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December 2016 Investor Presentation – Approach Resources, Inc.

Approach Resources, Inc. · Dec 20, 2016 · 44 slides

Investor presentation from the Shale Experts oil & gas presentation and slide database. Every page is imaged and its text indexed for search across operators, plays, basins and time.

Slides

  1. December 2016 Investor Presentation – Approach Resources, Inc. – slide 1
    Approach Resources Company Presentation DECEMBER 20, 2016
  2. December 2016 Investor Presentation – Approach Resources, Inc. – slide 2
    Situation Overview
  3. December 2016 Investor Presentation – Approach Resources, Inc. – slide 3
    Situation overview The Company has a high-quality asset base in the Southern Midland basin of the greater Permian Basin Business anchored by long-lived, low-cost proved reserve base Over 1,600 remaining Hz Wolfcamp drilling…
  4. December 2016 Investor Presentation – Approach Resources, Inc. – slide 4
    Company overview AREX OVERVIEW ASSET OVERVIEW Enterprise value 651MM High-quality reserve base 167 MMBoe proved reserves 63% Liquids, 33% oil 460 MM Standardized measure, 504 MM proved PV- 10 (non-GAAP) 1 Available Sales Outlets…
  5. December 2016 Investor Presentation – Approach Resources, Inc. – slide 5
    Companys leverage metrics and liquidity position have been negatively impacted by low oil prices Debt / LTM EBITDAX / barrel 10.0x 120.0 Leverage (Debt / LTM EBITDAX) Avg. WTI Price 9.0x 100.0 8.0x 7.0x 80.0 6.0x 5.0x…
  6. December 2016 Investor Presentation – Approach Resources, Inc. – slide 6
    As commodity prices collapsed, we took proactive steps to align our capital budget with cash flow and reduce our cost structure Annual Capital Expenditures ( MM) Improved Cost Structure 400 394 8.00 7.36 7.00 6.65 6.18 5.87 6.00…
  7. December 2016 Investor Presentation – Approach Resources, Inc. – slide 7
    Highlights of exchange transaction Large-scale strategic recapitalization anchored by a proven industry investor (Wilks Brothers family office) Elimination of up to 230.3 million of debt and 16.1 million in annual cash interest…
  8. December 2016 Investor Presentation – Approach Resources, Inc. – slide 8
    Key transaction terms 1 Exchange agreement Agreement with largest holder of our 7.00% Senior Notes due 2021 (senior notes), to exchange 130,552,000 principal amount of senior notes for 39,165,600 shares of AREX common stock Exchanging…
  9. December 2016 Investor Presentation – Approach Resources, Inc. – slide 9
    Exchange transaction summary Credit facility due 2019 Senior Notes due 2021 Cash interest Step 1: Initial exchange Step 2: Follow-on exchange 600 30 505.3 Debt & Interest (MM) 1 25.1 500 25 400 230.3 20 374.8 16.0 300 15…
  10. December 2016 Investor Presentation – Approach Resources, Inc. – slide 10
    Estimated process timeline Date Event January 26, 2017 Special Meeting of the Stockholders / Exchange Transactions are approved January February, 2017 If approved, Initial Exchange is executed February March, 2017 If approved,…
  11. December 2016 Investor Presentation – Approach Resources, Inc. – slide 11
    Exchange transactions will materially improve leverage and access to liquidity Access to additional low-cost bank capital is materially constrained when borrower leverage exceeds Office of the Comptroller of Currency (OCC) E&P lending…
  12. December 2016 Investor Presentation – Approach Resources, Inc. – slide 12
    Reinvestment of interest expense will provide ongoing incremental liquidity needed to jumpstart production growth Capital expenditures = operating cash flow (MM) 1 Daily production (Mboe/d) 1 200.0 18.0 Standalone Pro forma…
  13. December 2016 Investor Presentation – Approach Resources, Inc. – slide 13
    Market reaction following transaction announcement AREX stock closed at 2.70 on 11/2/2016, with the exchange agreement announced after hours. AREX stock was up 7.0% on 11/3/16, outperforming the S&P E&P Index, which was up less than…
  14. December 2016 Investor Presentation – Approach Resources, Inc. – slide 14
    Key rationale for exchange transactions Improved Significant reduction in debt Capital Improvement in ability to service and refinance upcoming debt maturities Structure Reposition the Companys balance sheet and restore access to…
  15. December 2016 Investor Presentation – Approach Resources, Inc. – slide 15
    Asset and operations overview
  16. December 2016 Investor Presentation – Approach Resources, Inc. – slide 16
    Company overview AREX OVERVIEW ASSET OVERVIEW Enterprise value 651MM High-quality reserve base 167 MMBoe proved reserves 63% Liquids, 33% oil 460 MM Standardized measure, 504 MM proved PV- 10 (non-GAAP) 1 Available Sales Outlets…
  17. December 2016 Investor Presentation – Approach Resources, Inc. – slide 17
    The business is anchored by long-lived, low-cost proved reserve base 12/31/2015 reserve summary prepared by DeGolyer and MacNaughton (D&M) Replaced 603% of produced reserves at a drill-bit F&D cost of 4.32 per Boe1 Total proved…
  18. December 2016 Investor Presentation – Approach Resources, Inc. – slide 18
    Strong track record of reserve and production growth RESERVE GROWTH PRODUCTION GROWTH MMBoe MBoe/d 180 16.0 160 14.0 140 12.0 120 10.0 100 8.0 80 60 6.0 40 4.0 20 2.0 0 2004 2005 2006 2007 2008 2009 2010 2011…
  19. December 2016 Investor Presentation – Approach Resources, Inc. – slide 19
    AREX Wolfcamp assets offer significant upside Approach assets deliver: APA REAGAN PXD Balanced production profile ENDEAVOR PXD BROADOAK APA IRION Shallow natural decline rate UPTON SEQUITUR Meaningful cash flow allowing debt…
  20. December 2016 Investor Presentation – Approach Resources, Inc. – slide 20
    AREX continues to achieve one of the lowest cost structures in the Permian Basin AREX LOE Historical Track Record (/Boe) 2015 Permian Peer LOE (/Boe) 8.00 14.0 13.23 7.36 7.00 6.65 12.0 6.18 6.00 5.87 5.55 5.44 5.45 10.0 9.51 4.97…
  21. December 2016 Investor Presentation – Approach Resources, Inc. – slide 21
    Drilling and completion (D&C) cost reductions have significantly improved profitability despite lower commodity prices 100% 3.0MM D&C Current 2017 Long-term commodity 90% 3.5MM D&C NYMEX strip research consensus 4.0MM D&C 80%…
  22. December 2016 Investor Presentation – Approach Resources, Inc. – slide 22
    Enhanced completion design drives outperformance from 2015 and 2016 wells 120,000 2nd Qtr. 2016 Wolfcamp B&C bench completions Average completed lateral length = 6,541' Reduced stage spacing (< 200) Increase percentage of 100 mesh…
  23. December 2016 Investor Presentation – Approach Resources, Inc. – slide 23
    Balanced production mix allows AREX to benefit from commodity price appreciation across all product streams % Change in realized prices 9M16 Commodity Mix 140.0% Oil NGLs Natural Gas 120.0% 28% 38% 100.0% 80.0% 34% 60.0%…
  24. December 2016 Investor Presentation – Approach Resources, Inc. – slide 24
    Large resource potential with significant running room AREX Horizontal Wells / Locations AREX Undrilled Locations Probable, Possible & Resource: 1,389 locations 77% PDNP & PUD: 251 locations A Bench: 14% 589 locations 36%…
  25. December 2016 Investor Presentation – Approach Resources, Inc. – slide 25
    AREX Wolfcamp A Bench wells and locations PDP PDNP PUD Pangea West Production Corridor PROB/POSS/RES PDP Project Pangea PUD Production Corridor PROB/POSS/RES Potential 10,000 laterals Potential 10,000 laterals Production…
  26. December 2016 Investor Presentation – Approach Resources, Inc. – slide 26
    AREX Wolfcamp B Bench wells and locations PDP Pangea West PUD Production Corridor PUD PDP Project Pangea Production Corridor PROB/POSS/RES PROB/POSS/RES Potential 10,000 laterals Potential 10,000 laterals Production…
  27. December 2016 Investor Presentation – Approach Resources, Inc. – slide 27
    AREX Wolfcamp C Bench wells and locations PDP PUD Pangea West Production Corridor PDP PROB/POSS/RES PUD Project Pangea Production Corridor PROB/POSS/RES Potential 10,000 laterals Potential 10,000 laterals Production…
  28. December 2016 Investor Presentation – Approach Resources, Inc. – slide 28
    Established infrastructure in place is critical to low cost structure Receipt Point Reagan Irion PW Receipt Point Crockett Schleicher DCP Tap PW BLK 50 Receipt Point CS 1 Compressor 204HA Receipt NORTH & CENTRAL 228HA…
  29. December 2016 Investor Presentation – Approach Resources, Inc. – slide 29
    Significant cost savings from using recycled water for fracing Flowback / Producing Well Cost for recycled water 2 per barrel Free 0.25 per Cost saving for using recycled water barrel 2 - 3 per barrel Via existing water…
  30. December 2016 Investor Presentation – Approach Resources, Inc. – slide 30
    AREX water recycling facility successfully implemented Started up in March 2015, ramped up during April 2015 Recycled up to 100% of AREX daily flowback/produced water volumes More than 2.2 million barrels of produced water treated in…
  31. December 2016 Investor Presentation – Approach Resources, Inc. – slide 31
    Well Pads Serviced by Centralized Compressor and Shared Gas Lift System Efficient and Significant Cost Saving Wells 500 ft CPF 1 CPF 2 CPF 3 CPF 4 CPF 5 CPF 6 CPF 7 CPF 8 CPF 9 CPF 10 Low Pressure Low Pressure Gathering…
  32. December 2016 Investor Presentation – Approach Resources, Inc. – slide 32
    AREX has used the commodity price downturn to increase focus on cost reductions 18.00 LOE down 53% from 1Q14 Cash G&A down 27% from 1Q14 16.00 Production taxes down 54% from 1Q14 14.00 7.36 12.00 6.18 10.00 6.65 5.87 5.55…
  33. December 2016 Investor Presentation – Approach Resources, Inc. – slide 33
    Record low LOE cost driven by water handling infrastructure and field-level operating efficiencies AREX LOE Historical Track Record (/Boe) 8.00 7.00 0.90 6.00 1.23 0.92 0.88 0.59 5.00 2.88 0.96 1.17 1.28 0.81 0.96…
  34. December 2016 Investor Presentation – Approach Resources, Inc. – slide 34
    Cost reductions and improvement in commodity prices are translating into expanding profit margins Profit margin per Boe 25.00 21.96 Hedged Realized Price 20.76 Hedged Realized Price 21.26 20.00 Realized Price 18.12 Hedged…
  35. December 2016 Investor Presentation – Approach Resources, Inc. – slide 35
    Appendix
  36. December 2016 Investor Presentation – Approach Resources, Inc. – slide 36
    Current hedge position Commodity & Period Contract Type Volume Contract Price Crude Oil October 2016 December 2016 Swap 750 Bbls/d 62.52/Bbl Natural Gas October 2016 December 2016 Swap 200,000 MMBtu/month 2.93/MMBtu October 2016…
  37. December 2016 Investor Presentation – Approach Resources, Inc. – slide 37
    Liquidity Liquidity is calculated by adding the net funds available under our revolving credit facility and cash and cash equivalents. We use liquidity as an indicator of the Companys ability to fund development and exploration…
  38. December 2016 Investor Presentation – Approach Resources, Inc. – slide 38
    Pro forma leverage ratio (unaudited) Leverage ratio is calculated by dividing total debt (principal amount) by EBITDAX (non-GAAP)1 for the trailing 12 months. We use the leverage ratio as a measurement of our overall financial…
  39. December 2016 Investor Presentation – Approach Resources, Inc. – slide 39
    Pro forma interest coverage ratio (unaudited) Interest coverage ratio is calculated by dividing EBITDAX for the trailing 12 months by cash interest expense for the trailing 12 months. We use the interest coverage ratio as a measurement…
  40. December 2016 Investor Presentation – Approach Resources, Inc. – slide 40
    EBITDAX (unaudited) We define EBITDAX as net loss, plus (1) exploration expense, (2) depletion, depreciation and amortization expense, (3) share-based compensation expense, (4) impairment of oil and gas properties, (5) unrealized (gain)…
  41. December 2016 Investor Presentation – Approach Resources, Inc. – slide 41
    F&D costs (unaudited) All-in finding and development (F&D) costs are calculated by dividing the sum of F&D Cost reconciliation property acquisition costs, exploration costs and development costs for the year by the sum of reserve…
  42. December 2016 Investor Presentation – Approach Resources, Inc. – slide 42
    PV-10 (unaudited) The present value of our proved reserves, discounted at 10% (PV-10), was estimated at 504 million at December 31, 2015, and was calculated based on the first-of-the-month, twelve-month average prices for oil, NGLs and…
  43. December 2016 Investor Presentation – Approach Resources, Inc. – slide 43
    Disclosure NO OFFER OR SOLICITATION THIS PRESENTATION IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION TO BUY ANY OF THE EXISTING SENIOR NOTES NOR IS IT A SOLICITATION FOR ACCEPTANCE OF THE EXCHANGE OFFER OR THE FOLLOW-ON EXCHANGE. THE…
  44. December 2016 Investor Presentation – Approach Resources, Inc. – slide 44
    Contact information SUZANNE OGLE Vice President Investor Relations & Corporate Communications 817.989.9000 irapproachresources.com www.approachresources.com

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