Chaparral Energy Releases Third Quarter Results, STACK Production Increases 12 Percent

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| Source: Chaparral Energy Inc

OKLAHOMA CITY, Nov. 14, 2017 (GLOBE NEWSWIRE) -- Chaparral Energy, Inc. (OTCQB:CHPE) announced its third quarter 2017 financial and operational results today. Highlights for the quarter include:

  • Incurred a net loss of $19.1 million, which includes a loss on derivatives of $15.4 million
  • Increased total revenues of $76 million, compared to $74 million in the second quarter of 2017
  • Delivered adjusted EBITDA of $44.3 million, which is a four percent quarter-over-quarter increase compared to $42.5 million in the second quarter of 2017(1)
  • Grew STACK production 12 percent on a quarter-over-quarter and 34 percent on a year-over-year basis to 10.3 thousand barrels of oil equivalent per day (MBoe/d), with total production of 24.5 MBoe/d
  • Entered into a definitive sale agreement for its North Burbank and Texas Panhandle Enhanced Oil Recovery (EOR) assets for $170 million
  • Announced a $100 million STACK drilling joint venture with Bayou City Energy

“The third quarter was a historic one for Chaparral as we essentially completed our transition to a pure-play STACK operator with the signing of a definitive agreement for the sale of our North Burbank and Texas Panhandle EOR assets,” said Chaparral Chief Executive Officer Earl Reynolds. “Proceeds from the sale will be used to fully repay the outstanding $149.2 million balance of our term loan, with the balance of the proceeds then being used as a repayment on our credit facility. This focus on debt reduction demonstrates our commitment to maintaining a strong balance sheet and increasing our overall liquidity, both of which are critical in a low-price environment.”

“In addition, we announced a joint drilling venture with Bayou City Energy, which will fund 100-percent of the drilling and completion costs associated with 30 STACK wells in Garfield and Canadian counties,” said Reynolds. “This partnership, made possible by Bayou City’s strong belief in the quality of our assets, allows us to maintain a strong balance sheet and low-cost structure, while simultaneously accelerating the development of our STACK portfolio and de-risking these key areas.”

“Overall, I am extremely proud of our team’s ability to continue to execute at such a high level. Our solid STACK results coupled with our recent transactions have us well positioned to finish the year strong and enjoy long-term success as we provide substantial returns for our shareholders,” said Reynolds.

Operations Summary
During the third quarter, Chaparral focused the vast majority of its operated capital in Oklahoma’s highly economical STACK Play. The company brought eight new STACK wells on production, of which four were in the Meramec, three in the Osage and one in the Oswego.

Overall, the company produced 24.5 MBoe/d during the third quarter of 2017, of which 55 percent was oil, 17 percent was NGLs and 28 percent natural gas. This represents a three percent year-over-year increase, compared to 23.8 MBoe/d during the third quarter of 2016. This was primarily driven by growing production in the STACK, which recorded approximately 10.3 MBoe/d during the third quarter of 2017. This marks a 34 percent year-over-year increase and a 12 percent quarter-over-quarter increase in Chaparral’s STACK production.

“We continue to see outstanding growth in our STACK program,” said Reynolds. “As a result of our team’s hard work and focused execution and outstanding well results, we increased our daily production by almost 35 percent compared to the third quarter of 2016 to 10.3 MBoe/d. We are extremely excited about the long-term growth potential the STACK provides for Chaparral. With more than 3,500 locations in this lucrative play, we have decades of outstanding drilling opportunities ahead of us.”

EOR Asset Sale
Chaparral entered into a definitive agreement to sell its North Burbank and Texas Panhandle EOR assets for $170 million in cash, subject to customary closing conditions. The agreement also provides for contingent payments to Chaparral through December 2020 on a portion of the buyer’s unhedged production volumes, where the price received is higher than the buyer’s hedged prices. Current estimated production associated with these assets is 5,700 Boe/d, while lease operating expense (LOE) is $18.25 per Boe. The transaction is expected to close in November, subject to customary closing conditions.

The proceeds from the sale of Chaparral’s EOR assets will be used to further increase the company’s liquidity as it will fully repay the outstanding $149.2 million balance on its new term loan and the balance of the proceeds will then be used as a repayment of the company’s credit facility. Chaparral has also received confirmation that its bank lending group has reaffirmed the company’s $225 million borrowing base of its bank credit facility following the sale of its EOR assets and associated monetization of certain commodity derivatives.

STACK Drilling Joint Venture
The company announced a Joint Development Agreement (JDA) with Bayou City Energy, which will fund 100 percent of the drilling and completion costs associated with 30 STACK wells. The wells are subject to average well cost caps that vary by well-type across location and targeted formations, resulting in a maximum capital commitment of approximately $100 million. The JDA wells, which will be drilled and operated by Chaparral, include 17 wells in Canadian County and 13 wells in Garfield County, with the ability to expand the partnership to drill additional wells in the future.

In exchange for funding, Bayou City Energy will receive wellbore-only interest in each well totaling an 85 percent working interest until the program reaches a 14 percent internal rate of return. Once achieved, ownership interest in all wells will revert such that Chaparral will own a 75 percent working interest and Bayou City Energy will retain a 25 percent working interest of Chaparral’s leasehold interest in each well. Chaparral will retain all acreage and reserves outside of the wellbore, with both parties paying LOE based on relative ownership interests.

Financial Summary
Chaparral’s total revenue for the third quarter of 2017 was $76 million, a modest quarter-over-quarter increase compared to $74 million in the second quarter of 2017. This increase was primarily due to increases in production and commodity prices.

The average realized price for crude oil was flat, going from $46.68 per barrel in the previous quarter to $46.64 per barrel in the third quarter of 2017. Including cash settlements from oil derivatives, the realized price for crude oil was $51.49 per barrel compared to $51.76 per barrel in the second quarter of 2017. The realized price of NGLs increased 14 percent from $19.66 per barrel in the previous quarter to $22.40 per barrel in the third quarter of 2017. The realized price of natural gas was $2.53 per thousand cubic feet (Mcf), a decrease from $2.69 per Mcf in the second quarter of 2017.

Total LOE was $24.2 million for the third quarter of 2017, compared to $23.1 million for the second quarter of 2017. Total LOE/Boe, including STACK, legacy and EOR operations increased slightly from $10.58 per Boe in the second quarter of 2017 to $10.73 per Boe in the third quarter of 2017. This was primarily driven by increasing service industry costs. Chaparral’s STACK LOE/Boe was $4.23 in the third quarter of 2017.

Production taxes were $4.5 million compared to $3.4 million in the second quarter of 2017. Transportation and processing costs were $2.9 million for the quarter, compared to $3.1 million in the second quarter of 2017.

The company’s net general and administrative (G&A) expense during the third quarter of 2017 was $9.9 million or $4.40 per barrel compared to $9 million or $4.12 per barrel in the second quarter of 2017. This increase was driven by the recording of stock compensation expenses, which is a non-cash item.

The company recorded a net loss of $19.1 million or 42 cents per share for the third quarter, primarily driven by hedge losses of approximately $15.4 million.

Chaparral’s adjusted EBITDA for the third quarter was $44.3 million, which is a four percent quarter-over-quarter increase compared to $42.5 million in the second quarter of 2017.

Balance Sheet and Liquidity
The company’s capital expenditures for the third quarter of 2017 were $50.5 million, with $34.3 million spent in the STACK, $5.1 million spent on additional STACK acreage acquisitions and $11.1 million spent on its EOR and Other (legacy) operational categories.

As of September 30, 2017, Chaparral had $153 million outstanding on its credit facility and liquidity of $93.6 million, consisting of $71.2 million undrawn capacity on its credit facility and $22.4 million of cash.

Call Details
Chaparral’s third quarter 10-Q is available on the Investor section of the company’s website at chaparralenergy.com/investors and the Securities and Exchange Commission at sec.gov. The company will hold its financial and operating results call this morning, November 14 at 10 a.m. Central. Interested parties may access the call toll-free at 866-548-4713 and ask for the Chaparral Energy conference call 10 minutes prior to the start time. The conference ID number is 1321103. A live webcast of the call will also be available on the company’s website at chaparralenergy.com/investors and a recording of the call will be available on the page shortly after its conclusion.

Statements made in this release contain “forward-looking statements.” These statements are based on certain assumptions and expectations made by Chaparral, which reflect management’s experience, estimates and perception of historical trends, current conditions, anticipated future developments, potential for reserves and drilling, completion of current and future acquisitions, and growth, benefits of acquisitions, future competitive position and other factors believed to be appropriate. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our ability to find oil and natural gas reserves that are economically recoverable, the volatility of oil and natural gas prices, the uncertain economic conditions in the United States and globally, the decline in the reserve values of our properties that may result in ceiling test write-downs, our ability to replace reserves and sustain production, our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in prospect development and property acquisitions or dispositions and in projecting future rates of production or future reserves, the timing of development expenditures and drilling of wells, the impact of natural disasters on our present and future operations, the impact of government regulation and the operating hazards attendant to the oil and natural gas business. Please read “Risk Factors” in our annual reports, form 10-K or other public filings. We undertake no duty to update or revise these forward-looking statements.

About Chaparral
Chaparral is an independent oil and natural gas exploration and production company headquartered in Oklahoma City. Founded in 1988, Chaparral is a leading Mid-Continent operator with focused operations in Oklahoma’s highly economic STACK Play, where it has approximately 110,000 net acres and more than 3,500 potential drilling locations primarily in Kingfisher, Canadian and Garfield counties. The company has potential total production reserves of more than 1 billion barrels of oil equivalent and more than 350,000 net surface acres in the Mid-Continent region. For more information, please visit chaparralenergy.com.

Investor Contact
Joe Evans
Chief Financial Officer
405-426-4590
joe.evans@chaparralenergy.com

Media Contact
Brandi Wessel
Manager – Communications
405-426-6657
brandi.wessel@chaparralenergy.com

Operating Results Data (Unaudited)

   
 

(in thousands, except share and per share data)
SuccessorPredecessor
Three months
ended
September 30,
2017
Three months
ended
June 30,
2017
Three months
ended
September 30,
2016
Revenues - commodity sales$75,947 $74,048 $65,847 
Costs and expenses:      
Lease operating 24,209  23,059  22,291 
Transportation and processing 2,942  3,067  2,429 
Production taxes 4,536  3,383  2,174 
Depreciation, depletion and amortization 32,167  30,851  29,624 
Loss on impairment of other assets     202 
General and administrative 9,924  8,973  1,519 
Cost reduction initiatives 34  115  89 
Total costs and expenses 73,812  69,448  58,328 
       
Operating income 2,135  4,600  7,519 
       
Non-operating (expense) income:      
Interest expense (5,283) (5,051) (7,436)
Derivative (losses) gains (15,448) 23,474   
Other income (expense), net 376  (551) (129)
Net non-operating (expense) income (20,355) 17,872  (7,565)
Reorganization items, net (858) (1,070) (5,504)
(Loss) income before income taxes (19,078) 21,402  (5,550)
Income tax expense (benefit) 37  37  (59)
Net (loss) income$(19,115)$21,365 $(5,491)
Earnings per share:      
Basic for Class A and Class B$(0.42)$0.47  * 
Diluted for Class A and Class B$(0.42)$0.47  * 
Weighted average shares used to compute earnings per share:       
Basic for Class A and Class B 44,982,142  44,982,142  * 
Diluted for Class A and Class B 44,982,142  44,982,142  * 
         

Consolidated Balance Sheet

   


(dollars in thousands)
SuccessorPredecessor
September 30,
2017
(unaudited)
December 31,
2016
Assets    
Current assets:    
Cash and cash equivalents$22,395 $186,480 
Accounts receivable, net 63,952  46,226 
Inventories, net 4,207  7,351 
Prepaid expenses 2,161  3,886 
Derivative instruments 8,130   
Total current assets 100,845  243,943 
Property and equipment, net 52,766  41,347 
Oil and natural gas properties, using the full cost method:    
Proved 707,938  4,323,964 
Unevaluated (excluded from the amortization base) 599,885  20,353 
Accumulated depreciation, depletion, amortization and impairment (59,157) (3,789,133)
Total oil and natural gas properties 1,248,666  555,184 
Derivative instruments 5,990   
Other assets 3,082  5,513 
Total assets$1,411,349 $845,987 
       

Consolidated Balance Sheet – Continued

   


(dollars in thousands)
SuccessorPredecessor
September 30,
2017
(unaudited)
December 31,
2016
Liabilities and stockholders equity (deficit)    
Current liabilities:    
Accounts payable and accrued liabilities$65,069 $42,442 
Accrued payroll and benefits payable 9,466  3,459 
Accrued interest payable 404  732 
Revenue distribution payable 15,574  9,426 
Long-term debt and capital leases, classified as current 4,758  469,112 
Derivative instruments   7,525 
Total current liabilities 95,271  532,696 
Long-term debt and capital leases, less current maturities 319,696   
Derivative instruments   5,844 
Deferred compensation 561   
Asset retirement obligations 60,614  65,456 
Liabilities subject to compromise   1,284,144 
Commitments and contingencies    
Stockholders’ equity (deficit):    
Predecessor preferred stock    
Predecessor Class A Common stock   4 
Predecessor Class B Common stock   3 
Predecessor Class C Common stock   2 
Predecessor Class E Common stock   5 
Predecessor Class F Common stock    
Predecessor Class G Common stock    
Predecessor additional paid in capital   425,231 
Successor preferred stock    
Successor Class A Common stock 389   
Successor Class B Common stock 79   
Successor additional paid in capital 952,172   
Accumulated deficit (17,433) (1,467,398)
Total stockholders' equity (deficit) 935,207  (1,042,153)
Total liabilities and stockholders' equity (deficit)$1,411,349 $845,987 
       

Consolidated Statements of Cash Flows (Unaudited)

   


(in thousands)
SuccessorPredecessor
Period from
March 22, 2017
through
September 30, 2017
Period from
January 1, 2017
through
March 21, 2017
Nine months
ended
September 30, 2016
Cash flows from operating activities      
Net (loss) income$(17,433)$1,041,959 $(400,551)
Adjustments to reconcile net loss to net cash provided by operating activities      
Non-cash reorganization items   (1,012,090)  
Depreciation, depletion and amortization 66,432  24,915  94,396 
Loss on impairment of assets     282,540 
Write-off of Senior Note issuance costs, discount and premium     16,970 
Derivative losses (gains) 4,089  (48,006) 9,468 
Loss (gain) on sale of assets 876  (206) 128 
Other 1,300  645  2,832 
Change in assets and liabilities      
Accounts receivable (16,082) 198  (4,866)
Inventories 2,683  466  2,758 
Prepaid expenses and other assets 2,560  (497) (370)
Accounts payable and accrued liabilities (13,369) 8,733  24,026 
Revenue distribution payable 4,549  (1,875) 1,173 
Deferred compensation 2,565  143  (5,384)
Net cash provided by operating activities 38,170  14,385  23,120 
Cash flows from investing activities      
Expenditures for property, plant, and equipment and oil and natural gas properties (114,358) (31,179) (119,994)
Proceeds from asset dispositions 7,791  1,884  954 
Proceeds from derivative instruments 15,143  1,285  90,590 
Cash in escrow 42    49 
Net cash used in investing activities (91,382) (28,010) (28,401)
Cash flows from financing activities      
Proceeds from long-term debt 33,000  270,000  181,000 
Repayment of long-term debt (1,154) (444,785) (1,563)
Proceeds from rights offering, net   50,031   
Principal payments under capital lease obligations (1,362) (568) (1,860)
Payment of other financing fees   (2,410)  
Net cash provided by (used in) financing activities 30,484  (127,732) 177,577 
Net (decrease) increase in cash and cash equivalents (22,728) (141,357) 172,296 
Cash and cash equivalents at beginning of period 45,123  186,480  17,065 
Cash and cash equivalents at end of period$22,395 $45,123 $189,361 
          

Adjusted EBITDA Reconciliation Non-GAAP

   
 

(in thousands)
SuccessorPredecessor
Three months
ended
September 30,
2017
Three months
ended
June 30,
2017
Three months
ended
September 30, 2016
Net (loss) income$(19,115)$21,365 $(5,491)
Interest expense 5,283  5,051  7,436 
Income tax expense (benefit) 37  37  (59)
Depreciation, depletion, and amortization 32,167  30,851  29,624 
Non-cash change in fair value of derivative instruments 22,236  (16,811)  
Interest income (4) (5) (50)
Stock-based compensation expense 2,776    (4,538)
Loss on sale of assets 13  863  195 
Loss on impairment of assets     202 
Restructuring, reorganization and other 892  1,185  89 
Adjusted EBITDA$44,285 $42,536 $27,408 
          

Adjusted EBITDA Reconciliation Non-GAAP – Continued

   
 

(in thousands)
SuccessorPredecessor
Period from
March 22, 2017
through
September 30, 2017
Period from
January 1, 2017
through
March 21, 2017
Nine months
ended
September 30, 2016
Net (loss) income$(17,433)$1,041,959 $(400,551)
Interest expense 10,984  5,862  57,243 
Income tax expense 75  37  165 
Depreciation, depletion, and amortization 66,432  24,915  94,396 
Non-cash change in fair value of derivative instruments 19,232  (46,721) 163,238 
Gain on settlement of  liabilities subject to compromise   (372,093)  
Fresh start accounting adjustments   (641,684)  
Upfront premiums paid on settled derivative contracts     (20,608)
Proceeds from monetization of derivatives with a scheduled maturity date more than 12 months from the monetization date excluded from EBITDA     (12,810)
Interest income (9) (133) (140)
Stock-based compensation expense 2,776  155  (5,254)
Loss (gain) on sale of assets 876  (206) 128 
Loss on impairment of assets     282,540 
Write-off of debt issuance costs, discount and premium   1,687  16,970 
Restructuring, reorganization and other 2,703  24,297  3,228 
Adjusted EBITDA$85,636 $38,075 $178,545