Exhibit 3.2
S
ECOND
A
MENDED
AND
R
ESTATED
B
YLAWS
As Adopted on November 6, 2013
ARTICLE I
OFFICES
Section 1.
Name
. The name of the corporation is Approach Resources Inc. (hereinafter called the “
Corporation
”).
Section 2.
Registered Office
. The registered office of the Corporation required by the state of incorporation of the
Corporation to be maintained in the state of incorporation of the Corporation shall be the registered office named in the certificate of incorporation of the Corporation, or such other office as may be designated from time to time by the Board of
Directors in the manner provided by law.
Section 3.
Other Offices
. The Corporation shall also have such offices, and keep the
books and records of the Corporation as may be required by law, and at such other place or places as the Board of Directors may from time to time determine or the business of the Corporation require.
ARTICLE II
MEETINGS OF
STOCKHOLDERS
Section 1.
Annual Meetings
. The annual meetings of stockholders for the election of directors and for the
transaction of such other business as may properly come before the meeting shall be held during each calendar year on a date and at such hour as may be fixed by the Board of Directors, beginning in 2008, at such place as designated by the Board of
Directors in the notice of such meeting.
Section 2.
Special Meetings
. Special meetings of the stockholders for any purpose or
purposes may be called by a majority of the entire Board of Directors, the Chairman of the Board of Directors or the Chief Executive Officer. Only such business as is specified in the notice of any special meeting of the stockholders shall come
before such meeting.
Section 3.
Notice of Meetings
. Except as otherwise provided by law, written notice of each meeting of
the stockholders, whether annual or special, shall be given, either by personal delivery or by mail, not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to notice of
the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Each such notice
shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or
by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such stockholder. Notice of adjournment of a meeting of stockholders need not be given if the time and place to which it is adjourned are
announced at such meeting, unless the adjournment is for more than thirty (30) days or, after adjournment, a new record date is fixed for the adjourned meeting.
Section 4.
Quorum; Adjournment of Meetings
.
(a) Unless otherwise required by law or provided in the certificate of incorporation of the Corporation (the “
Certificate of
Incorporation
”) or these Bylaws, (i) the holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of the
stockholders for the transaction of business and (ii) where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy shall constitute a quorum
entitled to take action with respect to the vote on that matter. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
(b) Notwithstanding the other provisions of the Certificate of Incorporation or these Bylaws, the chairman of the meeting or the
holders of a majority of the issued and outstanding stock, present in person or represented by proxy and entitled to vote thereat, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted
that might have been transacted at the meeting as originally called.
Section 5.
Voting
. At each meeting of the stockholders,
in all matters, other than the election of directors (except as otherwise provided in the Certificate of Incorporation), the affirmative vote of the holders of a majority of such stock so present or represented by proxy at any meeting of
stockholders at which a quorum is present shall constitute the act of the stockholders. There shall be no separate votes of classes of capital stock, except as specifically required by law, the Certificate of Incorporation, or the Bylaws. Directors
shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of the directors. Where a separate vote by a class or classes is required, the affirmative vote
of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Each stockholder entitled to vote at any meeting of stockholders may authorize any person or persons to
act for such stockholder by a proxy signed by such stockholder or such stockholder’s attorney-in-fact.
Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall on each matter submitted to a vote at a meeting of stockholders have one vote for each share of the stock entitled to vote which is registered in his name on the record date
for the meeting. For the purposes hereof, each election to fill a directorship shall constitute a separate matter. Shares registered in the name of another entity, domestic or foreign, may be voted by such officer, agent or proxy as the
organizational documents of such entity may determine. Shares registered in the name of a deceased person may be voted by the executor or administrator of such person’s estate, either in person or by proxy.
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All voting, except as required by the Certificate of Incorporation or where otherwise required by
law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting, a stock vote
shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of
directors shall be by written ballots, unless otherwise provided in the Certificate of Incorporation.
At any meeting at which a vote is
taken by written ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the
best of such inspector’s ability. Such inspector shall receive the written ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no
candidate for the office of director shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 6.
Participation in Meeting by Means of
Communication Equipment
. Any stockholder may participate in any meeting of the stockholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and
such participation shall constitute presence in person at such meeting.
Section 7.
Notice of Stockholder Business
. At an
annual or special meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of stockholders, business must be (i) specified in the notice
of meeting (or any supplement thereto) given at the direction of the Board of Directors, (ii) properly brought before the meeting by or at the direction of the Board of Directors or (iii) properly brought before a meeting by a stockholder
who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting and who complies with the notice
provisions set forth in this Section 7. For business to be properly brought before a meeting by a stockholder, it must be a proper matter for stockholder action under the Delaware General Corporation Law, and the stockholder must have given
timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, notice by a stockholder must be delivered
to or mailed and received at the principal executive offices of the Corporation, not less than ninety (90) and no more than one hundred twenty (120) calendar days prior to the one year anniversary of the date of the Corporation’s
proxy statement issued in connection with the prior year’s annual meeting in the case of an annual meeting, and not less than sixty (60) days prior to the meeting in the case of a special meeting; provided however, that if a public
announcement of the date of the special meeting is not given at least seventy (70) days before the scheduled date for such special meeting, then a stockholder’s notice shall be timely if it is received at the principal executive offices of
the Corporation within ten (10) days following the date public notice of the meeting date is first given, whether by press release or other public filing.
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To be in proper written form, notice by a stockholder to the Secretary of the Corporation shall
set forth as to each matter the stockholder proposes to bring before the annual or special meeting (i) a description of the business desired to be brought before the meeting, (ii) the name and address of the stockholder proposing such
business and of the beneficial owner, if any, on whose behalf the business is being brought, (iii) the class, series and number of shares of the Corporation which are beneficially owned by the stockholder and such other beneficial owner,
(iv) any material interest of the stockholder and such other beneficial owner in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual or special meeting to bring such business
before such meeting. In no event shall an announcement of an adjournment or postponement of a meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
Section 8.
Nomination of Director Candidates
. Subject to any provision of the Certificate of Incorporation or any Certificate of
Designations establishing the rights of holders of any class or series of capital stock then outstanding, nominations for the election or re-election of directors at a meeting of the stockholders may be made by (i) the Board of Directors or a
duly authorized committee thereof or (ii) any stockholder entitled to vote in the election of directors generally who complies with the procedures set forth in these Bylaws and who is a stockholder of record at the time notice is delivered to
the Secretary of the Corporation and on the record date for the determination of stockholders entitled to vote at such annual meeting and who complies with the notice provisions set forth in this Section 8. Subject to any provision of the
Certificate of Incorporation or any Certificate of Designations establishing the rights of holders of any class or series of capital stock then outstanding, any stockholder entitled to vote in the election of directors generally may nominate one or
more persons for election or re-election as directors at an annual meeting only if timely notice of such stockholder’s intent to make such nominations has been given in writing to the Secretary of the Corporation.
To be timely, notice of a stockholder nomination for a director to be elected must be delivered to or mailed and received at the principal
executive offices of the Corporation, not less than ninety (90) and no more than one hundred twenty (120) calendar days prior to the one year anniversary of the date of the Corporation’s proxy statement issued in connection with the
prior year’s annual meeting in the case of an annual meeting, and not less than sixty (60) days prior to the meeting the case of a special meeting; provided however, that if a public announcement of the date of the special meeting is not
given at least seventy (70) days before the scheduled date for such special meeting, then a stockholder’s notice shall be timely if it is received at the principal executive offices of the Corporation within ten (10) days following
the date public notice of the meeting date is first given, whether by press release or other public filing.
To be in proper written form,
notice by a stockholder to the Secretary of the Corporation shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (i) the name and address of the stockholder who intends to make the nomination,
of the beneficial owner, if any on whose behalf the nomination is being made and of each person to be nominated, (ii) a representation that the stockholder is the holder of record of stock of the Corporation entitled to vote for the election of
directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate each person specified in the notice, (iii) a description of all the arrangements or understandings between the stockholder or such
beneficial owner and each nominee and any other person (naming such person) pursuant to which the nomination is to be made by the stockholder, (iv) such other information regarding each nominee proposed by such stockholder as would be required
to be included in solicitations of proxies for the election of directors in an election contest or is otherwise required pursuant to the federal securities laws and regulations, had the nominee been nominated, or intended to be nominated, by the
Board of Directors and (v) the consent of each nominee to serve as a director of the Corporation if so elected.
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Notwithstanding the foregoing, in the event that the number of directors to be elected at an
annual meeting is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least 130 days prior to such meeting, a stockholder’s notice required by this Section 8 shall also
be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary of the Corporation no later than the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation. In no event shall an announcement of an adjournment or postponement of a meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder’s notice as
described above.
Section 9.
Stockholder List
. A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held. The stockholder list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 10.
Proxies
.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Proxies for
use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. A written proxy may be in the form of a
telegram, cablegram or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the person. All
proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance
or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of such portion of the shares as is equal to the reciprocal of the fraction equal to the number of proxies
representing such shares divided by the total number of shares represented by such proxies.
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Section 11.
Treasury Stock
. The Corporation shall not vote, directly or indirectly,
shares of its own stock owned by it and such shares shall not be counted for quorum purposes. Nothing in this Section 11 shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held
by it in a fiduciary capacity.
Section 12.
Stockholder Action
. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
Section 1.
Number
. The Board of Directors shall consist of not less than three (3) and not more than nine
(9) directors, and the exact number of directors which shall constitute the Board of Directors shall be fixed from time to time by resolution of the Board; provided, however, that no decrease in the number of directors constituting the Board
shall have the effect of shortening the term of any incumbent director. None of the directors needs to be a stockholder of the Corporation or a resident of the State of Delaware.
Section 2.
Vacancies
. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from
any increase in the authorized number of directors, may be filled only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for a term expiring at
the next annual meeting of stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by
statute.
Section 3.
Quorum and Manner of Acting
. A majority of the entire Board of Directors shall constitute a quorum for
the transaction of business at any meeting of the Board, and the vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board. In the absence of a quorum, a majority of the directors present may
adjourn the meeting to another time and place. At any adjourned meeting at which a quorum is present, any business that might have been transacted at the meeting as originally called may be transacted.
Section 4.
Regular and Special Meetings
. Regular meetings of the Board of Directors shall be held at such times and places as the
Board shall from time to time by resolution determine. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the President, or by at least two (2) of the directors.
Section 5.
Participation in Meeting by Means of Communication Equipment
. Any one or more members of the Board of Directors or any
committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
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Section 6.
Committees
. The Board of Directors may, by unanimous resolution, designate
one or more committees, each committee to consist of two (2) or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or
committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Section 7.
Compensation
. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as a director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 8.
Resignations
. Any director of the Corporation may at any time resign by giving written notice to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 9.
Reliance upon Books, Reports and
Records
. A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the performance of such person’s duties, be protected to the fullest extent permitted by law in relying upon the
records of the Corporation and upon information, opinions, reports or statements presented to the Corporation.
Section 10.
Consents
. Any action which may be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting in compliance with Delaware General Corporation Law.
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ARTICLE IV
NOTICES
Section 1.
Whenever, under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given
in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in
the United States mail. Notice to directors may also be given by prepaid telegram, facsimile, or reputable courier service.
Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1.
Number, Term of Office
. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a
President, one or more Vice Presidents, a Treasurer, a Secretary and such other officers or agents with such titles and such duties as the Board of Directors may from time to time determine (including a Chief Operating Officer), each to have such
authority, functions or duties as in these Bylaws provided or as the Board may from time to time determine, and each to hold office for such term as may be prescribed by the Board and until such person’s successor shall have been chosen and
shall qualify, or until such person’s death or resignation, or until such person’s removal in the manner hereinafter provided. The Chairman of the Board shall be elected from among the directors. One person may hold the offices and perform
the duties of any two or more of said officers; provided, however, that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate of Incorporation of the
Corporation or these Bylaws to be executed, acknowledged or verified by two (2) or more officers. The Board may from time to time authorize any officer to appoint and remove any such other officers and agents and to prescribe their powers and
duties. The Board may require any officer or agent to give security for the faithful performance of such person’s duties.
Section 2.
Removal
. Any officer may be removed, either with or without cause, by the Board of Directors at any meeting thereof
called for that purpose, or, except in the case of any officer elected by the Board, by any committee or superior officer upon whom such power may be conferred by the Board.
Section 3.
Resignation
. Any officer may at any time resign by giving written notice to the Board of Directors, the President or
the Secretary of the Corporation. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary
to make it effective.
Section 4.
Vacancies
. A vacancy in any office because of death, resignation, removal or any other cause
may be filled for the unexpired portion of the term by the Board of Directors in the manner prescribed in these Bylaws for election to such office.
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Section 5.
Chairman of the Board
. The Chairman of the Board of Directors shall
preside at meetings of the Board of Directors and of the stockholders. He shall have general power to execute bonds, mortgages and other instruments requiring a seal, under the seal of the Corporation, except when the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or agent. When the Board of Directors designates the Chairman of the Board as the Chief Executive Officer of the Corporation he shall have general supervision, direction
and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board shall have such other specific duties as shall be assigned to him by
the Board of Directors from time to time.
Section 6.
Chief Executive Officer
. The Chief Executive Officer shall be the chief
executive officer of the Corporation and as such shall have general supervision and direction of the business and affairs of the Corporation, subject to the control of the Board of Directors. The Chief Executive Officer shall, if present and in the
absence of the Chairman of the Board, preside at meetings of the stockholders and at meetings of the Board of Directors. The Chief Executive Officer shall perform such other duties as the Board may from time to time determine. The Chief Executive
Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors or any committee thereof empowered to authorize the same, except when the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other officer or agent.
Section 7.
President
. The
President, in the absence or disability of the Chairman of the Board of Directors and the Chief Executive Officer, shall preside at meetings of the Board of Directors and of the stockholders and shall perform the duties and exercise the powers of
the Chairman of the Board of Directors. He shall have general power to execute deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors or any committee thereof empowered to authorize the same, except when the
signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. When designated as Chief Executive Officer of the Corporation, the President shall have general supervision,
direction and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect; otherwise, he shall be the chief operating officer of the Corporation and shall
perform such other duties as may be prescribed by the Board of Directors or by the Chairman of the Board of Directors.
Section 8.
Vice Presidents
. Each Vice President shall have such powers and duties as shall be prescribed by the Chairman of the Board, the President or the Board of Directors. Any Vice President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board or any committee thereof empowered to authorize the same, except when the signing and execution thereof shall be expressly delegated by the Board of Directors to some other
officer or agent.
Section 9.
Treasurer
. The Treasurer shall perform all duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to the Treasurer by the Chairman of the Board, the President or the Board of Directors.
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Section 10.
Secretary
. It shall be the duty of the Secretary to act as secretary at
all meetings of the Board of Directors and of the stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; the Secretary shall see that all notices required to be given by the Corporation are duly
given and served; the Secretary shall be custodian of the seal of the Corporation and shall affix the seal or cause it to be affixed to all certificates of stock of the Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws. The Secretary shall have charge of the stock ledger
and also of the other books, records and papers of the Corporation and shall see that the reports, statements and other documents required by law are properly kept and filed; and the Secretary shall in general perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned to such person by the Chairman of the Board, Chief Executive Officer, President or the Board of Directors.
Section 11.
Assistant Treasurers and Secretaries
. The Assistant Treasurers and the Assistant Secretaries shall perform such duties
as shall be assigned to them by the Treasurer or Secretary, respectively, or by the Chairman of the Board, Chief Executive Officer, President or the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1.
Power to Indemnify in Actions, Suits or Proceedings
. Subject to
Section 2 of this Article VI, the Corporation shall indemnify and hold harmless to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), any person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “
proceeding
”), by reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer,
employee or agent, against all expense, liability and loss (including attorneys’ fees, judgments, fines or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Article VI,
Section 2 of these Bylaws, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this section of Article VI shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition.
Section 2.
Indemnification by a Court
. Notwithstanding anything to the contrary contained
herein, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director
or officer is proper in the circumstances because he
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has met the applicable standards of conduct set forth in the Delaware General Corporation Law. Notice of any application for indemnification pursuant to this Section 2 shall be given to the
Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
Section 3.
Expenses Payable in Advance
. Expenses incurred by a director or officer in defending or investigating a threatened or
pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized this Article VI.
Section 4.
Nonexclusivity of Indemnification and Advancement of Expenses
. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise,
both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in this Article VI shall be made to the fullest extent
permitted by law. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VI but whom the Corporation has the power or obligation to indemnify under
the provisions of the General Corporation Law of the State of Delaware, or otherwise.
Section 5.
Insurance
. The Corporation
may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VI.
Section 6.
Certain Definitions
. For purposes of this Article VI, references to “the Corporation” shall include, in
addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued. For purposes of this Article VI, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and
references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner not opposed to the best interests of the Corporation.
11
Section 7.
Survival of Indemnification and Advancement of Expenses
. The
indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 8.
Limitation on Indemnification
.
Notwithstanding anything contained in this Article VI to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 2 hereof), the Corporation shall not be obligated to indemnify any director
or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
Section 9.
Indemnification of Employees and Agents
. The Corporation may, to the extent authorized from time to time by the Board
of Directors, provide rights to indemnification and the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VI to directors and officers of the Corporation.
ARTICLE VII
CAPITAL STOCK
Section 1.
Certificates of Stock
. The Board of Directors may provide by resolution or resolutions that some or all of any
or all classes or series of its capital stock shall be uncertificated shares. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the certificate of incorporation
of the Corporation, as shall be approved by the Board of Directors. Every holder of capital stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board, the Chief
Executive Officer, President, a Vice President or such other officer as designated by the Board of Directors and the Secretary or an assistant Secretary or the Treasurer or an assistant Treasurer of the Corporation representing the number of shares
(and, if the capital stock of the Corporation shall be divided into classes or series, certifying the class and series of such shares) owned by such stockholder which are registered in certified form; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the blank stock certificate books shall be kept by the Secretary or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time
determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock
certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder’s name and number of shares.
12
Section 2.
Transfer of Shares
. In respect of certificated shares of capital stock,
such shares of capital stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of
certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of such certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it
shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. In respect of uncertificated shares of capital stock, such shares of capital stock
of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon the compliance with such rules and procedures as may be proscribed by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or such other officer as designated by the Board of Directors.
Section 3.
Ownership of Shares
. The Corporation shall be entitled to treat the holder of record of any share or shares of capital
stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the state of incorporation of the Corporation.
Section 4.
Regulations Regarding Certificates
. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates
for shares of capital stock of the Corporation.
Section 5.
Lost or Destroyed Certificates
. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate for shares of capital stock in place of a certificate theretofore issued by it which is alleged to have been lost, stolen or destroyed and may require the owner of such
certificate or such owner’s legal representative to give bond, with surety sufficient to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the alleged loss, theft
or destruction of any such certificate or the issuance of such new certificate in the place of the one so lost, stolen or destroyed.
ARTICLE VIII
MISCELLANEOUS
Section 1.
Seal
. The corporate seal shall have inscribed thereon the name of the corporation and shall be in such form as
may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed, imprinted or in any manner reproduced.
Section 2.
Facsimile Signatures
. In addition to the provision for the use of facsimile signatures elsewhere in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors.
Section 3.
Application of Bylaws
. In the event that any provision of these Bylaws is or may be in conflict with any law of the
United States, of the state of incorporation of the Corporation or of any other governmental body or power having jurisdiction over the Corporation, or over the subject matter to which such provision of these Bylaws applies, or may apply, such
provision of these Bylaws shall be inoperative to the extent only that the operation thereof unavoidably conflicts with such law or provision, and shall in all other respects be in full force and effect.
13
ARTICLE IX
AMENDMENTS
These Bylaws
may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board
of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. Any adoption, amendment or repeal of these Bylaws or adoption of new bylaws by the Board of Directors shall
require the approval of a majority of the total number of directors fixed by resolution of the Board of Directors regardless of whether there exist any vacancies in such fixed number of directorships. In addition to any vote of the holders of any
class or series of capital stock of the Corporation required by law or by the certificate of incorporation, the affirmative vote of the holders of at least sixty-seven percent (67%) of the voting power of all of the then-outstanding shares of
the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation or to adopt new bylaws.
ARTICLE X
FORUM FOR
ADJUDICATION OF DISPUTES
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery
of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Corporation, (2) any action asserting a claim of breach of a
fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law, or
(4) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the
provisions of this Article X.
14
Exhibit 10.1
[Execution Version]
November 6, 2013
JPMorgan Chase Bank, N.A.
2200 Ross Avenue, Third Floor
Dallas, Texas 75201
Attention: Kimberly A. Bourgeois
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Re:
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Sixteenth Amendment to Credit Agreement dated as of January 18, 2008 among Approach Resources Inc. (“Borrower”), JPMorgan Chase Bank, N.A. and the institutions named therein (“Lenders”) and
JPMorgan Chase Bank, N.A., as Agent (“Agent”)
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Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of January 18, 2008 among Approach Resources Inc., a Delaware
corporation (“Borrower”), JPMorgan Chase Bank, N.A., as Agent (“Agent”), and the Lenders that are signatory parties hereto (the “Lenders”), as amended by amendments dated February 19, 2008, May 6,
2008, August 26, 2008, April 8, 2009, July 8, 2009, October 30, 2009, February 1, 2010, May 3, 2010, October 21, 2010, May 4, 2011, October 7,
2011, December 20, 2011, September 7, 2012, November 16, 2012, May 1, 2013 and as of the date hereof (as amended, the “Loan Agreement”). All capitalized terms herein shall have the meanings ascribed
to them in the Loan Agreement.
Pursuant to this Fifteenth Amendment (the “Amendment”), Agent, Lenders and Borrower agree,
effective as of the date hereof, as follows:
1.
Increase to Borrowing Base and Commitment
. As of the date hereof, the Borrowing
Base and Commitment under the Loan Agreement are increased to $350,000,000.
2.
Assignments of Commitments
. As of the date hereof,
Lenders have agreed to revise the current Commitment Percentages of each Lender shown on the revised Schedule I attached hereto. Such changes in the Lender Commitments shall be deemed to have been consummated pursuant to the terms of the form of
Assignment and Acceptance Agreement attached to the Loan Agreement as Exhibit “D” as if each Lender had executed an Assignment and Acceptance Agreement with respect to such assignments, such that those Lenders whose Commitment Percentage
has been reduced shall be deemed to have assigned to those Lenders whose Commitment Percentage has been increased such portion of such Lender’s existing Commitment Percentage that results in each Lender having the Commitment Percentage set
forth below under the column “Commitment Percentage” on Schedule I hereto.
3.
Revised Schedule I
. Schedule I to the Loan
Agreement is hereby deleted and the attached Schedule I is substituted therefor.
4.
Conditions Precedent
. The effectiveness of this Amendment is subject to the
satisfaction of the following conditions precedent, unless specifically waived in writing by Lenders:
(a)
The
Amendment
. Borrower, each Guarantor and each Lender shall have duly and validly executed and delivered this Amendment to Agent.
(b)
Replacement Notes
. Borrower shall have duly and validly executed and delivered to each of the Lenders, if requested
by such Lenders, replacement Notes reflecting the percentage of each Lender’s Pro Rata Part of the Facility Amount. Promptly upon receipt of a replacement Note, each Lender shall deliver to Borrower all existing Notes held by each such Lender.
(c)
Corporate/Partnership/Company Proceedings
. All corporate, limited liability company and/or partnership
proceedings, taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent, and its legal counsel.
5.
Ratification by Guarantors
. Each Guarantor hereby ratifies and reaffirms all of its obligations under its Guaranty Agreement (the
“Guaranty”) of Borrower’s obligations under the Loan Agreement, as amended hereby. Each Guarantor also hereby agrees that nothing in this Amendment shall adversely affect any right or remedy of Lenders under the Guaranty and that the
execution and delivery of this Amendment shall in no way change or modify its obligations as guarantor under the Guaranty. Although each Guarantor has been informed by Borrower of the matters set forth in this Amendment and such Guarantor has
acknowledged and agreed to the same, such Guarantor understands that Agent has no duty to notify such Guarantor or to seek such Guarantor’s acknowledgment or agreement, and nothing contained herein shall create such a duty as to any transaction
hereafter.
6.
Representations and Warranties
. By executing this Amendment, Borrower hereby represents, warrants and certifies
to Lenders that, as of the date hereof, (a) there exists no Event of Default or events which, with notice or lapse of time, would constitute an Event of Default; (b) Borrower has performed and complied with all agreements and conditions
contained in the Loan Agreement or the other Loan Documents which are required to be performed or complied with by Borrower; and (c) the representations and warranties contained in the Loan Agreement and the other Loan Documents are true in all
material respects, with the same force and effect as though made on and as of the date hereof (except to the extent that such representations and warranties related solely to an earlier date).
7.
Confirmation and Ratification
. Except as affected by the provisions set forth herein, the Loan Agreement shall remain in full force
and effect and is hereby ratified and confirmed by all parties. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lenders under the Loan
Agreement or the other Loan Documents.
2
8.
Reference to Loan Agreement
. Each of the Loan Agreement and the Loan Documents, and any
and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in the Loan
Agreement, the Loan Documents and such other documents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
9.
Multiple Counterparts
. This Amendment may be executed in a number of identical separate counterparts, each of which for all purposes
is to be deemed an original, but all of which shall constitute, collectively, one agreement. No party to this Amendment shall be bound hereby until a counterpart of this Amendment has been executed by all parties hereto. Delivery of an executed
counterpart of a signature page of this agreement by facsimile or portable document format (“.pdf”) shall be effective as delivery of a manually executed counterpart of this agreement.
10.
Governing Law
. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
11.
Final Agreement
. THE LOAN AGREEMENT, AS AMENDED BY THIS AMENDMENT ALL PROMISSORY NOTES, ANY SEPARATE FEE LETTER AGREEMENT WITH
RESPECT TO FEES PAYABLE TO AGENT AND ANY OTHER LOAN DOCUMENTS EXECUTED PURSUANT THERETO OR HERETO, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG ANY OF THE PARTIES.
Please signify your acceptance to the foregoing
terms and provisions by executing a copy of this Amendment at the space provided below.
[Signature Pages to Follow]
3
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Very truly yours,
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BORROWER:
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APPROACH RESOURCES INC.,
a Delaware
corporation
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By:
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/s/ J. Ross Craft
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J. Ross Craft, President and Chief Executive Officer
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GUARANTORS
:
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APPROACH OIL & GAS INC.,
a
Delaware corporation
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By:
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/s/ J. Ross Craft
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J. Ross Craft, President and Chief Executive Officer
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APPROACH RESOURCES I, LP,
a Texas
limited partnership
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By:
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Approach Operating, LLC,
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a Delaware limited liability company,
its
general partner
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By:
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Approach Resources Inc.,
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a Delaware corporation,
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its sole member
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By:
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/s/ J. Ross Craft
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J. Ross Craft, President and Chief Executive Officer
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[Signature Page]
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APPROACH SERVICES, LLC,
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a Delaware limited liability company
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By:
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Approach Resources Inc.,
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a Delaware corporation,
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its sole member
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By:
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/s/ J. Ross Craft
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J. Ross Craft, President and Chief Executive Officer
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APPROACH MIDSTREAM HOLDINGS LLC,
a
Delaware limited liability company
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By:
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Approach Resources Inc.,
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a Delaware corporation,
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its sole member
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By:
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/s/ J. Ross Craft
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J. Ross Craft, President and Chief Executive Officer
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[Signature Page]
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ACCEPTED AND AGREED TO
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effective as of the date and year
first above written:
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AGENT:
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JPMORGAN CHASE BANK, N.A.
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By:
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/s/ David M. Morris
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David M. Morris, Authorized Officer
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LENDERS:
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JPMORGAN CHASE BANK, N.A.
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By:
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/s/ David M. Morris
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David M. Morris, Authorized Officer
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[Signature Page]
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KEYBANK NATIONAL ASSOCIATION, Lender
and Documentation Agent
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By:
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/s/ Sherrie I. Mason
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Name:
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Sherrie I. Mason
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Title:
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Senior Vice President
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[Signature Page]
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FROST BANK, formerly The Frost National Bank
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By:
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/s/ Alex Zemkoski
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Name:
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Alex Zemkoski
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Title:
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Senior Vice President
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[Signature Page]
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ROYAL BANK OF CANADA
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By:
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/s/ Kristan Spivey
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Name:
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Kristan Spivey
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Title:
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Authorized Signatory
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[Signature Page]
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WELLS FARGO BANK, N.A.
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By
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/s/ Muhammed A. Dhamani
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Name:
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Muhammed A. Dhamani
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Title:
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Vice President
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[Signature Page]
Schedule I
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Note Amount
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Commitment Amount
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Commitment
Percentage
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JPMorgan Chase Bank, NA
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$
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145,414,300.00
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$
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101,790,010.00
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29.0828600
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%
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Key Bank National Association
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$
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108,653,800.00
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$
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76,057,660.00
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21.7307600
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%
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Royal Bank of Canada
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$
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108,653,800.00
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$
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76,057,660.00
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21.7307600
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%
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Frost Bank
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$
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73,828,100.00
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$
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51,679,670.00
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14.7656200
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%
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Wells Fargo Bank, N.A.
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$
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63,450,000.00
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$
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44,415,000.00
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12.6900000
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%
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TOTAL
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$
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500,000,000.00
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$
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350,000,000.00
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100.0000000
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%
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1
Exhibit 99.1
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News Release
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For Immediate Release
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November 7, 2013
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Approach Resources Inc.
Reports Third Quarter 2013 Results
Third Quarter Exit Rate 11.1 MBoe/d
Strong Horizontal Wolfcamp Well Results – Baker B 256H IPs at 1,334 Boe/d
Successful Wolfcamp C Bench Well IPs at 614 Boe/d
Horizontal Well Costs $5.4 Million
2014 Preliminary Production Growth Target 40%
Fort Worth, Texas, November 7, 2013
– Approach Resources Inc.
(NASDAQ: AREX)
today reported results for third quarter
2013. Highlights include:
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•
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Production of 8.8 MBoe/d
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•
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Exit rate production of 11.1 MBoe/d
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•
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Revenues increased 34% year-over-year to $44.2 million
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•
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Net income of $0.01 per diluted share
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•
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Adjusted net income (non-GAAP) of $0.07 per diluted share
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•
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Record EBITDAX (non-GAAP) increased 47% year-over-year to $31.6 million, or $0.81 per diluted share
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Management Comment
J. Ross Craft,
President and Chief Executive Officer, commented, “Third quarter 2013 was a significant quarter for the company. We accelerated our drilling and completion pace while driving down costs below our target. Estimated drilling and completion costs
for the 14 horizontal wells we completed during the third quarter averaged approximately $5.4 million per well, which reflects a 12% decline from the beginning of the year and a 20% decline from a year ago. In addition, our drilling days are
consistently ranging between 10 and 14 days, and we’re currently estimating a 30% decline in spud-to-sales time for a two-well pad location.
“We are extremely pleased with our progress on delineating the Wolfcamp A, B and C benches across our sizeable acreage position,
including our recent well results in central and east Project Pangea and the Wolfcamp C bench. Since our initial horizontal Wolfcamp well in 2011, we have drilled and completed more than 60 horizontal wells. Production history from these wells
continues to support our type curve expectations.
“Also, the sale of our joint venture oil pipeline in the third quarter provided
the company with a return of six times our investment and further enhanced our liquidity, while maintaining firm crude oil takeaway at competitive transportation costs. With our exceptional team and strong balance sheet, we believe we are in a great
position to capitalize on drilling and completion efficiencies and deliver continued growth in our horizontal Wolfcamp play.”
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INVESTOR CONTACT
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APPROACH RESOURCES
INC.
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Megan P. Hays
mhays@approachresources.com
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One Ridgmar Centre
6500 West Freeway, Suite
800
Fort Worth, Texas 76116
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817.989.9000 x2108
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www.approachresources.com
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Third Quarter 2013 Results
Production for third quarter 2013 totaled 812 MBoe (8.8 MBoe/d), made up of 39% oil, 30% NGLs and 31% natural gas. Average realized commodity
prices for third quarter 2013, before the effect of commodity derivatives, were $101.02 per Bbl of oil, $29.87 per Bbl of NGLs and $3.42 per Mcf of natural gas. Our average realized price, including the effect of commodity derivatives, was $53.38
per Boe for third quarter 2013.
Net income for third quarter 2013 was $495,000, or $0.01 per diluted share, on revenues of $44.2 million.
Net income for third quarter 2013 included an unrealized loss on commodity derivatives of $3.4 million and a realized loss on commodity derivatives of $840,000. Excluding the unrealized loss on commodity derivatives and related income tax effect,
adjusted net income (non-GAAP) for third quarter 2013 was $2.8 million, or $0.07 per diluted share. EBITDAX (non-GAAP) for third quarter 2013 was $31.6 million, or $0.81 per diluted share. See “Supplemental Non-GAAP Financial and Other
Measures” below for our reconciliation of adjusted net income and EBITDAX to net income.
Lease operating expenses averaged $5.38 per
Boe. Production and ad valorem taxes averaged $3.90 per Boe. Exploration costs were $1.47 per Boe. General and administrative costs averaged $7.60 per Boe. Depletion, depreciation and amortization expense averaged $23.91 per Boe. Interest expense
totaled $5.2 million and included interest from our $250 million principal amount of 7% senior notes due 2021 that we issued in June 2013.
Operations
Update
During third quarter 2013, we drilled 12 horizontal wells and completed 14 horizontal wells. At September 30, 2013,
seven horizontal wells were in progress or waiting on completion. The average initial 24-hour rate for wells completed during third quarter 2013 was 580 Boe/d (74% oil), excluding two short-lateral horizontal wells.
We recently completed the Baker B 256H well (6,821 feet lateral) in central Project Pangea, which targeted the Wolfcamp B bench and was
completed with 27 stages. The 256H well flowed at an initial 24-hour rate of 1,334 Boe/d (76% oil) and is our best initial producing well to date. Additionally, in north Project Pangea, we drilled the University 42 A 2131H well (8,450 feet lateral),
which targeted the Wolfcamp B bench and was completed with 26 stages. The 2131H well flowed at an initial 24-hour rate of 665 Boe/d (87% oil).
We are very encouraged by our second well targeting the Wolfcamp C bench, the University 45 D 933H well (7,882 feet lateral) in north Project
Pangea. The 933H well was completed with 26 stages and offsets the University 45 D 903H well, a Wolfcamp B completion that has produced for more than ten months, by approximately 425 feet. These wells are our first Wolfcamp B/C “stacked”
completions. The 933H well flowed at an initial 24-hour rate of 614 Boe/d (63% oil).
In east Project Pangea, we targeted the Wolfcamp B
bench with the Elliott 2001H well (7,671 feet lateral) and the Elliott 2002H well (7,629 feet lateral). These wells were completed with 25 and 26 stages, respectively. The average initial 24-hour rate for the Elliott wells was approximately 490
Boe/d (60% oil). These wells are the strongest horizontal Wolfcamp producers in the area based on available initial production data.
2
We have strong momentum as we begin the fourth quarter. In October 2013, we completed the
University 45 F 2321H (7,921 feet lateral) in north Project Pangea, which targeted the Wolfcamp B bench and was completed with 27 stages. The 2321H well flowed at an initial 24-hour rate of 863 Boe/d (81% oil).
For our latest report on well performance compared to our type curve, please go to our third quarter 2013 presentation under the Investor
Relations section of the Company’s website,
www.approachresources.com
.
Capital Expenditures and Guidance Update
Capital expenditures for third quarter 2013 totaled $102 million, consisting of $84.4 million for drilling and completion activities, $11.8
million for pipeline, infrastructure projects and other equipment and $5.8 million for property and acreage acquisitions and lease extensions. As previously reported, during third quarter 2013, we completed a Consolidated Drilling and Development
Agreement with the Board for Lease of University Lands (“UT Lands”). The agreement consolidates more than 60 of our oil and gas leases with UT Lands into one consolidated unit covering approximately 42,000 net acres. The cost for the
agreement was included in the Company’s property and acreage acquisitions and lease extensions capital expenditures of $5.8 million for third quarter 2013. Also, in third quarter 2013, we made a capital contribution to our pipeline joint
venture of $2 million for oil pipeline and facilities construction.
Due to previously disclosed curtailments resulting from downtime at a
third-party NGL fractionation facility, shutting in adjacent producing wells during completion operations and timing of completions, we have lowered our 2013 production estimate to 3.4 MMBoe compared to our prior estimate of 3.6 MMBoe. As a result
of operating cost improvements, we have lowered our LOE per Boe guidance to $5.00 – $7.00 per Boe, from $7.00 – $8.00 per Boe. In addition, we have reduced our exploration expense guidance to $1.00 – $2.00 per Boe, from $2.00 –
$3.00 per Boe. We currently expect capital expenditures for drilling and completions to be approximately $270 million and total capital expenditures to be approximately $300 million for full year 2013. The increase in capital expenditures is
attributable to pipeline and infrastructure projects, which we continued due to our drilling success in Project Pangea and which contributed to the decrease in horizontal well costs; drilling and completion efficiencies, which resulted in an
increase in the number of horizontal wells we expect to drill and complete in 2013; and property and acreage acquisitions and lease extensions.
The table below sets forth the Company’s current production and operating costs and expenses guidance for 2013.
|
|
|
|
|
|
|
|
|
Current 2013
Guidance
|
|
|
Production:
|
|
|
|
|
|
Total (MBoe)
|
|
|
3,400
|
|
|
Percent oil and NGLs
|
|
|
70
|
%
|
|
Operating costs and expenses (per Boe):
|
|
|
|
|
|
Lease operating
|
|
$
|
5.00 – 7.00
|
|
|
Production and ad valorem taxes
|
|
$
|
3.00 – 4.50
|
|
|
Exploration
|
|
$
|
1.00 – 2.00
|
|
|
General and administrative
|
|
$
|
7.00 – 8.50
|
|
|
Depletion, depreciation and amortization
|
|
$
|
20.00 – 24.00
|
|
|
Capital expenditures (in millions)
|
|
|
Approximately $300
|
|
3
Preliminary 2014 Outlook
The Company is targeting approximately 40% total production growth in 2014. We expect to operate three rigs to drill approximately 70
horizontal wells targeting the Wolfcamp shale oil play in the southern Midland Basin. Estimated drilling and completion capital expenditures are expected to be approximately $400 million. Our capital budgets exclude acquisitions and are subject to
change depending upon a number of factors, including additional data on our Wolfcamp shale oil resource play, results of horizontal drilling and completions, including pad drilling, economic and industry conditions at the time of drilling,
prevailing and anticipated prices for oil, NGLs and gas, the availability of sufficient capital resources for drilling prospects, our financial results and the availability of lease extensions and renewals on reasonable terms.
Liquidity and Commodity Derivatives Update
At September 30, 2013, we had a $500 million revolving credit facility with a $315 million borrowing base and no outstanding borrowings.
At September 30, 2013, our liquidity and long-term debt-to-capital ratio were approximately $340.2 million and 27.9%, respectively.
The lenders under our revolving credit facility completed their semi-annual borrowing base redetermination, resulting in an increase in the
borrowing base to $350 million from $315 million effective November 6, 2013. In addition, in September 2013, Approach, together with our partner in Wildcat Permian Services LLC (“Wildcat”), entered into a definitive agreement to sell
all of the equity interests of Wildcat. The sale was completed in October 2013. Net proceeds to Approach at closing totaled approximately $109.1 million, after deducting our share of transactional costs paid at closing. We expect to recognize a
pre-tax gain of approximately $91 million in fourth quarter 2013 related to the Wildcat transaction. Pro forma for the borrowing base increase and sale of the equity interests of Wildcat, our liquidity was $476.9 million at September 30, 2013.
See “Supplemental Non-GAAP Financial and Other Measures” below for our calculation of “liquidity” and “long-term debt-to-capital ratio.”
From time to time, we enter into commodity derivatives positions to manage our exposure to commodity price fluctuations. Please refer to the
“Unaudited Commodity Derivatives Information” table below for a detailed summary of the Company’s current derivatives positions.
Third
Quarter 2013 Conference Call
Approach will host a conference call on Friday, November 8, 2013, at 10:00 a.m. Central Time (11:00
a.m. Eastern Time) to discuss third quarter 2013 financial and operational results. To participate in the conference call, domestic participants should dial (866) 318-8611 and international participants should dial (617) 399-5130,
approximately 15 minutes before the scheduled conference time. A replay of the call will be available shortly after the call and can be accessed by dialing (888) 286-8010. The passcode for the replay is 48097873.
To access the simultaneous webcast of the conference call, please visit the Calendar of Events page under the Investor Relations section of
the Company’s website. In addition, an accompanying slide presentation also is available on the Company’s website.
4
Approach Resources Inc.
is an independent oil and gas company with core operations,
production and reserves located in the Permian Basin in West Texas. The Company targets multiple oil and liquids-rich formations in the Permian Basin, where the Company operates approximately 149,000 net acres. For more information about
the Company, please visit
www.approachresources.com
. Please note that the Company routinely posts important information about the Company under the Investor Relations section of its website.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will
or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include our 2013 capital program, production and expense guidance
and preliminary 2014 production growth and capital expenditures outlook. These statements are based on certain assumptions made by the Company based on management’s experience, perception of historical trends and technical analyses, current
conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words “will,” “potential,” “believe,” “estimate,”
“intend,” “expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “project,” “profile,” “model” or their negatives, other
similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a number of assumptions,
risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Further information on such assumptions, risks and
uncertainties is available in the Company’s Securities and Exchange Commission (“SEC”) filings. The Company’s SEC filings are available on the Company’s website at www.approachresources.com. Any forward-looking statement
speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by
applicable law.
For a glossary of oil and gas terms and abbreviations used in this release, please see our Annual Report on Form
10-K filed with the SEC on February 28, 2013.
5
UNAUDITED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
$
|
31,708
|
|
|
$
|
21,575
|
|
|
$
|
87,551
|
|
|
$
|
58,689
|
|
|
NGLs
|
|
|
7,231
|
|
|
|
7,143
|
|
|
|
19,682
|
|
|
|
23,797
|
|
|
Gas
|
|
|
5,257
|
|
|
|
4,320
|
|
|
|
15,504
|
|
|
|
11,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil, NGL and gas sales
|
|
|
44,196
|
|
|
|
33,038
|
|
|
|
122,737
|
|
|
|
93,583
|
|
|
|
|
|
|
|
|
Realized (loss) gain on commodity derivatives
|
|
|
(840
|
)
|
|
|
423
|
|
|
|
(1,247
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil, NGL and gas sales including derivative impact
|
|
$
|
43,356
|
|
|
$
|
33,461
|
|
|
$
|
121,490
|
|
|
$
|
93,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
314
|
|
|
|
250
|
|
|
|
969
|
|
|
|
670
|
|
|
NGLs (MBbls)
|
|
|
242
|
|
|
|
234
|
|
|
|
682
|
|
|
|
672
|
|
|
Gas (MMcf)
|
|
|
1,538
|
|
|
|
1,580
|
|
|
|
4,393
|
|
|
|
4,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (MBoe)
|
|
|
812
|
|
|
|
747
|
|
|
|
2,383
|
|
|
|
2,103
|
|
|
Total (MBoe/d)
|
|
|
8.8
|
|
|
|
8.1
|
|
|
|
8.7
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
Average prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
|
|
$
|
101.02
|
|
|
$
|
86.38
|
|
|
$
|
90.39
|
|
|
$
|
87.57
|
|
|
NGLs (per Bbl)
|
|
|
29.87
|
|
|
|
30.50
|
|
|
|
28.84
|
|
|
|
35.41
|
|
|
Gas (per Mcf)
|
|
|
3.42
|
|
|
|
2.73
|
|
|
|
3.53
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (per Boe)
|
|
$
|
54.41
|
|
|
$
|
44.21
|
|
|
$
|
51.50
|
|
|
$
|
44.49
|
|
|
|
|
|
|
|
|
Realized (loss) gain on commodity derivatives (per Boe)
|
|
|
(1.03
|
)
|
|
|
0.57
|
|
|
|
(0.52
|
)
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total including derivative impact (per Boe)
|
|
$
|
53.38
|
|
|
$
|
44.78
|
|
|
$
|
50.98
|
|
|
$
|
44.63
|
|
|
|
|
|
|
|
|
Costs and expenses (per Boe):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating
|
|
$
|
5.38
|
|
|
$
|
7.32
|
|
|
$
|
5.77
|
|
|
$
|
6.32
|
|
|
Production and ad valorem taxes
|
|
|
3.90
|
|
|
|
3.13
|
|
|
|
3.69
|
|
|
|
3.24
|
|
|
Exploration
|
|
|
1.47
|
|
|
|
1.57
|
|
|
|
0.84
|
|
|
|
1.15
|
|
|
General and administrative
|
|
|
7.60
|
|
|
|
7.54
|
|
|
|
7.47
|
|
|
|
7.82
|
|
|
Depletion, depreciation and amortization
|
|
|
23.91
|
|
|
|
22.39
|
|
|
|
23.06
|
|
|
|
20.14
|
|
6
APPROACH RESOURCES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, NGL and gas sales
|
|
$
|
44,196
|
|
|
$
|
33,038
|
|
|
$
|
122,737
|
|
|
$
|
93,583
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating
|
|
|
4,370
|
|
|
|
5,468
|
|
|
|
13,746
|
|
|
|
13,286
|
|
|
Production and ad valorem taxes
|
|
|
3,167
|
|
|
|
2,341
|
|
|
|
8,791
|
|
|
|
6,807
|
|
|
Exploration
|
|
|
1,193
|
|
|
|
1,170
|
|
|
|
2,010
|
|
|
|
2,419
|
|
|
General and administrative
|
|
|
6,171
|
|
|
|
5,633
|
|
|
|
17,810
|
|
|
|
16,448
|
|
|
Depletion, depreciation and amortization
|
|
|
19,413
|
|
|
|
16,728
|
|
|
|
54,951
|
|
|
|
42,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
34,314
|
|
|
|
31,340
|
|
|
|
97,308
|
|
|
|
81,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
9,882
|
|
|
|
1,698
|
|
|
|
25,429
|
|
|
|
12,269
|
|
|
|
|
|
|
|
|
OTHER:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(5,179
|
)
|
|
|
(1,544
|
)
|
|
|
(8,859
|
)
|
|
|
(3,811
|
)
|
|
Equity in income of investee
|
|
|
340
|
|
|
|
—
|
|
|
|
160
|
|
|
|
—
|
|
|
Realized (loss) gain on commodity derivatives
|
|
|
(840
|
)
|
|
|
423
|
|
|
|
(1,247
|
)
|
|
|
300
|
|
|
Unrealized (loss) gain on commodity derivatives
|
|
|
(3,438
|
)
|
|
|
(4,185
|
)
|
|
|
(3,248
|
)
|
|
|
2,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)
|
|
|
765
|
|
|
|
(3,608
|
)
|
|
|
12,235
|
|
|
|
11,340
|
|
|
INCOME TAX PROVISION (BENEFIT)
|
|
|
270
|
|
|
|
(1,253
|
)
|
|
|
4,300
|
|
|
|
4,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
495
|
|
|
$
|
(2,355
|
)
|
|
$
|
7,935
|
|
|
$
|
7,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
39,011,555
|
|
|
|
34,190,192
|
|
|
|
38,980,971
|
|
|
|
33,656,726
|
|
|
Diluted
|
|
|
39,032,813
|
|
|
|
34,190,192
|
|
|
|
39,002,731
|
|
|
|
33,736,119
|
|
7
UNAUDITED SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
Unaudited Consolidated Balance Sheet Data
|
|
September 30,
|
|
|
December 31,
|
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
Cash and cash equivalents
|
|
$
|
25,489
|
|
|
$
|
767
|
|
|
Other current assets
|
|
|
17,327
|
|
|
|
14,889
|
|
|
Property and equipment, net, successful efforts method
|
|
|
994,074
|
|
|
|
828,467
|
|
|
Equity method investment
|
|
|
18,331
|
|
|
|
9,892
|
|
|
Other assets
|
|
|
8,543
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,063,764
|
|
|
$
|
855,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
105,428
|
|
|
$
|
60,247
|
|
|
Long-term debt (1)
|
|
|
250,000
|
|
|
|
106,000
|
|
|
Other long-term liabilities
|
|
|
61,962
|
|
|
|
56,024
|
|
|
Stockholders’ equity
|
|
|
646,374
|
|
|
|
633,468
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,063,764
|
|
|
$
|
855,739
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Long-term debt at September 30, 2013, is comprised of $250 million in 7% senior notes. Long-term debt at December 31, 2012, is comprised of borrowings under our credit facility.
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Consolidated Cash Flow Data
|
|
Nine Months Ended September 30,
|
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
Net cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
118,996
|
|
|
$
|
76,464
|
|
|
Investing activities
|
|
$
|
(230,187
|
)
|
|
$
|
(225,435
|
)
|
|
Financing activities
|
|
$
|
135,913
|
|
|
$
|
149,511
|
|
8
UNAUDITED COMMODITY DERIVATIVES INFORMATION
|
|
|
|
|
|
|
|
|
Commodity and Period
|
|
Contract
Type
|
|
Volume Transacted
|
|
Contract Price
|
|
Crude Oil
|
|
|
|
|
|
|
|
2013
|
|
Collar
|
|
650 Bbls/d
|
|
$90.00/Bbl – $105.80/Bbl
|
|
2013
|
|
Collar
|
|
450 Bbls/d
|
|
$90.00/Bbl – $101.45/Bbl
|
|
2013 (1)
|
|
Collar
|
|
1,200 Bbls/d
|
|
$90.35/Bbl – $100.35/Bbl
|
|
2014
|
|
Collar
|
|
550 Bbls/d
|
|
$90.00/Bbl – $105.50/Bbl
|
|
2014
|
|
Collar
|
|
950 Bbls/d
|
|
$85.05/Bbl – $95.05/Bbl
|
|
2015
|
|
Collar
|
|
2,600 Bbls/d
|
|
$84.00/Bbl – $91.00/Bbl
|
|
|
|
|
|
|
Crude Oil Basis Differential
|
|
|
|
|
|
|
|
Midland/Cushing 2013 (2)
|
|
Swap
|
|
2,300 Bbls/d
|
|
$1.10/Bbl
|
|
Midland/Cushing 2014
|
|
Swap
|
|
1,500 Bbls/d
|
|
$0.55/Bbl
|
|
|
|
|
|
|
Natural Gas Liquids
|
|
|
|
|
|
|
|
Propane 2013 (3)
|
|
Swap
|
|
550 Bbls/d
|
|
$42.00/Bbl
|
|
Propane 2014
|
|
Swap
|
|
500 Bbls/d
|
|
$41.16/Bbl
|
|
Natural Gasoline 2013 (3)
|
|
Swap
|
|
200 Bbls/d
|
|
$90.72/Bbl
|
|
Natural Gasoline 2104
|
|
Swap
|
|
175 Bbls/d
|
|
$83.37/Bbl
|
|
|
|
|
|
|
Natural Gas
|
|
|
|
|
|
|
|
2013
|
|
Swap
|
|
200,000 MMBtu/month
|
|
$3.54/MMBtu
|
|
2013
|
|
Swap
|
|
190,000 MMBtu/month
|
|
$3.80/MMBtu
|
|
2013 (4)
|
|
Collar
|
|
100,000 MMBtu/month
|
|
$4.00/MMBtu – $4.36/MMBtu
|
|
2014
|
|
Swap
|
|
360,000 MMBtu/month
|
|
$4.18/MMBtu
|
|
2015
|
|
Swap
|
|
200,000 MMBtu/month
|
|
$4.10/MMBtu
|
|
(1)
|
February 2013 – December 2013
|
|
(2)
|
March 2013 – December 2013
|
|
(3)
|
September 2013 – December 2013
|
|
(4)
|
May 2013 – December 2013
|
Supplemental Non-GAAP Financial and Other Measures
This release contains certain financial measures that are non-GAAP measures. We have provided reconciliations below of the non-GAAP
financial measures to the most directly comparable GAAP financial measures and on the Non-GAAP Financial Information page in the Investor Relations section of our website at
www.approachresources.com
.
Adjusted Net Income
This release
contains the non-GAAP financial measures adjusted net income and adjusted net income per diluted share, which excludes an unrealized loss (gain) on commodity derivatives and the related income tax effect. The amounts included in the calculation of
adjusted net income and adjusted net income per diluted share below were computed in accordance with GAAP. We believe adjusted net income and adjusted net income per diluted share are useful to investors because they provide readers with a more
meaningful measure of our profitability before recording certain items whose timing or amount cannot be reasonably determined. However, these measures are provided in addition to, and not as an alternative for, and should be read in conjunction
with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.
9
The table below provides a reconciliation of adjusted net income to net income (loss) for the
three and nine months ended September 30, 2013 and 2012 (in thousands, except per-share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Net income (loss)
|
|
$
|
495
|
|
|
$
|
(2,355
|
)
|
|
$
|
7,935
|
|
|
$
|
7,221
|
|
|
Adjustments for certain items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on commodity derivatives
|
|
|
3,438
|
|
|
|
4,185
|
|
|
|
3,248
|
|
|
|
(2,582
|
)
|
|
Related income tax effect
|
|
|
(1,169
|
)
|
|
|
(1,423
|
)
|
|
|
(1,104
|
)
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
$
|
2,764
|
|
|
$
|
407
|
|
|
$
|
10,079
|
|
|
$
|
5,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per diluted share
|
|
$
|
0.07
|
|
|
$
|
0.01
|
|
|
$
|
0.26
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDAX
We define EBITDAX as net income (loss), plus (1) exploration expense, (2) depletion, depreciation and amortization expense,
(3) share-based compensation expense, (4) unrealized loss (gain) on commodity derivatives, (5) interest expense, and (6) income taxes. EBITDAX is not a measure of net income or cash flow as determined by GAAP. The amounts
included in the calculation of EBITDAX were computed in accordance with GAAP. EBITDAX is presented herein and reconciled to the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator of a
company’s ability to internally fund development and exploration activities. This measure is provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.
The table below provides a
reconciliation of EBITDAX to net income (loss) for the three and nine months ended September 30, 2013 and 2012 (in thousands, except per-share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Net income (loss)
|
|
$
|
495
|
|
|
$
|
(2,355
|
)
|
|
$
|
7,935
|
|
|
$
|
7,221
|
|
|
Exploration
|
|
|
1,193
|
|
|
|
1,170
|
|
|
|
2,010
|
|
|
|
2,419
|
|
|
Depletion, depreciation and amortization
|
|
|
19,413
|
|
|
|
16,728
|
|
|
|
54,951
|
|
|
|
42,354
|
|
|
Share-based compensation
|
|
|
1,599
|
|
|
|
1,450
|
|
|
|
5,389
|
|
|
|
4,993
|
|
|
Unrealized loss (gain) on commodity derivatives
|
|
|
3,438
|
|
|
|
4,185
|
|
|
|
3,248
|
|
|
|
(2,582
|
)
|
|
Interest expense, net
|
|
|
5,179
|
|
|
|
1,544
|
|
|
|
8,859
|
|
|
|
3,811
|
|
|
Income tax provision (benefit)
|
|
|
270
|
|
|
|
(1,253
|
)
|
|
|
4,300
|
|
|
|
4,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDAX
|
|
$
|
31,587
|
|
|
$
|
21,469
|
|
|
$
|
86,692
|
|
|
$
|
62,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDAX per diluted share
|
|
$
|
0.81
|
|
|
$
|
0.63
|
|
|
$
|
2.22
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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 Company’s ability to fund development and exploration activities. However, this measurement has limitations. This measurement can vary from year-to-year for the Company and can vary among companies based on what is or is
not included in the measurement on a company’s financial statements. This measurement is provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.
The table below summarizes
our liquidity at September 30, 2013, our liquidity at September 30, 2013, on a pro forma basis to give effect to an increase in our credit facility borrowing base and sale of the equity interests of Wildcat and our liquidity at
December 31, 2012 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity at
September 30, 2013
|
|
|
Liquidity Pro Forma
for Borrowing Base
Increase and Sale of
Wildcat at
September 30, 2013
|
|
|
Liquidity at
December 31, 2012
|
|
|
Borrowing base
|
|
$
|
315,000
|
|
|
$
|
350,000
|
|
|
$
|
280,000
|
|
|
Cash and cash equivalents
|
|
|
25,489
|
|
|
|
127,210
|
|
|
|
767
|
|
|
Outstanding letters of credit
|
|
|
(325
|
)
|
|
|
(325
|
)
|
|
|
(325
|
)
|
|
Credit facility
|
|
|
—
|
|
|
|
—
|
|
|
|
(106,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
|
|
$
|
340,164
|
|
|
$
|
476,885
|
|
|
$
|
174,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt-to-Capital
Long-term debt-to-capital ratio is calculated by dividing long-term debt (GAAP) by the sum of total stockholders’ equity (GAAP) and
long-term debt (GAAP). We use the long-term debt-to-capital ratio as a measurement of our overall financial leverage. However, this ratio has limitations. This ratio can vary from year-to-year for the Company and can vary among companies based on
what is or is not included in the ratio on a company’s financial statements. This ratio is provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.
The table below summarizes
our long-term debt-to-capital ratio at September 30, 2013, and December 31, 2012 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
Long-term debt (1)
|
|
$
|
250,000
|
|
|
$
|
106,000
|
|
|
Total stockholders’ equity
|
|
|
646,374
|
|
|
|
633,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
896,374
|
|
|
$
|
739,468
|
|
|
|
|
|
|
Long-term debt-to-capital
|
|
|
27.9
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Long-term debt at September 30, 2013, is comprised of $250 million in 7% senior notes. Long-term debt at December 31, 2012, is comprised of borrowings under our credit facility.
|
11
Exhibit 99.3
Approach Resources Inc.
THIRD QUARTER 2013
RESULTS
NOVEMBER 7, 2013
Forward-Looking Statements
This presentation
contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this presentation that
address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in
this presentation specifically include the expectations of management regarding plans, strategies, objectives, anticipated financial and operating results of the Company, including as to the Company’s Wolfcamp shale resource play, estimated
resource potential and recoverability of the oil and gas, estimated reserves and drilling locations, capital expenditures, typical well results and well profiles, type curve, and production and operating expenses guidance included in the
presentation. These statements are based on certain assumptions made by the Company based on management’s experience and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and
believed to be reasonable by management. When used in this presentation, the words “will,” “potential,” “believe,” “intend,” “expect,” “may,” “should,” “anticipate,”
“could,” “estimate,” “plan,” “predict,” “project,” “target,” “profile,” “model” or their negatives, other similar expressions or the statements that include those words,
are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of
the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. In particular, careful consideration should be given to the cautionary statements and risk factors described in the
Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any
forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
Cautionary Statements Regarding Oil & Gas Quantities
The Securities and Exchange Commission (“SEC”) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the
SEC’s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. The Company uses the terms “estimated ultimate recovery” or
“EUR,” reserve or resource “potential,” and other descriptions of volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC’s rules may prohibit the Company from including in
filings with the SEC. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized by the Company.
EUR estimates, identified drilling locations and resource potential estimates have not been risked by the Company. Actual
locations drilled and quantities that may be ultimately recovered from the Company’s interest may differ substantially from the Company’s estimates. There is no commitment by the Company to drill all of the drilling locations that have
been attributed these quantities. Factors affecting ultimate recovery include the scope of the Company’s ongoing drilling program, which will be directly affected by the availability of capital, drilling and production costs, availability of
drilling and completion services and equipment, drilling results, lease expirations, regulatory approval and actual drilling results, as well as geological and mechanical factors Estimates of unproved reserves, type/decline curves, per well EUR and
resource potential may change significantly as development of the Company’s oil and gas assets provides additional data.
Type/decline curves, estimated EURs, resource potential, recovery factors and well costs represent Company estimates based on evaluation of petrophysical analysis, core data and well logs,
well performance from limited drilling and recompletion results and seismic data, and have not been reviewed by independent engineers. These are presented as hypothetical recoveries if assumptions and estimates regarding recoverable hydrocarbons,
recovery factors and costs prove correct. The Company has very limited production experience with these projects, and accordingly, such estimates may change significantly as results from more wells are evaluated. Estimates of resource potential and
EURs do not constitute reserves, but constitute estimates of contingent resources which the SEC has determined are too speculative to include in SEC filings. Unless otherwise noted, IRR estimates are before taxes and assume NYMEX forward-curve oil
and gas pricing and Company-generated EUR and decline curve estimates based on Company drilling and completion cost estimates that do not include land, seismic or G&A costs.
2
Company Overview
AREX OVERVIEW
Enterprise value $1.4 BN
High quality reserve base
95.5 MMBoe proved
reserves 99% Permian Basin
Permian core operating area
166,000 gross (149,000 net) acres
1+ BnBoe gross, unrisked resource potential 2,000+ Identified HZ drilling locations targeting the Wolfcamp A/B/C
2013 capital program of $300 MM
Running 3 HZ rigs
in the Wolfcamp shale play
ASSET OVERVIEW
Notes: Proved reserves and acreage as of 12/31/2012 and 9/30/2013, respectively. All Boe and Mcfe calculations are based
on a 6 to 1 conversion ratio.
Enterprise value is equal to market capitalization using the closing share price
of $29.44 per share on 10/29/2013, plus net debt as of 9/30/2013.
3
Strong Track Record of Reserve Growth…
RESERVE GROWTH
0 20 40 60 80 100 120
CAGR : 32%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Natural Gas (MMBoe)
Oil & NGLs (MMbbls)
OIL RESERVE GROWTH
0 5 10 15 20 25 30 35 40
2009 2010 2011 2012
Oil (MMBbls)
7x oil Reserve Growth
Launched Wolfcamp Study
Announced Vertical wolfcamp pilot Results
Began HZ Wolfcamp pilot program
Strong HZ wolfcamp Results; prepare for Largescale Development
Oil(MMBbls)
4
…and Production Growth
PRODUCTION GROWTH OIL
PRODUCTION GROWTH
CARG:35%
1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
2004 2005
2006 2007 2006 2008 2009 2010 2011 2012 2013 2014
Natural Gas (MBoe/d) Oil NGLs (Mbbls/d)
0 200 400 600 800 1000 1200
4x oil Production Growth
Oil (MBbls)
5
3Q13 Key Highlights
KEY HIGHLIGHTS
Accelerated completion pace / drilling efficiencies
Strong Wolfcamp B and C results across acreage position
3Q13 Exit rate 11.1 MBoe/d
Well costs of $5.4 MM below D&C cost target of $5.5 MM
Record quarterly EBITDAX
Solid financial position
further enhanced with pipeline monetization and borrowing base increase
2014 Preliminary production growth
target of 40%
Drilling 75% more HZ wells with 3 rig program
6
3Q13 Operational Update
3Q13 Operating Highlights
OPERATING HIGHLIGHTS
Completed 14 HZ wells (at the high-end of activity guidance) Accelerating Total production 8.8 MBoe/d
Development Exit rate 11.1 MBoe/d
2014 preliminary production growth target 40%
Well costs below target
Driving Down 3Q13 average HZ well cost approx. $5.4 MM per well Costs LOE of $5.38/Boe (down 27% YoY)
Oil differential of $(4.61)/Bbl (improved 21% YoY and QoQ)
Best initial producer to date – Wolfcamp B in central Pangea IPs at 1,334 Boe/d Delivering “Stacked” Wolfcamp C in north Pangea IPs at 614 Boe/d (offsetting Wolfcamp B
Strong Well online for >10 months) Results & Wolfcamp B wells in east Pangea IP at approx. 490 Boe/d (best HZ Wolfcamp Advancing wells in area based on available data) Delineation Early 4Q Wolfcamp B IPs at 863 Boe/d
HZ well results continue to track at or above type curve
8
AREX Wolfcamp Shale Oil Resource Play
PERMIAN
CORE OPERATING AREA
Large, primarily contiguous acreage position
Oil-rich, multiple pay zones 166,000 gross (149,000 net) acres Low acreage cost ~$500 per acre
940+ MMBoe gross, unrisked HZ Wolfcamp resource potential
2,096 Identified HZ Wolfcamp locations
2013 OPERATIONS
Plan to complete ~40 HZ wells
with 3 rigs Testing “stacked-wellbore” development and optimizing well spacing and completion design Decreasing well costs and increasing efficiencies
Compressing spud-to-sales times
Focusing activity
around field infrastructure systems
Field infrastructure systems contributing to lower LOE/Boe and HZ D&C
costs
Large, primarily contiguous acreage position with oil-rich, multiple pay zones
9
Wolfcamp Shale Oil Play
WOLFCAMP SHALE –
WIDESPREAD, THICK, CONSISTENT & REPEATABLE
10
HZ Well Costs Down & Efficiencies Up
HZ WELL
COSTS ($MM)
Average Quarterly Well Cost ($MM)
~ (20%)
Below $5.5 MM Target HZ D&C Cost
$7.5
$6
$4.5
$3
$1.5
$-
3Q12 4Q12 1Q13 2Q13 3Q13
$6.7 $6.2 $6.1 $5.75 $5.4
DRILLING DAYS TO TD
~ (30%)
Average Days
20 16 12 8 4 0
17 14 15 12
1H12 2H12 1H13 2H13-To Date
11
AREX HZ Wolfcamp Activity
Reagan
Irion
PANGEA WEST
19,000 gross acres
Pad drilling with A/B and A/C “stacked” wellbores
Crockett
Schleicher
3-D seismic acquisition, data
processing and interpretation complete
Planning HZ drilling in 2014
92,000 gross acres
Pad drilling with A/B and B/C “stacked” wellbores
NORTH & CENTRAL PANGEA
Legend
Vertical Producer
HZ Producer
HZ – Waiting on Completion
HZ – Drilling
HZ – Permit
SOUTH PANGEA
55,000 gross acres
Continuing completion design improvement
Sutton
Notes: Acreage as of 9/30/2013.
12
HZ Wolfcamp Well Performance
CONTINUED STRONG
WELL RESULTS & MORE PRODUCTION HISTORY
1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0
Daily Production Data from AREX A Bench Wells
Daily Production Data from AREX B Bench Wells
450
MBoe Type Curve HZ Wolfcamp Shale Oil
Legend
B Bench Well Data (33 wells) 41 producing wells with at least A Bench Well Data (8 wells) 3 months of production history
450 MBoe Type Curve
Outperforming Type Curve Shallower Decline
Daily Production (BOE including NGLs)
0 90 180 270 360 450 540 630 720 810
Time (Days)
13
AREX HZ Wolfcamp Economics
Horizontal
Play Type Wolfcamp
Avg. EUR (gross) 450 MBoe
Targeted Well Cost $5.5
MM
Potential Locations 2,096
Gross Resource 940+ MMBoe
Potential
Horizontal drilling improves recoveries and returns Multiple, stacked horizontal targets 7,000’+ lateral length ~80%
of EUR made up of oil and NGLs
BTAX IRR SENSITIVITIES
IRR (%)
80 70 60 50 40 30 20 10 0
350 400 450 500 550
Well EUR (MBoe)
$100 / bbl $90 / bbl $80 / bbl $70 / bbl
Notes:
Identified locations based on multi-bench development and 120-acre spacing for HZ Wolfcamp. No locations assigned to south Project Pangea.
HZ Wolfcamp economics assume NYMEX – Henry Hub strip and NGL price based on 40% of WTI.
14
Infrastructure for Large-Scale Development
Reagan
Irion
Crockett
Schleicher
Pangea West
50-Mile Oil Pipeline
100,000 Bbls/d Capacity
North & Central Pangea
Reducing D&C cost to $5.5 MM and lower
Reducing LOE
Minimizing truck traffic and surface disturbance
Increasing project profit margin
South
Pangea
Sutton
15
Infrastructure & Equipment Projects
PROJECTS
Securing water supply
Testing non-potable water and recycling flowback water
Facilitate large-scale field development
Reduce
fresh water use and water costs
Expected savings from non-potable water source ~$0.45 MM/HZ well
Purchasing and installing water transfer equipment Drilling and/or converting SWD wells
Safely and securely transport water across Project Pangea and Pangea West
Reduce time and money spent on water hauling and disposal and truck traffic
Expected savings from water transfer equipment ~$0.1 MM/HZ well
Expected savings from SWD system ~$0.45 MM/HZ well
Expected company-wide LOE savings ±$0.4 MM per month
Purchasing and installing flowback equipment
Replace rental equipment and contractors with Company-owned and operated equipment and personnel; reduce money spent on flowback operations
Expected savings from flowback equipment ~$0.1 MM/HZ well
Expected LOE savings from gas lift system $6,300/HZ per month
Installing crude takeaway lines Purchased oil hauling trucks
Efficiently transport crude oil to market and reduce inventory
Reduce oil transportation differential to an estimated $2.50/Bbl – $4.00/Bbl
Infrastructure and equipment projects are key to large-scale field development and to reducing D&C costs as well as
LOE cost
APPROACH RESOURCES
16
AREX Drilling Locations, Targets & Resource Potential
DRLLING EUR IDENTIFIED GROSS
TARGET RESOURCE
DEPTH (FT.) (MBoe) LOCATIONS POTENTIAL
7,000+
Wolfcamp A 450 703 316,350
(lateral length)
7,000+
Wolfcamp B 450 690 310,500
Horizontal (lateral
length)
Wolfcamp 7,000+
Wolfcamp C 450 703 316,350
(lateral length)
Total HZ 2,096 943,200
Recompletions,
Vertical < 7,500 to
Wolffork & 93 to 193 887 124,594
Wolffork < 8,500
Canyon Wolffork
1.1 BnBoe Total Gross Resource Potential
Multiple Decades of HZ Drilling Inventory
APPROACH RESOURCES
Notes: Potential locations based on 120-acre spacing for HZ Wolfcamp, 20-acre spacing for Vertical Wolffork, 20 to 40-acre spacing for Vertical Wolffork
Recompletions and 40-acre spacing for Vertical Canyon Wolffork. No Wolfcamp or Wolffork locations assigned to south
Project Pangea. 17
APPROACH RESOURCES
3Q13 Financial Update
3Q13 Financial Highlights
FINANCIAL HIGHLIGHTS
Increasing
Revenues
Revenues of $44.2 MM (up 34% YoY)
Net income of $495,000 or $0.01 per diluted share
Adjusted net income (non-GAAP) of $2.8 MM or $0.07 per diluted share
Record quarterly EBITDAX (non-GAAP) of $31.6 MM (up 47% YoY) or
Significant Cash Flow
$0.81 per diluted share (up 29% YoY)
Cash flow
from operations of $119 MM for nine months ended 9/30/2013
Liquidity of $340 MM
Strong Financial Position
Undrawn borrowing base of $315 MM ($350 MM as of November 2013)
Pipeline monetization further strengthens liquidity
Liquidity of $477 MM including borrowing base increase and pipeline sale
Strong Balance Sheet and Liquidity to Develop HZ Wolfcamp Shale
APPROACH RESOURCES
Notes: See “Adjusted Net Income,” “EBITDAX” and “Strong, Simple Balance Sheet” slides in appendix.
19
Oil & Liquids-Weighted Reserves, Production & Revenue
YE12 RESERVE MIX BY COMMODITY
31%
39%
30%
Oil NGLs Gas
95.5 MMBoe
3Q13 PRODUCTION MIX BY COMMODITY
31%
39%
30%
8.8 MBoe/d
Oil NGLs Gas
3Q13 REVENUE MIX BY COMMODITY
12%
16%
72%
$44.2 MM
Oil NGLs Gas
APPROACH RESOURCES
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Oil Pipeline Monetization
TRANSACTION OVERVIEW
First-mover oil pipeline system in the southern Midland Basin
Formed Wildcat JV to develop pipeline system in September 2012
50-miles of high-pressure, steel pipeline with throughput capacity of 100,000 Bbls/d Pipeline operational in April 2013
Closed sale of pipeline system in October 2013
AREX proceeds of $109.1 MM from pipeline sale
Total transaction value $210 MM
AREX capital
contributions to pipeline system of $18.3 MM as of September 30, 2013
6x ROI
Proceeds further strengthen liquidity position
Maintain competitive oil transportation fee and firm takeaway
Oil transportation differential outlook $2.50/Bbl –$4.00/Bbl
WILDCAT OIL PIPELINE SYSTEM
Reagan Irion
Midway Truck Station
Crockett Schleicher
APPROACH RESOURCES
Notes: AREX proceeds are before tax; AREX proceeds and transaction value subject to customary post-closing
conditions, adjustments and escrows.
21
Production and Expense Guidance
2013 GUIDANCE
Full Year 2013 Guidance
Production
Total (MBoe) 3,400
Percent Oil & NGLs 70%
Operating costs and expenses ($/per Boe)
Lease
operating $ 5.00 7.00
Production and ad valorem taxes $ 3.00 4.50
Exploration $ 1.00 2.00
General and administrative $ 7.00 8.50
Depletion,
depreciation and amortization $ 20.00 24.00
Capital expenditures ($MM) Approximately $300
2014 PRELIMINARY OUTLOOK
APPROACH RESOURCES
Our capital budgets exclude
future acquisitions and lease extensions, and are subject to change depending upon a number of factors, including additional data on our Wolfcamp shale oil resource play, results of horizontal drilling and completions, including pad drilling,
economic and industry conditions at the time of drilling, prevailing and anticipated prices for oil, NGLs and gas, the availability of sufficient capital resources for drilling prospects, our financial results and the availability of lease
extensions and renewals on reasonable terms.
22
Strong, Simple Balance Sheet
As of 9/30/2013
As of (Including Borrowing Base
FINANCIAL RESULTS ($MM) 9/30/2013 Increase & JV Pipeline Sale)
Summary Balance Sheet
Cash $25.5 $127.2
Credit Facility
Senior Notes 250.0 250.0
Total LongTerm Debt
$250.0 $250.0
Shareholders’ Equity 646.4 646.4
Total Book Capitalization $896.4 $896.4
Liquidity
Borrowing Base $315.0 $350.0
Cash and Cash Equivalents 25.5 127.2
Long term Debt under Credit Facility
Undrawn
Letters of Credit (0.3) (0.3)
Liquidity $340.2 $476.9
Key Metrics
LTM EBITDAX $107.3 $107.3
Total Reserves (MMBoe)
95.5 95.5
Proved Developed Reserves (MMBoe) 32.8 32.8
% Proved Developed 34% 34%
% Liquids 69% 69%
Credit Statistics Total Debt
Net Debt Total Debt Net Debt
Debt / Capital 28% 25% 28% 14%
Debt / 3Q13 Annualized EBITDAX 2.0x 1.8x 2.0x 1.0x
Debt / Proved Reserves ($/Boe) $2.62 $2.35 $2.62 $1.29
APPROACH RESOURCES
Notes: Estimated proved reserves as of 12/31/2012. Liquidity and EBITDAX are a non-GAAP financial measures. See “EBITDAX” slide and Non-GAAP Financials section on the IR page of
our website for calculation and reconciliation. Net debt is debt balance less available cash and letters of credit.
23
Current Hedge Position
Commodity and Time Period
Type Volume Price
Crude Oil
2013 Collar 650 Bbls/d $90.00/Bbl $105.80/Bbl
2013 Collar 450 Bbls/d $90.00/Bbl - $101.45/Bbl
2013 (1) Collar 1,200 Bbls/d $90.35/Bbl - $100.35/Bbl
2014 Collar 550 Bbls/d $90.00/Bbl - $105.50/Bbl
2014 Collar 950 Bbls/d $85.05/Bbl - $95.05/Bbl
2015 Collar 2,600 Bbls/d $84.00/Bbl - $91.00/Bbl
Crude Oil Basis Differential (Midland/Cushing)
2013 (2) Swap 2,300 Bbls/d $1.10/Bbl
2014 Swap
1,500 Bbls/d $0.55/Bbl
Natural Gas Liquids
Propane 2013 (3) Swap 550 Bbls/d $42.00/Bbl
Propane 2014 Swap 500 Bbls/d $41.16/Bbl
Natural
Gasoline 2013 (3) Swap 200 Bbls/d $90.72/Bbl
Natural Gasoline 2014 Swap 175 Bbls/d $83.37/Bbl
Natural Gas
2013 Swap 200,000 MMBtu/month $3.54/MMBtu
2013
Swap 190,000 MMBtu/month $3.80/MMBtu
2013 (4) Collar 100,000 MMBtu/month $4.00/MMBtu - $4.36/MMBtu
2014 Swap 360,000 MMBtu/month $4.18/MMBtu
2015 Swap 200,000 MMBtu/month $4.10/MMBtu
APPROACH RESOURCES
(1) February 2013 December 2013 (2) March 2013 December 2013
(3) September 2013 December 2013 (4) May 2013 December 2013
24
Adjusted Net Income (unaudited)
The amounts
included in the calculation of adjusted net income and adjusted net income per diluted share below were computed in accordance with GAAP. We believe adjusted net income and adjusted net income per diluted share are useful to investors because they
provide readers with a more meaningful measure of our profitability before recording certain items whose timing or amount cannot be reasonably determined. However, these measures are provided in addition to, and not as an alternative for, and should
be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.
The following table provides a reconciliation of adjusted net income to net (loss) income for the three months ended
September 30, 2013 and 2012, respectively.
Three Months Ended
(in thousands, except per-share amounts) September 30,
2013 2012
Net income (loss) $ 495 $ (2,355)
Adjustments for
certain items:
Unrealized loss on commodity derivatives 3,438 4,188
Related income tax effect (1,169) (1,423)
Adjusted net income $ 2,764 $ 407
Adjusted net
income per diluted share $ 0.07 $ 0.01
APPROACH RESOURCES
25
EBITDAX (unaudited)
We define EBITDAX as net
income (loss), plus (1) exploration expense, (2) depletion, depreciation and amortization expense, (3) share-based compensation expense, (4) unrealized loss on commodity derivatives, (5) interest expense and (6) income taxes. EBITDAX is not a
measure of net income or cash flow as determined by GAAP. The amounts included in the calculation of EBITDAX were computed in accordance with GAAP. EBITDAX is presented herein and reconciled to the GAAP measure of net income because of its wide
acceptance by the investment community as a financial indicator of a company’s ability to internally fund development and exploration activities. This measure is provided in addition to, and not as an alternative for, and should be read in
conjunction with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.
The following table provides a reconciliation of EBITDAX to net income (loss) for the three months ended September 30,
2013 and 2012, respectively.
Three Months Ended
(in thousands, except per-share amounts) September 30,
2013 2012
Net income (loss) $ 495 $ (2,355)
Exploration
1,193 1,170
Depletion, depreciation and amortization 19,413 16,728
Share-based compensation 1,599 1,450
Unrealized loss on commodity derivatives 3,438 4,185
Interest expense, net 5,179 1,544
Income tax
provision (benefit) 270 (1,253)
EBITDAX $ 31,587 $ 21,469
EBITDAX per diluted share $ 0.81 $ 0.63
APPROACH RESOURCES
26
APPROACH RESOURCES
Contact Information
MEGAN P. HAYS
Manager, Investor Relations & Corporate Communications 817.989.9000 x2108 mhays@approachresources.com www.approachresources.com
