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

Lonestar Resources Talks Q2, Eagle Ford Update / Well Results

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Lonestar Resources US Inc. reported financial and operating results for the three months ended June 30, 2019.

Highlights:

• Production Increases 22%- Lonestar reported a 22% increase in net oil and gas production to 13,630 BOE/d during the three months ended June 30, 2019 ("2Q19"), compared to 11,140 BOE/d for the three months ended June 30, 2018 ("2Q18"). Reported production volumes exceeded the Company's guidance of 12,400 - 12,800 BOE/d and also exceeded our preliminary estimated result of 13,500 Boe/d announced on July 8, 2019. Production was comprised of 78% crude oil and NGL's on an equivalent basis. As Lonestar brings new wells onstream at rates that exceed third-party type curves, production continues to climb rapidly. For the month of July, net oil and gas production exceeded 16,000 BOE/d.
• Outstanding Drilling Results- Lonestar's 2019 drilling program continues to deliver outstanding results. In Karnes County, our Georg 3H-6H wells, which delivered average Max-30 IP's of 1,045 BOE/d, are outperforming our third-party type curves by 19%. At Horned Frog, the F #A1H and F #B1H wells delivered average Max-30 IP's of nearly 2,500 BOE/d, a record for the Company. Additionally, the Horned Frog NW #4H and #5H have produced an average of 114,000 BOE through their first 90 days of production, a 27% improvement over their offsets over the same time period. Our first three wells in DeWitt County have recently been placed on production on our Sooner property and are averaging over 3,460 BOE/d per well (53% liquids) in their first week of production.
• Net Income Rises- Lonestar reported net income attributable to its common stockholders of $11.2 million during 2Q19 compared to a net loss of $23.5 million during 2Q18, or a net income of $0.28 and a net loss of $0.96 per basic and diluted share, respectively.
• EBITDAX Increases 15%- Lonestar reported a 15% increase in Adjusted EBITDAX for 2Q19 of $33.5 million compared to $29.2 million for 2Q18. This improvement was driven by a 22% increase in production, partially offset by a 2% increase in unit cash operating expenses. Please see Non-GAAP Financial Measures at the end of this release for the definition of Adjusted EBITDAX, a reconciliation of net loss to Adjusted EBITDAX, and the reasons for its use.
• Robust Hedging Program- Lonestar continues to utilize commodity derivatives to create a higher degree of certainty in our cash flows and returns while mitigating financial risk. During 2Q19, Lonestar added hedges which bring total swap volumes to 7,305 Bbls/d for the remainder of 2019 ("Bal `19") at an average WTI price of $54.60/bbl and added hedges which bring total swap volumes to 7,480 bbls/d for Cal `20 at an average WTI price of $56.95/bbl, and 3,000 Bbls/d for Cal '21 at an average WTI price of $54.68/bbl. Additionally, Lonestar has LLS/WTI Basis Swaps covering 6,000 bbls/d at a weighted-average price of $5.05/bbl for Cal `19. By locking in these swaps, it should allow the Company to realize a premium to WTI after marketing, regardless of market conditions. Lonestar also has Henry Hub natural gas swaps covering 15,000 Mcf/d at a weighted-average price of $2.82 per MMBTU for Bal '19 and added 15,000 Mcf/d of Henry Hub natural gas swaps for Cal '20 at an average price of $2.59 per MMBTU, further insulating Lonestar from fluctuations in the commodity markets.
• 2019 And 2020 Guidance Increased- Given its outstanding drilling and completion results, deep drilling inventory and strong hedging position, Lonestar has materially enhanced its financial outlook. For 2019, production guidance was increased from 13,700-14,700 BOE/d to 14,800-15,000 BOE/d, and guides to $135-$140 million of EBITDAX. For 2020, Lonestar now believes it can achieve its previously issued production target of 17,000-18,300 BOE/d while drilling 20-25% fewer wells in 2020, and therefore, materially less capital. Lonestar's 2020 target yields a range of cash flow outcomes that generates $5-$20 million of free cash flow.

Lonestar's Chief Executive Officer, Frank D. Bracken, III, commented, "Our technologically focused smart completions continue to deliver differential results that exceed our third-party type curves and our budget. In the second quarter, those well results are beginning to show up in our financial results. The third quarter is set to deliver even more impressive results, with July's production having exceeded 16,000 BOE/d, as our new Horned Frog and Sooner wells are delivering impressive daily rates and were placed onstream ahead of schedule. Looking ahead, we see record production results in the third and fourth quarters of 2019, and strong growth in EBITDAX. Given the progress we made in 2019 we have the potential to achieve our previously issued production targets while drilling 20-25% fewer wells. With production anticipated to rise 19% and generate a substantial increase in EBITDAX, free cash flow generation of $5-$20 million is on the horizon. We have positioned Lonestar to thrive in the current environment and continue to build shareholder value."

Operations Update

• Lonestar reported net oil and gas production of 13,630 BOE/d during the three months ended June 30, 2019, an increase of 20% sequentially compared to 11,372 BOE/d during 1Q19. 2Q19 production volumes consisted of 7,795 barrels of oil per day (57%), 2,901 barrels of NGLs per day (21%), and 17,601 Mcf of natural gas per day (22%).
• Lonestar's Eagle Ford Shale assets continued to deliver outstanding wellhead realizations in 2Q19. Lonestar's wellhead crude oil price realization was $63.05/bbl, which reflects a premium of $3.24/bbl vs. West Texas Intermediate. Lonestar's realized NGL price was $13.44/bbl, or 22% of WTI. This was largely driven by a drop in Ethane which fell as much as 47% from 1Q19 prices and Propane and other heavy liquids pricing which fell as much as 38% from 1Q19 prices. Lonestar's realized wellhead natural gas price was $2.46 per Mcf, reflecting a $0.10 discount to Henry Hub. This discount to Henry Hub was largely driven by increase in gas sales at the end of the quarter with the additions of the new Horned Frog F #A1H and #B1H when the gas prices were at their lowest levels in the quarter.
• Operating revenues increased sequentially by $11.5 million to $52.2 million, or 28%, compared to 1Q19, primarily driven by a 20% increase in production coupled with a 6% increase in commodity price realizations.
• Total cash expenses, which include the cash portions of lease operating, gathering, processing, transportation, production taxes, general & administrative, and interest expenses were $25.3 million for 2Q19. While 2Q19 cash operating costs rose 9% compared to $23.3 million in 1Q19, strong volume growth yielded a 10% reduction on a per-unit basis to $20.43 per BOE in 2Q19.
  • Lease Operating Expenses ("LOE"), excluding rig standby costs of $0.3 million, were $7.9 million for 2Q19, which was 17% higher than LOE of $6.7 million in 1Q19. However, on a unit-of-production basis, LOE per BOE were reduced 3% sequentially to $6.35 per in 2Q19.
  • Gathering, Processing & Transportation Expenses ("GP&T") for 2Q19 were $0.7 million, which was 15% lower than the GP&T of $0.9 million in the three months ended 1Q19. On a unit-of-production basis, GP&T decreased 30% sequentially from $0.86 per BOE in 1Q19 to $0.60 per BOE in 2Q19.
  • Production taxes for 2Q19 were $2.8 million, which was 23% higher than production taxes of $2.3 million in 1Q19. On a unit-of-production basis, production taxes increased 2% sequentially from $2.24 in 1Q19 to $2.27 per BOE in 2Q19.
  • General & Administrative Expenses ("G&A") in 2Q19 were $3.8 million vs. $4.4 million in 1Q19. G&A Expenses, excluding stock-based compensation of $0.9 million in 1Q19 and $0.1 million in 2Q19, increased from $3.5 million to $3.7 million, respectively. However, on a unit-of-production basis, G&A per BOE decreased 10% sequentially from $3.37 per BOE in 1Q19 to $3.02 per BOE in 2Q19.
  • Interest Expense was $10.8 million for 2Q19 vs. $10.7 million for 1Q19. Interest Expense excluding amortization of debt issuance cost, premiums, and discounts, increased 2% sequentially from $10.0million in 1Q19 to $10.2 million in 2Q19. Lonestar's robust production growth generated a 16% sequential decrease in Interest Expense per BOE, from $9.73 per BOE in 1Q19 to $8.19 per BOE in 2Q19.

Guidance

• 2019 Activity- The Company has executed on its 2019 drilling plan with great success through the first six months. By mid-year, Lonestar had placed 11 of its planned 20 wells into production and had concluded drilling operations on its 3 Sooner wells, which commenced flowback operations in July. Despite fluctuations in oil and gas prices over the quarter, Lonestar expects little impact to guidance for the remainder of the year as the Company has hedged 89% of oil at $54.60/bbl and approximately 50% of gas as an average price of $2.83 per MMBTU. Lonestar anticipates placing 3 gross / 3.0 net wells online during 3Q19. In July, these 3 gross / 3.0 net wells at Sooner were placed into flowback. Lonestar recently completed drilling operations on 1 gross / 0.5 net wells in Brazos County with a projected completion interval of 10,000', which it anticipates bringing online in September. The Company has recently finished drilling operations on 2 gross / 2.0 net wells on its Marquis property. These two wells are anticipated to begin flowback operations in October 2019.
• 3Q19 Production- Based on the continued success of its 2019 capital program, Lonestar issued production guidance of 17,000 to 17,500 BOE/d for the third quarter of 2019, a 27% increase over 2Q19 results at the midpoint. The primary sources for production growth in the third quarter of 2019 will be a full quarter's contribution from its 2 gross / 2.0 net wells at Horned Frog that began flowback in June, and partial contribution from 3 gross / 3.0 net wells at Sooner, which commenced flowback in late July.
• 3Q19 EBITDAX- Lonestar issued Adjusted EBITDAX guidance of $36.0 to $37.5 million for the third quarter of 2019, a 9% sequential increase over 2Q19 results. During the quarter, the Company anticipates oil realizations of +$2.00/bbl to WTI, NGL realizations which are 25% of WTI, and gas price realizations of -$0.10/Mcf to Henry Hub, and lease operating expenses of $5.35-$5.45/BOE.
• 2019 Production- In aggregate, Lonestar's completion results have been outperforming their third-party type curves, which is the basis for Lonestar's budget and guidance. While the Company still only plans to drill 20 gross wells in 2019, visibility on production is sufficiently positive that it is raising its 2019 production guidance from 13,700-14,700 BOE/d to 14,800-15,000 BOE/d.
• 2020 Targets- Previously, as part of its two-year forecasts and based on drilling 20 wells in 2020, Lonestar provided a 2020 production target of 17,000-18,300 BOE/d, which equates to production growth of 19% over its increased 2019 guidance (at their midpoints). Based on the production outperformance associated with the 2019 capital program and our current plans to focus our 2020 capital plan at Horned Frog, Karnes County, Cyclone/Hawkeye and Sooner, Lonestar reiterates its 2020 production target of 17,000-18,300 Boe/d, but now believes that this target can be achieved with fewer wells and less capital spending. Lonestar believes that it can achieve its 2020 production target by drilling and completing 15-16 wells at a cost of $115 to $120 million. At assumed pricing of $55.00 per barrel for West Texas Intermediate crude oil and $2.50 per MMBTU for Henry Hub natural gas prices, Lonestar's EBITDAX target is $165-$185 million. Lonestar's 2020 target yields a range of cash flow outcomes that generates $5-$20 million of free cash flow.

Eagle Ford - Western Region

In our Western Region, production for 2Q19 averaged approximately 7,717 BOE per day, a 24% sequential increase in production. This region accounted for 57% of the Company's production during the quarter. During the second quarter, Lonestar placed 2 wells onstream at both its Horned Frog and Horned Frog NW properties, respectively, where it has some of the highest internal rates of return ("IRR") in the Company's asset base.

In April, Lonestar began flowback operations on 2 gross / 2.0 net wells, the Horned Frog NW #4H and #5H. These wells recorded Max-30 production rates of 1,453 BOE/d, within 1% of their direct offsets on a per foot basis. Now, through the first 90 days, these wells have produced an average of 114,000 BOE, which is 2% better than the parent wells drilled in 2018 and 5% better than the third-party type curve. The Company holds a 100% working interest ("WI") / 75% net revenue interest ("NRI") in these wells.

In June, the Company began flowback operations on a second pair of wells in its Western Region. At Horned Frog South, Lonestar previously announced initial test results averaging 2,497 BOE/d. These new wells have since cleaned up after flowback and registered the following maximum rates over a 30-day period ("Max-30" rates) which average 2,493 BOE/d:

• Horned Frog F #A1H - With a 12,461' perforated interval, the F #A1H recorded a Max-30 production rate of 549 Bbls/d oil, 674 Bbls/d of NGLs, 7,283 Mcf/d, or 2,436 BOE/d on a three-stream basis.
• Horned Frog F #B1H - With a 12,170 perforated interval, the F #B1H recorded a Max-30 production rate of 578 Bbls/d oil, 704 Bbls/d of NGLs, 7,605 Mcf/d, or 2,550 BOE/d on a three-stream basis.

Lonestar's newest wells on its 4,975-acre Horned Frog South property represent continued progress in the advancement of its Geo-Engineered completion practices. On a per-foot basis through the first 30-days, our 2019 wells have recorded production rates that are 20% higher than our initial pad at Horned Frog, the Horned Frog #A1H and #B1H (completed in 2015) and 7% higher than our most recent Horned Frog wells, the Horned Frog #G1H and Horned Frog #H1H (completed in 2018). Our 2019 Horned Frog wells recorded Max-30 day rates that eclipsed 200 BOE/d per-foot, and importantly, are registering oil production rates that are 17% better than our 2018 completions, on a per-foot basis. Lastly, to date, our 2019 Horned Frog completions are outperforming the projections of our third-party engineers by 25% thus far. Lonestar holds a 100% WI / 78% NRI in these wells.

Eagle Ford - Central

In our Central Region, 2Q19 production averaged approximately 5,652 BOE/d, a 69% increase over 1Q19 rates. The Company's second quarter results were positively impacted by 4 gross / 3.2 net wells placed onstream in Karnes County. The Company's third quarter results will be positively impacted by 3 gross / 3.0 net wells it has recently placed onstream on its Sooner property in DeWitt County.

In May 2019, the Company began flowback operations on the Georg #3H, Georg #4H, Georg #5H, and Georg #6H. These wells have some of the highest oil profiles (87%) in the Company's portfolio and have registered the following Max-30 rates:

• Georg #3H - 7,156' perforated interval, 893 Bbls/d oil, 70 Bbls/d of NGLs, 369 Mcf/d, or 1,025 BOE/d (three-stream) on a 32/64" choke.
• Georg #4H - 7,230' perforated interval, 804 Bbls/d oil, 62 Bbls/d of NGLs, 325 Mcf/d, or 920 BOE/d (three-stream) on a 32/64" choke.
• Georg #5H - 7,227' perforated interval, 881 Bbls/d oil, 68 Bbls/d of NGLs, 359 Mcf/d, or 1,009 BOE/d (three-stream) on a 32/64" choke.
• Georg #6H - 7,236' perforated interval, 1,056 Bbls/d oil, 90 Bbls/d of NGLs, 474 Mcf/d, or 1,225 BOE/d (three-stream) on a 32/64" choke.

Our 2019 wells in Karnes County follow 6 wells we placed onstream in 2018, and the Company has been able to continue to improve on prior results. By acquiring offsetting acreage contiguous to our existing leasehold, Lonestar was able to increase lateral lengths by 18% compared to 2018 wells but continues to exhibit modestly better productivity on a per-foot basis through 60 days of production, yielding superior well economics. Our 2019 wells have outperformed the type curve by 19% thus far. Lonestar has an 80% WI / 61% NRI in these wells.

In late July, Lonestar began flowback operations on 3.0 gross / 3.0 net wells on its Sooner property, which was acquired in November 2018, known as the Buchhorn #4H, Buchhorn #5H, and Buchhorn #6H. These wells are the first wells Lonestar has drilled on its Sooner property and were drilled to total measured depths of 20,327', 20,238', and 20,260', respectively. Lonestar fracture-stimulated these wells with an average proppant concentration of approximately 2,000 pounds per foot over 21 stages, using diverters. Test rates have averaged 3,460 BOE/d. Perforations and test rates for the wells are:

• Buchhorn #4H - 6,157 perforated feet tested 542 Bbls/d oil, 1,311 Bbls/d of NGLs, 9,857 Mcf/d, or 3,496 BOE/d (three-stream) on a 24/64" choke.
• Buchhorn #5H - 5,981 perforated feet tested 514 Bbls/d oil, 1,252 Bbls/d of NGLs, 9,407 Mcf/d, or 3,333 BOE/d (three-stream) on a 22/64" choke.
• Buchhorn #6H - 6,021 perforated feet tested 545 Bbls/d oil, 1,334 Bbls/d of NGLs, 10,023 Mcf/d, or 3,549 BOE/d (three-stream) on a 22/64" choke.

Lonestar has 100% WI / 78% NRI in these wells.

Eagle Ford - Eastern Area

In our Eastern Region, production for the second quarter of 2019 averaged approximately 261 BOE/d, a 24% decrease compared to 1Q19 rates. The Company did not complete any wells in this region in the second quarter. However, Lonestar recently completed drilling operations on the Smith Family Ranch #1H, reaching a total measured depth of 22,025 feet. Lonestar expects to complete the well with a perforated interval of approximately 10,300 feet, stimulate the well in August, and place this well into flowback operations in September 2019. Lonestar has a 50% WI / 38% NRI in the well. Lonestar has engaged Intrepid Financial Partners, LLC to represent the Company in marketing its Eagle Ford Shale assets in Brazos and Robertson Counties for sale, with a target of concluding a transaction before year-end.