UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) November 4, 2014

 

 

APPROACH RESOURCES INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-33801   51-0424817

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

One Ridgmar Centre

6500 West Freeway, Suite 800

Fort Worth, Texas

  76116
(Address of principal executive offices)   (Zip Code)

(817) 989-9000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

On November 4, 2014, Approach Resources Inc., as borrower (the “Company”), entered into a first amendment (the “First Amendment”) to its Amended and Restated Credit Agreement dated as of May 7, 2014, by and among the Company and its subsidiary guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders party thereto.

The First Amendment, among other things, (a) increases the borrowing base to $600 million from $450 million, (b) maintains the aggregate commitments of the lenders at $450 million and (c) provides for the applicable margin or interest rate to be paid based on utilization of borrowing base, rather than utilization of aggregate commitments of the lenders.

The foregoing description of the terms of the First Amendment is qualified in its entirety by the First Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Item 2.02 Results of Operations and Financial Condition.

On November 5, 2014, the Company issued a press release announcing financial and operational results for the three and nine months ended September 30, 2014 (the “Earnings Release”). The Earnings Release contains certain non-GAAP financial information. The reconciliation of such non-GAAP financial information to GAAP financial measures is included in the Earnings Release and in the “Investor Relations – Non-GAAP Financials” section of the Company’s website at www.approachresources.com . A copy of the Earnings Release is furnished herewith as Exhibit 99.1.

Item 2.03 Creation of a Direct Financial Obligation.

The disclosure provided under Item 1.01 of this Form 8-K is incorporated by reference into this Item 2.03 as if fully set forth herein.

Item 7.01 Regulation FD Disclosure.

On November 5, 2014, the Company issued the Earnings Release discussed above in Item 2.02 of this current report on Form 8-K. The Earnings Release contains certain non-GAAP financial information. The reconciliation of such non-GAAP financial information to GAAP financial measures is included in the Earnings Release and in the “Investor Relations – Non-GAAP Financials” section of the Company’s website at www.approachresources.com . A copy of the Earnings Release is furnished herewith as Exhibit 99.1.

On November 5, 2014, the Company issued a press release announcing changes to the Board of Directors (the “Press Release”). A copy of the Press Release is furnished herewith as Exhibit 99.2.

On November 5, 2014, the Company posted a new presentation titled “Approach Resources Inc. – Third Quarter 2014 Results” under the “Investor Relations – Presentations” section of the Company’s website, www.approachresources.com . For the benefit of all investors, the presentation is attached hereto as Exhibit 99.3.

 

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Item 8.01 Other Events.

On November 5, 2014, the Company announced that Bryan H. Lawrence has retired from his role as Chairman of the Company’s Board of Directors (“Board”) and that J. Ross Craft, the Company’s President and Chief Executive Officer, has been appointed as the new Chairman of the Board effective November 4, 2014. Mr. Lawrence will continue to serve as a director on the Company’s Board. The Company also announced that Vean J. Gregg III has been elected by the other independent directors on the Board as Lead Independent Director of the Board effective November 4, 2014. The Board designated this new position to provide for an independent director to serve in a lead capacity to coordinate the activities of the other non-employee, independent directors and to perform such other duties and responsibilities as the Board may determine. The duties and responsibilities of the Lead Independent Director will be governed by a written charter approved by the Board.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.

  

Description

10.1    First Amendment dated as of November 4, 2014, to Amended and Restated Credit Agreement, dated as of May 7, 2014, by and among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders party thereto.
99.1    Earnings Release dated November 5, 2014.
99.2    Press Release dated November 5, 2014.
99.3    Corporate presentation titled, “Approach Resources Inc. – Third Quarter 2014 Results.”

In accordance with General Instruction B.2 of Form 8-K, the information in Items 2.02 and 7.01, including the attached Exhibits 99.1, 99.2 and 99.3, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any registration statement or other filing under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise expressly stated in such filing.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

APPROACH RESOURCES INC.
By:  

/s/ J. Curtis Henderson

  J. Curtis Henderson
  Chief Administrative Officer

Date: November 5, 2014

 

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EXHIBIT INDEX

 

Exhibit No.

  

Description

10.1    First Amendment dated as of November 4, 2014, to Amended and Restated Credit Agreement, dated as of May 7, 2014, by and among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, and each of the Lenders party thereto.
99.1    Earnings Release dated November 5, 2014.
99.2    Press Release dated November 5, 2014.
99.3    Corporate presentation titled, “Approach Resources Inc. – Third Quarter 2014 Results.”

 

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Exhibit 10.1

Execution Version

FIRST AMENDMENT TO

AMENDED AND RESTATED CREDIT AGREEMENT

This First Amendment to Amended and Restated Credit Agreement (this “ First Amendment ”) is effective as of November 4, 2014 (the “ First Amendment Effective Date ”), by and among APPROACH RESOURCES INC. , a corporation duly formed and existing under the laws of the State of Delaware (the “ Borrower ”), JPMORGAN CHASE BANK, N.A. , a national banking association, as administrative agent for the Lenders (the “ Administrative Agent ”), and each of the Lenders party hereto.

W I T N E S S E T H :

WHEREAS, the Borrower, the Administrative Agent and the financial institutions party thereto as Lenders are parties to that certain Amended and Restated Credit Agreement dated as of May 7, 2014 (as amended prior to the date hereof, the “ Credit Agreement ”) (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement, as amended by this First Amendment); and

WHEREAS, pursuant to the Credit Agreement, the Lenders have made revolving credit loans to the Borrower; and

WHEREAS, the Lenders have redetermined the Borrowing Base in an amount equal to $600,000,000, to be effective as of the First Amendment Effective Date and continuing until the next redetermination of the Borrowing Base thereafter, all as more particularly set forth herein; and

WHEREAS, the parties hereto desire to amend certain terms of the Credit Agreement as set forth herein; and

WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders have agreed to enter into this First Amendment.

NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Borrower, the Administrative Agent and the Lenders hereby agree as follows:

SECTION 1. Amendments . In reliance on the representations, warranties, covenants and agreements contained in this First Amendment, and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended, effective as of the First Amendment Effective Date, in the manner provided in this Section 1 .

 

1

1.1. Amended and Restated Definitions . The definitions of “ Applicable Margin ”, and “ Loan Documents ” contained in Section 1.02 of the Credit Agreement are hereby amended and restated in their entirety to read in full as follows:

“ Applicable Margin ” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage then in effect:

 

Borrowing Base Utilization Grid  

Borrowing Base Utilization Percentage

     < 25 %     

 

>  25

< 50

%

% 

   

 

>  50

< 75

% 

% 

   

 

>  75

< 90

% 

% 

    >  90 % 

ABR Loans

     0.500 %      0.750 %      1.000 %      1.250 %      1.500 % 

Eurodollar Loans

     1.500 %      1.750 %      2.000 %      2.250 %      2.500 % 

Commitment Fee Rate

     0.375 %      0.375 %      0.500 %      0.500 %      0.500 % 

Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change.

“ Loan Documents ” means this Agreement, the First Amendment, the Notes, the Letter of Credit Agreements, the Letters of Credit, the Fee Letter, and the Security Instruments.

1.2. Additional Definitions . Section 1.02 of the Credit Agreement is hereby amended to add the following definitions to such Section in appropriate alphabetical order:

“ Borrowing Base Utilization Percentage ” means, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of the Revolving Credit Exposures of the Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day.

“ First Amendment ” means that certain First Amendment to Amended and Restated Credit Agreement dated as of November 4, 2014, entered into by and among the Borrower, the Administrative Agent and the Lenders party thereto.

“ First Amendment Effective Date ” means November 4, 2014.

1.3. Deletion of Definition . Section 1.02 of the Credit Agreement is hereby amended to delete therefrom the definition of “ Total Commitments Utilization Percentage ”.

 

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1.4. Amendment and Restatement of Section 2.07(a) . Section 2.07(a) of the Credit Agreement is hereby amended and restated in its entirety to read in full as follows:

(a) Borrowing Base . For the period from and including the First Amendment Effective Date to but excluding the first Redetermination Date thereafter, the amount of the Borrowing Base shall be $600,000,000. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments in between Scheduled Redeterminations from time to time pursuant to Section 2.07(e), Section 2.07(f) or Section 8.13(c).

1.5. Amendment and Restatement of Section 2.08(c) . Section 2.08(c) of the Credit Agreement is hereby amended and restated in its entirety to read in full as follows:

(c) Expiration Date . Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) (A) in the case of Letters of Credit issued to the Texas Railroad Commission, the date that is 18 months after the date of issuance of such Letter of Credit (or in the case of any renewal or extension thereof, up to 18 months after such renewal or extension) or (B) in the case of all other Letters of Credit, the date that is one year after the date of the issuance of such Letter of Credit (or in the case of any renewal or extension thereof, up to one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. Each Letter of Credit with a one (1) year term may provide for the renewal thereof for additional one (1) year periods and each Letter of Credit issued to the Texas Railroad Commission with a term longer than one (1) year but less than or equal to 18 months may provide for the renewal thereof for additional periods up to 18 months; provided that in either the case, no such renewal period shall extend beyond the date described in clause (ii) of the preceding sentence.

SECTION 2. Borrowing Base . In reliance on the representations, warranties, covenants and agreements contained in this First Amendment, and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Lenders hereby agree that the Borrowing Base shall be increased to $600,000,000, effective as of the First Amendment Effective Date and shall remain at such level until the next Scheduled Redetermination Date, Interim Redetermination Date or other redetermination or adjustment of the Borrowing Base thereafter, whichever comes first. The Borrower and Lenders agree that the redetermination of the Borrowing Base provided for in this Section 2 shall constitute the Scheduled Redetermination scheduled for on or about October 1, 2014 and shall not be construed or deemed to be an Interim Redetermination for purposes of Section 2.07(b) of the Credit Agreement.

SECTION 3. Conditions Precedent . The effectiveness of (a) the amendments to the Credit Agreement contained in Section 1 hereof and (b) the redetermination of the Borrowing Base contained in Section 2 hereof, are each subject to satisfaction of each of the following conditions precedent:

3.1. Counterparts . The Administrative Agent shall have received counterparts of this First Amendment from the Borrower and each of the Lenders.

 

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3.2. No Material Adverse Change . Since December 31, 2013, there has been no event, development or circumstance that has had or would reasonably be expected to have a Material Adverse Effect.

The Administrative Agent shall notify the Borrower and the Lenders of the effectiveness of this First Amendment, and such notice shall be conclusive and binding.

SECTION 4. Representations and Warranties of the Borrower . To induce the Lenders and the Administrative Agent to enter into this First Amendment, the Borrower hereby represents and warrants to the Lenders and the Administrative Agent as follows:

4.1. Reaffirm Existing Representations and Warranties . Each representation and warranty of each Credit Party contained in the Credit Agreement and the other Loan Documents is true and correct in all material respects on the date hereof and will be true and correct in all material respects after giving effect to the amendments set forth in Section 1 hereof, except (a) to the extent such representations and warranties are expressly limited to an earlier date, such representations and warranties shall be true and correct in all material respects as of such specified earlier date, and (b) to the extent such representations and warranties are qualified by materiality or Material Adverse Effect, such representations and warranties shall be true and correct in all respects.

4.2. Due Authorization; No Conflict . The execution, delivery and performance by the Borrower of this First Amendment are within the Borrower’s corporate powers, have been duly authorized by all necessary action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or constitute a default under any provision of applicable law or any material agreement binding upon the Borrower or any other Credit Party or result in the creation or imposition of any Lien upon any of the assets of the Borrower or any other Credit Party except Excepted Liens.

4.3. Validity and Enforceability . This First Amendment constitutes the valid and binding obligation of the Borrower enforceable in accordance with its terms, except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor’s rights generally, and (b) the availability of equitable remedies may be limited by equitable principles of general application.

4.4. No Default or Borrowing Base Deficiency . No Default or Borrowing Base Deficiency has occurred and is continuing.

SECTION 5. Miscellaneous .

5.1. Reaffirmation of Loan Documents; Extension of Liens . Any and all of the terms and provisions of the Credit Agreement and the Loan Documents shall, except as amended and modified hereby, remain in full force and effect. The amendments contemplated hereby shall not limit or impair any Liens securing the Indebtedness, each of which are hereby ratified, affirmed and extended to secure the Indebtedness after giving effect to this First Amendment.

 

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5.2. Parties in Interest . All of the terms and provisions of this First Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns.

5.3. Counterparts . This First Amendment may be executed in counterparts, and all parties need not execute the same counterpart; however, no party shall be bound by this First Amendment until the Borrower and each of the Lenders have executed a counterpart. Facsimiles or other electronic transmission (e.g. .pdf) shall be effective as originals.

5.4. Complete Agreement . THIS FIRST AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.

5.5. Headings . The headings, captions and arrangements used in this First Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this First Amendment, nor affect the meaning thereof.

5.6. Effectiveness . This First Amendment shall be effective automatically and without necessity of any further action by the Borrower, the Administrative Agent or the Lenders when counterparts hereof have been executed by the Borrower, the Administrative Agent and each of the Lenders, and all conditions to the effectiveness hereof set forth herein have been satisfied.

5.7. Governing Law . This First Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

5.8. Severability . Any provision of this First Amendment which is held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed on the date and year first above written.

[Signature pages to follow]

 

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BORROWER:     APPROACH RESOURCES, INC. , a Delaware corporation
    By:  

/s/ J. Ross Craft

    Name:   J. Ross Craft
    Title:   President and Chief Executive Officer

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

ADMINISTRATIVE AGENT,     JPMORGAN CHASE BANK, N.A.,
LENDER AND ISSUING BANK:     as Administrative Agent, a Lender and Issuing Bank
    By:  

/s/ Anson D. Williams

    Name:   Anson D. Williams
    Title:   Authorized Officer

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

LENDERS:    

KEYBANK NATIONAL ASSOCIATION,

as a Lender

   
    By:  

/s/ George E. McKean

    Name:   George E. McKean
    Title:   Senior Vice President

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

ROYAL BANK OF CANADA,
as a Lender
By:  

/s/ Don J. McKinnerney

Name:   Don J. McKinnerney
Title:   Authorized Signatory

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

FROST BANK,
as a Lender
By:  

/s/ Erica Spencer

Name:   Erica Spencer
Title:   Vice President

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

WELLS FARGO BANK, N.A.,
as a Lender
By:  

/s/ Catherine Cook

Name:   Catherine Cook
Title:   Director

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

CAPITAL ONE, NATIONAL ASSOCIATION,
as a Lender
By:  

/s/ Nancy Mak

Name:   Nancy Mak
Title:   Senior Vice President

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

COMERICA BANK,
as a Lender
By:  

/s/ John S. Lesikar

Name:   John S. Lesikar
Title:   Vice President

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

WHITNEY BANK,
as a Lender
By:  

/s/ David E. Sisler

Name:   David E. Sisler
Title:   Senior Vice President

 

S IGNATURE P AGE

F IRST A MENDMENT TO A MENDED AND R ESTATED C REDIT A GREEMENT

A PPROACH R ESOURCES I NC .

Exhibit 99.1

 

News Release

   LOGO

For Immediate Release

November 5, 2014

Approach Resources Inc.

Reports Third Quarter 2014 Results

Fort Worth, Texas, November 5, 2014 – Approach Resources Inc. (NASDAQ: AREX) (“Approach” or the “Company”) today reported results for third quarter 2014. Highlights for third quarter 2014 include:

 

  •   Production was 1,306 MBoe, or 14.2 MBoe/d, a 61% increase over the prior-year quarter

 

  •   Revenues were $68.1 million, a 54% increase over the prior-year quarter

 

  •   Net income was $22.4 million, or $0.57 per diluted share

 

  •   Adjusted net income was $10.5 million, or $0.27 per diluted share

 

  •   EBITDAX was a quarterly record of $50.7 million, or $1.29 per diluted share, and up 60% over the prior-year quarter

 

  •   Borrowing base increased to $600 million effective November 4 , a 33% increase

 

  •   New Elliott well expands development of our eastern acreage

Adjusted net income and EBITDAX are non-GAAP measures. See “Supplemental Non-GAAP Financial and Other Measures” below for our definitions and reconciliations of adjusted net income and EBITDAX to net income.

Management Comment

J. Ross Craft, Approach’s Chairman, Chief Executive Officer and President, commented, “In the third quarter of 2014, Approach reported its seventh consecutive quarter of record EBITDAX. So far this year, we have completed 51 wells in our drilling program and are on track to achieve a 45% production growth rate.

As discussed on prior earnings calls and as shown on slide 5 of our presentation, gas and NGLs are clearly outperforming our original expectations, and therefore allow us to achieve significantly higher reserves recovery. In the meantime, we continue to grow our oil production and have increased net oil volumes from our horizontal Wolfcamp wells by 83% compared to the prior-year quarter. Highlights for the third quarter are summarized in the presentation posted on our website.

We are closely monitoring the macro environment in the crude oil markets. Our Company is well positioned to withstand prolonged weakness in crude oil prices, given our sizeable core acreage position that is largely held by production, as well as our low cost structure, strong hedge book, low leverage metrics and solid liquidity position.”

Third Quarter 2014 Results

Production for third quarter 2014 totaled 1,306 MBoe (14.2 MBoe/d), compared to production of 812 MBoe (8.8 MBoe/d) in third quarter 2013, a 61% increase. Oil production for third quarter 2014 increased 61% to 507 MBbls (5.5 MBbls/d), compared to 314 MBbls (3.4 MBbls/d) for the prior-year period. Production for third quarter 2014 was 69% liquids and 31% natural gas.

 

INVESTOR CONTACT

Sergei Krylov

Executive Vice President & Chief Financial Officer

ir@approachresources.com

817.989.9000

  

APPROACH RESOURCES INC.

One Ridgmar Centre

6500 West Freeway, Suite 800

Fort Worth, Texas 76116

www.approachresources.com

Net income for third quarter 2014 was $22.4 million, or $0.57 per diluted share, on revenues of $68.1 million. This compares to a net income for third quarter 2013 of $0.5 million, or $0.01 per diluted share, on revenues of $44.2 million. Third quarter 2014 revenues increased $23.9 million due to an increase in production ($27 million) offset by a decrease in average realized price ($3.1 million). Net income for third quarter 2014 included an unrealized gain on commodity derivatives of $18.8 million, a realized loss on commodity derivatives of $0.8 million and a refund from the state of Texas for production taxes of $1 million.

Excluding the unrealized loss on commodity derivatives and related income taxes, adjusted net income (non-GAAP) for third quarter 2014 was $10.5 million, or $0.27 per diluted share, compared to $2.8 million, or $0.07 per diluted share, for third quarter 2013. EBITDAX (non-GAAP) for third quarter 2014 was $50.7 million, or $1.29 per diluted share, compared to $31.6 million, or $0.81 per diluted share, for third quarter 2013. See “Supplemental Non-GAAP Financial and Other Measures” below for our definitions and reconciliations of adjusted net income and EBITDAX to net income.

Our average realized commodity price for third quarter 2014, before the effect of commodity derivatives, was $52.17 per Boe. Our average realized price, including the effect of commodity derivatives, was $51.59 per Boe for third quarter 2014.

Lease operating expense averaged $5.87 per Boe for third quarter 2014, down 5% from second quarter 2014. Production and ad valorem taxes averaged $2.55 per Boe, or 4.9% of oil, NGL and gas sales. Exploration costs were $0.68 per Boe. Cash general and administrative expense averaged $4.37 per Boe. Depletion, depreciation and amortization expense averaged $19.88 per Boe. Interest expense totaled $5.4 million.

Operations Update

During third quarter 2014, we drilled 18 horizontal wells and completed 16 horizontal wells. We have reverted back to our proven completion design with well production in line with historical results. Wells completed since our last operations update targeting the Wolfcamp B and C zones produced an average initial 24-hour rate of 746 Boe/d (67% oil and 85% liquids), normalizing one short lateral well.

In addition, two wells targeting the Wolfcamp A zone in our University area produced an average initial 24-hour rate of 235 Boe/d (72% oil and 88% liquids). The combined, peak 30-day production of these wells was 14,083 Boe.

In east Project Pangea, we targeted the Wolfcamp C bench on our Elliott lease. The initial 24-hour rate for the Elliott well was 806 Boe/d (63% oil and 83% liquids). This well is substantially better than any existing horizontal Wolfcamp wells in the vicinity based on available initial production data. This well has performed similarly to our wells in the University and Baker areas and significantly expands development of the horizontal Wolfcamp on our eastern acreage.

Capital expenditures incurred during third quarter 2014 totaled $104.9 million and included $94 million for drilling and completion activities, $8.5 million for infrastructure projects, $1.5 million for acreage acquisitions and extensions and $0.9 million for buildings and other equipment.

 

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2014 Outlook Update

We have updated some components of our 2014 guidance, taking into account results achieved year to date. The guidance is forward-looking information that is subject to a number of risks and uncertainties, many of which are beyond the Company’s control.

 

     Prior 2014     Current 2014  
     Guidance     Guidance  

Operating costs and expenses (per Boe):

    

Lease operating

   $ 5.00 – 6.00      $ 6.00 – 6.75   

Production and ad valorem taxes (% of oil and gas revenues)

     7.25%        6.5%   

Depletion, depreciation and amortization

   $ 22.00 – 24.00      $ 21.00 – 23.00   

Liquidity Update

At September 30, 2014, we had a $1 billion revolving credit facility with a $450 million borrowing base and $89.5 million of outstanding borrowings. At September 30, 2014, our liquidity and long-term debt-to-capital ratio were approximately $362 million and 31.3%, respectively. Please refer to “Supplemental Non-GAAP Financial and Other Measures” below for our definitions of liquidity and long-term debt-to-capital ratio.

The lenders under our revolving credit facility recently completed their semi-annual borrowing base redetermination, resulting in an increase in the borrowing base to $600 million from $450 million effective November 4, 2014. We have elected to leave the aggregate commitment amount from the bank group unchanged at $450 million.

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 our derivatives positions at October 1, 2014.

Conference Call Information and Summary Presentation

The Company will host a conference call on Thursday, November 6, 2014, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss financial and operational results for third quarter 2014. The conference call may be accessed via the Company’s website at www.approachresources.com or by phone:

 

Dial in:

   (877) 201-0168

Intl. dial in:

   (647) 788-4901

Passcode:

   Approach / 18516543

A replay of the call will be available on the Company’s website or by dialing (855) 859-2056 (passcode: 18516543).

In addition, a third quarter 2014 summary presentation is available on the Company’s website.

 

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About Approach Resources

Approach Resources Inc. is an independent energy company focused on the exploration, development, production and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian Basin in West Texas. 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.

Forward-Looking and Cautionary Statements

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 expectations of anticipated financial and operating results. 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.

 

4

UNAUDITED RESULTS OF OPERATIONS

 

     Three Months Ended
September 30, 		    Nine Months Ended
September 30, 		 
     2014     2013     2014     2013  

Revenues (in thousands):

        

Oil

   $ 47,194      $ 31,708      $ 140,509      $ 87,551   

NGLs

     11,628        7,231        33,486        19,682   

Gas

     9,302        5,257        29,464        15,504   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total oil, NGL and gas sales

     68,124        44,196        203,459        122,737   

Realized loss on commodity derivatives

     (764 )      (840 )      (5,423 )      (1,247 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total oil, NGL and gas sales including derivative impact

   $ 67,360      $ 43,356      $ 198,036      $ 121,490   
  

 

 

   

 

 

   

 

 

   

 

 

 

Production:

        

Oil (MBbls)

     507        314        1,482        969   

NGLs (MBbls)

     392        242        1,057        682   

Gas (MMcf)

     2,445        1,538        6,727        4,393   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total (MBoe)

     1,306        812        3,659        2,383   

Total (MBoe/d)

     14.2        8.8        13.4        8.7   

Average prices:

        

Oil (per Bbl)

   $ 93.14      $ 101.02      $ 94.84      $ 90.39   

NGLs (per Bbl)

     29.70        29.87        31.69        28.84   

Gas (per Mcf)

     3.80        3.42        4.38        3.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total (per Boe)

   $ 52.17      $ 54.41      $ 55.60      $ 51.50   

Realized loss on commodity derivatives (per Boe)

     (0.58 )      (1.03 )      (1.49 )      (0.52 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total including derivative impact (per Boe)

   $ 51.59      $ 53.38      $ 54.11      $ 50.98   

Costs and expenses (per Boe):

        

Lease operating

   $ 5.87      $ 5.38      $ 6.41      $ 5.77   

Production and ad valorem taxes

     2.55        3.90        3.40        3.69   

Exploration

     0.68        1.47        0.98        0.84   

General and administrative(1)

     5.88        7.60        6.45        7.47   

Depletion, depreciation and amortization

     19.88        23.91        21.35        23.06   

(1)    Below is a summary of general and administrative expense:

        

General and administrative – cash component

   $ 4.37      $ 5.63      $ 4.89      $ 5.21   

General and administrative – noncash component

     1.51        1.97        1.56        2.26   

 

5

APPROACH RESOURCES INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except shares and per-share amounts)

 

     Three Months Ended
September 30, 		    Nine Months Ended
September 30, 		 
     2014     2013     2014     2013  

REVENUES:

        

Oil, NGL and gas sales

   $ 68,124      $ 44,196      $ 203,459      $ 122,737   

EXPENSES:

        

Lease operating

     7,665        4,370        23,462        13,746   

Production and ad valorem taxes

     3,335        3,167        12,429        8,791   

Exploration

     891        1,193        3,595        2,010   

General and administrative

     7,675        6,171        23,612        17,810   

Depletion, depreciation and amortization

     25,959        19,413        78,138        54,951   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     45,525        34,314        141,236        97,308   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     22,599        9,882        62,223        25,429   

OTHER:

        

Interest expense, net

     (5,442 )      (5,179 )      (15,936 )      (8,859 ) 

Equity in income (losses) of investee

     —          340        (186 )      160   

Realized loss on commodity derivatives

     (764 )      (840 )      (5,423 )      (1,247 ) 

Unrealized gain (loss) on commodity derivatives

     18,810        (3,438 )      5,206        (3,248 ) 

Other expense

     —          —          (109 )      —     
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX PROVISION

     35,203        765        45,775        12,235   

INCOME TAX PROVISION

     12,756        270        16,590        4,300   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 22,447      $ 495      $ 29,185      $ 7,935   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE:

        

Basic

   $ 0.57      $ 0.01      $ 0.74      $ 0.20   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.57      $ 0.01      $ 0.74      $ 0.20   
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

        

Basic

     39,363,441        39,011,555        39,325,552        38,980,971   

Diluted

     39,379,779        39,032,813        39,340,961        39,002,731   

 

6

UNAUDITED SELECTED FINANCIAL DATA

 

Unaudited Consolidated Balance Sheet Data

   September 30,      December 31,  
(in thousands)    2014      2013  

Cash and cash equivalents

   $ 1,634       $ 58,761   

Restricted cash

     —           7,350   

Other current assets

     24,024         24,302   

Property and equipment, net, successful efforts method

     1,266,304         1,047,030   

Other assets

     10,206         8,041   
  

 

 

    

 

 

 

Total assets

   $ 1,302,168       $ 1,145,484   
  

 

 

    

 

 

 

Current liabilities

   $ 101,903       $ 84,441   

Long-term debt(1)

     339,500         250,000   

Other long-term liabilities

     115,679         100,548   

Stockholders’ equity

     745,086         710,495   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,302,168       $ 1,145,484   
  

 

 

    

 

 

 

 

(1) Long-term debt at September 30, 2014, and December 31, 2013, includes $250 million in 7% senior notes. In addition, we had $89.5 million in outstanding borrowings under our revolving credit facility as of September 30, 2014.

 

Unaudited Consolidated Cash Flow Data

   Nine Months Ended
September 30, 		 
(in thousands)    2014     2013  

Net cash provided (used) by:

    

Operating activities

   $ 148,230      $ 118,996   

Investing activities

   $ (292,630 )    $ (230,187 ) 

Financing activities

   $ 87,273      $ 135,913   

UNAUDITED COMMODITY DERIVATIVES INFORMATION

AS OF OCTOBER 1, 2014

 

Commodity and Period

  Contract Type   Volume Transacted   Contract Price

Crude Oil

     

October 2014 – December 2014

  Collar   550 Bbls/d   $90.00/Bbl - $105.50/Bbl

October 2014 – December 2014

  Collar   950 Bbls/d   $85.05/Bbl - $95.05/Bbl

October 2014 – December 2014

  Collar   2,000 Bbls/d   $89.00/Bbl - $98.85/Bbl

October 2014 – March 2015

  Collar   1,500 Bbls/d   $85.00/Bbl - $95.30/Bbl

January 2015 – December 2015

  Collar   1,600 Bbls/d   $84.00/Bbl - $91.00/Bbl

January 2015 – December 2015

  Collar   1,000 Bbls/d   $90.00/Bbl - $102.50/Bbl

January 2015 – December 2015

  Three-Way Collar   500 Bbls/d   $75.00/Bbl - $84.00/Bbl -

$94.00/Bbl

January 2015 – December 2015

  Three-Way Collar   500 Bbls/d   $75.00/Bbl - $84.00/Bbl -

$95.00/Bbl

Natural Gas Liquids

     

Propane

     

October 2014 – December 2014

  Swap   500 Bbls/d   $41.16/Bbl

Natural Gasoline

     

October 2014 – December 2014

  Swap   175 Bbls/d   $83.37/Bbl

Natural Gas

     

October 2014 – December 2014

  Swap   360,000 MMBtu/month   $4.18/MMBtu

October 2014 – December 2014

  Swap   35,000 MMBtu/month   $4.29/MMBtu

October 2014 – December 2014

  Swap   160,000 MMBtu/month   $4.40/MMBtu

October 2014 – June 2015

  Collar   80,000 MMBtu/month   $4.00/MMBtu - $4.74/MMBtu

January 2015 – December 2015

  Swap   200,000 MMBtu/month   $4.10/MMBtu

January 2015 – December 2015

  Collar   130,000 MMBtu/month   $4.00/MMBtu - $4.25/MMBtu

 

7

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 Financials 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 (gain) loss on commodity derivatives and 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.

The table below provides a reconciliation of adjusted net income and adjusted net income per diluted share to net income for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per-share amounts).

 

     Three Months Ended
September 30, 		    Nine Months Ended
September 30, 		 
     2014     2013     2014     2013  

Net income

   $ 22,447      $ 495      $ 29,185      $ 7,935   

Adjustments for certain items:

        

Unrealized (gain) loss on commodity derivatives

     (18,810 )      3,438        (5,206 )      3,248   

Related income tax effect

     6,816        (1,169 )      1,886        (1,104 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 10,453      $ 2,764      $ 25,865      $ 10,079   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income per diluted share

   $ 0.27      $ 0.07      $ 0.66      $ 0.26   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDAX

We define EBITDAX as net income, plus (1) exploration expense, (2) depletion, depreciation and amortization expense, (3) share-based compensation expense, (4) unrealized (gain) loss on commodity derivatives, (5) interest expense, net, and (6) income tax provision. 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

 

8

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 and EBITDAX per diluted share to net income for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per-share amounts).

 

     Three Months Ended
September 30, 		     Nine Months Ended
September 30, 		 
     2014     2013      2014     2013  

Net income

   $ 22,447      $ 495       $ 29,185      $ 7,935   

Exploration

     891        1,193         3,595        2,010   

Depletion, depreciation and amortization

     25,959        19,413         78,138        54,951   

Share-based compensation

     1,965        1,599         5,726        5,389   

Unrealized (gain) loss on commodity derivatives

     (18,810 )      3,438         (5,206 )      3,248   

Interest expense, net

     5,442        5,179         15,936        8,859   

Income tax provision

     12,756        270         16,590        4,300   
  

 

 

   

 

 

    

 

 

   

 

 

 

EBITDAX

   $ 50,650      $ 31,587       $ 143,964      $ 86,692   
  

 

 

   

 

 

    

 

 

   

 

 

 

EBITDAX per diluted share

   $ 1.29      $ 0.81       $ 3.66      $ 2.22   
  

 

 

   

 

 

    

 

 

   

 

 

 

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, 2014 (in thousands).

 

     Liquidity at
September 30, 2014 		 

Borrowing base

   $ 450,000   

Cash and cash equivalents

     1,634   

Credit facility – outstanding borrowings

     (89,500 ) 

Outstanding letters of credit

     (325 ) 
  

 

 

 

Liquidity

   $ 361,809   
  

 

 

 

 

9

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, 2014, and December 31, 2013 (in thousands).

 

     September 30, 2014     December 31, 2013  

Long-term debt(1)

   $ 339,500      $ 250,000   

Total stockholders’ equity

     745,086        710,495   
  

 

 

   

 

 

 
   $ 1,084,586      $ 960,495   

Long-term debt-to-capital

     31.3 %      26.0 % 
  

 

 

   

 

 

 

 

(1) Long-term debt at September 30, 2014, and December 31, 2013, includes $250 million in 7% senior notes. In addition, we had $89.5 million in outstanding borrowings under our revolving credit facility as of September 30, 2014.

 

10

Exhibit 99.2

 

News Release    LOGO

For Immediate Release

November 5, 2014

Approach Resources Inc. Announces Changes to the Board

Fort Worth, Texas, November 5, 2014 – Approach Resources Inc. (NASDAQ: AREX) (“Approach” or the “Company”) today announced that J. Ross Craft, the Company’s President and Chief Executive Officer, has been appointed to the additional position of Chairman of the Board of Directors (“Board”) following yesterday’s Board meeting. Mr. Craft is a founder of the Company and has served on Approach’s Board since the Company’s inception in 2002. Bryan H. Lawrence will continue to serve as a director, but will retire from his role as Chairman. Mr. Lawrence, a founder and Senior Manager of Yorktown Partners LLC, is a founding director of the Company and served as Chairman of Approach’s Board since the Company’s initial public offering in 2007.

The Company also announced that Vean J. Gregg III has been elected as Lead Independent Director of the Board. Mr. Gregg joined the Board in January 2014 and has 18 years of experience in oil and gas investment banking with J.P. Morgan Securities LLC. While at J.P. Morgan, Mr. Gregg most recently served as Managing Director and Group Head, North American Oil and Gas Investment Banking.

Mr. Craft commented, “I want to thank Bryan for his leadership as Approach grew from a start-up to a public E&P company operating in one of the most prolific shale oil basins in the United States. We are very grateful for his service as Chairman and pleased to have his continued guidance and counsel as a valued member of the Board.

We are also excited to have Vean assume the new role of Lead Independent Director. Vean brings a great breadth of perspective to this position. We believe his experience advising public E&P company boards and leading the oil and gas investment banking business at one of the world’s top financial institutions will be very valuable in this role to the Company.”

About Approach Resources

Approach Resources Inc. is an independent energy company focused on the exploration, development, production and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian Basin in West Texas. 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.

 

INVESTOR CONTACT

Sergei Krylov

Executive Vice President & Chief Financial Officer

ir@approachresources.com

817.989.9000

  

APPROACH RESOURCES INC.

One Ridgmar Centre

6500 West Freeway, Suite 800

Fort Worth, Texas 76116

www.approachresources.com

Third Quarter 2014 Results
NOVEMBER 5, 2014
Exhibit 99.3

Forward-looking statements
2
Cautionary statements regarding oil & gas quantities
Third
Quarter
2014
Results
–
November
2014

Company overview
AREX OVERVIEW
ASSET OVERVIEW
Enterprise value $710 MM
High-quality reserve base
Permian core operating area
2014 Capital program of $400 MM
Notes:
Proved
reserves
and
acreage
as
of
12/31/2013
and
9/30/2014,
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
$9.44
per
share
on
11/3/2014,
plus
net
debt
as
of
9/30/2014.
See
“PV-10
(unaudited)”
slide.
3
Third
Quarter
2014
Results
–
November
2014
115 MMBoe proved reserves
$1.1 BN proved PV-10
99% Permian Basin
155,000 gross (136,500 net) acres
Running 3 HZ rigs in the Wolfcamp shale play to drill
70 wells during 2014
~1+ BnBoe gross, unrisked resource potential
~2,000+ Identified HZ drilling locations targeting
Wolfcamp A/B/C

3Q14 Key highlights
4
3Q14 HIGHLIGHTS
•
Drilled 18 and completed 16 HZ wells
•
Maintained best-in-class HZ well costs
•
New Elliott well expands Wolfcamp
development eastward
•
Increased 3Q14 production 61% YoY to
14.2 MBoe/d
•
Delivered seventh consecutive record
quarterly EBITDAX
•
Solid financial position further
strengthened by borrowing base increase
3Q14  SUMMARY RESULTS
Production (MBoe/d)
14.2
% Oil
39%
% Total liquids
69%
Average realized price ($/Boe)
Average realized price, excluding commodity derivatives impact
$
52.17
Average realized price, including commodity derivatives impact
51.59
Costs and expenses ($/Boe)
LOE
$
5.87
Production and ad valorem taxes
2.55
Exploration
0.68
General and administrative
5.88
G&A –
cash component
4.37
G&A –
noncash component
1.51
DD&A
19.88
Third
Quarter
2014
Results
–
November
2014

Outperformance in gas/NGL volumes achieves higher reserve
recovery and drives production growth
Horizontal Wolfcamp Production by Commodity
83% oil growth since 3Q13
135% growth in HZ Wolfcamp
production since 3Q13
216% NGL growth since 3Q13
218% gas growth since 3Q13
Mboe
85
135
166
247
270
82
128
153
230
259
260
424
396
481
475
0
200
400
600
800
1,000
3Q13
4Q13
1Q14
2Q14
3Q14
Gas
NGLs
Oil
5
427
687
715
957
1,004
Third
Quarter
2014
Results
–
November
2014

AREX HZ Wolfcamp Well Performance
6
AREX HZ WOLFCAMP (BOE/D)
Note: Daily production normalized for operational downtime.
Third
Quarter
2014
Results
–
November
2014
Production Data from
AREX A Bench Wells (11)
450 MBoe Type Curve
Wolfcamp Shale Oil
Production Data from
AREX B Bench Wells (74)
Production Data from
AREX C Bench Wells (13)
0
200
300
400
600
700
800
0
90
180
270
360
450
540
630
720
810
900
990
1080
1170
Time (Days)
100
500

3Q14 Operating highlights
OPERATING HIGHLIGHTS
Maximizing
Returns
•
Oil differential of $(4.17)/Bbl
•
HZ well costs continue to track $5.5 MM per well
•
LOE of $5.87/Boe, improved 5% QoQ
Tracking
Development
Plan
•
Drilled
18
HZ
wells
and
completed
16
HZ
wells
•
Wolfcamp
A
–
2
wells,
Wolfcamp
B
–
7
wells
and
Wolfcamp
C
–
7
wells
•
HZ Wolfcamp B/C average IP 746 Boe/d (67% oil, 85% liquids)
•
Overall HZ well results continue to track at or above type curve
•
Impressive initial results from recent Elliott C bench well (IP of 806 Boe/d, 63% oil and
83% liquids) expand Wolfcamp development eastward
Delivering
Production
Growth
•
Total production 14.2 MBoe/d (up 61% YoY)
•
Oil production 5.5 Mbbl/d (up 61% YoY)
7
Third
Quarter
2014
Results
–
November
2014

3Q14 Financial highlights
FINANCIAL HIGHLIGHTS
Significant Cash
Flow
•
Record quarterly EBITDAX (non-GAAP) of $50.7 MM (up 60% YoY), or $1.29 per
diluted share (up 59% YoY)
•
Capital expenditures of $104.9 MM ($94 million for D&C)
Strong Financial
Position
•
Liquidity of $362MM at September 30
•
Increased borrowing base to $600 MM in November 2014
Increasing
Revenues
•
Revenues of $68.1 MM (up 54% YoY)
•
Net income of $22.4 MM, or $0.57 per diluted share
•
Adjusted net income (non-GAAP) of $10.5 MM, or $0.27 per diluted share
Strong Balance Sheet and Liquidity to Develop
HZ Wolfcamp Shale
Note:
See
“Adjusted
Net
Income,”
“EBITDAX”
and
“Strong,
Simple
Balance
Sheet”
slides.
8
Third
Quarter
2014
Results
–
November
2014
th

Current hedge position
9
Commodity & Period
Contract Type
Volume
Contract Price
Crude Oil
October 2014 –
December 2014
Collar
550 Bbls/d
$90.00/Bbl -
$105.50/Bbl
October 2014 –
December 2014
Collar
950 Bbls/d
$85.05/Bbl -
$95.05/Bbl
October 2014 –
December 2014
Collar
2,000 Bbls/d
$89.00/Bbl -
$98.85/Bbl
October 2014 –
March 2015
Collar
1,500 Bbls/d
$85.00/Bbl -
$95.30/Bbl
January 2015 –
December 2015
Collar
1,600 Bbls/d
$84.00/Bbl -
$91.00/Bbl
January 2015 –
December 2015
Collar
1,000 Bbls/d
$90.00/Bbl -
$102.50/Bbl
January 2015 –
December 2015
3-way Collar
500 Bbls/d
$75.00/Bbl -
$84.00/Bbl -
$94.00/Bbl
January 2015 –
December 2015
3-way Collar
500 Bbls/d
$75.00/Bbl -
$84.00/Bbl -
$95.00/Bbl
Natural Gas Liquids
Propane
October 2014 –
December 2014
Swap
500 Bbls/d
$41.16/Bbl
Natural Gasoline
October 2014 –
December 2014
Swap
175 Bbls/d
$83.37/Bbl
Natural Gas
October 2014 –
December 2014
Swap
360,000 MMBtu/month
$4.18/MMBtu
October 2014 –
December 2014
Swap
35,000 MMBtu/month
$4.29/MMBtu
October 2014 –
December 2014
Swap
160,000 MMBtu/month
$4.40/MMBtu
October 2014 –
June 2015
Collar
80,000 MMBtu/month
$4.00/MMBtu -
$4.74/MMBtu
January 2015 –
December 2015
Swap
200,000 MMBtu/month
$4.10/MMBtu
January 2015 –
December 2015
Collar
130,000 MMBtu/month
$4.00/MMBtu -
$4.25/MMBtu
Third
Quarter
2014
Results
–
November
2014

Production and expense guidance
10
2014 Guidance
Production
Total (MBoe)
4,950
Oil (MBbls)
2,050 –
2,200
Percent total liquids
70%
Operating costs and expenses (per Boe)
Lease operating
$6.00 -
$6.75
Production and ad valorem taxes
6.5% of oil & gas revenues
Cash general and administrative
$4.50 -
$5.00
Exploration
$0.50 -
$1.00
Depletion, depreciation and amortization
$21.00 -
$23.00
Capital expenditures (in millions)
Approx. $400
Horizontal wells
70
Third
Quarter
2014
Results
–
November
2014

Strong, simple balance sheet
11
FINANCIAL RESULTS ($MM)
As of
September 30, 2014
Summary Balance Sheet
Cash and Cash Equivalents
$1.6
Credit Facility
89.5
Senior Notes
250.0
Total Long-Term Debt
$339.5
Shareholders’
Equity
745.1
Total Book Capitalization
$1,084.6
Liquidity
Borrowing Base
$450.0
Cash and Cash Equivalents
1.6
Long-term Debt under Credit Facility
(89.5)
Undrawn Letters of Credit
(0.3)
Liquidity
$361.8
Key Metrics
LTM EBITDAX (non-GAAP)
$185.1
Total Reserves (MMBoe)
114.7
Proved Developed Reserves (MMBoe)
45.2
% Proved Developed
39%
% Liquids
69%
Credit Statistics
Debt / Book Capital
31%
Debt / LTM EBITDAX
1.8x
LTM EBITDAX / LTM Interest
8.7x
Debt / Proved Reserves ($/Boe)
$2.96
Third
Quarter
2014
Results
–
November
2014
Note: See “EBITDAX”
slide for reconciliation.

Appendix

Adjusted net income (unaudited)
13
(in thousands, except per-share amounts)
Three Months Ended
September 30,
2014
2013
Net income
$
22,447
$
495
Adjustments for certain items:
Unrealized (gain) loss on commodity derivatives
(18,810)
3,438
Related income tax effect
6,816
(1,169)
Adjusted net income
$
10,453
$
2,764
Adjusted net income per diluted share
$
0.27
$
0.07
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
income
for
the
three
months
ended
September
30,
2014
and
2013.
ADJUSTED NET INCOME (UNAUDITED)
Third
Quarter
2014
Results
–
November
2014

EBITDAX (unaudited)
14
EBITDAX (UNAUDITED)
The
amounts
included
in
the
calculation
of
EBITDAX
were
computed
in
accordance
with
GAAP.
EBITDAX
is
not
a
measure
of
net
income
or
cash
flow
as
determined
by
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
for
the
three
months
ended
September
30,
2014
and
2013.
(in thousands, except per-share amounts)
Three Months Ended
September 30,
2014
2013
Net income
$
22,447
$
495
Exploration
891
1,193
Depletion, depreciation and amortization
25,959
19,413
Share-based compensation
1,965
1,599
Unrealized (gain) loss on commodity derivatives
(18,810)
3,438
Interest expense, net
5,442
5,179
Income tax provision
12,756
270
EBITDAX
$
50,650
$
31,587
EBITDAX per diluted share
$
1.29
$
0.81
Third
Quarter
2014
Results
–
November
2014

PV-10 (unaudited)
15
PV-10 (UNAUDITED)
(in millions)
December 31,
2013
PV-10
$
1,132
Less income taxes:
Undiscounted future income taxes
(919)
10% discount factor
463
Future discounted income taxes
(456)
Standardized measure of discounted future net cash flows
$
676
The
present
value
of
our
proved
reserves,
discounted
at
10%
(“PV-10”),
was
estimated
at
$1.1
billion
at
December
31,
2013,
and
was
calculated
based
on
the
first-of-the-month,
twelve-month
average
prices
for
oil,
NGLs
and
gas,
of
$97.28
per
Bbl
of
oil,
$30.16
per
Bbl
of
NGLs
and
$3.66
per
MMBtu
of
natural
gas. 
PV-10
is
our
estimate
of
the
present
value
of
future
net
revenues
from
proved
oil
and
gas
reserves
after
deducting
estimated
production
and
ad
valorem
taxes,
future
capital
costs
and
operating
expenses,
but
before
deducting
any
estimates
of
future
income
taxes.
The
estimated
future
net
revenues
are
discounted
at
an
annual
rate
of
10%
to
determine
their
“present
value.”
We
believe
PV-10
to
be
an
important
measure
for
evaluating
the
relative
significance
of
our
oil
and
gas
properties
and
that
the
presentation
of
the
non-GAAP
financial
measure
of
PV-10
provides
useful
information
to
investors
because
it
is
widely
used
by
professional
analysts
and
investors
in
evaluating
oil
and
gas
companies.
Because
there
are
many
unique
factors
that
can
impact
an
individual
company
when
estimating
the
amount
of
future
income
taxes
to
be
paid,
we
believe
the
use
of
a
pre-tax
measure
is
valuable
for
evaluating
the
Company.
We
believe
that
PV-10
is
a
financial
measure
routinely
used
and
calculated
similarly
by
other
companies
in
the
oil
and
gas
industry.
The
following
table
reconciles
PV-10
to
our
standardized
measure
of
discounted
future
net
cash
flows,
the
most
directly
comparable
measure
calculated
and
presented
in
accordance
with
GAAP.
PV-10
should
not
be
considered
as
an
alternative
to
the
standardized
measure
as
computed
under
GAAP.
Third
Quarter
2014
Results
–
November
2014

Contact information
SERGEI KRYLOV
Executive Vice President & Chief Financial Officer
817.989.9000
ir@approachresources.com
www.approachresources.com