Quarterly / Earnings Reports | Second Quarter (2Q) Update

Extraction Oil & Gas Details Q2 2019 Results

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Extraction Oil & Gas, Inc. reported financial and operational results for the second quarter of 2019.

Second-Quarter 2019 Highlights

• Average net sales volumes of 82,856 barrels of oil equivalent per day (BOE/d), including 40,113 barrels per day (Bbl/d) of crude oil;
• Net income of $43.4 million, or $0.22 per basic and diluted share, driven by a gain on commodity derivatives of $73.5 million. This compared to net income of $8.8 million, or $0.03 per basic and diluted share¹, for the same period in 2018. Adjusted EBITDAX, Unhedged² was $153.1 million and Adjusted EBITDAX was $129.3 million;
• Completed entirety of previously announced share repurchase program; acquiring in total 38.2 million shares for $163.2 million, resulting in a 22% reduction in shares outstanding; and
• Successfully entered into a large-scale operator agreement with the City of Aurora in the Hawkeye area.

Extraction Oil & Gas President and Acting CEO Matt Owens said: "Extraction demonstrated its ability to effectively navigate the regulatory environment in post-SB181 Colorado by successfully entering into an operator agreement in our Hawkeye area. This agreement gives us the necessary local government approvals covering over 65 locations with an average lateral length of over two miles. Both our upstream and midstream operations continued as planned during the second quarter as we work to get ready for our upcoming production ramp in the back half of this year. We expect Elevation's Badger gathering facility to begin moving production volumes near the end of the third quarter and for Rocky Mountain Midstream to begin processing gas from East Greeley before the end of October.

"In addition to Extraction's dedicated midstream projects, DCP's Plant 11 is already processing incremental volumes, while RimRock Energy Partners' gas plant is expected to be operational in the middle of August. Rocky Mountain Midstream's next gas plant also remains on schedule for a September startup. These midstream projects coupled with upcoming NGL takeaway expansions out of the DJ Basin are expected to further enhance Extraction's midstream diversity and redundancy."

Operational Results

Second quarter crude oil volumes of 40,113 Bbl/d increased 3% year-over-year and increased 1% sequentially. Second quarter average net sales volumes were 82,856 BOE/d, an increase of 13% year-over-year and an increase of 3% sequentially. This relatively flat sequential total equivalent and crude oil production was consistent with Extraction's plan and driven primarily by planned midstream outages for gas plant maintenance. Crude oil accounted for approximately 83% of the Company's total revenues recorded during the second quarter.

Extraction's second-quarter 2019 aggregate drilling, completion, and leasehold capital expenditures totaled $223 million, of which $210 million was for D&C. This excludes the impact of a decrease in outstanding elections of $13 million. In addition, Elevation Midstream, our wholly owned midstream subsidiary, incurred $69 million of capital expenditures during the quarter.

During the second quarter, Extraction drilled 33 gross (27 net) wells with an average lateral length of approximately 9,400 feet, completed 36 gross (31 net) wells with an average lateral length of approximately 10,100 feet and turned to sales 36 gross (32 net) wells with an average lateral length of approximately 6,800 feet.

Financial Results

For the second quarter, Extraction reported crude oil, natural gas and NGL sales revenue of $222.1 million, as compared to $260.2 million during the same period in 2018, representing a decrease of 15%, driven primarily by lower crude oil, natural gas and NGL prices. Revenue was approximately flat sequentially, primarily driven by similar levels of production.

Extraction continued to see modestly wider crude oil differentials during the second quarter due to increased quality deducts at Cushing. This continues to be driven by increased supplies of light crude oil into Cushing from the Permian Basin and other shale plays. The Company expects its differentials to normalize in the second half of 2019 as new pipelines such as the EPIC Crude Oil Pipeline and Plains All American's Cactus II System come online thereby reducing the oversupply situation in Cushing.

Extraction reported net income of $43.4 million, or $0.22 per basic and diluted share for the second quarter, driven primarily by a $73.5 million gain on commodity derivatives. This compared to a net income of $8.8 million for the same period in 2018. Adjusted EBITDAX, Unhedged was $153.1 million for the second quarter, down 19% year-over-year and down 3% sequentially. Adjusted EBITDAX was $129.3 million for the second quarter, down 16% year-over-year and down 6% sequentially. Please read "Reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged", included herein.

The following table provides a summary of our sales volumes, average sales prices and certain operating expenses on a per BOE basis for the three and six months ended June 30, 2019 and 2018, respectively:

(1) One BOE is equal to six thousand cubic feet ("Mcf") of natural gas or one barrel ("Bbl") of oil or NGL based on an approximate energy equivalency. This is an energy content correlation and does not reflect a value or price relationship between the commodities.
(2) Average prices shown in the table reflect prices both before and after the effects of our settlements of our commodity derivative contracts. Our calculation of such effects includes both gains and losses on settlements for commodity derivatives and amortization of premiums paid or received on options that settled during the period.

Update on Common Stock and Senior Note Repurchases

During the second quarter, Extraction repurchased 25.2 million shares of its common stock for $100.0 million, bringing the total number of shares repurchased under its previously announced common stock repurchase program to 38.2 million shares for $163.2 million, which fulfilled the Company's previously announced repurchase program.

Extraction also repurchased $14 million of nominal value senior notes for $11 million during the second quarter of 2019, which represents a 23% discount to par value. To-date, the Company has repurchased $50 million of nominal value senior notes for $39 million, which represents a 21% discount to par value. Extraction has $50 million remaining on its previously announced $100 million senior notes repurchase program.