SRC Energy Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - November 1, 2017

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Exhibit 99.1
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November 1, 2017

SRC Energy Inc. Reports Third Quarter 2017 Financial and Operating Results

Denver--(GlobeNewswire - 11/1/2017) -- SRC Energy Inc. (NYSE Amex: SRCI) (“SRC”, the “Company”, “we”, “us” or “our”), a U.S. oil and gas exploration and production company with operations focused on the Wattenberg Field in the Denver-Julesburg Basin, reports its financial and operating results for the three and nine months ended September 30, 2017.

Third Quarter 2017 Highlights

•
Revenues were $103.6 million for the three months ended September 30, 2017
•
Net income was $43.8 million or $0.22 per diluted share for the three months ended September 30, 2017
•
Adjusted EBITDA was $83.5 million for the three months ended September 30, 2017 (see further discussion regarding the presentation of adjusted EBITDA in "About Non-GAAP Financial Measures" below)

Third Quarter 2017 Financial Results

The following tables present certain per unit metrics that compare results of the corresponding reporting periods:
 
Three Months Ended
 
Nine Months Ended
Net Volumes
9/30/2017
 
9/30/2016
 
% Chg.*
 
9/30/2017
 
9/30/2016
 
% Chg.*
 
3-Stream
 
2-Stream
 
 
 
3-Stream
 
2-Stream
 
 
Crude Oil (MBbls)
1,726
 
517
 
234%
 
3,668
 
1,552
 
136%
Natural Gas Liquids (MBbls)
753
 
—
 
NM
 
1,758
 
—
 
NM
Natural Gas (MMcf)
7,412
 
2,855
 
160%
 
17,122
 
8,991
 
90%
Sales Volumes: (MBOE)
3,715
 
993
 
274%
 
8,280
 
3,050
 
171%
Average Daily Volumes
 
 
 
 
 
 
 
 
 
 
 
Daily Production (BOE/day)
40,378
 
10,794
 
274%
 
30,331
 
11,133
 
172%
Product Price Received
 
 
 
 
 
 
 
 
 
 
 
Crude Oil ($/Bbl)
$42.37
 
$35.67
 
19%
 
$42.04
 
$31.47
 
34%
Natural Gas Liquids ($/Bbl)
$17.32
 
—
 
NM
 
$15.49
 
—
 
NM
Natural Gas ($/Mcf)
$2.35
 
$2.73
 
(14)%
 
$2.39
 
$2.18
 
10%
Average Realized Price ($/BOE)
$27.89
 
$26.42
 
6%
 
$26.86
 
$22.44
 
20%
Per Unit Cost Information ($/BOE)
Lease Operating Exp.
$1.40
 
$3.84
 
(64)%
 
$1.68
 
$4.90
 
(66)%
Production Tax
$2.71
 
$(1.47)
 
NM
 
$2.54
 
$0.82
 
210%
DD&A Expense
$9.08
 
$9.70
 
(6)%
 
$8.86
 
$10.82
 
(18)%
Total G&A Expense
$2.29
 
$8.29
 
(72)%
 
$2.93
 
$7.61
 
(61)%
* SRC began reporting on a 3-Stream basis in the first quarter of 2017; therefore, some prior year comparisons may not be meaningful.


Oil, natural gas and natural gas liquids revenues for the three months ended September 30, 2017 increased 295% compared to the three months ended September 30, 2016. This was due to a 274% increase in sales volumes combined with a 6% improvement in average realized sales price per BOE. As of September 30, 2017, substantially all of SRC's production was from horizontal wells.


 
During the three months ended September 30, 2017, SRC experienced decreased lease operating expenses, on a per unit basis, compared to the three months ended September 30, 2016. Unit operating costs continue to benefit from larger volumes of early production from horizontal wells turned to sales during the quarter and earlier in the year.
 

The Company's 2017 third quarter net income totaled $43.8 million, or $0.22 per diluted share compared to a net loss of $19.2 million or $(0.10) per diluted share in the year ago quarter. Net income for the three months ended September 30, 2016 was impacted by an impairment charge of $25.5 million. Adjusted EBITDA in the third quarter of 2017 was $83.5 million as compared to $18.3 million in the year ago quarter.


Operational Status

Third Quarter 2017 Operating Activity
 
Lateral Length
# of wells on Pad
 
WI %
 
# of Wells Drilled
 
# of Wells Completed
 
# of Wells Turned to Sales
Orr Pad
ML
12
 
97%
 
 
 
 
 
12
Orr State Pad
ML
12
 
95%
 
 
 
6
 
12
Goetzel Pad
ML
12
 
76%
 
 
 
8
 
9
Hood Pad
ML
12
 
84%
 
 
 
12
 
5
Beebe Pad
ML
12
 
73%
 
5
 
10
 
 
Leffler Pad
LL
12
 
86%
 
8
 
 
 
 
Ag Pad
LL
12
 
79%
 
9
 
 
 
 
Falken Pad
LL
12
 
69%
 
2
 
 
 
 
Total wells
 

 
 
 
24
 
36
 
38
ML ~7,500' LL ~10,000' XL ~12,000'



Conference Call

The Company will host a conference call on Thursday, November 2, 2017 at 11:00 a.m. Eastern time (9:00 a.m. Mountain time) to discuss the results. The call will be conducted by Chairman and CEO Lynn A. Peterson, CFO James Henderson, Chief Development Officer Nick Spence, Chief Operations Officer Mike Eberhard, and Manager of Investor Relations John Richardson. A Q&A session will immediately follow the discussion of the results for the quarter. Please refer to SRC's website at www.srcenergy.com for the most recent corporate presentation and other news and information.

To participate in this call please dial:
Domestic Dial-in Number: (877) 407-9122
International Dial-in Number: (201) 493-6747

Webcast: http://srcenergy.equisolvewebcast.com/q3-2017

Replay Information:
Conference ID #:  411931
Replay Dial-In (Toll Free US & Canada):  877-660-6853
Replay Dial-In (International):  201-612-7415
Expiration Date:  11/14/17





About SRC Energy Inc.

SRC Energy Inc. is a domestic oil and natural gas exploration and production company. SRC's core area of operations is in the Greater Wattenberg Field of the Denver-Julesburg Basin. The Denver-Julesburg Basin encompasses parts of Colorado, Wyoming, Kansas and Nebraska. The Company's corporate offices are located in Denver, Colorado. More company news and information about SRC is available at www.srcenergy.com.


Important Cautions Regarding Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. The use of words such as "believes", "expects", "anticipates", "intends", "plans", "estimates", "should", "likely", “guidance” or similar expressions indicates a forward-looking statement. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, and information currently available to management. The actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. The identification in this press release of factors that may affect the Company's future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Factors that could cause the Company's actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: the success of the Company's exploration and development efforts; the price of oil and gas; worldwide economic situation; change in interest rates or inflation; willingness and ability of third parties to honor their contractual commitments; the availability of adequate midstream infrastructure, the Company's ability to raise additional capital, as it may be affected by current conditions in the stock market and competition in the oil and gas industry for risk capital; the Company's capital costs, which may be affected by delays or cost overruns; costs of production; environmental and other regulations, as the same presently exist or may later be amended; the Company's ability to identify, finance and integrate any future acquisitions; the volatility of the Company's stock price; and the other factors described in the “Risk Factors” sections of the Company’s filings with the Securities and Exchange Commission, all of which are incorporated by reference in this release.


Company Contact:
John Richardson (Investor Relations Manager)
SRC Energy Inc.
Tel 720-616-4308
E-mail: jrichardson@srcenergy.com




Reconciliation of Non-GAAP Financial Measures
We define adjusted EBITDA, a non-GAAP financial measure, as net income (loss) adjusted to exclude the impact of the items set forth in the table below. We exclude those items because they can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. We believe that adjusted EBITDA is widely used in our industry as a measure of operating performance and may also be used by investors to measure our ability to meet debt covenant requirements. The following table presents a reconciliation of adjusted EBITDA to net income (loss), its nearest GAAP measure:
SRC ENERGY INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands)
 
 
 
 
 
Three Months Ended September 30,
 
2017
 
2016
Adjusted EBITDA:
 
 
 
Net income (loss)
$
43,848

 
$
(19,241
)
Depreciation, depletion, and accretion
33,740

 
9,635

Full cost ceiling impairment
—

 
25,453

Income tax expense
—

 
5

Stock-based compensation
3,030

 
2,374

Mark-to-market of commodity derivative contracts:
 
 
 
Total gain on commodity derivatives contracts
2,383

 
(407
)
Cash settlements on commodity derivative contracts
544

 
486

Cash premiums paid for commodity derivative contracts
—

 
—

Interest income, net of interest expense
(16
)
 
(11
)
Adjusted EBITDA
$
83,529

 
$
18,294





Condensed Consolidated Financial Statements
Condensed consolidated financial statements are included below. Additional financial information, including footnotes that are considered an integral part of the condensed consolidated financial statements, can be found in SRC's Quarterly Report on Form 10-Q for the period ended September 30, 2017, which is available at www.sec.gov.
SRC ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
 
 
 
 
ASSETS
September 30, 2017
 
December 31, 2016
Current assets:
 
 
 
Cash and cash equivalents
$
21,325

 
$
18,615

Other current assets
123,878

 
35,569

Total current assets
145,203

 
54,184

 
 
 
 
Oil and gas properties and other equipment
1,249,633

 
908,736

Goodwill
40,711

 
40,711

Other assets
2,359

 
20,482

 
 
 
 
Total assets
$
1,437,906

 
$
1,024,113

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities
233,427

 
92,240

 
 
 
 
Revolving credit facility
150,000

 
—

Notes payable, net of issuance costs
76,216

 
75,614

Asset retirement obligations
33,981

 
13,775

Other liabilities
2,662

 
1,745

Total liabilities
496,286

 
183,374

 
 
 
 
Shareholders' equity:
 
 
 
Common stock and paid-in capital
1,158,518

 
1,149,199

Retained deficit
(216,898
)
 
(308,460
)
Total shareholders' equity
941,620

 
840,739

 
 
 
 
Total liabilities and shareholders' equity
$
1,437,906

 
$
1,024,113



SRC ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)

 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
91,664

 
$
(224,490
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depletion, depreciation, and accretion
73,396

 
33,001

Full cost ceiling impairment
—

 
215,223

Other, non-cash items
2,767

 
15,843

Changes in operating assets and liabilities
(25,010
)
 
(6,384
)
Net cash provided by operating activities
142,817

 
33,193

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisitions of oil and gas properties and leaseholds
(62,562
)
 
(503,357
)
Capital expenditures for drilling and completion activities
(305,636
)
 
(72,375
)
Other capital expenditures
(15,285
)
 
(6,417
)
Cash held in escrow
18,248

 
(18,244
)
Proceeds from sales of oil and gas properties
77,017

 
24,223

Net cash used in investing activities
(288,218
)
 
(576,170
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Equity financing activities
(517
)
 
542,901

Debt financing activities
148,628

 
(2,666
)
Net cash provided by financing activities
148,111

 
540,235

 
 
 
 
Net increase in cash and equivalents
2,710

 
(2,742
)
Cash and equivalents at beginning of period
18,615

 
66,499

Cash and equivalents at end of period
$
21,325

 
$
63,757



SRC ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except share and per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Oil, natural gas, and NGL revenues
$
103,593

 
$
26,234

 
$
222,419

 
$
68,454

Sales of purchased oil
—

 
—

 
1,268

 
—

Total revenues
103,593

 
26,234

 
223,687

 
68,454

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Lease operating expenses
5,154

 
3,819

 
13,894

 
14,963

Production taxes
10,083

 
(1,461
)
 
21,013

 
2,509

Costs of purchased oil
—

 
—

 
1,518

 
—

Depreciation, depletion, and accretion
33,740

 
9,635

 
73,396

 
33,001

Full cost ceiling impairment
—

 
25,453

 
—

 
215,223

Unused commitment charge
—

 
205

 
669

 
505

General and administrative
8,484

 
8,236

 
24,289

 
23,199

Total expenses
57,461

 
45,887

 
134,779

 
289,400

 
 
 
 
 
 
 
 
Operating income (loss)
46,132

 
(19,653
)
 
88,908

 
(220,946
)
 
 
 
 
 
 
 
 
Other income:
 
 
 
 
 
 
 
Commodity derivatives gain (loss)
(2,383
)
 
407

 
2,324

 
(3,617
)
Interest expense, net
—

 
—

 
—

 
—

Interest income
16

 
11

 
47

 
176

Other income
83

 
(1
)
 
385

 
3

Total other income
(2,284
)
 
417

 
2,756

 
(3,438
)
 
 
 
 
 
 
 
 
Income (Loss) before income taxes
43,848

 
(19,236
)
 
91,664

 
(224,384
)
 
 
 
 
 
 
 
 
Income tax expense
—

 
5

 
—

 
106

Net income (loss)
$
43,848

 
$
(19,241
)
 
$
91,664

 
$
(224,490
)
 
 
 
 
 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
(0.10
)
 
$
0.46

 
$
(1.36
)
Diluted
$
0.22

 
$
(0.10
)
 
$
0.46

 
$
(1.36
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
200,881,447

 
200,515,555

 
200,807,436

 
164,771,544

Diluted
201,460,915

 
200,515,555

 
201,326,129

 
164,771,544


Released 11/1/2017

SRC Energy Inc. Reports