Quarterly / Earnings Reports | Third Quarter (3Q) Update

Goodrich Talks Q3 Results; Defers Completions to Q1 2020

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   |    Thursday,November 07,2019

Goodrich Petroleum Corp. reported its Q3 2019 results.

Highlights:

• Net Income: Net income was $2.0 million in the quarter ($0.16 per basic, $0.14 per diluted share). Net income adjusted for the non-cash change in fair value of unsettled derivative contracts of $2.2 million was $4.2 million.
• Adjusted EBITDA: Adjusted EBITDA increased by 49% over the prior year period and decreased 1% sequentially to $21.3 million despite lower natural gas prices versus the prior year period and second quarter of 2019.
• Production: Production increased by 61% over the prior year period and decreased by 1% sequentially to an average of 136,000 Mcfe per day for the quarter. Production for the quarter was negatively impacted by approximately 4,100 Mcfe per day, comprised of third party pipeline maintenance of 2,200 Mcfe per day and shut-ins due to offset fracs of 1,900 Mcfe per day. In addition, the Company completed 1.0 gross (0.9 net) well in the quarter versus previous guidance of 2.0 gross (2.0 net) wells.
• Cash Operating Expenses: Per unit cash operating expenses decreased by 23% versus the prior year period and 5% sequentially to $0.98 per Mcfe for the quarter, as follows.
• Lease operating expense ("LOE") decreased by 13% sequentially to $0.21 per Mcfe
• Production and other taxes expense were flat sequentially at $0.05 per Mcfe
• Transportation and processing expense decreased by 11% sequentially to $0.41 per Mcfe
• General and Administrative ("G&A") expense payable in cash increased by 7% sequentially to $0.29 per Mcfe
• Senior Credit Facility Borrowing Base: The borrowing base under the Company's senior credit facility increased by $10 million to $125 million in August from the initial borrowing base determined in May, 2019. After discussions with its lead bank, the Company expects the fall borrowing base redetermination to be reaffirmed at $125 million.
• Return on Capital Employed ("ROCE"), defined as annualized third quarter earnings before interest and taxes ("EBIT") divided by total assets less current liabilities, was 17% for the quarter.

Ops Update - Defers Completions

Due to current market conditions the Company and the operator of certain non-operated wells plan to defer completions on an additional 1.0 gross (1.0 net) operated well and 3.0 gross (0.75 net) non-operated wells until the first quarter of 2020, bringing the Company total of drilled but uncompleted ("DUC") Haynesville wells to approximately 5.0 gross (2.5 net) wells as we enter the first quarter.

The expected fourth quarter completion cadence is currently 2.0 gross (1.7 net) wells compared to the prior guidance of 5.0 gross (2.7 net) wells. Production for the fourth quarter of 2019 is expected to be 140,000 - 145,000 Mcfe per day, which is lower by an estimated 14,000 Mcfe per day for the quarter due to the deferment of completions versus previous guidance. For the year, the Company expects to complete 8.0 gross (7.2 net) wells versus previous guidance of 12.0 gross (9.3 net) wells.

The Company has recently completed its Harris 14 & 23 No. 2 (99% WI) well in the Thorn Lake field of Red River Parish, Louisiana. The well, which has a lateral length of approximately 9,400 feet, had an average 24-hour initial production rate of approximately 26,000 Mcfe per day. This is the Company's sixth recent vintage well completed in the Thorn Lake field and the average cumulative production for the previous five recent vintage wells has been approximately 7 Bcf over 13 months from an average lateral length of 6,900 feet.

The Company has drilled and cased its Loftus 27&34 No. 1 (71% WI) well in the Bethany-Longstreet field of Caddo Parish, Louisiana. The well, which is a 7,500 foot lateral is currently being fracked and is expected to be turned in line ("TIL") by December.

The Company is currently running one drilling rig.

Production

Production totaled 12.5 Bcfe in the quarter, or an average of approximately 136,000 Mcfe per day, versus 7.8 Bcfe, or an average of approximately 85,000 Mcfe per day, in the prior year period. Natural gas production totaled 12.3 Bcf in the quarter (98% of total production), versus 7.5 Bcf (96% of total production) during the prior year period.

Q3 Financials

Revenues totaled $27.2 million in the quarter, versus $24.4 million in the prior year period. Average realized price per unit was $2.17 per Mcfe ($2.01 per Mcf of gas and $59.67 per barrel of oil) in the quarter, versus $3.12 per Mcfe in the prior year period ($2.75 per Mcf of gas and $72.29 per barrel of oil). Revenues adjusted for the derivative cash settlements for the quarter of $5.9 million was $33.1 million.

Adjusted EBITDA was $21.3 million in the quarter and discretionary cash flow ("DCF"), defined as net cash provided by operating activities before changes in working capital, was $20.3 million in the quarter versus Adjusted EBITDA of $14.3 million and DCF of $13.8 million in the prior year period.

The Company announced net income of $2.0 million in the quarter ($0.16 per basic and $0.14 per fully diluted share), versus net income of $1.7 million ($0.14 per basic and $0.12 per fully diluted share) in the prior year period. Net income adjusted for the non-cash change in fair value of unsettled derivative contracts of $2.2 million was $4.2 million.

Lease operating expense ("LOE") was $2.6 million ($0.21/Mcfe) in the quarter, versus $2.6 million ($0.33/Mcfe) in the prior year period. LOE for the quarter included $0.1 million ($0.01/Mcfe) for workovers, versus $0.3 million ($0.04/Mcfe) in the prior year period. Lease operating expense for the quarter excluding workovers was $2.5 million ($0.20/Mcfe) versus $2.3 million ($0.29/Mcfe) in the prior year period.

Production and other taxes were $0.6 million in the quarter ($0.05/Mcfe), versus $1.0 million ($0.12/Mcfe) in the prior year period.

Transportation and processing expense was $5.1 million ($0.41/Mcfe) in the quarter, versus $3.3 million ($0.43/Mcfe) in the prior year period.

Depreciation, depletion and amortization ("DD&A") expense was $13.2 million ($1.06/Mcfe) in the quarter, versus $7.9 million ($1.02/Mcfe) in the prior year period.

General and administrative expense was $5.2 million ($0.42/Mcfe) in the quarter, which includes non-cash expense of $1.6 million ($0.13/Mcfe) versus $4.6 million ($0.60/Mcfe) in the prior year period, which included non-cash expense of $1.5 million ($0.20/Mcfe). G&A Payable in Cash was $3.6 million ($0.29/Mcfe) in the quarter.

Operating income, defined as revenues minus operating expenses, totaled $0.2 million in the quarter, versus $5.0 million in the prior year period. Operating income adjusted for the derivative cash settlements of $5.9 million was $6.1 million for the quarter.

Capital Expenditures

Capital expenditures totaled $25.5 million in the quarter, of which $24.8 million was spent on drilling and completion costs and $0.7 million on other expenditures, versus $38.3 million in the prior year period, of which $37.5 million was spent on drilling and completion costs and $0.8 million on other expenditures. Capital expenditures for the fourth quarter are expected to be $10 - 15 million.

Derivatives

The Company had a gain of $3.8 million on its derivatives not designated as hedges in the quarter, which was comprised of a $5.9 million gain on derivative cash settlements offset by a $2.2 million loss representing the change in fair value of our open natural gas and oil derivative contracts. In the prior year period the Company had a loss of $0.2 million on its derivatives not designated as hedges, which was comprised of a negligible change of the fair value of our open natural gas and oil derivative contracts as well as a $0.2 million loss on cash settlement.

During the quarter, the Company increased the amount of natural gas derivatives through March 2021 by 70,000 Mmbtu per day at an average price of $2.52 per Mmbtu.

Balance Sheet

The Company exited the quarter with $1.2 million of cash, $87.9 million outstanding borrowings under the Company's senior credit facility, which had a borrowing base of $125 million, and $12.5 million outstanding under the Company's second lien notes. The borrowing base on the senior credit facility increased $10 million in August 2019 to $125 million, and after discussions with its lead bank, the Company expects the fall redetermination to be reaffirmed at $125 million.