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

SRC Energy Details Q2 2019 Results

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SRC Energy Inc. reports its financial results for the three and six months ended June 30, 2019.

Second Quarter 2019 Highlights

• Revenues were $162.6 million and $352.1 million for the three and six months ended June 30, 2019, respectively
• Net income was $54.5 million or $0.22 per diluted share and $104.2 million or $0.43 per diluted share for the three and six months ended June 30, 2019, respectively
• Adjusted EBITDA was $127.9 million and $287.5 million for the three and six months ended June 30, 2019, respectively (see further discussion regarding the presentation of adjusted EBITDA in "About Non-GAAP Financial Measures" below)
• Drilling and completion capital expenditures of $91 million and $201 million for the three and six months ended June 30, 2019, respectively, were funded from EBITDA
• Reduced the balance outstanding on SRC's revolving credit facility by $30 million

Lynn A. Peterson, Chairman and CEO of SRC Energy Inc. commented, "While our operations were mostly in line with guidance as set out earlier, we continue to face significant ongoing operational challenges stemming from a lack of gas processing capacity and timing of associated expansions. The second quarter was hindered by several midstream interruptions which impacted our production volume and the composition of our production."

Mr. Peterson continued, "Our 2019 budget was built around anticipated midstream constraints and in the second quarter we began to reduce our activity level, in line with our 2019 budget. We released our completion crew in mid-May, which is reflected in lower capital expenditures for the quarter. In addition, we will release one of our drilling rigs in the third quarter. We expect to continue with one drilling rig throughout the balance of 2019 and into 2020. In an ongoing effort to reduce gas emissions and be a leader in the communities where we operate, we will test a new electric hydraulic stimulation fleet, designed by Halliburton, in the third quarter."

Mr. Peterson concluded, "Despite the operational issues, SRC generated positive free cash flow for the three and six months ended June 30, 2019, allowing us to reduce the amount outstanding under our revolving line of credit."

Second Quarter 2019 Financial Results

The following table presents certain per unit metrics that compare results of the corresponding reporting periods:

Revenues for the three months ended June 30, 2019 decreased 14% compared to the three months ended March 31, 2019 and increased 11% compared to the three months ended June 30, 2018. While sales volumes decreased 8% quarter-over-quarter, 9% lower average realized prices compounded the revenue decline in a quarter-over-quarter comparison. The year-over-year increase in revenues was driven by growth in sales volumes. Natural gas liquids pricing during the quarter ended June 30, 2019 was impacted by generally weaker product pricing for ethane, propane and other components of the NGL stream in US markets.

The Company's 2019 second quarter net income totaled $54.5 million, or $0.22 per diluted share, compared to net income of $49.8 million, or $0.20 per diluted share, in the first quarter of 2019 and $49.6 million, or $0.20 per diluted share, in the second quarter of 2018.

Midstream Operations Update

Gas gathering and processing constraints have continued to limit activity and have ultimately impacted well productivity within the DJ Basin. DCP Midstream's system-wide producer allocation remains in effect with an intent of stabilizing line pressures. Despite the allocation limitation, we encountered significant planned and unplanned downtime which further reduced system capacity throughout the 2nd quarter. This resulted in consistently high line pressures, restricting our ability to maintain consistent production levels.

As DCP Midstream's O'Connor II plant commissioning phase is finalized and throughput ramps up over the upcoming weeks, we expect some improvement in line pressure as the system balances out over the remainder of the year. DCP's recent announcement of its agreement with Western Midstream Partners, including the Latham II plant, should help further relieve constraints by mid-2020.