Attached files
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| EX-99.1 - EARNINGS RELEASE - Approach Resources Inc | d435945dex991.htm |
| 8-K - FORM 8-K - Approach Resources Inc | d435945d8k.htm |
 INVESTOR
PRESENTATION
NOVEMBER 2012
Exhibit 99.2 |
 Forward Looking-Statements
This
presentation
contains
forward-looking
statements
within
the
meaning
of
Section
27A
of
the
Securities
Act
of
1933
and
Section
21E
of
the
Securities
Exchange
Act
of
1934.
All
statements,
other
than
statements
of
historical
facts,
included
in
this
presentation
that
address
activities,
events
or
developments
that
the
Company
expects,
believes
or
anticipates
will
or
may
occur
in
the
future
are
forward-looking
statements.
Without
limiting
the
generality
of
the
foregoing,
forward-looking
statements
contained
in
this
presentation
specifically
include
the
expectations
of
management
regarding
plans,
strategies,
objectives,
anticipated
financial
and
operating
results
of
the
Company,
including
as
to
the
Company’s
Wolffork
shale
resource
play,
estimated
resource
potential
and
recoverability
of
the
oil
and
gas,
estimated
reserves
and
drilling
locations,
capital
expenditures,
typical
well
results,
and
well
profiles,
type
curve,
and
production
and
operating
expenses
guidance
included
in
the
presentation.
These
statements
are
based
on
certain
assumptions
made
by
the
Company
based
on
management's
experience
and
technical
analyses,
current
conditions,
anticipated
future
developments
and
other
factors
believed
to
be
appropriate
and
believed
to
be
reasonable
by
management.
When
used
in
this
presentation,
the
words
“will,”
“potential,”
“believe,”
“intend,”
“expect,”
“may,”
“should,”
“anticipate,”
“could,”
“estimate,”
“plan,”
“predict,”
“project,”
“target,”
“profile,”
“model”
or
their
negatives,
other
similar
expressions
or
the
statements
that
include
those
words,
are
intended
to
identify
forward-looking
statements,
although
not
all
forward-looking
statements
contain
such
identifying
words.
Such
statements
are
subject
to
a
number
of
assumptions,
risks
and
uncertainties,
many
of
which
are
beyond
the
control
of
the
Company,
which
may
cause
actual
results
to
differ
materially
from
those
implied
or
expressed
by
the
forward-looking
statements.
In
particular,
careful
consideration
should
be
given
to
the
cautionary
statements
and
risk
factors
described
in
the
Company's
most
recent
Annual
Report
on
Form
10-K
and
Quarterly
Reports
on
Form
10-Q.
Any
forward-looking
statement
speaks
only
as
of
the
date
on
which
such
statement
is
made
and
the
Company
undertakes
no
obligation
to
correct
or
update
any
forward-looking
statement,
whether
as
a
result
of
new
information,
future
events
or
otherwise,
except
as
required
by
applicable
law.
2
Cautionary Statements Regarding Oil & Gas Quantities
The
Securities
and
Exchange
Commission
(“SEC”)
permits
oil
and
gas
companies,
in
their
filings
with
the
SEC,
to
disclose
only
proved,
probable
and
possible
reserves
that
meet
the
SEC’s
definitions
for
such
terms,
and
price
and
cost
sensitivities
for
such
reserves,
and
prohibits
disclosure
of
resources
that
do
not
constitute
such
reserves.
The
Company
uses
the
terms
“estimated
ultimate
recovery”
or
“EUR,”
reserve
or
resource
“potential,”
and
other
descriptions
of
volumes
of
reserves
potentially
recoverable
through
additional
drilling
or
recovery
techniques
that
the
SEC’s
rules
may
prohibit
the
Company
from
including
in
filings
with
the
SEC.
These
estimates
are
by
their
nature
more
speculative
than
estimates
of
proved,
probable
and
possible
reserves
and
accordingly
are
subject
to
substantially
greater
risk
of
being
actually
realized
by
the
Company.
EUR
estimates,
potential
drilling
locations
and
resource
potential
estimates
have
not
been
risked
by
the
Company.
Actual
locations
drilled
and
quantities
that
may
be
ultimately
recovered
from
the
Company’s
interest
may
differ
substantially
from
the
Company’s
estimates.
There
is
no
commitment
by
the
Company
to
drill
all
of
the
drilling
locations
that
have
been
attributed
these
quantities.
Factors
affecting
ultimate
recovery
include
the
scope
of
the
Company’s
ongoing
drilling
program,
which
will
be
directly
affected
by
the
availability
of
capital,
drilling
and
production
costs,
availability
of
drilling
and
completion
services
and
equipment,
drilling
results,
lease
expirations,
regulatory
approval
and
actual
drilling
results,
as
well
as
geological
and
mechanical
factors
Estimates
of
unproved
reserves,
type/decline
curves,
per
well
EUR
and
resource
potential
may
change
significantly
as
development
of
the
Company’s
oil
and
gas
assets
provides
additional
data.
Type/decline
curves,
estimated
EURs,
resource
potential,
recovery
factors
and
well
costs
represent
Company
estimates
based
on
evaluation
of
petrophysical
analysis,
core
data
and
well
logs,
well
performance
from
limited
drilling
and
recompletion
results
and
seismic
data,
and
have
not
been
reviewed
by
independent
engineers.
These
are
presented
as
hypothetical
recoveries
if
assumptions
and
estimates
regarding
recoverable
hydrocarbons,
recovery
factors
and
costs
prove
correct.
The
Company
has
very
limited
production
experience
with
these
projects,
and
accordingly,
such
estimates
may
change
significantly
as
results
from
more
wells
are
evaluated.
Estimates
of
resource
potential
and
EURs
do
not
constitute
reserves,
but
constitute
estimates
of
contingent
resources
which
the
SEC
has
determined
are
too
speculative
to
include
in
SEC
filings.
Unless
otherwise
noted,
IRR
estimates
are
before
taxes
and
assume
NYMEX
forward-curve
oil
and
gas
pricing
and
Company-generated
EUR
and
decline
curve
estimates
based
on
Company
drilling
and
completion
cost
estimates
that
do
not
include
land,
seismic
or
G&A
costs. |
 Notes: Proved reserves and acreage as of 6/30/2012 and 9/30/2012, 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 $25.83 per
share on 11/1/2012, plus net debt as of 9/30/2012. Company Overview
•
Enterprise value $1.2 BN
•
High quality reserve base
•
Permian core operating area
167,000 gross (148,000 net) acres
500+ MMBoe gross, unrisked resource
potential
2,900+ drilling and recompletion opportunities
•
Oil-driven growth in 3Q 2012
3Q’12 Production 8.1 MBoe/d, 65% oil & NGLs
3Q’12 Revenue mix 65% oil, 22% NGLs and
13% natural gas
3
AREX OVERVIEW
ASSET OVERVIEW
83.7 MMBoe proved reserves, 37% PD
99% Permian Basin |
 Oil-Focused,
Pure-Play
•
Transitioning Wolfcamp B to development mode and preparing for full-scale
exploitation •
Pilot program evaluating additional Wolfcamp zones (A and C benches)
•
Adding 3
horizontal rig in January 2013
•
Concentrated geographic footprint in the southern Midland Basin
•
148,000 net, primarily contiguous acres, 100% operated
•
64% of proved reserves are oil and NGLs
Track Record of
Growth at Low
Costs
Accelerating
Horizontal
Wolfcamp
Development
•
Reserve and production CAGR since 2004 of 33% and 37%, respectively
•
Low-cost operator with best-in-class F&D and low lifting
costs •
$280 MM borrowing base
•
$222.9 MM liquidity at 9/30/12
Strong Balance
Sheet
Multi-Year
Drilling Inventory
and Significant
Resource
Potential
•
2,900+ identified drilling and recompletion locations
•
500+ MMBoe of gross, unrisked resource potential
•
Rigorous pilot program has de-risked ~100,000 gross acres
•
Additional upside potential from tighter well spacing and multi-zone
development Key Investor Highlights
4
STRENGTHS
HIGHLIGHTS
Note: See liquidity calculation in appendix.
rd |
 Track
Record of Reserve and Production Growth •
MY’12 reserves up 25% YoY and 9% over YE’11
Oil reserves up 30% to 23.5 MMbbls
•
Wolfcamp Shale key contributor to reserve growth
500+ MMBoe gross, unrisked resource potential
5
RESERVE GROWTH
PRODUCTION GROWTH
•
2011 production increased 50% YoY
•
Targeting 20% to 24% production growth in 2012
•
Strong liquids production growth
2012E production 65% liquids |
 Extensive Inventory of Future Drilling Locations
6
POTENTIAL DRILLING LOCATIONS
Gross Resource
Potential (MMBoe):
225
200+
17+
85
500+
500+ MMBoe Total Gross Resource Potential |
 2012
& 2013 Capital Programs 7
•
Horizontal Wolfcamp
2 horizontal rigs
Beginning development program of B zone
Testing A & C zones
•
Vertical Clearfork & Wolfcamp
2012 PROGRAM OVERVIEW
2012 Capital Program $295 MM
•
Horizontal Wolfcamp
3 horizontal rigs to drill 35 to 40 wells
•
Vertical Clearfork & Wolfcamp
2013 PROGRAM OVERVIEW
2013 Capital Program $260 MM
1 vertical rig and recompletion program
1 vertical rig to drill 12 wells
Recompletion program |
 Infrastructure & Equipment Projects
8
•
Safely and securely transport water across Project Pangea and Pangea West
•
Reduce time and money spent on water hauling and disposal and truck traffic
•
Expected savings from water transfer equipment ~$0.1 MM/HZ well
•
Expected savings from SWD system ~$0.45 MM/HZ well
•
Expected company-wide LOE savings ±$0.4 MM per month
•
Replace rental equipment and contractors with Company-owned and operated
equipment and personnel; reduce money spent on flowback operations
•
Expected savings from flowback equipment ~$0.1 MM/HZ well
•
Expected LOE savings from gas lift system $6,300/HZ per month
•
Facilitate large-scale field development
•
Reduce fresh water use and water costs
•
Expected savings from non-potable water source ~$0.45 MM/HZ well
•
Efficiently transport crude oil to market and reduce inventory
•
Reduce
oil
transportation
differential
to
an
estimated
$2.50/Bbl
–
$4.00/Bbl
Purchasing and installing water
transfer equipment
Drilling and/or converting SWD
wells
Purchasing and installing flowback
equipment
Securing water supply
Testing non-potable water and
recycling flowback water
Installing crude takeaway lines
Purchased oil hauling trucks
PROJECTS
BENEFITS
Infrastructure and equipment projects are key to large-scale field development
and to reducing D&C costs as well as LOE cost
|
 Infrastructure Projects –
Gathering Lines & Facilities
9
Existing Line
New Line
•
Building new gathering lines
•
New lines to transport AREX gas to DCP Gas Line
•
Market gas/NGLs to DCP
•
Improved economics
•
Increased capacity |
 AREX
Wolfcamp Oil Shale Resource Play 10
Large, primarily contiguous acreage position
Liquids-rich, multiple pay zones
167,000 gross (148,000 net) acres
Low acreage cost ~$500 per acre
2,900+ drilling and recompletion opportunities
Transitioning Wolfcamp B to development
mode
Testing Wolfcamp A and C
Testing tighter well spacing
Preparing field for large-scale development
Broad industry participation de-risking play
ACTIVE PARTICIPANTS IN THE PLAY
500+ MMBoe gross, unrisked resource
potential
Early-stage play development |
 AREX
Wolfcamp Play Favorably Located in the S. Midland Basin 11
|
 12
Wolfcamp Oil Shale Play –
Widespread, Thick, Consistent & Repeatable |
 Horizontal Wolfcamp Targets
13
SYSTEM
STRATIGRAPHIC
UNIT
Permian
Clearfork/Spraberry
Dean
Wolfcamp
Pennsylvanian
Canyon
Strawn
Mississippian
Devonian
Silurian
Ordovician
Ellenburger
WOLFCAMP A
WOLFCAMP B
WOLFCAMP C
WOLFCAMP D
Pilot
Transitioning
to
Development
Pilot –
Recent
Results
Encouraging
Under
Evaluation
POTENTIAL HORIZONTAL
WOLFCAMP TARGETS |
 14
Horizontal Wolfcamp Play -
82% of IP is Oil
Source: Publicly available regulatory filings, company presentations.
|
 AREX
Wolfcamp Play – Activity Map
15
Note: Acreage as of 9/30/2012. |
 Horizontal Wolfcamp Type Curve
16 |
 Horizontal Wolfcamp Economics
17
Play Type
Horizontal
Wolfcamp
Avg. EUR
450 MBoe
Targeted Well Cost
$5.5 MM
Potential Locations
500
Gross Resource
Potential
225 MMBoe
BTAX IRR SENSITIVITIES
Notes: IP’s based on 24-hr. rates. Potential locations are based on
1,000-feet spacing between each horizontal well. Economics assume NYMEX gas strip and NGL
price based on 40% of WTI oil price.
•
Horizontal drilling improves recoveries and
returns
•
Multiple, stacked horizontal targets
•
7,000’+ lateral length
•
~80% of EUR made up of oil and NGLs
•
2 HZ rigs running in Project Pangea / Pangea
West
•
Adding 3
rd
HZ rig in January 2013
•
Recent Wolfcamp B
bench well results in
Project Pangea
•
922 BOEPD IP for U 45 C 806H (93% oil)
•
Recent Wolfcamp A
bench well result in
Project Pangea
•
689 BOEPD IP for U 45 D 905H (90% oil) |
 Clearfork & Wolfcamp (“Wolffork”) Economics
18
Play Type
Vertical
Wolffork
Avg. EUR
110 MBoe
Targeted Well Cost
$1.2 MM
Potential Locations
1,825
Gross Resource
Potential
200+ MMBoe
BTAX IRR SENSITIVITIES
Notes: Vertical Wolffork potential locations based on 20-acre spacing.
Vertical Wolffork recompletion potential locations based on 20 to 40-acre spacing.
Economics assume NYMEX gas strip and NGL price based on 40% of WTI oil price.
Play Type
Vertical Wolffork
Recompletion
Avg. EUR
93 MBoe
Targeted Well Cost
$0.75 MM
Potential Locations
190
Gross Resource
Potential
17+ MMBoe
BTAX IRR SENSITIVITIES |
 AREX
Drilling Targets & Resource Potential 19
PLAY TYPE
Horizontal
Wolfcamp
Vertical
Wolffork
Vertical Wolffork
Recompletion
Vertical Canyon
Wolffork
EUR (MBoe)
450
110
93
193
Targeted well cost ($MM)
$5.5
$1.2
$0.75
$1.5
Potential locations
500
1,825
190
440
GROSS RESOURCE
POTENTIAL (MMBoe)
225
200+
17+
85
Target
Wolfcamp
Clearfork,
Wolfcamp
Clearfork, Wolfcamp
Canyon, Clearfork,
Wolfcamp
Drilling depth (ft.)
7,000+ (lateral
length)
< 7,500
< 7,500
< 8,500
500+ MMBoe Total Gross Resource Potential
Notes: Potential locations based on 1,000-feet spacing between each horizontal
well for Horizontal Wolfcamp, 20-acre spacing for Vertical Wolffork, 20 to 40-
acre spacing for Vertical Wolffork Recompletion and 40-acre spacing for Vertical
Canyon Wolffork. |
 Creating Value Through Growth
20
•
Concentrated geographic footprint in the southern Midland Basin
•
Strong growth track record at competitive costs
•
Detailed technical evaluation led to discovery of significant growth
potential in the Wolfcamp / Wolffork oil shale resource play
•
Rigorous pilot program de-risked ~100,000 gross acres
•
Capital discipline for Wolfcamp / Wolffork program acceleration
|
 Financial
Framework
NON-GAAP RECONCILIATIONS |
 2012
Operating and Financial Guidance 22
2012 GUIDANCE
2012 Guidance
Production
Total (MBoe)
2,800 -
3,000
Percent Oil & NGLs
65%
Operating costs and expenses ($/per Boe)
Lease operating
$
6.50 –
7.50
Severance and production taxes
$
2.50 –
4.00
Exploration
$
4.00 –
5.00
General and administrative
$
7.00 –
8.00
Depletion, depreciation and amortization
$
18.00 –
22.00
Capital expenditures ($MM)
Approximately $295 |
 Hedge Position
23
CURRENT HEDGE POSITION
Commodity and Time Period
Type
Volume
Price
Crude Oil
2012
Collar
700 Bbls/d
$85.00/Bbl
-
$97.50/Bbl
2012
Collar
500 Bbls/d
$90.00/Bbl
-
$106.10/Bbl
September 2012 –
December 2012
Collar
350 Bbls/d
$90.00/Bbl
-
$102.30/Bbl
2013
Collar
650 Bbls/d
$90.00/Bbl
-
$105.80/Bbl
2013
Collar
450 Bbls/d
$90.00/Bbl
-
$101.45/Bbl
2014
Collar
550 Bbls/d
$90.00/Bbl
-
$105.50/Bbl
Natural Gas Liquids
Natural Gasoline –
February 2012 –
December 2012
Swap
225 Bbls/d
$95.55/Bbl
Normal Butane –
March 2012 –
December 2012
Swap
225 Bbls/d
$73.92/Bbl
Natural Gas
2012
Call
230,000 MMBtu/month
$6.00/MMBtu
July 2012 –
December 2012
Swap
360,000 MMBtu/month
$2.70/MMBtu
2013
Swap
200,000 MMBtu/month
$3.54/MMBtu
2013
Swap
190,000 MMBtu/month
$3.80/MMBtu |
 Financial Strength
24
Liquidity
(unaudited)
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.
Liquidity
has
limitations,
and
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.
Liquidity
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,
2012.
(in thousands)
Liquidity at
September 30, 2012
Borrowing base
$
270,000
Cash and cash equivalents
841
Long-term debt
(47,600)
Unused letters of credit
(350)
Liquidity
$
222,891
Long-term
debt-to-capital
ratio
(unaudited)
is
calculated
as
of
September
30,
2012,
and
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,
2012.
(in thousands)
September 30, 2012
Long-term debt
$
47,600
Total stockholders’
equity
624,341
671,941
Long-term debt-to-capital
7.1% |
 Contact
Information
MEGAN P. HAYS
Manager, Investor Relations & Corporate Communications
817.989.9000 x 2108
mhays@approachresources.com
www.approachresources.com |