|
|
(3,667
|
)
|
|
|
(4,481
|
)
|
Senior notes, net
|
|
|
226,653
|
|
|
|
225,839
|
|
Total long-term debt
|
|
$
|
498,349
|
|
|
$
|
496,587
|
|
Senior Secured Credit Facility
At December 31, 2016, the borrowing base and aggregate lender commitments under our amended and restated senior secured credit facility (the “Credit Facility”) were $325 million, with maximum commitments from the lenders of $1 billion. The Credit Facility has a maturity date of May 7, 2019. The borrowing base is redetermined semi-annually based on our oil, NGLs and gas reserves. We, or the lenders, can each request one additional borrowing base redetermination each calendar year.
Borrowings under the Credit Facility bear interest based on the agent bank’s prime rate plus an applicable margin ranging from 1.50% to 2.50%, or the sum of the LIBOR rate plus an applicable margin ranging from 2.50% to 3.50%. In addition, we pay an annual commitment fee of 0.50% of unused borrowings available under the Credit Facility. Margins vary based on the borrowings outstanding compared to the borrowing base of the lenders.
F-15
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
We had $273
million of outstanding borrowings under the Credit Facility at December 31, 2016 and 2015. The weighted average interest rate applicable to borrowings under the Credit Facility in 2016 was 3.3%. We also had outstanding unused letters of credit under our C
redit Facility totaling $0.6 million at December 31, 2016, compared to $0.3 million at December 31, 2015, which reduce amounts available for borrowing under the Credit Facility.
Obligations under the Credit Facility are secured by mortgages on substantially all of the oil and gas properties of the Company and its subsidiaries. The Company is required to grant liens in favor of the lenders covering the oil and gas properties of the Company and its subsidiaries representing at least 90% of the total value of all oil and gas properties of the Company and its subsidiaries.
On May 3, 2016, we entered into a third amendment to the Credit Facility. The third amendment,
among other things, (a) decreased the borrowing base to
$325
million from $450 million, (b)
revised the Company’s permitted ratio of EBITDAX (as defined in the Credit Facility)
to cash Interest Expense (as defined in the Credit Facility) to 1.25 to 1.0 (or 1.0 to 1.0 following the issuance of second lien indebtedness), through December 31, 2017, 1.5 to 1.0 through December 31, 2018, and 2.0 to 1.0 thereafter; (c) increased the applicable margin rates on borrowings by 100 basis points, (d) permits the Company to issue up to $150 million of second lien indebtedness, subject to various conditions and limitations, (e) permits the Company to repurchase outstanding debt with proceeds of certain asset sales, equity issuances or second lien indebtedness, and (f) requires cash and cash equivalents in excess of $35 million held by the Company to be applied to reduce outstanding borrowings under the Credit Facility.
In connection with the third amendment to the Credit Facility, $0.6 million of debt issuance costs were written off as a result of the reduction in the borrowing base, and we incurred $0.2 million of debt issuance costs.
Covenants
The Credit Facility contains two principal financial covenants:
|
•
|
a consolidated interest coverage ratio covenant (as defined in the Credit Facility) that requires us to maintain a ratio of consolidated EBITDAX to cash Interest Expense (as defined in the Credit Facility) as of the last day of any fiscal quarter of not less than 1.25 to 1.0
(or 1.0 to 1.0 following the issuance of second lien indebtedness)
through December 31, 2017, a ratio of not less than 1.5 to 1.0 through December 31, 2018, and a ratio of not less than 2.0 to 1.0 thereafter, and
|
|
•
|
a consolidated modified current ratio covenant (as defined in the Credit Facility) that requires us to maintain a ratio of not less than 1.0 to 1.0 as of the last day of any fiscal quarter.
|
The Credit Facility also contains covenants restricting cash distributions and other restricted payments, transactions with affiliates, incurrence of other debt, consolidations and mergers, the level of operating leases, asset sales, investment in other entities and liens on properties.
In addition, the obligations of the Company may be accelerated upon the occurrence of an Event of Default (as defined in the Credit Facility). Events of Default include customary events for a financing agreement of this type, including, without limitation, payment defaults, the inaccuracy of representations and warranties, defaults in the performance of affirmative or negative covenants, defaults on other indebtedness of the Company or its subsidiaries, bankruptcy or related defaults, defaults related to judgments and the occurrence of a Change of Control (as defined in the Credit Facility), which includes instances where a third party becomes the beneficial owner of more than 50% of the Company’s outstanding equity interests entitled to vote.
Senior Notes
In June 2013, we completed our public offering of $250 million principal amount of 7% Senior Notes due 2021 (the “Senior Notes”). Annual interest on the Senior Notes is payable semi-annually on June 15 and December 15. On December 15, 2016, we made a semi-annual interest payment of $8.1 million. We received net proceeds from the issuance of the Senior Notes of approximately $243 million, after deducting fees and expenses. We used a portion of the net proceeds from the offering to repay all outstanding borrowings under the Credit
F-16
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Facility, fund our capital expenditures for the development of our Wolfcamp shale oil resource play and for general working capital needs.
During the year ended December 31, 2015, we repurchased Senior Notes in the open market with an aggregate face value of $19.7 million for a purchase price of $8.8 million, including accrued interest. This resulted in a gain on extinguishment of debt of $10.6 million.
On November 2, 2016, we entered into the Initial Exchange. In January 2017, we closed the Initial Exchange and launched the Follow-On Exchange.
The Initial Exchange reduced our Senior Notes outstanding by $130.6 million and will result in future interest savings of approximately $40 million. The Follow-On Exchange, if closed, is expected to further reduce our debt and improve our operating cash flow through the reduction of interest expense.
We issued the Senior Notes under a senior indenture dated June 11, 2013, among the Company, our subsidiary guarantors and Wilmington Trust, National Association, as successor trustee. The senior indenture, as supplemented by a supplemental indenture dated June 11, 2013, is referred to as the “Indenture.”
On December 20, 2016, we entered into the second supplemental indenture (the “Second Supplemental Indenture”), which became effective in connection with the closing of the Initial Exchange. The Second Supplemental Indenture (i) eliminated certain definitions and references to definitions contained in the Indenture; (ii) eliminated and revised, as applicable, certain events of default contained in the Indenture; (iii) eliminated certain conditions to consolidation, merger, conveyance, transfer or lease contained in the Indenture; (iv) eliminated certain covenants contained in the Indenture, including substantially all of the restrictive covenants set forth therein; and (v) supplemented and amended the Senior Notes and the securities guarantees, as and to the same extent as the Indenture has been amended and supplemented in accordance with the preceding clauses (i), (ii), (iii) and (iv).
We may redeem some or all of the Senior Notes at specified redemption prices, plus accrued and unpaid interest to the redemption date. The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of our subsidiaries, subject to certain customary release provisions. A subsidiary guarantor may be released from its obligations under the guarantee:
|
•
|
in connection with any sale or other disposition of all or substantially all of the assets of that guarantor (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) the Company or a subsidiary guarantor, if the sale or other disposition otherwise complies with the Indenture;
|
|
•
|
in connection with any sale or other disposition of the capital stock of that guarantor to a person that is not (either before or after giving effect to such transaction) the Company or a subsidiary guarantor, if that guarantor no longer qualifies as a subsidiary of the Company as a result of such disposition and the sale or other disposition otherwise complies with the Indenture;
|
|
•
|
if the Company designates any restricted subsidiary that is a guarantor to be an unrestricted subsidiary in accordance with the Indenture;
|
|
•
|
upon defeasance or covenant defeasance of the notes or satisfaction and discharge of the indenture, in each case, in accordance with the Indenture;
|
|
•
|
upon the liquidation or dissolution of that guarantor, provided that no default or event of default occurs under the indenture as a result thereof or shall have occurred and is continuing; or
|
|
•
|
in the case of any restricted subsidiary that, after the issue date of the notes is required under the indenture to guarantee the notes because it becomes a guarantor of indebtedness issued or an obligor under the revolving credit facility with respect to the Company and/or its subsidiaries, upon the release or discharge in full from its (i) guarantee of such indebtedness or (ii) obligation under such revolving credit facility, in each case, which resulted in such restricted subsidiary’s obligation to guarantee the notes.
|
As a result of the Second Supplemental Indenture, the Indenture contains limited events of default.
F-17
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Subsidiar
y Guarantors
The Senior Notes are guaranteed on a senior unsecured basis by each of our consolidated subsidiaries. Approach Resources Inc. is a holding company with no independent assets or operations. The subsidiary guarantees are full and unconditional and joint and several, and any subsidiaries of the Company other than the subsidiary guarantors are minor. There are no significant restrictions on the Company’s ability, or the ability of any subsidiary guarantor, to obtain funds from its subsidiaries through dividends, loans, advances or otherwise.
At December 31, 2016, we were in compliance with all of our covenants, and there were no existing defaults or events of default, under our debt instruments.
In September 2015, we reduced our workforce to decrease costs and better align our workforce with the needs of the business and oil and gas prices. In connection with the reduction, we incurred $1.4 million in expenses, which was recorded in termination costs on our consolidated statements of operations. As of December 31, 2016, $0.3 million in termination costs is recorded in current liabilities on our consolidated balance sheets. We also recorded a benefit of $0.3 million in share-based compensation expense related to the forfeiture of unvested shares of restricted stock in connection with our workforce reduction, which was recorded in general and administrative expense on our consolidated statements of operations.
5.
|
Share-Based Compensation
|
In June 2007, our board of directors and stockholders approved the 2007 Stock Incentive Plan (the “2007 Plan”). Under the 2007 Plan, we may grant restricted stock, stock options, stock appreciation rights, restricted stock units, performance awards, unrestricted stock awards and other incentive awards. Under a Fifth Amendment to the 2007 Plan effective June 2, 2016, the maximum number of shares of common stock available for the grant of awards under the 2007 Plan after June 2, 2016, is 6,125,000. Awards of any stock options are to be priced at not less than the fair market value at the date of the grant. We use (i) the closing stock price on the date of grant for the fair value of restricted stock awards, including performance-based awards, (ii) the Monte Carlo simulation method for the fair value of market-based awards, (iii) the fair market value of our common stock on the valuation date for cash-settled performance awards and (iv) the Black-Scholes option price model to measure the fair value of stock options. The vesting period of any stock award is to be determined by the board or an authorized committee at the time of the grant.
Share-based compensation expense amounted to $6.3 million, $8 million and $8.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. Such amounts represent the estimated fair value of stock awards for which the requisite service period elapsed during those periods. Included in share-based compensation expense in 2014 was a benefit of $1.1 million for forfeited stock awards related to the retirement of one of our executive officers. Share-based compensation expense for the years ended December 31, 2016, 2015 and 2014, included $214,000, $735,000 and $749,000, respectively, related to grants to non-employee directors.
Stock Options
There were no stock option grants during the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, 38,525 options were fully vested and outstanding with a weighted average exercise price of $12.00 and a weighted average remaining contractual term of 0.85 years. There were no options exercised during the years ended December 31, 2016, 2015 and 2014.
Nonvested Shares
Share grants totaling 1,318,229 shares, 1,278,329 shares and 992,919 shares with an approximate aggregate fair market value of $2.5 million, $6.2 million and $14.4 million, based on the closing price of our common stock on the date of grant, were granted to employees and non-employee directors during the years ended December 31, 2016, 2015 and 2014, respectively. Included in the share grants for 2016, 2015 and 2014, are 550,272 shares,
F-18
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
724,249 shares and 245,157 shares, respectively, awarded to our executive officers. The aggregate fair market value of these sha
res on the grant date was $0.3 million, $4.5 million and $4.5 million, respectively, to be expensed over a service period of approximately three years, subject to certain performance restrictions. The share grants for executive officers noted above does no
t include the cash-settled performance awards, which are discussed in more detail below.
A summary of the status of nonvested shares for the years ended December 31, 2016, 2015 and 2014, is presented below:
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested at January 1, 2014
|
|
|
699,231
|
|
|
$
|
23.70
|
|
Granted
|
|
|
992,919
|
|
|
|
14.48
|
|
Vested
|
|
|
(400,429
|
)
|
|
|
20.18
|
|
Canceled
|
|
|
(169,311
|
)
|
|
|
25.57
|
|
Nonvested at December 31, 2014
|
|
|
1,122,410
|
|
|
$
|
16.52
|
|
Granted
|
|
|
1,278,329
|
|
|
|
4.87
|
|
Vested
|
|
|
(419,222
|
)
|
|
|
15.26
|
|
Canceled
|
|
|
(246,261
|
)
|
|
|
14.30
|
|
Nonvested at December 31, 2015
|
|
|
1,735,256
|
|
|
$
|
8.60
|
|
Granted
|
|
|
1,318,229
|
|
|
|
1.90
|
|
Vested
|
|
|
(992,461
|
)
|
|
|
7.03
|
|
Canceled
|
|
|
(107,960
|
)
|
|
|
17.33
|
|
Nonvested at December 31, 2016
|
|
|
1,953,064
|
|
|
$
|
4.39
|
|
As of December 31, 2016, unrecognized compensation expense related to the nonvested shares amounted to $4 million, which will be recognized over a remaining service period of two years.
Cash-settled performance awards
In 2016, in addition to the share grants discussed above, we awarded 1,100,543 cash-settled performance awards, subject to certain performance conditions, to our executive officers. The aggregate fair market value of the cash-settled shares on the grant date was approximately $1 million, to be expensed over a remaining service period of approximately three years, subject to performance conditions.
The cash-settled performance awards represent a non-equity unit with a conversion value equal to the fair market value of a share of the Company’s common stock at the vesting date. These awards are classified as liability awards due to the cash settlement feature. Compensation costs associated with the cash-settled performance awards are re-measured, based on the fair market value of our common stock, at each interim reporting period and an adjustment is recorded in general and administrative expenses on our consolidated statements of operations. For the year ended December 31, 2016, we recognized $1.3 million in expense related to the cash-settled performance awards, recorded as a current liability of $0.6 million and a non-current liability of $0.7 million on our consolidated balance sheet.
Subsequent Restricted Share Award
Subsequent to December 31, 2016, 1,443,256 restricted shares were awarded to our executive officers, of which 962,171 shares are subject to certain performance conditions and 481,085 shares are subject to three-year total shareholder return (“TSR”) conditions, assuming maximum TSR. The aggregate fair market value of the shares on the grant date was approximately $2.9 million, to be expensed over a remaining service period of approximately three years.
F-19
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Employee Benefit Plan
The Company has a defined contribution employee benefit plan covering substantially all of its employees. We make a matching contribution equal to 100% of each pre-tax dollar contributed by the participant on the first 3% of eligible compensation and 50% on the next 2% of eligible compensation. The Company made contributions to the plan of approximately $338,000, $404,000 and $310,000 during the years ended December 31, 2016, 2015 and 2014, respectively.
Our provision for income taxes comprised the following (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(265
|
)
|
|
$
|
(25
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total current provision for income taxes
|
|
$
|
—
|
|
|
$
|
(265
|
)
|
|
$
|
(25
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(24,957
|
)
|
|
$
|
(91,716
|
)
|
|
$
|
32,754
|
|
State
|
|
|
539
|
|
|
|
(1,424
|
)
|
|
|
963
|
|
Total deferred provision for income taxes
|
|
$
|
(24,418
|
)
|
|
$
|
(93,140
|
)
|
|
$
|
33,717
|
|
Total income tax expense differed from the amounts computed by applying the U.S. Federal statutory tax rates to pre-tax income (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory tax at 35%
|
|
$
|
(26,831
|
)
|
|
$
|
(93,628
|
)
|
|
$
|
31,452
|
|
State taxes, net of federal impact
|
|
|
578
|
|
|
|
(1,463
|
)
|
|
|
989
|
|
Share-based compensation tax shortfall
|
|
|
1,826
|
|
|
|
1,939
|
|
|
|
1,670
|
|
Permanent differences
|
|
|
11
|
|
|
|
26
|
|
|
|
37
|
|
Other differences
|
|
|
(2
|
)
|
|
|
(1,035
|
)
|
|
|
(456
|
)
|
Valuation allowance
|
|
|
—
|
|
|
|
756
|
|
|
|
—
|
|
Total
|
|
$
|
(24,418
|
)
|
|
$
|
(93,405
|
)
|
|
$
|
33,692
|
|
In 2016, 2015 and 2014, the Company recorded a tax shortfall related to share-based compensation of $1.8 million, $1.9 million and $1.7 million, respectively. This shortfall is for grants in which the realized tax deduction was less than the expense booked for these grants due to a decline in share price from the time of grant.
In 2016, we early adopted
accounting standards update for “Compensation — Stock Compensation.” As a result, we have recognized an increase in accumulated earnings and our NOLs in the current year of $1.7 million related to the change in accounting principal as of January 1, 2016.
Deferred tax assets and liabilities are the result of temporary differences between the financial statement carrying values and tax basis of assets and liabilities. Our net deferred tax assets and liabilities are recorded as a long-term liability of $5.6 million and $31.8 million at December 31, 2016 and 2015, respectively.
F-20
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Significant components of net deferred tax assets and
liabilities are (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
155,018
|
|
|
$
|
88,230
|
|
Unrealized loss on commodity derivatives
|
|
|
1,732
|
|
|
|
—
|
|
Other
|
|
|
892
|
|
|
|
1,672
|
|
Total deferred tax assets
|
|
|
157,642
|
|
|
|
89,902
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Difference in depreciation, depletion and
capitalization methods — oil and gas properties
|
|
|
(162,501
|
)
|
|
|
(118,534
|
)
|
Unrealized gain on commodity derivatives
|
|
|
—
|
|
|
|
(2,391
|
)
|
Total deferred tax liabilities
|
|
|
(162,501
|
)
|
|
|
(120,925
|
)
|
Valuation allowance
|
|
|
(756
|
)
|
|
|
(756
|
)
|
Net deferred tax liability
|
|
$
|
(5,615
|
)
|
|
$
|
(31,779
|
)
|
Our NOLs have the following expiration dates (in thousands):
Expiration Dates
|
|
Amounts
|
|
2030
|
|
$
|
5,790
|
|
2031
|
|
|
19,686
|
|
2032
|
|
|
54,714
|
|
2033
|
|
|
78
|
|
2034
|
|
|
56,505
|
|
2035
|
|
|
116,482
|
|
2036
|
|
|
189,649
|
|
Total
|
|
$
|
442,904
|
|
A change in ownership of our common stock by more than 50% within a three-year period would result in a substantial portion of our NOLs being eliminated or becoming restricted, and we would need to reduce our deferred tax assets to reflect the restricted use of these NOLs when such an ownership change occurs. An ownership change would establish an annual limitation on the amount of our pre-change NOLs that we could use to offset our taxable income in any future taxable year to an amount generally equal to the value of our common stock immediately before the ownership change, multiplied by the federal long-term tax exempt rate for the month of the ownership change. We do not believe that the Initial Exchange resulted in a change of ownership of 50% or more of common stock over the applicable period; however, the Follow-On Exchange may result in such an ownership change. If such an ownership change occurs, use of our NOLs as of December 31, 2016 could be limited.
7.
|
Derivative Instruments and Fair Value Measurements
|
At December 31, 2016, we had the following commodity derivatives positions outstanding:
Commodity and Period
|
|
Contract
Type
|
|
Volume Transacted
|
|
Contract Price
|
Natural Gas
|
|
|
|
|
|
|
January 2017 — March 2017
|
|
Swap
|
|
100,000 MMBtu/month
|
|
$2.463/MMBtu
|
January 2017 — March 2017
|
|
Swap
|
|
300,000 MMBtu/month
|
|
$2.45/MMBtu
|
January 2017 — March 2017
|
|
Swap
|
|
200,000 MMBtu/month
|
|
$3.287/MMBtu
|
January 2017 — December 2017
|
|
Collar
|
|
100,000 MMBtu/month
|
|
$3.00/MMBtu - $3.65/MMBtu
|
April 2017 — December 2017
|
|
Collar
|
|
200,000 MMBtu/month
|
|
$2.30/MMBtu - $2.60/MMBtu
|
April 2017 — December 2017
|
|
Collar
|
|
200,000 MMBtu/month
|
|
$3.00/MMBtu - $3.44/MMBtu
|
April 2017 — December 2017
|
|
Collar
|
|
200,000 MMBtu/month
|
|
$3.00/MMBtu - $3.50/MMBtu
|
F-21
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
After December 31, 201
6
, we entered into
the following commodity derivative positions:
Commodity and Period
|
|
Contract
Type
|
|
Volume Transacted
|
|
Contract Price
|
Natural Gas
|
|
|
|
|
|
|
January 2018 — December 2018
|
|
Swap
|
|
200,000 MMBtu/month
|
|
$3.085/MMBtu
|
January 2018 — December 2018
|
|
Swap
|
|
250,000 MMBtu/month
|
|
$3.084/MMBtu
|
NGLs (C2 - Ethane)
|
|
|
|
|
|
|
February 2017 — December 2017
|
|
Swap
|
|
1,050 Bbls/day
|
|
$11.34/Bbl
|
NGLs (C3 - Propane)
|
|
|
|
|
|
|
February 2017 — December 2017
|
|
Swap
|
|
750 Bbls/day
|
|
$27.916/Bbl
|
NGLs (IC4 - Isobutane)
|
|
|
|
|
|
|
February 2017 — December 2017
|
|
Swap
|
|
75 Bbls/day
|
|
$36.7325/Bbl
|
NGLs (NC4 - Butane)
|
|
|
|
|
|
|
February 2017 — December 2017
|
|
Swap
|
|
250 Bbls/day
|
|
$35.9205/Bbl
|
The following summarizes the fair value of our open commodity derivatives as of December 31, 2016 and 2015 (in thousands):
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Derivatives not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
Unrealized (loss) gain on
commodity derivatives
|
|
$
|
(4,880
|
)
|
|
$
|
6,737
|
|
The following summarizes the change in the fair value of our commodity derivatives (in thousands):
|
|
Income Statement Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Derivatives not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
Unrealized (loss) gain on
commodity derivatives
|
|
$
|
(11,616
|
)
|
|
$
|
(33,214
|
)
|
|
$
|
42,113
|
|
|
|
Realized gain on
commodity derivatives
|
|
|
6,132
|
|
|
|
52,489
|
|
|
|
2,359
|
|
|
|
|
|
$
|
(5,484
|
)
|
|
$
|
19,275
|
|
|
$
|
44,472
|
|
Unrealized gains and losses, at fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts are recorded in earnings as they occur and included in income (expense) on our consolidated statements of operations. We estimate the fair value of swap contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. We internally valued the option contracts using industry-standard option pricing models and observable market inputs. We use our internal valuations to determine the fair values of the contracts that are reflected on our consolidated balance sheets. Realized gains and losses are also included in income (expense) on our consolidated statements of operations.
We are exposed to credit losses in the event of nonperformance by the counterparties on our commodity derivatives positions and have considered the exposure in our internal valuations. However, we do not anticipate nonperformance by the counterparties over the term of the commodity derivatives positions.
F-22
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
To estimate the fair value of our commodity derivatives positions, we use market data or assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach
for recurring fair value measurements and attempt to use the best available information. We determine the fair valu
e based upon the hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quo
ted prices in active markets for identical assets or liabilities (Level 1 measurement) and lowest priority to unobservable inputs (Level 3 measurement). The three levels of fair value hierarchy are as follows:
|
•
|
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. At December 31, 2016, we had no Level 1 measurements.
|
|
•
|
Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Our derivatives, which consist primarily of commodity swaps and collars, are valued using commodity market data which is derived by combining raw inputs and quantitative models and processes to generate forward curves. Where observable inputs are available, directly or indirectly, for substantially the full term of the asset or liability, the instrument is categorized in Level 2. At December 31, 2016, all of our commodity derivatives were valued using Level 2 measurements.
|
|
•
|
Level 3 — Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The fair value of oil and gas properties used in estimating our recognized impairment loss in 2015 represents a nonrecurring Level 3 measurement. At December 31, 2016, we had no Level 3 measurements.
|
Nonrecurring Fair Value Measurements
We recorded no impairment of our proved properties for the year ended December 31, 2016. Due to the impact of the decline in forward commodity prices during the year ended December 31, 2015, there were indications that the carrying values of certain of our oil and gas properties may be impaired and undiscounted cash flows attributable to these assets indicated their carrying amounts were not expected to be recovered. For the year ended December 31, 2015, we recognized an impairment loss of $214.7 million related primarily to our vertical Canyon wells, due to the impact of the decline in forward commodity prices. At September 30, 2015, we had $22 million in value recorded for these properties, which was the estimated fair value. We estimated the fair value of the proved oil and gas properties and equipment using a discounted cash flow model, which is a Level 3 fair value measurement. Significant inputs used to determine the fair value include estimates of (i) future sales prices for oil and gas based on NYMEX strip prices, (ii) pricing adjustments for differentials, (iii) production costs, (iv) capital expenditures, (v) future oil and gas reserves to be recovered and the timing thereof, and (vi) discount rates.
Financial Instruments Not Recorded at Fair Value
The following table sets forth the fair values of financial instruments that are not recorded at fair value on our financial statements (in thousands).
|
|
December 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
Senior Notes, net
|
|
$
|
226,653
|
|
|
$
|
206,286
|
|
F-23
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The fair value of the Senior Notes is based on quoted market prices, but the Senior Notes are not actively traded in the public market.
Accordingly, the fair value of the Senior Notes would be classified as Level 2 in the fair value hierarchy.
8.
|
Commitments and Contingencies
|
At December 31, 2016, we had outstanding employment agreements with all four of our executive officers that contained automatic renewal provisions providing that such agreements may be automatically renewed for successive terms of one year unless the employment is terminated at the end of the term by written notice given to the employee not less than 60 days prior to the end of such term. Our maximum commitment under the employment agreements, which would apply if the employees covered by these agreements were each terminated without cause, resigned for good reason, or received a notice of non-renewal was approximately $5.7 million at December 31, 2016. This estimate assumes the maximum potential bonus for 2017 is earned by each executive officer during 2017. In 2017, we amended the employment agreements with two of our executive officers, which among other things, increased the maximum commitment under the employment agreements, which would apply if the employees covered by these agreements were each terminated without cause, by approximately $0.6 million.
In 2016,
we recorded a contractual settlement of $1.4 million, which is recorded in other income on our consolidated statements of operations.
We lease our office space in Fort Worth, Texas, under a non-cancelable agreement that expires on March 31, 2020. In January 2017, we amended our lease to reduce the aggregate leased space by approximately 5,500 square feet and extended the term to September 30, 2021. This amendment reduced our contractual obligations by approximately $0.4 million during the next three years, while increasing our total contractual obligations by $0.9 million over the extended term of the lease.
We also have non-cancelable operating lease commitments related to office equipment that expire by 2021. The following is a schedule by years of future minimum rental payments required under our operating lease arrangements as of December 31, 2016 (in thousands):
2017
|
|
$
|
989
|
|
2018
|
|
|
979
|
|
2019
|
|
|
980
|
|
2020
|
|
|
248
|
|
2021
|
|
|
2
|
|
Total
|
|
$
|
3,198
|
|
Rent expense under our lease arrangements amounted to $1,025,000, $1,002,000 and $717,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Litigation
We are involved in various legal and regulatory proceedings arising in the normal course of business. While we cannot predict the outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to our consolidated financial condition or cash flows.
In 2016,
we received $1.1 million from a service provider in a legal settlement, which reduced our current liabilities on our consolidated balance sheets and is recorded as a reduction in additions to oil and gas properties on our consolidated statements of cash flows.
F-24
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Environmental Issues
We are engaged in oil and gas exploration and production and may become subject to certain liabilities or damages as they relate to environmental clean up of well sites or other environmental restoration or ground water contamination, in connection with drilling or operating oil and gas wells. In connection with our acquisition of existing or previously drilled well bores, we may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up, restoration or contamination, we would be responsible for curing such a violation or paying damages. No claim has been made, nor are we aware of any liability that exists, as it relates to any environmental clean up, restoration, contamination or the violation of any rules or regulations relating thereto.
9.
|
Oil and Gas Producing Activities
|
Set forth below is certain information regarding the costs incurred for oil and gas property acquisition, development and exploration activities (in thousands):
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Property acquisition costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved properties
|
|
$
|
17
|
|
|
$
|
653
|
|
|
$
|
4,578
|
|
Proved properties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exploration costs
|
|
|
3,923
|
|
|
|
4,439
|
|
|
|
3,831
|
|
Development costs(1)
|
|
|
15,884
|
|
|
|
146,237
|
|
|
|
382,995
|
|
Total costs incurred
|
|
$
|
19,824
|
|
|
$
|
151,329
|
|
|
$
|
391,404
|
|
(1)
|
For the years ended December 31, 2016, 2015 and 2014, development costs included $36,000, $151,000 and $898,000, respectively, in non-cash asset retirement obligations.
|
Set forth below is certain information regarding the results of operations for oil and gas producing activities (in thousands):
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
$
|
90,302
|
|
|
$
|
131,336
|
|
|
$
|
258,529
|
|
Production costs
|
|
|
(27,467
|
)
|
|
|
(40,057
|
)
|
|
|
(48,635
|
)
|
Exploration expense
|
|
|
(3,923
|
)
|
|
|
(4,439
|
)
|
|
|
(3,831
|
)
|
Depletion
|
|
|
(79,044
|
)
|
|
|
(109,319
|
)
|
|
|
(106,802
|
)
|
Impairment of oil and gas properties
|
|
|
—
|
|
|
|
(220,197
|
)
|
|
|
—
|
|
Income tax benefit (expense)
|
|
|
7,144
|
|
|
|
86,120
|
|
|
|
(35,387
|
)
|
Results of operations
|
|
$
|
(12,988
|
)
|
|
$
|
(156,556
|
)
|
|
$
|
63,874
|
|
10.
|
Disclosures About Oil and Gas Producing Activities (unaudited)
|
Proved Reserves
All of our estimated oil and natural gas reserves are attributable to properties within the United States, primarily in the Permian Basin in West Texas. The estimates of proved reserves and related valuations for the years ended December 31, 2016, 2015 and 2014, were prepared by DeGolyer and MacNaughton, independent petroleum engineers. Each year’s estimate of proved reserves and related valuations were also prepared in accordance with then-current rules and guidelines established by the Securities and Exchange Commission and the Financial Accounting Standards Board.
F-25
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the prices used in the reserve estimates for
2016,
2015
and
2014
. Commodity prices used for the reserve estimates, adjusted for basis differentials, grade and quality, are as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Oil (per Bbl)
|
|
$
|
42.69
|
|
|
$
|
50.16
|
|
|
$
|
94.56
|
|
Natural gas liquids (per Bbl)
|
|
$
|
14.12
|
|
|
$
|
15.13
|
|
|
$
|
31.50
|
|
Gas (per Mcf)
|
|
$
|
2.47
|
|
|
$
|
2.64
|
|
|
$
|
4.55
|
|
Oil, NGLs and natural gas reserve estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of subsequent drilling, testing and production may cause either upward or downward revision of previous estimates. Further, the volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of currently producing oil and natural gas properties. Accordingly, these estimates are expected to change as additional information becomes available in the future.
The following table provides a summary of the changes of the total proved reserves for the years ended December 31, 2016, 2015 and 2014, as well as proved developed and proved undeveloped reserves at the beginning and end of each respective year.
Total Proved Reserves
|
|
Oil
(MBbls)
|
|
|
NGLs
(MBbls)
|
|
|
Natural Gas
(MMcf)
|
|
|
Total
(MBoe)
|
|
Balance — January 1, 2014
|
|
|
46,067
|
|
|
|
32,593
|
|
|
|
216,002
|
|
|
|
114,661
|
|
Extensions and discoveries
|
|
|
19,347
|
|
|
|
10,658
|
|
|
|
79,454
|
|
|
|
43,247
|
|
Production(1)
|
|
|
(2,024
|
)
|
|
|
(1,461
|
)
|
|
|
(10,773
|
)
|
|
|
(5,281
|
)
|
Revisions to previous estimates
|
|
|
(8,052
|
)
|
|
|
(883
|
)
|
|
|
15,337
|
|
|
|
(6,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — December 31, 2014
|
|
|
55,338
|
|
|
|
40,907
|
|
|
|
300,020
|
|
|
|
146,248
|
|
Extensions and discoveries
|
|
|
11,054
|
|
|
|
10,630
|
|
|
|
79,268
|
|
|
|
34,895
|
|
Production(1)
|
|
|
(1,882
|
)
|
|
|
(1,694
|
)
|
|
|
(13,262
|
)
|
|
|
(5,787
|
)
|
Revisions to previous estimates
|
|
|
(10,014
|
)
|
|
|
(357
|
)
|
|
|
9,962
|
|
|
|
(8,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — December 31, 2015
|
|
|
54,496
|
|
|
|
49,486
|
|
|
|
375,988
|
|
|
|
166,646
|
|
Extensions and discoveries
|
|
|
6,529
|
|
|
|
4,564
|
|
|
|
33,347
|
|
|
|
16,651
|
|
Production(1)
|
|
|
(1,275
|
)
|
|
|
(1,529
|
)
|
|
|
(11,734
|
)
|
|
|
(4,759
|
)
|
Revisions to previous estimates
|
|
|
(9,719
|
)
|
|
|
(4,887
|
)
|
|
|
(45,324
|
)
|
|
|
(22,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — December 31, 2016
|
|
|
50,031
|
|
|
|
47,634
|
|
|
|
352,277
|
|
|
|
156,377
|
|
(1)
|
Production included 1,390 MMcf, 1,530 MMcf and 1,330 MMcf related to field fuel in 2014, 2015 and 2016, respectively.
|
F-26
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Total Proved Reserves
|
|
Oil
(MBbls)
|
|
|
NGLs
(MBbls)
|
|
|
Natural Gas
(MMcf)
|
|
|
Total
(MBoe)
|
|
Proved Developed Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2014
|
|
|
13,646
|
|
|
|
14,919
|
|
|
|
99,742
|
|
|
|
45,189
|
|
December 31, 2014
|
|
|
17,978
|
|
|
|
19,082
|
|
|
|
138,961
|
|
|
|
60,220
|
|
December 31, 2015
|
|
|
15,667
|
|
|
|
20,414
|
|
|
|
154,652
|
|
|
|
61,856
|
|
December 31, 2016
|
|
|
13,466
|
|
|
|
20,375
|
|
|
|
150,208
|
|
|
|
58,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Undeveloped Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2014
|
|
|
32,421
|
|
|
|
17,674
|
|
|
|
116,260
|
|
|
|
69,472
|
|
December 31, 2014
|
|
|
37,360
|
|
|
|
21,825
|
|
|
|
161,059
|
|
|
|
86,028
|
|
December 31, 2015
|
|
|
38,829
|
|
|
|
29,072
|
|
|
|
221,335
|
|
|
|
104,790
|
|
December 31, 2016
|
|
|
36,565
|
|
|
|
27,259
|
|
|
|
202,069
|
|
|
|
97,502
|
|
The following is a discussion of the material changes in our proved reserve quantities for the years ended December 31, 2016, 2015 and 2014:
Year Ended December 31, 2016
Extensions and discoveries for 2016 were 16.7 MMBoe, primarily attributable to our development project in the Wolfcamp shale oil resource play in the Permian Basin. During 2016, we reclassified 22.4 MMBoe of proved undeveloped reserves to unproved reserves. The reserves reclassified are attributable to horizontal well locations in Project Pangea that are no longer expected to be developed within five years from their initial booking, as required by SEC rules. Revisions included an increase of 2.1 MMBoe resulting from cost reductions, updated well performance and technical parameters, offset by a decrease of 1.9 MMBoe due to lower commodity prices. We produced 4.8 MMBoe during 2016. This production included 1,330 MMcf of gas that was produced and used as field fuel (primarily for compressors and artificial lift) before the gas was delivered to a sales point.
Year Ended December 31, 2015
Extensions and discoveries for 2015 were 34.9 MMBoe, primarily attributable to our development project in the Wolfcamp shale oil resource play in the Permian Basin. During 2015, we reclassified 11.9 MMBoe of proved reserves to unproved reserves. The reserves reclassified are attributable to horizontal and vertical well locations in Project Pangea that are no longer expected to be developed within five years from their initial booking, as required by SEC rules. Revisions included an increase of 13 MMBoe resulting from cost reductions, updated well performance and technical parameters, offset by a decrease of 9.8 MMBoe due to lower commodity prices. We produced 5.8 MMBoe during 2015. This production included 1,530 MMcf of gas that was produced and used as field fuel (primarily for compressors and artificial lift) before the gas was delivered to a sales point.
Year Ended December 31, 2014
Extensions and discoveries for 2014 were 43.2 MMBoe, primarily attributable to our development project in the Wolfcamp shale oil resource play in the Permian Basin. During 2014, we reclassified 9.3 MMBoe of proved undeveloped reserves to unproved reserves. The reserves reclassified included 5.8 MMBoe attributable to vertical Canyon locations in Project Pangea that we do not plan to drill within five years from their initial booking, and 3.5 MMBoe attributable to horizontal Wolfcamp locations that are no longer included in our proved development plan. Revisions included an increase of 6.3 MMBoe attributable to updated well performance and an increase of 0.7 MMBoe due to pricing, offset by a decrease of 4.1 MMBoe resulting from updated technical parameters and costs. We produced 5.3 MMBoe during 2014. This production included 1,390 MMcf of gas that was produced and used as field fuel (primarily for compressors and artificial lift) before the gas was delivered to a sales point.
F-27
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Re
serves
The standardized measure of discounted future net cash flows is computed by applying the 12-month unweighted average of the first-day-of-the-month pricing for oil and natural gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and natural gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows. Future income taxes are calculated by comparing undiscounted future cash flows to the tax basis of oil and natural gas properties plus available carryforwards and credits and applying the current tax rates to the difference.
Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates of fair value would also consider probable and possible reserves, anticipated future oil and natural gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
The following table provides the standardized measure of discounted future net cash flows at December 31, 2016, 2015 and 2014 (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Future cash flows
|
|
$
|
3,319,551
|
|
|
$
|
4,097,568
|
|
|
$
|
7,430,368
|
|
Future production costs
|
|
|
(1,054,211
|
)
|
|
|
(1,237,888
|
)
|
|
|
(1,704,333
|
)
|
Future development costs
|
|
|
(829,926
|
)
|
|
|
(934,814
|
)
|
|
|
(1,247,446
|
)
|
Future income tax expense
|
|
|
(132,834
|
)
|
|
|
(307,374
|
)
|
|
|
(1,267,025
|
)
|
Future net cash flows
|
|
|
1,302,580
|
|
|
|
1,617,492
|
|
|
|
3,211,564
|
|
10% annual discount for estimated timing of cash
flows
|
|
|
(1,004,825
|
)
|
|
|
(1,157,097
|
)
|
|
|
(2,155,749
|
)
|
Standardized measure of discounted future net
cash flows
|
|
$
|
297,755
|
|
|
$
|
460,395
|
|
|
$
|
1,055,815
|
|
Future cash flows as shown above were reported without consideration for the effects of commodity derivative transactions outstanding at each period end.
F-28
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Changes in Standardized Measure of Discounted Future Net Cash Flows
The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, beginning of period
|
|
$
|
460,395
|
|
|
$
|
1,055,815
|
|
|
$
|
676,277
|
|
Net change in sales and transfer prices and in
production (lifting) costs related to future
production
|
|
|
(191,841
|
)
|
|
|
(1,405,864
|
)
|
|
|
(59,920
|
)
|
Changes in estimated future development costs
|
|
|
17,405
|
|
|
|
231,900
|
|
|
|
(388,772
|
)
|
Sales and transfers of oil and gas produced during
the period
|
|
|
(62,835
|
)
|
|
|
(91,278
|
)
|
|
|
(209,893
|
)
|
Net change due to extensions, discoveries and
improved recovery
|
|
|
13,988
|
|
|
|
156,783
|
|
|
|
534,231
|
|
Net change due to revisions in quantity estimates
|
|
|
(25,236
|
)
|
|
|
(59,305
|
)
|
|
|
(78,801
|
)
|
Previously estimated development costs incurred
during the period
|
|
|
15,884
|
|
|
|
146,237
|
|
|
|
382,995
|
|
Accretion of discount
|
|
|
46,040
|
|
|
|
105,582
|
|
|
|
113,188
|
|
Other
|
|
|
(9,500
|
)
|
|
|
6,915
|
|
|
|
(11,897
|
)
|
Net change in income taxes
|
|
|
33,455
|
|
|
|
313,610
|
|
|
|
98,407
|
|
Standardized Measure of discounted future net
cash flows
|
|
$
|
297,755
|
|
|
$
|
460,395
|
|
|
$
|
1,055,815
|
|
Selected Quarterly Financial Data (unaudited), (dollars in thousands, except per-share amounts):
|
|
2016 Quarters Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
Net revenues
|
|
$
|
26,505
|
|
|
$
|
23,749
|
|
|
$
|
22,433
|
|
|
$
|
17,615
|
|
Net operating expenses
|
|
|
(33,564
|
)
|
|
|
(32,201
|
)
|
|
|
(34,534
|
)
|
|
|
(34,869
|
)
|
Interest expense, net
|
|
|
(7,086
|
)
|
|
|
(7,067
|
)
|
|
|
(6,808
|
)
|
|
|
(6,298
|
)
|
Write-off of debt issuance costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(563
|
)
|
|
|
—
|
|
Realized gain on commodity derivatives
|
|
|
442
|
|
|
|
781
|
|
|
|
1,409
|
|
|
|
3,500
|
|
Unrealized (loss) gain on commodity derivatives
|
|
|
(3,343
|
)
|
|
|
760
|
|
|
|
(8,076
|
)
|
|
|
(957
|
)
|
Other income (expense)
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
1,417
|
|
|
|
104
|
|
Loss before income tax benefit
|
|
|
(17,046
|
)
|
|
|
(13,988
|
)
|
|
|
(24,722
|
)
|
|
|
(20,905
|
)
|
Income tax benefit
|
|
|
(3,571
|
)
|
|
|
(4,915
|
)
|
|
|
(8,687
|
)
|
|
|
(7,245
|
)
|
Net loss
|
|
$
|
(13,475
|
)
|
|
$
|
(9,073
|
)
|
|
$
|
(16,035
|
)
|
|
$
|
(13,660
|
)
|
Basic net loss applicable to common stockholders
per common share
|
|
$
|
(0.32
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.33
|
)
|
Diluted net loss applicable to common stockholders
per common share
|
|
$
|
(0.32
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.33
|
)
|
F-29
Approach Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
|
|
2015 Quarters Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
Net revenues
|
|
$
|
25,492
|
|
|
$
|
33,941
|
|
|
$
|
38,605
|
|
|
$
|
33,298
|
|
Net operating expenses
|
|
|
(38,671
|
)
|
|
|
(272,462
|
)
|
|
|
(46,970
|
)
|
|
|
(45,686
|
)
|
Interest expense, net
|
|
|
(6,436
|
)
|
|
|
(6,465
|
)
|
|
|
(6,243
|
)
|
|
|
(5,922
|
)
|
Gain on debt extinguishment
|
|
|
9,080
|
|
|
|
1,483
|
|
|
|
—
|
|
|
|
—
|
|
Realized gain on commodity derivatives
|
|
|
14,552
|
|
|
|
12,755
|
|
|
|
9,281
|
|
|
|
15,901
|
|
Unrealized (loss) gain on commodity derivatives
|
|
|
(10,285
|
)
|
|
|
296
|
|
|
|
(13,904
|
)
|
|
|
(9,321
|
)
|
Other income (expense)
|
|
|
225
|
|
|
|
(91
|
)
|
|
|
12
|
|
|
|
26
|
|
Loss before income tax benefit
|
|
|
(6,043
|
)
|
|
|
(230,543
|
)
|
|
|
(19,219
|
)
|
|
|
(11,704
|
)
|
Income tax benefit
|
|
|
(284
|
)
|
|
|
(81,756
|
)
|
|
|
(7,369
|
)
|
|
|
(3,996
|
)
|
Net loss
|
|
$
|
(5,759
|
)
|
|
$
|
(148,787
|
)
|
|
$
|
(11,850
|
)
|
|
$
|
(7,708
|
)
|
Basic net loss applicable to common
stockholders per common share
|
|
$
|
(0.14
|
)
|
|
$
|
(3.67
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.19
|
)
|
Diluted net loss applicable to common
stockholders per common share
|
|
$
|
(0.14
|
)
|
|
$
|
(3.67
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.19
|
)
|
|
|
2014 Quarters Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
Net revenues
|
|
$
|
55,070
|
|
|
$
|
68,124
|
|
|
$
|
73,408
|
|
|
$
|
61,927
|
|
Net operating expenses
|
|
|
(50,136
|
)
|
|
|
(45,525
|
)
|
|
|
(50,812
|
)
|
|
|
(44,899
|
)
|
Interest expense, net
|
|
|
(5,715
|
)
|
|
|
(5,442
|
)
|
|
|
(5,357
|
)
|
|
|
(5,137
|
)
|
Equity in earnings (losses) of investee
|
|
|
5
|
|
|
|
—
|
|
|
|
(186
|
)
|
|
|
—
|
|
Realized gain (loss) on commodity derivatives
|
|
|
7,782
|
|
|
|
(764
|
)
|
|
|
(3,320
|
)
|
|
|
(1,339
|
)
|
Unrealized gain (loss) on commodity derivatives
|
|
|
36,907
|
|
|
|
18,810
|
|
|
|
(7,678
|
)
|
|
|
(5,926
|
)
|
Other income (expense)
|
|
|
176
|
|
|
|
—
|
|
|
|
(109
|
)
|
|
|
—
|
|
Income before income tax
|
|
|
44,089
|
|
|
|
35,203
|
|
|
|
5,946
|
|
|
|
4,626
|
|
Income tax provision
|
|
|
17,102
|
|
|
|
12,756
|
|
|
|
2,153
|
|
|
|
1,681
|
|
Net income
|
|
$
|
26,987
|
|
|
$
|
22,447
|
|
|
$
|
3,793
|
|
|
$
|
2,945
|
|
Basic net income applicable to common
stockholders per common share
|
|
$
|
0.68
|
|
|
$
|
0.57
|
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
Diluted net income applicable to common
stockholders per common share
|
|
$
|
0.68
|
|
|
$
|
0.57
|
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
F-30
Approach Resources Inc.