SRC Energy Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 1, 2018

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Exhibit 99.1
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August 1, 2018

SRC Energy Inc. Reports Second Quarter 2018 Financial and Operating Results

Denver--(GlobeNewswire - 8/1/2018) -- SRC Energy Inc. (NYSE American: SRCI) (“SRC”, the “Company”, “we”, “us” or “our”), a U.S. oil and gas exploration and production company with operations focused on the Wattenberg Field in the Denver-Julesburg Basin, reports its financial and operating results for the three and six months ended June 30, 2018.

Second Quarter 2018 Highlights

•
Revenues were $147.1 million for the three months ended June 30, 2018
•
Net income was $49.6 million or $0.20 per diluted share for the three months ended June 30, 2018
•
Adjusted EBITDA was $107.7 million and $223.4 million for the three and six months ended June 30, 2018 , respectively (see further discussion regarding the presentation of adjusted EBITDA in "About Non-GAAP Financial Measures" below)
•
Drilling and completion capital expenditures were $120.2 million and $231.2 million for the three and six months ended June 30, 2018, respectively

Second Quarter 2018 Financial Results

The following tables present certain per unit metrics that compare results of the corresponding reporting periods:
 
Three Months Ended
 
Six Months Ended
Net Volumes
6/30/2018
 
6/30/2017
 
% Chg.
 
6/30/2018
 
6/30/2017
 
% Chg.
Crude Oil (MBbls)
1,846
 
1,262
 
46%
 
3,887
 
1,942
 
100%
Natural Gas Liquids (MBbls)
992
 
662
 
50%
 
1,750
 
1,005
 
74%
Natural Gas (MMcf)
8,987
 
6,264
 
43%
 
16,706
 
9,710
 
72%
Sales Volumes: (MBOE)
4,336
 
2,969
 
46%
 
8,422
 
4,566
 
84%
Average Daily Volumes
 
 
 
 
 
 
 
 
 
 
 
Daily Production (BOE)
47,646
 
32,624
 
46%
 
46,528
 
25,224
 
84%
Product Price Received
 
 
 
 
 
 
 
 
 
 
 
Crude Oil ($/Bbl)
$61.22
 
$41.11
 
49%
 
$58.48
 
$41.60
 
41%
Natural Gas Liquids ($/Bbl)
$17.65
 
13.18
 
34%
 
$18.30
 
14.12
 
30%
Natural Gas ($/Mcf)
$1.64
 
$2.29
 
(28)%
 
$1.87
 
$2.42
 
(23)%
Avg. Realized Price ($/BOE)
$33.50
 
$25.26
 
33%
 
$34.50
 
$25.96
 
33%
Per Unit Cost Information ($/BOE)
Lease Operating Exp.
$2.68
 
$1.67
 
60%
 
$2.31
 
$1.91
 
21%
Production Tax
$3.47
 
$3.19
 
9%
 
$3.38
 
$2.39
 
41%
DD&A Expense
$9.66
 
$8.90
 
9%
 
$9.38
 
$8.69
 
8%
Total G&A Expense
$2.17
 
$2.56
 
(15)%
 
$2.26
 
$3.46
 
(35)%
 


Revenues for the three months ended June 30, 2018 increased 96% compared to the three months ended June 30, 2017. This increase was driven by growth in sales volumes, combined with an improvement in realized oil price,


which was partially offset by a decrease in realized gas prices. The decreased gas price was primarily due to widening of differentials to the Colorado Interstate Gas index.
 
Lease operating expense for the three months ended June 30, 2018 increased due to the Company’s ongoing growth and expanding asset base. Elevated line pressures temporarily drove operating costs on a unit basis higher as the Company incurred incremental costs without the benefit of flush production from new wells.
 
The Company's 2018 second quarter net income totaled $49.6 million, or $0.20 per diluted share, compared to a net income of $27.9 million, or $0.14 per diluted share, in the year ago quarter. Adjusted EBITDA in the second quarter of 2018 was $107.7 million as compared to $55.9 million in the year ago quarter.

During the second quarter of 2018, SRC entered into an agreement to purchase leasehold acreage and associated production for $31 million. This transaction increases the Company's working interest in existing operations and planned wells. Following the 2018 second quarter end, SRC reached an agreement to trade approximately 2,500 net acres with an undisclosed party. These transactions further enhance the contiguous nature of the Company's acreage position.


Management Comment
Lynn A. Peterson, Chairman and CEO of SRC Energy Inc. commented, "As announced today by DCP Midstream, the Mewbourn 3 plant has been placed into service and is processing gas. This is the first of several significant, new natural gas processing plants that have been announced for the DJ Basin over the next few quarters leading to a near doubling of capacity and a bright future for the Basin. We now have line of sight on increased gas processing for several years and we look forward to a more stable operating environment. Despite the curtailed production during the first half of 2018 the Company’s capital expenditures have principally been funded by internally generated cash flows."

Concluding, Mr. Peterson added, "I would like to commend our field team for all of their hard work around the constraints associated with the lack of gas processing and our land team for the recent acreage transactions that have further enhanced SRC's acreage position"



Conference Call

The Company will host a conference call on Thursday, August 2, 2018 at 11:00 a.m. Eastern time (9:00 a.m. Mountain time) to discuss the results. The call will be conducted by Chairman and CEO Lynn A. Peterson, CFO James Henderson, Chief Development Officer Nick Spence, Chief Operations Officer Mike Eberhard, and Manager of Investor Relations John Richardson. A Q&A session will immediately follow the discussion of the results for the quarter. Please refer to SRC's website at www.srcenergy.com for the most recent corporate presentation and other news and information.

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

Webcast: https://78449.themediaframe.com/dataconf/productusers/srci/mediaframe/25642/indexl.html


Replay Information:
Conference ID #:  411931
Replay Dial-In (Toll Free US & Canada):  877-660-6853
Replay Dial-In (International):  201-612-7415
Expiration Date:  8/16/18





About SRC Energy Inc.

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


Important Cautions Regarding Forward Looking Statements

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


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




Reconciliation of Non-GAAP Financial Measures
We define adjusted EBITDA, a non-GAAP financial measure, as net income adjusted to exclude the impact of the items set forth in the table below. We exclude those items because they can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. We believe that adjusted EBITDA is widely used in our industry as a measure of operating performance and may also be used by investors to measure our ability to meet debt covenant requirements. The following table presents a reconciliation of adjusted EBITDA to net income, its nearest GAAP measure:
SRC ENERGY INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Adjusted EBITDA:
 
 
 
 
 
 
 
Net income
$
49,624

 
$
27,936

 
$
115,420

 
$
47,816

Depreciation, depletion, and accretion
41,877

 
26,427

 
78,958

 
39,656

Stock-based compensation
3,146

 
2,685

 
5,942

 
5,360

Mark-to-market of commodity derivative contracts:
 
 
 
 
 
 
 
Total gain on commodity derivatives contracts
14,294

 
(1,328
)
 
20,075

 
(4,707
)
Cash settlements on commodity derivative contracts
(4,566
)
 
153

 
(6,121
)
 
234

Interest income, net of interest expense
(5
)
 
(20
)
 
(14
)
 
(31
)
Income tax expense
3,347

 
—

 
9,158

 
—

Adjusted EBITDA
$
107,717

 
$
55,853

 
$
223,418

 
$
88,328





Condensed Consolidated Financial Statements
Condensed consolidated financial statements are included below. Additional financial information, including footnotes that are considered an integral part of the condensed consolidated financial statements, can be found in SRC's Quarterly Report on Form 10-Q for the period ended June 30, 2018, which is available at www.sec.gov.
SRC ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
 
 
 
 
ASSETS
June 30, 2018
 
December 31, 2017
Current assets:
 
 
 
Cash and cash equivalents
$
53,145

 
$
48,772

Other current assets
110,067

 
111,263

Total current assets
163,212

 
160,035

 
 
 
 
Oil and gas properties and other equipment
2,072,329

 
1,876,576

Goodwill
40,711

 
40,711

Other assets
6,294

 
2,242

 
 
 
 
Total assets
$
2,282,546

 
$
2,079,564

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities
249,949

 
202,307

 
 
 
 
Revolving credit facility
25,000

 
—

Notes payable, net of issuance costs
538,762

 
538,186

Asset retirement obligations
23,154

 
28,376

Other liabilities
11,556

 
2,261

Total liabilities
848,421

 
771,130

 
 
 
 
Shareholders' equity:
 
 
 
Common stock and paid-in capital
1,484,785

 
1,474,514

Retained deficit
(50,660
)
 
(166,080
)
Total shareholders' equity
1,434,125

 
1,308,434

 
 
 
 
Total liabilities and shareholders' equity
$
2,282,546

 
$
2,079,564



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

 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
115,420

 
$
47,816

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depletion, depreciation, and accretion
78,958

 
39,656

Provision for deferred taxes
9,158

 
—

Other, non-cash items
15,807

 
(505
)
Changes in operating assets and liabilities
16,419

 
(12,509
)
Net cash provided by operating activities
235,762

 
74,458

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisitions of oil and gas properties and leaseholds
(16,402
)
 
(29,998
)
Capital expenditures for drilling and completion activities
(213,906
)
 
(178,606
)
Other capital expenditures
(25,404
)
 
(12,666
)
Proceeds from sales of oil and gas properties and other
766

 
77,155

Net cash used in investing activities
(254,946
)
 
(144,115
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Equity financing activities
3,025

 
(451
)
Debt financing activities
22,857

 
89,745

Net cash provided by financing activities
25,882

 
89,294

 
 
 
 
Net increase in cash, cash equivalents, and restricted cash
6,698

 
19,637

Cash, cash equivalents, and restricted cash at beginning of period
48,772

 
36,834

Cash, cash equivalents, and restricted cash at end of period
$
55,470

 
$
56,471



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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Oil, natural gas, and NGL revenues
$
147,087

 
$
75,036

 
$
294,320

 
$
118,826

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Lease operating expenses
11,612

 
4,970

 
19,508

 
8,692

Transportation and gathering
1,880

 
48

 
3,735

 
298

Production taxes
15,058

 
9,464

 
28,501

 
10,930

Depreciation, depletion, and accretion
41,877

 
26,427

 
78,958

 
39,656

Unused commitment charge
—

 
—

 
—

 
669

General and administrative
9,406

 
7,605

 
19,006

 
15,805

Total expenses
79,833

 
48,514

 
149,708

 
76,050

 
 
 
 
 
 
 
 
Operating income
67,254

 
26,522

 
144,612

 
42,776

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Commodity derivatives gain (loss)
(14,294
)
 
1,328

 
(20,075
)
 
4,707

Interest expense, net of amounts capitalized
—

 
—

 
—

 
—

Interest income
5

 
20

 
14

 
31

Other income
6

 
66

 
27

 
302

Total other income (expense)
(14,283
)
 
1,414

 
(20,034
)
 
5,040

 
 
 
 
 
 
 
 
Income before income taxes
52,971

 
27,936

 
124,578

 
47,816

 
 
 
 
 
 
 
 
Income tax expense
3,347

 
—

 
9,158

 
—

Net income
$
49,624

 
$
27,936

 
$
115,420

 
$
47,816

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.20

 
$
0.14

 
$
0.48

 
$
0.24

Diluted
$
0.20

 
$
0.14

 
$
0.47

 
$
0.24

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
242,255,724

 
200,831,063

 
242,005,211

 
200,769,817

Diluted
244,464,776

 
201,224,172

 
243,954,673

 
201,266,609


Released 8/1/2018

SRC Energy Inc. Reports