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

Roan Resources Details Q2 2019 Results

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   |    Thursday,August 08,2019

Roan Resources, Inc. announced second quarter 2019 operating and financial results.

Second Quarter 2019 Highlights

• Production of approximately 50.8 thousand barrels of oil equivalent per day (MBoe/d) (26% oil, 29% natural gas liquids (NGLs), 45% gas); the Company elected to be in ethane rejection for the months of May and June which is estimated to have negatively impacted production in those months by approximately 3.3 MBoe/d;
• Net income was $27.2 million, or $0.18 per diluted share; Adjusted EBITDAX⁽¹⁾ (non-GAAP) was $79.3 million;
• Capital expenditures totaled approximately $114.3 million, approximately $26 million less than the adjusted guidance
  • Lowering full-year 2019 capital expenditures to $495 to $525 million, down $30 million from the previous top end of the range;
• Enhanced liquidity position by approximately $100 million with the completion of term loan facility in June;
• Over 95% of remaining oil production for 2019 is hedged at over $60 per barrel WTI and over 75% of remaining natural gas production for 2019 is hedged at approximately $2.90 per MMBtu;
• Completed 4-well Red Bullet/Silver Charm unit, located in Canadian County; average 30-day initial production (IP) rate of 1,545 Boe/d (41% oil, 26% NGLs, 33% gas) normalized to 10,000-foot lateral;
• Continued to reduce overall drilling costs and achieved record drill time of 6.4 days for a 2-mile Mayes well; drill costs per foot down approximately 25% compared to first quarter 2019;
• Completion costs per foot improved by approximately 20% compared to the first quarter 2019;
• Entered into a definitive crude oil gathering agreement with Blue Mountain Midstream LLC and a definitive agreement with Glass Mountain Pipeline and Navigator SMS Pipeline LLC to blend and ship crude oil to Cushing, OK, which will decrease crude transportation costs by approximately 50% on gathered barrels; and
• The Company remains focused on evaluating various strategic options alongside its advisors.

"We are pleased with the progress the Company has made this quarter," said Joseph A. Mills, Roan's Executive Chairman of the Board. "Our focus has been on driving down our overall cost structure and delivering on our production expectations. We were able to beat production on a significantly lower capital spend. The recently completed optimized wells are performing in-line with expectations and are costing less than original forecasts. Finally, our strategic initiative process remains a key focus for the Company and expect to announce the results as soon as possible."

Operational Update

Roan's second quarter 2019 average daily production was approximately 50.8 MBoe/d (26% oil, 29% NGLs, 45% gas), which exceeded adjusted guidance of 50 MBoe/d, and represented an increase of 41% as compared to the second quarter of 2018.

The Company drilled 17 gross (12.7 net) operated wells (30.5 gross lateral miles) during the second quarter. The Company also brought online 22 gross (15.3 net) operated wells during the quarter, which is three ahead of schedule due to an improvement in cycle times. The average 30-day rate for the 22 gross operated wells brought online during the quarter was 1,165 MBoe/d (42% oil, 23% NGLs, 35% gas), when normalized to a 10,000-foot lateral, with an actual average lateral length of 8,900 feet.

Highlight wells from the second quarter include the Mad Play unit, the Mayes Earl wells, the Mayes Victory Slide wells, the Zenyatta unit and the Red Bullet/Silver Charm unit.

• The 4-well Mad Play unit had an average 30-day IP of 1,601 Boe/d (44% oil, 20% NGLs, 36% gas) and an average 90-day IP of 1,240 Boe/d (42% oil, 20% NGLs, 38% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 6,780 feet), with an average well cost under $7 million.
• The three optimized Mayes wells in the Earl unit had an average 30-day IP of 1,466 Boe/d (39% oil, 24% NGLs, 37% gas) and an average 90-day IP of 1,222 Boe/d (32% oil, 24% NGLs, 44% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 10,160 feet), with an average well cost $7.4 million.
• The two Mayes Victory Slide wells had an average 30-day IP of 1,170 Boe/d (67% oil, 15% NGLs, 18% gas) and an average 60-day IP of 1,091 Boe/d (64% oil, 17% NGLs, 19% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 9,900 feet), with an average well cost of approximately $6 million.

The Zenyatta unit is a 2-well Woodford unit located in Stephens County with approximately 1,000 feet of horizontal separation between wellbores and tested two different Woodford zones, located in the southern SCOOP.

• The 2-well Zenyatta unit had an average 30-day IP of 1,104 Boe/d (32% oil, 32% NGLs, 36% gas) and an average 90-day IP of 1,004 Boe/d (27% oil, 34% NGLs, 39% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 9,750 feet).

The Red Bullet/Silver Charm unit was completed at the end of the second quarter and is a 4-well unit, with two Mayes wells and two Woodford wells, with 800 to 1,160 feet of horizontal separation and approximately 200 feet of vertical separation between wellbores located in the western Merge. The average per well 30-day IP rates is as follows:

• The 4-well Red Bullet/Silver Charm unit flowed an average 1,545 Boe/d (41% oil, 26% NGLs, 33% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 9,500 feet), with an average well cost of approximately $8 million.

Drill times continue to improve, and the Company drilled its fastest 2-mile well to date during the quarter. The Fusaichi Pegasus 9-4-13-6 3MXH well was drilled in 6.4 days, nearly 60% faster than the average drill time for 2-mile Mayes wells. As a result of faster drill times, drill costs continue to decrease. The Company drilled its wells for an average cost per foot of $140, approximately 25% lower than the previous quarter.

Completion costs per foot also improved by approximately 20% compared to the first quarter of 2019 as a result of lower service costs, more efficient frac designs and more efficient drillouts.

In July, it was announced that Roan had entered into a definitive crude oil gathering agreement with Blue Mountain Midstream LLC. This agreement is for 10 years covering 89,000 net acres in the Merge. Earlier this year, the Company also entered into a definitive agreement with Glass Mountain Pipeline and Navigator SMS Pipeline LLC to blend and ship barrels to Cushing, OK on pipelines for the same dedicated acres. The gathering agreement with Blue Mountain is expected to decrease crude transportation costs by approximately 50% on gathered barrels, as well as decrease volatility in the cost structure for crude transportation. The pipelines should be operational before the end of the year.

Financial Update

Second quarter 2019 net income was $27.2 million, or $0.18 per dilutive share, and adjusted net income (non-GAAP) was $16.9 million, or $0.11 per dilutive share. Second quarter 2019 Adjusted EBITDAX (non-GAAP) was $79.3 million.

See the definitions and reconciliations of adjusted net income, adjusted net income per share, Adjusted EBITDAX, net debt and cash general and administrative (G&A) expense presented within this release to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures provided in the supporting tables or definitions at the conclusion of this press release.

Second quarter 2019 average realized prices were $57.76 per barrel of oil (Bo), $11.08 per barrel of NGLs and $1.04 per Mcf of natural gas, resulting in a total equivalent unhedged price of $20.99 per Boe or a total equivalent hedged price of $22.59 per Boe, down 4% quarter over quarter due primarily to further weakness in the NGL and natural gas markets.

The Company's adjusted cash operating costs (non-GAAP) for the second quarter were $5.44 per Boe, including production expense of $2.44 per Boe, production tax of $1.09 per Boe and cash G&A expense (non-GAAP) of $1.91 per Boe. Both production expense and cash G&A expense were down quarter-over-quarter on a total dollar and per Boe basis. Production expenses benefited from the water disposal agreement with Blue Mountain Midstream LLC, which started early in the second quarter.

Capital expenditures for second quarter 2019 totaled approximately $114.3 million, a $58.5 million reduction as compared to the first quarter 2019 and below adjusted guidance by approximately $26 million. However, approximately $20 million of capital expenditures that were forecasted to be included in second quarter are expected to be recorded in subsequent quarters due to timing and working interest adjustments. The additional reduction to capital expenditures is primarily due to lower completed well costs.

As of the end of the second quarter, Roan had $5.4 million of cash on the balance sheet, $659.6 million drawn on its revolving credit facility and $50.0 million funded on its term loan, resulting in net funded debt of $704.2 million.

During the quarter, the Company enhanced its liquidity position by approximately $100 million through the closing of a term loan facility funded by affiliates of certain significant shareholders of the Company. The facility was secured at favorable terms for the Company with an interest rate of the three-month LIBOR rate plus 7.5%. As a result, the Company had approximately $150 million of available liquidity as of June 30, 2019.

For the remainder of the year, the Company is over 95% hedged for oil at an average price of $60.39 per barrel and over 75% hedged for natural gas at an average price of $2.90 per MMbtu. A table of the Company's derivative contracts as of August 7, 2019 is provided at the conclusion of this press release.

Updated Guidance

For the remainder of the year, the Company is projecting it will be in ethane rejection instead of ethane recovery, which impacts production on a monthly basis by approximately 3.3 MBoe/d. After incorporating adjustments for ethane rejection for the forecasted period and the outperformance of the second quarter, the Company is updating its full-year 2019 production guidance to be between 50.5 MBoe/d and 53.5 MBoe/d.

The Company is also reducing full-year 2019 production expense guidance to $2.80 - $3.10 per Boe, to reflect cost reduction initiatives exhibited in the second quarter.

Additionally, the Company is adjusting cash G&A (non-GAAP) to $2.00 to $2.20 per Boe, as a result of the impact of the adjusted volume forecast on the unit cost calculation.

Capital expenditures have been lower than originally forecasted as a result of lower completed well costs due to shorter cycle times and optimized well designs, and lower working interests in operated wells than originally forecasted. For the full-year 2019, capital expenditures are now expected to be between $495 million to $525 million, down $30 million from the prior top-end of guidance. The Company remains focused on achieving free cash flow by the fourth quarter. A table with updated 2019 guidance can be found at the conclusion of this release.