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Rosehill Resources today reported financial and operational results for the quarter ended June 30, 2019.
Second Quarter 2019 Highlights and Recent Items:
- Average net production of 18,934 barrels of oil equivalent ("BOE") per day ("BOEPD") (70% oil and 85% total liquids), an increase of 3% compared to the second quarter of 2018
- Reported net income attributable to Rosehill of $11.2 million, or $0.54 per diluted share, for the second quarter of 2019, which included a $33.7 million non-cash, pre-tax gain on commodity derivative instruments
- Continued Southern Delaware success including the Silow 14 well, which achieved an average initial rate over a 7-day period ("IP7") of 1,069 BOEPD, or 184 BOEPD per 1,000 feet, and 93% oil. The State Neal Lethco 1210 well, the first well drilled on the Company's recent acreage expansion, achieved an average initial rate over a 30-day period ("IP30") of 1,018 BOEPD, or 102 BOEPD per 1,000 feet, and 92% oil
- Placed 10 wells onto production in the second quarter of 2019 with the production impact from these wells mostly occurring near the end of the period. Average net production for July 2019 is estimated to be over 20,000 BOEPD on a two-stream basis
- Reduced cash operating cost (lease operating expense ("LOE"), gathering and transportation, production taxes and general and administrative expenses excluding costs associated with stock-based compensation) per BOE by $1.62, or 12% compared to the second quarter of 2018
Management Comments
David French, Rosehill's President and Chief Executive Officer, commented, "It was a very active quarter in both of our operating areas as we balanced accelerating our pace of commercialization in the Southern Delaware, and steady development within the heart of the Northern Delaware Our production levels responded as predicted towards the end of quarter as wells shut-in for simultaneous operations were placed back on production. We remain confident in the production guidance for 2019 given the strength of our drilled uncompleted ("DUC") inventory, and the solid production levels from the second quarter activity."
"We are pleased to announce additional well results for our Southern Delaware area, including IP30 rates for our first well within the recently announced acreage expansion. This is also Rosehill's first two-mile lateral. Even though our development plan was front-end loaded to the first half of the year, we are planning additional drilling in the Southern Delaware in 2019. The Northern Delaware saw six wells drilled and completed with ongoing completion operations on our nine well DUC inventory in this area. We anticipate noteworthy contribution from these wells to our production profile in the second half of 2019, and look forward to providing future updates. We are excited about the choices in our portfolio and continue to stay focused on delivering quality, predictable results."
Operational Results
For the second quarter of 2019, the Company's net production averaged 18,934 BOEPD, a 12% decrease compared to the average for the first quarter of 2019, comprised of 13,341 barrels of oil per day, 2,912 barrels of natural gas liquids ("NGLs") per day and 16.1 million cubic feet of gas ("MMCF") per day. Production in the quarter was negatively impacted by wells shut-in due to simultaneous operations. In total, ten wells were shut-in for certain periods during the quarter with an estimated total production impact of over 1,200 BOEPD for the quarter. Rosehill drilled eight horizontal wells, completed nine wells and had 12 DUCs at the end of the second quarter of 2019.
Southern Delaware - In the Southern Delaware, the Company completed three wells in the quarter, bringing the total completed well count for the first six months of 2019 to nine wells. During the second quarter, the Company placed the State Neal Lethco 1210 on to production, the first well completed as part of the recently announced acreage expansion. The results for certain recently connected wells, along with additional results for wells previously reported, are presented in the table below.
| BOEPD per | ||||||
| Well | Formation | Period | BOEPD | 1,000' LL | Oil % | |
| State Blanco 58 G003, H001, G001 | Wolfcamp A&B | IP30 (average) | 631 | 155 | 91 | % |
| Trees Estate 77 A001, H001, H003 | Wolfcamp A&B | IP30 (average) | 651 | 142 | 91 | % |
| State Neal Lethco 1210 | Wolfcamp B | IP30 | 1,018 | 102 | 92 | % |
| Silow 14 | Wolfcamp B | IP7 | 1,069 | 184 | 93 | % |
Northern Delaware - In the Northern Delaware, the Company completed six wells in the second quarter. The results for certain recently connected wells, along with additional results for wells previously reported, are presented in the table below.
| BOEPD per | ||||||
| Well | Formation | Period | BOEPD | 1,000' LL | Oil % | |
| Z&T 32 E001, F002, G003 | Lower Wolfcamp A | IP180 (average) | 1,189 | 259 | 65 | % |
| Z&T 20 E006 | 2nd Bone Spring - Sand | IP30 | 1,144 | 260 | 72 | % |
For the second half of 2019, the Company is considering drilling several wells to further delineate the Wolfcamp B section in its Northern Delaware area. Based on the thickness of the interval and the positive results of previously drilled wells, the Company believes there is significant economic inventory potential within the Wolfcamp B interval.
Financial Results
For the second quarter of 2019, the Company reported net income attributable to Rosehill of $11.2 million, or $0.54 per diluted share, as compared to net income of $9.2 million, or a $0.32 loss per diluted share, in the second quarter of 2018. The second quarter of 2019 included a $33.7 million non-cash, pre-tax gain on commodity derivative instruments compared to a $20.0 million non-cash, pre-tax loss on commodity derivative instruments in the second quarter of 2018.
Adjusted EBITDAX totaled $43.8 million for the second quarter of 2019, as compared to $49.2 million in the second quarter of 2018. This decrease of 11% was driven primarily by lower commodity prices, which more than offset the impact of lower per unit operating expenses and higher production.
For the second quarter of 2019, average realized prices (all prices excluding the effects of derivatives) were $55.06 per barrel of oil, $(0.44) per Mcf of natural gas and $12.05 per barrel of NGLs, resulting in a total equivalent price of $40.27 per BOE, a decrease of 16% from the second quarter of 2018.
The Company's cash operating costs for the second quarter of 2019 were $11.72 per BOE, which includes LOE, gathering and transportation costs, production taxes and general and administrative expenses, and excludes costs associated with stock-based compensation. Second quarter cash operating costs per BOE decreased 12% as compared to the second quarter of 2018, primarily attributable to lower LOE. Second quarter LOE was positively impacted by lower salt water disposal ("SWD") costs in the Southern Delaware area. The Company brought online a company owned and operated SWD well in the Southern Delaware area which allowed for less reliance on more costly third-party SWD disposal services.
Capital Expenditures and Liquidity
During the second quarter of 2019, Rosehill incurred capital costs, excluding asset retirement costs, of $71.9 million. The portion of capital costs related to facilities during the second quarter of 2019 was $11.2 million. For the first six months of 2019, Rosehill incurred capital costs, excluding asset retirement costs, of $144.5 million. The portion of capital costs related to facilities and other during the first six months of 2019 was $24.5 million and $1.2 million, respectively.
As previously announced, the Company expects lower drilling and completions activity in the second half of 2019 compared to the first half of 2019, which is expected to result in lower capital costs. The Company continues to expect its results for full year 2019 to be in line with previously provided estimates.
As of June 30, 2019, Rosehill had $4.7 million in cash on hand and $334.9 million in long-term debt. As of June 30, 2019, cash on hand and availability under our revolving credit facility was approximately $65 million.
Commodity Hedging
Included below is a summary of the Company's derivative contracts as of June 30, 2019.
| 2019 | 2020 | 2021 | 2022 | |||||||||||||
| Commodity derivative swaps | ||||||||||||||||
| Oil: | ||||||||||||||||
| Notional volume (Bbls) (1)(2) | 1,332,000 | 1,960,000 | ||||||||||||||
| Weighted average fixed price ($/Bbl) | $ | 53.59 | $ | 60.09 | $ | $ | ||||||||||
| Natural gas: | ||||||||||||||||
| Notional volume (MMBtu) | 1,682,646 | 1,970,368 | 1,615,792 | 1,276,142 | ||||||||||||
| Weighted average fixed price ($/MMbtu) | $ | 2.87 | $ | 2.75 | $ | 2.79 | $ | 2.85 | ||||||||
| Ethane: | ||||||||||||||||
| Notional volume (Gallons) | 7,027,524 | |||||||||||||||
| Weighted average fixed price ($/Gallons) | $ | 0.28 | $ | $ | $ | |||||||||||
| Propane: | ||||||||||||||||
| Notional volume (Gallons) | 4,685,058 | |||||||||||||||
| Weighted average fixed price ($/Gallons) | $ | 0.79 | $ | $ | $ | |||||||||||
| Pentanes: | ||||||||||||||||
| Notional volume (Gallons) | 1,561,896 | |||||||||||||||
| Weighted average fixed price ($/Gallons) | $ | 1.47 | $ | $ | $ | |||||||||||
| Commodity derivative two-way collars | ||||||||||||||||
| Oil: | ||||||||||||||||
| Notional volume (Bbls) | 210,000 | |||||||||||||||
| Weighted average ceiling price ($/Bbl) | $ | 60.03 | $ | $ | $ | |||||||||||
| Weighted average floor price ($/Bbl) | $ | 53.14 | $ | $ | $ | |||||||||||
| Commodity derivative three-way collars | ||||||||||||||||
| Oil: | ||||||||||||||||
| Notional volume (Bbls) | 1,095,258 | 3,294,000 | 4,200,000 | 2,000,000 | ||||||||||||
| Weighted average ceiling price ($/Bbl) | $ | 65.86 | $ | 70.29 | $ | 60.40 | $ | 61.45 | ||||||||
| Weighted average floor price ($/Bbl) | $ | 60.61 | $ | 57.50 | $ | 54.49 | $ | 55.00 | ||||||||
| Weighted average sold put option price ($/Bbl) | $ | 45.57 | $ | 47.50 | $ | 45.51 | $ | 45.00 | ||||||||
| Crude oil basis swaps | ||||||||||||||||
| Midland / Cushing: | ||||||||||||||||
| Notional volume (Bbls) | 2,637,258 | 5,254,000 | 3,160,000 | 2,100,000 | ||||||||||||
| Weighted average fixed price ($/Bbl) | $ | (4.65 | ) | $ | (0.83 | ) | $ | 0.48 | $ | 0.54 | ||||||
| Natural gas basis swaps | ||||||||||||||||
| EP Permian: | ||||||||||||||||
| Notional volume (MMBtu) | 1,711,062 | 2,096,160 | ||||||||||||||
| Weighted average fixed price ($/MMBtu) | $ | (1.13 | ) | $ | (1.03 | ) | $ | $ | ||||||||
- During the second quarter of 2019, the Company entered into commodity derivative swaps where it bought 2,160,000 barrels of crude oil at a weighted average fixed price of $50.48 per barrel to offset commodity derivative swaps it previously sold of 2,160,000 barrels of crude oil at a weighted average fixed price of $61.21 per barrel, effectively locking in a gain of approximately $23.2 million that the Company expects to recognize in 2021 when the swaps settle.
- During the second quarter of 2019, the Company entered into commodity derivative swaps where it bought 1,100,000 barrels of crude oil at a weighted average fixed price of $50.55 per barrel to offset commodity derivative swaps it previously sold of 1,100,000 barrels of crude oil at a weighted average fixed price of $58.42 per barrel, effectively locking in a gain of approximately $8.7 million that the Company expects to recognize in 2022 when the swaps settle.
| Rosehill Resources Inc. Operational Highlights (Unaudited) | ||||||||||
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||
| Revenues: (in thousands) | ||||||||||
| Oil sales | $ | 66,840 | $ | 73,061 | $ | 132,693 | $ | 124,615 | ||
| Natural gas sales | (649 | ) | 2,308 | 825 | 4,053 | |||||
| NGL sales | 3,192 | 5,158 | 7,725 | 7,645 | ||||||
| Total revenues | $ | 69,383 | $ | 80,527 | $ | 141,243 | $ | 136,313 | ||
| Average sales price (1): | ||||||||||
| Oil (per Bbl) | $ | 55.06 | $ | 60.18 | $ | 51.85 | $ | 60.40 | ||
| Natural gas (per Mcf) | (0.44 | ) | 1.68 | 0.26 | 1.91 | |||||
| NGLs (per Bbl) | 12.05 | 22.04 | 13.75 | 21.06 | ||||||
| Total (per Boe) | $ | 40.27 | $ | 48.02 | $ | 38.64 | $ | 49.02 | ||
| Total, including effects of gain (loss) on settled commodity derivatives, net (per Boe) | $ |
37.17 |
$ |
42.56 |
$ |
36.90 |
$ |
44.63 |
||
| Net Production: | ||||||||||
| Oil (MBbls) | 1,214 | 1,214 | 2,559 | 2,063 | ||||||
| Natural gas (MMcf) | 1,462 | 1,375 | 3,201 | 2,127 | ||||||
| NGLs (MBbls) | 265 | 234 | 562 | 363 | ||||||
| Total (MBoe) | 1,723 | 1,677 | 3,655 | 2,781 | ||||||
| Average daily net production volume: | ||||||||||
| Oil (Bbls/d) | 13,341 | 13,341 | 14,138 | 11,398 | ||||||
| Natural gas (Mcf/d) | 16,066 | 15,110 | 17,685 | 11,751 | ||||||
| NGLs (Bbls/d) | 2,912 | 2,571 | 3,105 | 2,006 | ||||||
| Total (Boe/d) | 18,934 | 18,429 | 20,193 | 15,365 | ||||||
| Average costs (per BOE): | ||||||||||
| Lease operating expenses | $ | 4.90 | $ | 6.69 | $ | 5.15 | $ | 7.23 | ||
| Production taxes | 1.74 | 2.29 | 1.78 | 2.33 | ||||||
| Gathering and transportation | 0.77 | 0.72 | 1.01 | 0.69 | ||||||
| Depreciation, depletion, amortization and accretion | 18.96 | 21.77 | 18.78 | 20.61 | ||||||
| Exploration costs | 0.65 | 1.12 | 0.65 | 0.83 | ||||||
| General and administrative, excluding stock-based compensation | 4.31 | 3.64 | 4.23 | 4.22 | ||||||
| Stock-based compensation | 1.11 | 1.09 | 0.80 | 1.18 | ||||||
| (Gain) loss on disposition of property and equipment | (6.46 | ) | 0.10 | (3.04 | ) | 0.11 | ||||
| Total (per Boe) | $ | 25.98 | $ | 37.42 | $ | 29.36 | $ | 37.20 | ||
(1) Excluding the effects of realized and unrealized commodity derivative transactions unless noted otherwise
| ROSEHILL RESOURCES INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) |
||||||||||||
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Revenues: | ||||||||||||
| Oil sales | $ | 66,840 | $ | 73,061 | $ | 132,693 | $ | 124,615 | ||||
| Natural gas sales | (649 | ) | 2,308 | 825 | 4,053 | |||||||
| Natural gas liquids sales | 3,192 | 5,158 | 7,725 | 7,645 | ||||||||
| Total revenues | 69,383 | 80,527 | 141,243 | 136,313 | ||||||||
| Operating expenses: | ||||||||||||
| Lease operating expenses | 8,435 | 11,225 | 18,805 | 20,110 | ||||||||
| Production taxes | 2,992 | 3,841 | 6,495 | 6,481 | ||||||||
| Gathering and transportation | 1,320 | 1,207 | 3,681 | 1,919 | ||||||||
| Depreciation, depletion, amortization and accretion | 32,661 | 36,506 | 68,625 | 57,315 | ||||||||
| Exploration costs | 1,113 | 1,875 | 2,368 | 2,311 | ||||||||
| General and administrative | 9,344 | 7,930 | 18,399 | 15,027 | ||||||||
| (Gain) loss on disposition of property and equipment | (11,123 | ) | 163 | (11,114 | ) | 296 | ||||||
| Total operating expenses | 44,742 | 62,747 | 107,259 | 103,459 | ||||||||
| Operating income | 24,641 | 17,780 | 33,984 | 32,854 | ||||||||
| Other income (expense): | ||||||||||||
| Interest expense, net | (6,010 | ) | (4,662 | ) | (11,610 | ) | (8,529 | ) | ||||
| Gain (loss) on commodity derivative instruments, net | 28,377 | (19,954 | ) | (76,194 | ) | (41,239 | ) | |||||
| Other income, net | 31 | 290 | 93 | 422 | ||||||||
| Total other income (expense), net | 22,398 | (24,326 | ) | (87,711 | ) | (49,346 | ) | |||||
| Income (loss) before income taxes | 47,039 | (6,546 | ) | (53,727 | ) | (16,492 | ) | |||||
| Income tax expense (benefit) | 1,517 | (15,210 | ) | 4,823 | (17,400 | ) | ||||||
| Net income (loss) | 45,522 | 8,664 | (58,550 | ) | 908 | |||||||
| Net income (loss) attributable to noncontrolling interest | 26,444 | (8,347 | ) | (47,465 | ) | (22,423 | ) | |||||
| Net income (loss) attributable to Rosehill Resources Inc. before preferred stock dividends | 19,078 |
17,011 |
(11,085 |
) |
23,331 |
|||||||
| Series A Preferred Stock dividends and deemed dividends | 2,027 | 1,968 | 4,033 | 3,897 | ||||||||
| Series B Preferred Stock dividends, deemed dividends, and return | 5,863 | 5,844 | 11,671 | 11,576 | ||||||||
| Net income (loss) attributable to Rosehill Resources Inc. common stockholders | $ | 11,188 | $ | 9,199 | $ | (26,789 | ) | $ | 7,858 | |||
| Earnings (loss) per common share: | ||||||||||||
| Basic | $ | 0.78 | $ | 1.43 | $ | (1.90 | ) | $ | 1.24 | |||
| Diluted | $ | 0.54 | $ | (0.32 | ) | $ | (1.90 | ) | $ | (0.70 | ) | |
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 14,382 | 6,430 | 14,108 | 6,327 | ||||||||
| Diluted | 24,562 | 36,238 | 14,108 | 36,135 | ||||||||
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