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): August 7, 2019

 

 

ROAN RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-32720   83-1984112
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)

14701 Hertz Quail Springs Pkwy

Oklahoma City, OK 73134

(Address of principal executive offices)

(Zip Code)

(405) 896-8050

Registrant’s Telephone Number, Including Area Code

 

 

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))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Class A Common Stock, par value $0.001 per share   ROAN   New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02

Results of Operations and Financial Condition

On August 7, 2019, Roan Resources, Inc. (the “Company”) issued a press release announcing its financial and operational results for the quarter ended June 30, 2019, and its updated guidance for 2019. A copy of that press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 2.02.

The information in this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified as being incorporated by reference in the registration statement.

 

Item 7.01

Regulation FD Disclosure

On August 7, 2019, the Company plans to post an updated investor presentation to the “investors” section of its website (www.roanresources.com), where the Company routinely posts announcements, updates, events, investor information and presentations and recent news releases. The content of our website is not incorporated by reference into this filing. Further, the reference to the URL for our website is intended to be an inactive text reference only.

The information in this Item 7.01 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified as being incorporated by reference in the registration statement.

 

Item 9.01

Financial Statements and Exhibits.

 

(d)

Exhibits.

 

Exhibit
No.

  

Description

99.1    Press release issued by Roan Resources, Inc. on August 7, 2019.

 

2


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.

 

ROAN RESOURCES, INC.
By:  

/s/ David Treadwell

Name:   David Treadwell
Title:   Vice President, General Counsel and Corporate Secretary

Dated: August 7, 2019

 

3

Exhibit 99.1

 

NEWS RELEASE    LOGO

 

 

Roan Resources, Inc. Reports Second Quarter 2019 Results

OKLAHOMA CITY, August 7, 2019 – Roan Resources, Inc. (NYSE: ROAN) (“Roan” or the “Company”) today announced second quarter 2019 operating and financial results.

Second Quarter 2019 Highlights

 

   

Production of approximately 50.8 thousand barrels of oil equivalent per day (MBoe/d) (26% oil, 29% natural gas liquids (NGLs), 45% gas); the Company elected to be in ethane rejection for the months of May and June which is estimated to have negatively impacted production in those months by approximately 3.3 MBoe/d;

 

   

Net income was $27.2 million, or $0.18 per diluted share; Adjusted EBITDAX (1) (non-GAAP) was $79.3 million;

 

   

Capital expenditures totaled approximately $114.3 million, approximately $26 million less than the adjusted guidance;

 

   

Lowering full-year 2019 capital expenditures to $495 to $525 million, down $30 million from the previous top end of the range;

 

   

Enhanced liquidity position by approximately $100 million with the completion of term loan facility in June;

 

   

Over 95% of remaining oil production for 2019 is hedged at over $60 per barrel WTI and over 75% of remaining natural gas production for 2019 is hedged at approximately $2.90 per MMBtu;

 

   

Completed 4-well Red Bullet/Silver Charm unit, located in Canadian County; average 30-day initial production (IP) rate of 1,545 Boe/d (41% oil, 26% NGLs, 33% gas) normalized to 10,000-foot lateral;

 

   

Continued to reduce overall drilling costs and achieved record drill time of 6.4 days for a 2-mile Mayes well; drill costs per foot down approximately 25% compared to first quarter 2019;

 

   

Completion costs per foot improved by approximately 20% compared to the first quarter 2019;

 

   

Entered into a definitive crude oil gathering agreement with Blue Mountain Midstream LLC and a definitive agreement with Glass Mountain Pipeline and Navigator SMS Pipeline LLC to blend and ship crude oil to Cushing, OK, which will decrease crude transportation costs by approximately 50% on gathered barrels; and

 

   

The Company remains focused on evaluating various strategic options alongside its advisors.

“We are pleased with the progress the Company has made this quarter,” said Joseph A. Mills, Roan’s Executive Chairman of the Board. “Our focus has been on driving down our overall cost structure and delivering on our production expectations. We were able to beat production on a significantly lower capital spend. The recently completed optimized wells are performing in-line with expectations and are costing less than original forecasts. Finally, our strategic initiative process remains a key focus for the Company and expect to announce the results as soon as possible.”

 

1)

Please see the supplemental financial information in the table under “Non-GAAP Financial Measures” at the end of this earnings release for a reconciliation of the non-GAAP financial measure of Adjusted EBITDAX to its most directly comparable GAAP financial measure


Operational Update

Roan’s second quarter 2019 average daily production was approximately 50.8 MBoe/d (26% oil, 29% NGLs, 45% gas), which exceeded adjusted guidance of 50 MBoe/d, and represented an increase of 41% as compared to the second quarter of 2018.

 

     2Q 2019      1Q 2019      2Q 2018  

Production Data

        

Oil (MBbls)

     1,198        1,139        877  

Natural gas (MMcf)

     12,533        11,620        9,157  

Natural gas liquids (MBbls)

     1,339        1,329        883  

Total volumes (MBoe)

     4,626        4,405        3,286  

Average daily total volumes (MBoe/d)

     50.8        48.9        36.1  

The Company drilled 17 gross (12.7 net) operated wells (30.5 gross lateral miles) during the second quarter. The Company also brought online 22 gross (15.3 net) operated wells during the quarter, which is three ahead of schedule due to an improvement in cycle times. The average 30-day rate for the 22 gross operated wells brought online during the quarter was 1,165 MBoe/d (42% oil, 23% NGLs, 35% gas), when normalized to a 10,000-foot lateral, with an actual average lateral length of 8,900 feet.

 

     2Q 2019      YTD 2019  

Operated Well Data

     

Drilled gross wells

     17        36  

Drilled net wells

     12.7        26.0  

Drilled gross lateral miles

     30.5        66.5  

First sales gross wells

     22        37  

First sales net wells

     15.3        28.0  

Highlight wells from the second quarter include the Mad Play unit, the Mayes Earl wells, the Mayes Victory Slide wells, the Zenyatta unit and the Red Bullet/Silver Charm unit.

 

   

The 4-well Mad Play unit had an average 30-day IP of 1,601 Boe/d (44% oil, 20% NGLs, 36% gas) and an average 90-day IP of 1,240 Boe/d (42% oil, 20% NGLs, 38% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 6,780 feet), with an average well cost under $7 million.

 

   

The three optimized Mayes wells in the Earl unit had an average 30-day IP of 1,466 Boe/d (39% oil, 24% NGLs, 37% gas) and an average 90-day IP of 1,222 Boe/d (32% oil, 24% NGLs, 44% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 10,160 feet), with an average well cost $7.4 million.

 

   

The two Mayes Victory Slide wells had an average 30-day IP of 1,170 Boe/d (67% oil, 15% NGLs, 18% gas) and an average 60-day IP of 1,091 Boe/d (64% oil, 17% NGLs, 19% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 9,900 feet), with an average well cost of approximately $6 million.

The Zenyatta unit is a 2-well Woodford unit located in Stephens County with approximately 1,000 feet of horizontal separation between wellbores and tested two different Woodford zones, located in the southern SCOOP.

 

   

The 2-well Zenyatta unit had an average 30-day IP of 1,104 Boe/d (32% oil, 32% NGLs, 36% gas) and an average 90-day IP of 1,004 Boe/d (27% oil, 34% NGLs, 39% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 9,750 feet).

 

2


The Red Bullet/Silver Charm unit was completed at the end of the second quarter and is a 4-well unit, with two Mayes wells and two Woodford wells, with 800 to 1,160 feet of horizontal separation and approximately 200 feet of vertical separation between wellbores located in the western Merge. The average per well 30-day IP rates is as follows:

 

   

The 4-well Red Bullet/Silver Charm unit flowed an average 1,545 Boe/d (41% oil, 26% NGLs, 33% gas) from a normalized 10,000-foot lateral (with an actual lateral length of 9,500 feet), with an average well cost of approximately $8 million.

Drill times continue to improve, and the Company drilled its fastest 2-mile well to date during the quarter. The Fusaichi Pegasus 9-4-13-6 3MXH well was drilled in 6.4 days, nearly 60% faster than the average drill time for 2-mile Mayes wells. As a result of faster drill times, drill costs continue to decrease. The Company drilled its wells for an average cost per foot of $140, approximately 25% lower than the previous quarter.

Completion costs per foot also improved by approximately 20% compared to the first quarter of 2019 as a result of lower service costs, more efficient frac designs and more efficient drillouts.

In July, it was announced that Roan had entered into a definitive crude oil gathering agreement with Blue Mountain Midstream LLC. This agreement is for 10 years covering 89,000 net acres in the Merge. Earlier this year, the Company also entered into a definitive agreement with Glass Mountain Pipeline and Navigator SMS Pipeline LLC to blend and ship barrels to Cushing, OK on pipelines for the same dedicated acres. The gathering agreement with Blue Mountain is expected to decrease crude transportation costs by approximately 50% on gathered barrels, as well as decrease volatility in the cost structure for crude transportation. The pipelines should be operational before the end of the year.

Financial Update

Second quarter 2019 net income was $27.2 million, or $0.18 per dilutive share, and adjusted net income (non-GAAP) was $16.9 million, or $0.11 per dilutive share. Second quarter 2019 Adjusted EBITDAX (non-GAAP) was $79.3 million.

See the definitions and reconciliations of adjusted net income, adjusted net income per share, Adjusted EBITDAX, net debt and cash general and administrative (G&A) expense presented within this release to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures provided in the supporting tables or definitions at the conclusion of this press release.

Second quarter 2019 average realized prices were $57.76 per barrel of oil (Bo), $11.08 per barrel of NGLs and $1.04 per Mcf of natural gas, resulting in a total equivalent unhedged price of $20.99 per Boe or a total equivalent hedged price of $22.59 per Boe, down 4% quarter over quarter due primarily to further weakness in the NGL and natural gas markets.

The Company’s adjusted cash operating costs (non-GAAP) for the second quarter were $5.44 per Boe, including production expense of $2.44 per Boe, production tax of $1.09 per Boe and cash G&A expense (non-GAAP) of $1.91 per Boe. Both production expense and cash G&A expense were down quarter-over-quarter on a total dollar and per Boe basis. Production expenses benefited from the water disposal agreement with Blue Mountain Midstream LLC, which started early in the second quarter.

Capital expenditures for second quarter 2019 totaled approximately $114.3 million, a $58.5 million reduction as compared to the first quarter 2019 and below adjusted guidance by approximately $26 million. However, approximately $20 million of capital expenditures that were forecasted to be included in second quarter are expected to be recorded in subsequent quarters due to timing and working interest adjustments. The additional reduction to capital expenditures is primarily due to lower completed well costs.

As of the end of the second quarter, Roan had $5.4 million of cash on the balance sheet, $659.6 million drawn on its revolving credit facility and $50.0 million funded on its term loan, resulting in net funded debt of $704.2 million.

During the quarter, the Company enhanced its liquidity position by approximately $100 million through the closing of a term loan facility funded by affiliates of certain significant shareholders of the Company.

 

3


The facility was secured at favorable terms for the Company with an interest rate of the three-month LIBOR rate plus 7.5%. As a result, the Company had approximately $150 million of available liquidity as of June 30, 2019.

For the remainder of the year, the Company is over 95% hedged for oil at an average price of $60.39 per barrel and over 75% hedged for natural gas at an average price of $2.90 per MMbtu. A table of the Company’s derivative contracts as of August 7, 2019 is provided at the conclusion of this press release.

Updated Guidance

For the remainder of the year, the Company is projecting it will be in ethane rejection instead of ethane recovery, which impacts production on a monthly basis by approximately 3.3 MBoe/d. After incorporating adjustments for ethane rejection for the forecasted period and the outperformance of the second quarter, the Company is updating its full-year 2019 production guidance to be between 50.5 MBoe/d and 53.5 MBoe/d.

The Company is also reducing full-year 2019 production expense guidance to $2.80 - $3.10 per Boe, to reflect cost reduction initiatives exhibited in the second quarter.

Additionally, the Company is adjusting cash G&A (non-GAAP) to $2.00 to $2.20 per Boe, as a result of the impact of the adjusted volume forecast on the unit cost calculation.

Capital expenditures have been lower than originally forecasted as a result of lower completed well costs due to shorter cycle times and optimized well designs, and lower working interests in operated wells than originally forecasted. For the full-year 2019, capital expenditures are now expected to be between $495 million to $525 million, down $30 million from the prior top-end of guidance. The Company remains focused on achieving free cash flow by the fourth quarter. A table with updated 2019 guidance can be found at the conclusion of this release.

Second Quarter 2019 Earnings Conference Call

Roan will host a conference call to discuss second quarter 2019 results on Thursday, August 8, 2019 at 11:00 a.m. ET (10:00 a.m. CT). Interested parties may listen to the conference call via webcast on the Company’s website at www.RoanResources.com under the “Investor Relations” section of the site or by phone. The Company plans to post a presentation to the website prior to the start of the call.

Dial-in: 877-699-1024

International dial-in: 647-689-5461

Conference ID: 9986485

A replay of the webcast will be available on the Company’s website and a replay of the call will be available for two weeks by phone:

Replay dial-in: 800-585-8367 or 416-621-4642

Conference ID: 9986485

About Roan Resources

Roan is an independent oil and natural gas company headquartered in Oklahoma City, OK focused on the development, exploration and acquisition of unconventional oil and natural gas reserves in the Merge, SCOOP and STACK plays of the Anadarko Basin in Oklahoma. For more information, please visit www.RoanResources.com, where we routinely post announcements, updates, events, investor information, presentations and recent news releases.

 

4


Cautionary Statements     

This press release includes “forward-looking statements” within the meaning of Section  27A of the Securities Act of 1933, as amended, and Section  21E of the Securities Exchange Act of 1934, as amended . All statements, other than statements of historical fact, are forward-looking statements which contain our current expectations about future results. These forward-looking statements are based on certain assumptions and expectations made by the Company, which reflect management’s experience, estimates and perception of historical trends, current conditions and anticipated future developments. 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 anticipated in the forward-looking statements. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements found in the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December  31, 2018 and any subsequently filed quarterly reports on Form 10-Q.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, or incidental to the development, production, gathering and sale of oil, natural gas and NGLs. These risks include, but are not limited to, the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance, the structure and timing of any transaction or strategic alternative and whether any transaction or strategic alternative will be completed, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks.

Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.

Should one or more of the risks or uncertainties described occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this release.

Financial Statements

The information in the following financial statements and tables reflect the results of Roan Resources LLC prior to September 24, 2018 and on and after September 24, 2018, the results of Roan Resources, Inc.

 

5


Roan Resources, Inc.

Unaudited Condensed Consolidated Statements of Operations

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2019     2018     2019     2018  
     (in thousands, except per share amounts)  

Revenues

        

Oil sales

   $ 69,196     $ 58,677     $ 129,767     $ 122,369  

Natural gas sales

     6,659       11,126       17,848       21,458  

Natural gas sales – Affiliates

     6,430       2,881       17,022       9,439  

Natural gas liquid sales

     8,482       13,205       16,820       25,144  

Natural gas liquid sales – Affiliates

     6,353       4,678       14,202       13,127  

Gain (loss) on derivative contracts

     37,054       (54,602     (46,588     (64,216
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     134,174       35,965       149,071       127,321  

Operating Expenses

        

Production expenses

     6,723       7,019       21,569       15,374  

Production expenses - Affiliates

     4,580       —         4,580       —    

Production taxes

     5,065       2,296       10,104       4,682  

Exploration expenses

     11,406       10,633       23,894       18,483  

Depreciation, depletion, amortization and accretion

     44,893       24,601       86,465       46,466  

General and administrative

     12,311       13,086       28,136       27,106  

Loss (gain) on sale of other assets

     50       —         (614     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     85,028       57,635       174,134       112,111  

Total operating income (loss)

     49,146       (21,670     (25,063     15,210  

Other income (expense)

        

Interest expense, net

     (8,462     (1,087     (15,206     (2,886

Other

     (28     —         (28     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) before income taxes

     40,656       (22,757     (40,297     12,324  

Income tax expense (benefit)

     13,410       —         (9,487     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 27,246     $ (22,757   $ (30,810   $ 12,324  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share

        

Basic

   $ 0.18     $ (0.15   $ (0.20   $ 0.08  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.18     $ (0.15   $ (0.20   $ 0.08  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding

        

Basic

     152,607       152,540       152,573       151,920  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     152,725       152,540       152,573       151,920  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

6


Roan Resources, Inc.

Unaudited Condensed Consolidated Balance Sheets

 

     June 30, 2019     December 31, 2018  
     (in thousands, except par value and share data)  

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 5,428     $ 6,883  

Accounts receivable

    

Oil, natural gas and natural gas liquid sales

     44,475       55,564  

Joint interest owners and other, net

     164,156       133,387  

Affiliates

     2,979       9,669  

Prepaid drilling advances

     15,996       28,977  

Derivative contracts

     30,511       82,180  

Other current assets

     4,296       6,655  
  

 

 

   

 

 

 

Total current assets

     267,841       323,315  

Noncurrent assets

    

Oil and natural gas properties, successful efforts method

     2,913,621       2,628,333  

Accumulated depreciation, depletion, amortization and impairment

     (335,678     (230,836
  

 

 

   

 

 

 

Oil and natural gas properties, net

     2,577,943       2,397,497  

Derivative contracts

     12,017       20,638  

Other

     12,873       7,659  
  

 

 

   

 

 

 

Total assets

   $ 2,870,674     $ 2,749,109  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities

    

Accounts payable

   $ 85,031     $ 49,746  

Accrued liabilities

     116,174       176,494  

Accounts payable and accrued liabilities – Affiliates

     4,111       8,577  

Revenue payable

     100,070       97,963  

Drilling advances

     20,969       31,058  

Derivative contracts

     26       845  

Other current liabilities

     2,655       790  
  

 

 

   

 

 

 

Total current liabilities

     329,036       365,473  

Noncurrent liabilities

    

Long-term debt

     659,639       514,639  

Long-term debt, net - Affiliates

     44,924       —    

Deferred tax liabilities, net

     347,376       356,862  

Asset retirement obligations

     17,496       16,058  

Derivative contracts

     —         141  

Other

     5,818       902  
  

 

 

   

 

 

 

Total liabilities

     1,404,289       1,254,075  

Commitments and contingencies

    

Equity

    

Class A common stock, $0.001 par value; 800,000,000 shares authorized; 154,064,927 shares issued and outstanding at June 30, 2019 and 152,539,532 shares issued and outstanding at December 31, 2018

     154       153  

Preferred stock, $0.001 par value; 50,000,000 shares authorized; no shares issued and outstanding at June 30, 2019 or December 31, 2018

     —         —    

Additional paid-in capital

     1,648,561       1,646,401  

Accumulated deficit

     (182,330     (151,520
  

 

 

   

 

 

 

Total equity

     1,466,385       1,495,034  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 2,870,674     $ 2,749,109  
  

 

 

   

 

 

 

 

7


Roan Resources, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

     Six Months Ended
June 30,
 
     2019     2018  
     (in thousands)  

Cash flows from operating activities

    

Net (loss) income

   $ (30,810   $ 12,324  

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

Depreciation, depletion, amortization and accretion

     86,465       46,466  

Unproved leasehold amortization and impairment

     22,232       14,471  

Gain on sale of other assets

     (614     —    

Amortization of deferred financing costs

     875       341  

Loss on derivative contracts

     46,588       64,216  

Net cash received (paid) upon settlement of derivative contracts

     8,677       (13,911

Equity-based compensation

     (157     5,127  

Deferred income taxes

     (9,487     —    

Other

     6,547       117  

Changes in operating assets and liabilities increasing (decreasing) cash:

    

Accounts receivable and other assets

     (21,667     (9,036

Accounts payable and other liabilities

     (2,656     44,415  
  

 

 

   

 

 

 

Net cash provided by operating activities

     105,993       164,530  

Cash flows from investing activities

    

Acquisition of oil and natural gas properties

     —         (22,935

Capital expenditures for oil and natural gas properties

     (304,896     (314,662

Acquisition of other property and equipment

     (83     (2,371

Proceeds from sale of other assets

     1,214       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (303,765     (339,968

Cash flows from financing activities

    

Proceeds from borrowings

     190,000       199,300  

Proceeds from borrowings - Affiliates

     48,750       —    

Repayment of borrowings

     (45,000     —    

Other

     2,567       (957
  

 

 

   

 

 

 

Net cash provided by financing activities

     196,317       198,343  
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (1,455     22,905  

Cash and cash equivalents, beginning of period

     6,883       1,471  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 5,428     $ 24,376  
  

 

 

   

 

 

 

 

8


The following table represents the Company’s open commodity contracts at August 7, 2019:

 

     3Q19     4Q19     Bal 2019     2020     2021  

Oil Hedges

          

Volume Hedged Daily (Bbls/d)

     14,151       13,051       13,601       9,370       4,740  

Average Hedge Price ($/Bbl)

   $ 60.04     $ 60.74     $ 60.39     $ 60.57     $ 56.08  

Natural Gas Hedges

          

Volume Hedged Daily (MMBtu/d)

     110,000       120,000       115,000       43,730       9,863  

Average Hedge Price ($/MMBtu)

   $ 2.91     $ 2.90     $ 2.90     $ 2.64     $ 2.86  

NGL Hedges

          

Volume Hedged Daily (Bbls/d)

     3,000       3,000       3,000       1,500       —    

Average Hedge Price ($/Bbl)

   $ 32.25     $ 32.25     $ 32.25     $ 24.50       —    

Gas Basis Hedges

          

Volume Hedged Daily (MMBtu/d)

     80,000       80,000       80,000       30,000       —    

Average Hedge Price ($/MMBtu)

   ($ 0.60   ($ 0.60   ($ 0.60   ($ 0.49     —    

 

9


Results of Operations

The following tables represent the Company’s production and average realized prices:

 

     Three Months Ended
June 30,
 
     2019      2018  

Production Data

     

Oil (MBbls)

     1,198        877  

Natural gas (MMcf)

     12,533        9,157  

Natural gas liquids (MBbls)

     1,339        883  

Total volumes (MBoe)

     4,626        3,286  

Average daily total volumes (MBoe/d)

     50.8        36.1  

Average Prices - as reported

     

Oil (per Bbl)

   $ 57.76      $ 66.91  

Natural gas (per Mcf)

   $ 1.04      $ 1.53  

Natural gas liquids (per Bbl)

   $ 11.08      $ 20.25  

Total (per Boe)

   $ 20.99      $ 27.56  

Average Prices - including impact of derivative contract settlements

 

Oil (per Bbl)

   $ 58.17      $ 54.41  

Natural gas (per Mcf)

   $ 1.33      $ 1.66  

Natural gas liquids (per Bbl)

   $ 13.53      $ 20.25  

Total (per Boe)

   $ 22.59      $ 24.59  

Average Prices - excluding gathering, transportation and processing costs

 

Oil (per Bbl)

   $ 58.00      $ 66.91  

Natural gas (per Mcf)

   $ 1.82      $ 1.95  

Natural gas liquids (per Bbl)

   $ 15.57      $ 26.60  

Total (per Boe)

   $ 24.45      $ 30.44  

 

10


     Six Months Ended
June 30,
 
     2019      2018  

Production Data

     

Oil (MBbls)

     2,337        1,915  

Natural gas (MMcf)

     24,153        18,069  

Natural gas liquids (MBbls)

     2,668        1,757  

Total volumes (MBoe)

     9,031        6,684  

Average daily total volumes (MBoe/d)

     49.9        36.9  

Average Prices - as reported

     

Oil (per Bbl)

   $ 55.53      $ 63.90  

Natural gas (per Mcf)

   $ 1.44      $ 1.71  

Natural gas liquids (per Bbl)

   $ 11.63      $ 21.78  

Total (per Boe)

   $ 21.67      $ 28.66  

Average Prices - including impact of derivative contract settlements

 

Oil (per Bbl)

   $ 58.80      $ 55.70  

Natural gas (per Mcf)

   $ 1.43      $ 1.81  

Natural gas liquids (per Bbl)

   $ 13.69      $ 21.78  

Total (per Boe)

   $ 23.08      $ 26.58  

Average Prices - excluding gathering, transportation and processing costs

 

Oil (per Bbl)

   $ 55.69      $ 63.90  

Natural gas (per Mcf)

   $ 2.15      $ 2.17  

Natural gas liquids (per Bbl)

   $ 15.94      $ 27.63  

Total (per Boe)

   $ 24.87      $ 31.43  

 

11


Operating Expenses

Our operating expenses reflect costs incurred in the development, production and sale of oil, natural gas and NGLs. The following table provides information on our operating expenses:

 

     Three Months Ended
June 30,
 
     2019      2018  
     (in thousands, except costs per Boe)  

Operating Expenses

     

Production expenses

   $ 11,303      $ 7,019  

Production taxes

     5,065        2,296  

Exploration expenses

     11,406        10,633  

Depreciation, depletion, amortization and accretion

     44,893        24,601  

General and administrative (1)

     12,311        13,086  

Loss on sale of other assets

     50        —    
  

 

 

    

 

 

 

Total

   $ 85,028      $ 57,635  
  

 

 

    

 

 

 

Average Costs per Boe

     

Production expenses

   $ 2.44      $ 2.14  

Production taxes

     1.09        0.70  

Exploration expenses

     2.47        3.24  

Depreciation, depletion, amortization and accretion

     9.70        7.49  

General and administrative (1)

     2.66        3.98  

Loss on sale of other assets

     0.01        —    
  

 

 

    

 

 

 

Total

   $ 18.37      $ 17.55  
  

 

 

    

 

 

 

 

  (1)

General and administrative expenses for the three months ended June 30, 2019 and 2018 include $(3.2) million, or $(0.70) per Boe, and $2.8 million, or $0.86 per Boe, of equity-based compensation expense, respectively. General and administrative expenses for the three months ended June 30, 2019 includes $3.9 million, or $0.83 per Boe, of expense for allowance for doubtful accounts, $2.2 million, or $0.47 per Boe, of aborted offering costs and $0.7 million, or $0.14 per Boe, of expense for severance and employee related matters.

 

 

 

12


     Six Months Ended
June 30,
 
     2019      2018  
     (in thousands, except costs per Boe)  

Operating Expenses

     

Production expenses

   $ 26,149      $ 15,374  

Production taxes

     10,104        4,682  

Exploration expenses

     23,894        18,483  

Depreciation, depletion, amortization and accretion

     86,465        46,466  

General and administrative (1)

     28,136        27,106  

Gain on sale of other assets

     (614      —    
  

 

 

    

 

 

 

Total

   $ 174,134      $ 112,111  
  

 

 

    

 

 

 

Average Costs per Boe

     

Production expenses

   $ 2.90      $ 2.30  

Production taxes

     1.12        0.70  

Exploration expenses

     2.65        2.77  

Depreciation, depletion, amortization and accretion

     9.57        6.95  

General and administrative (1)

     3.12        4.06  

Gain on sale of other assets

     (0.07      —    
  

 

 

    

 

 

 

Total

   $ 19.29      $ 16.78  
  

 

 

    

 

 

 

 

  (1)

General and administrative expenses for the six months ended June 30, 2019 and 2018 include $(0.2) million, or $(0.02) per Boe, and $5.1 million, or $0.77 per Boe, of equity-based compensation expense, respectively. General and administrative expenses for the six months ended June 30, 2019 includes $5.3 million, or $0.59 per Boe, of expense for allowance for doubtful accounts, $2.2 million, or $0.24 per Boe, of aborted offering costs and $0.7 million, or $0.07 per Boe, of expense for severance and employee related matters.

 

Non-GAAP Financial Measures

Adjusted Net Income and Adjusted Net Income per Share

Adjusted net income and adjusted net income per share are non-GAAP performance measures. The Company defines adjusted net income and adjusted net income per share as net income (loss) and net income (loss) per share excluding non-cash gains or losses on derivatives, gains on early terminations of derivative contracts, exploration expense, aborted offering costs, severance and other employee matter expense and loss (gain) on the sale of other assets. Management uses adjusted net income and adjusted net income per share as an indicator of the Company’s operational trends and performance relative to other oil and natural gas companies. Adjusted net income and adjusted net income per share should not be considered an alternative to net income (loss), operating income, or any other measure of financial performance presented in accordance with GAAP or as an indicator of our operating performance.

 

13


Reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Net Income per Share

 

     Three Months Ended
June 30,
 
     2019      2018  
    

(in

thousands)

    

(per diluted

share)

    

(in

thousands)

    

(per diluted

share)

 

Net Income (Loss)

   $ 27,246      $ 0.18      $ (22,757    $ (0.15

Adjusted for

           

(Gain) loss on derivative contracts

     (37,054      (0.24      54,602        0.36  

Cash received (paid) upon settlement of derivative contracts

     7,361        0.05        (9,773      (0.06

Exploration expense

     11,406        0.07        10,633        0.07  

Aborted offering costs

     2,155        0.01        —          —    

Severance and employee matters

     687        —          —          —    

Loss on sale of other assets

     50        —          —          —    

Total tax effect of adjustments (1)

     5,080        0.03        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Net Income

   $ 16,931      $ 0.11      $ 32,705      $ 0.21  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1)

Computed by applying a combined federal and state effective tax rate of 33.0% for the period.

 

     Six Months Ended
June 30,
 
     2019      2018  
    

(in

thousands)

    

(per diluted

share)

    

(in

thousands)

    

(per diluted

share)

 

Net Income (Loss)

   $ (30,810    $ (0.20    $ 12,324      $ 0.08  

Adjusted for

           

Loss on derivative contracts

     46,588        0.31        64,216        0.42  

Cash received (paid) upon settlement of derivative contracts (1)

     12,743        0.08        (14,288      (0.09

Exploration expense

     23,894        0.16        18,483        0.12  

Aborted offering costs

     2,155        0.01        —          —    

Severance and employee matters

     687        —          —          —    

Gain on sale of other assets

     (614      —          —          —    

Total tax effect of adjustments (2)

     (20,082      (0.13      —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Net Income

   $ 34,561      $ 0.23      $ 80,735      $ 0.53  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1)

Excludes cash received upon settlement of derivative contracts prior to the original contractual maturity for the six months ended June 30, 2018

 
  (2)

Computed by applying a combined federal and state effective tax rate of 23.5% for the period.

 

14


Adjusted EBITDAX

Adjusted EBITDAX is a non-GAAP financial measure. The Company defines Adjusted EBITDAX as net income (loss) adjusted for interest expense, income tax expense (benefit), depreciation, depletion, amortization and accretion, exploration expense, non-cash equity-based compensation expense, aborted offering costs, severance and employee matter expenses, expense for allowance for doubtful accounts, (gain) loss on derivative contracts, and cash (paid) received upon settlement of derivative contracts, excluding amounts on contracts settled prior to contract maturity. Adjusted EBITDAX is not a measure of net income (loss) as determined by GAAP. Our accounting predecessor, Roan LLC, passed through its taxable income to its owners for income tax purposes and thus, the Company did not incur historical income tax expenses.

The Company believes Adjusted EBITDAX is useful because it allows our management to more effectively evaluate the operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. The Company adds the items listed above to net income (loss) in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX.

Roan’s computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies or to such measure in our revolving credit facility or any of our other contracts.

The following tables present a reconciliation of Adjusted EBITDAX to net income (loss), our most directly comparable financial measure calculated and presented in accordance with GAAP for each of the periods indicated.

 

15


Reconciliation of Net Income (Loss) to Adjusted EBITDAX

 

     Three Months Ended
June 30,
 
     2019      2018  
     (in thousands)  

Net income (loss)

   $ 27,246      $ (22,757

Adjusted for

     

Interest

     8,462        1,087  

Income tax expense

     13,410        —    

Depreciation, depletion, amortization and accretion

     44,893        24,601  

Exploration expense

     11,406        10,633  

Non-cash equity-based compensation

     (3,222      2,835  

Aborted offering costs

     2,155        —    

Severance and employee matters

     687        —    

Allowance for doubtful accounts

     3,857        —    

Loss on sale of other assets

     50        —    

(Gain) loss on derivative contracts

     (37,054      54,602  

Cash received (paid) upon settlement of derivative contracts

     7,361        (9,773
  

 

 

    

 

 

 

Adjusted EBITDAX

   $ 79,251      $ 61,228  
  

 

 

    

 

 

 
     Six Months Ended
June 30,
 
     2019      2018  
     (in thousands)  

Net (loss) income

   $ (30,810    $ 12,324  

Adjusted for

     

Interest

     15,206        2,886  

Income tax benefit

     (9,487      —    

Depreciation, depletion, amortization and accretion

     86,465        46,466  

Exploration expense

     23,894        18,483  

Non-cash equity-based compensation

     (157      5,127  

Aborted offering costs

     2,155        —    

Severance and employee matters

     687        —    

Allowance for doubtful accounts

     5,338        —    

Gain on sale of other assets

     (614      —    

Loss on derivative contracts

     46,588        64,216  

Cash received (paid) upon settlement of derivative contracts (1)

     12,743        (14,288
  

 

 

    

 

 

 

Adjusted EBITDAX

   $ 152,008      $ 135,214  
  

 

 

    

 

 

 

 

  (1)

Excludes cash received upon settlement of derivative contracts prior to the original contractual maturity for the six months ended June 30, 2018

 

 

16


Net Debt

Net Debt is a non-GAAP financial measure equal to long-term debt outstanding on the credit facility and term loan, exclusive of any discounts or fees, less cash on hand.

Net Debt Reconciliation

 

     2Q 2019  
($ In thousands)       

Credit Facility

   $ 659,639  

Term Loan, net

     44,924  

Unamortized original issue discount on Term Loan

     1,250  

Deferred financing costs on Term Loan

     3,826  

Funded debt

   $ 709,639  
  

 

 

 

Less: Cash

   $ 5,428  
  

 

 

 

Net Debt

   $ 704,211  
  

 

 

 

Cash general and administrative expenses per Boe

Cash G&A expense is a non-GAAP measure, which is defined as total general and administrative expense as determined in accordance with GAAP less equity-based compensation expense, expense for allowance for doubtful accounts, severance and employee matter expense and aborted offering costs. Cash G&A expense should not be considered as an alternative to, or more meaningful than, total general and administrative expense as determined in accordance with GAAP and may not be comparable to other companies’ similarly titled measures.

Updated Guidance as of August 7, 2019

 

     2019  

Full-Year Production (MBoe/d)

     50.5 - 53.5  

Oil Mix

     25.5% - 27.5%  

Liquids Mix

     51.5% - 59.5%  

Production Expense ($/Boe)

   $ 2.80 - $3.10  

Cash G&A ($/Boe)

   $ 2.00 - $2.20  

Production Taxes (% of Production Revenues)

     5.2% - 5.4%  

Total Capex

   $ 495 - $525  

Investor Contact:

Alyson Gilbert

Investor Relations Manager

405-896-3767

IR@RoanResources.com

 

17