Extraction Oil & Gas, Inc. Announces Third-Quarter 2018 Results

DENVER, Nov. 06, 2018 (GLOBE NEWSWIRE) -- Extraction Oil & Gas, Inc. (NASDAQ: XOG) (“Extraction” or the “Company”) today reported financial and operational results for the third quarter of 2018.

Third-Quarter 2018 Highlights

• Third quarter average net sales volumes of 75,680 barrels of oil equivalent per day (BOE/d) including 39,323 barrels per day (Bbl/d) of crude oil;
     
• For the third quarter, Extraction reported net income of $65.2 million, or $0.33 per basic and diluted share, compared to net loss of $29.8 million, or $0.20 per basic and diluted share¹, for the same period in 2017. Adjusted EBITDAX, Unhedged² was $212.4 million for the third quarter, up 69% year-over-year and up 12% sequentially. Adjusted EBITDAX was $169.4 million for the third quarter, up 32% year-over-year and up 11% sequentially;
     
• Drilling and completion (D&C) capital expenditures for the third quarter 2018 were $161 million; and
     
• First operated pad in Extraction's Broomfield Development Area produced crude oil at a peak 60-day average daily rate of 1,179 BOE/d, 68% of which was crude oil, exceeding internal estimates.

"After DCP's Plant 10 became operational in August, we were achieving sustained production in excess of 90 MBOE/d, reaching almost 93 MBOE/d at one point," said Extraction Oil & Gas Chairman and CEO Mark Erickson. "After DCP imposed production allocations later in August, we were forced to choke our wells back considerably, and since that time, we have not realized the full, sustained production potential of our outstanding DJ Basin wells. Despite these midstream headwinds that are outside of our control, we continue to produce some of the best wells in our company's history."

"As stated previously on October 18, we initially expected that DCP's Plant 10 would provide much more relief than what we have seen to date. We estimate that DCP negatively impacted our production by approximately 18 MBOE/d during the third quarter. Once Plant 10 came online, we did not expect that DCP would be basing allocations on production data from August 2017, and as a result, our gas production on DCP's system is currently curtailed by over 35%."

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1} For further information on the earnings per share, refer to the Condensed Consolidated Statement of Operations, included herein.
² Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are non-GAAP financial measures. For a definition of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, read “-Reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged” included herein.
   

"Despite the midstream headwinds, we still expect to generate positive free cash flow for the fourth quarter of 2018 when you exclude the impact of our initial Elevation Midstream investment, which is non-recourse to and does not require capital outlays by the upstream Company."

Financial Results

For the third quarter, Extraction reported oil, natural gas and NGL sales revenue of $282.2 million, as compared to $180.9 million during the same period in 2017, representing an increase of 56%. Revenue increased 8% sequentially, primarily driven by higher production and an improvement in crude oil prices.

Extraction reported net income of $65.2 million, or $0.33 per basic and diluted share for the third quarter, compared to net loss of $29.8 million for the same period in 2017. This increase in net income was driven predominately by an $83.6 million gain from the previously announced sale of Extraction's ownership in Discovery Midstream that closed in August. Adjusted EBITDAX, Unhedged was $212.4 million for the third quarter, up 69% year-over-year and up 12% sequentially. Adjusted EBITDAX was $169.4 million for the third quarter, up 32% year-over-year and up 11% sequentially.  Please read “Reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged”, included herein.

The following table provides a summary of our sales volumes, average sales prices and certain operating expenses on a per BOE basis for the three and nine months ended September 30, 2018 and 2017, respectively:

1. One BOE is equal to six thousand cubic feet (“Mcf”) of natural gas or one barrel (“Bbl”) of oil or NGL based on an approximate energy equivalency. This is an energy content correlation and does not reflect a value or price relationship between the commodities.
2. Average prices shown in the table reflect prices both before and after the effects of our settlements of our commodity derivative contracts. Our calculation of such effects includes both gains and losses on settlements for commodity derivatives and amortization of premiums paid or received on options that settled during the period.
3. As a result of the adoption of ASC 606 - Revenue from Contracts with Customers ("ASC 606") on January 1, 2018, certain costs previously classified as transportation and gathering expenses are presented on a net basis for proceeds expected to be received. For further information, see Note 2 - Adoption of ASC 606 of our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018.

Operational Results

Extraction turned its first pad in its Broomfield Development Area to sales starting in early August 2018. This pad consists of ten two-mile laterals with seven of the wells producing from the Niobrara formation and three producing from the Codell formation. The Codell wells produced at a peak 60-day average daily rate of approximately 1,197 BOE/d, 68% of which was crude oil. The Niobrara wells produced at a peak 60-day average daily rate of approximately 1,173 BOE/d, 69% of which was crude oil.

"We had very high expectations for our Broomfield area, and these results exceed even our high expectations," Erickson said. "They came on very strong and are exhibiting a relatively shallow decline profile, which is very encouraging for the long-term deliverability of these wells. With over 12,000 developable acres in this area, all of which will be served by our own Elevation Midstream, this area provides us with a lot of running room along with greater control over the midstream situation. We plan to put one rig in Broomfield drilling full-time starting in early 2019. We've already begun construction on the midstream side and expect to begin construction for the well pads before the end of this year."

Third quarter crude oil volumes of 39,323 Bbl/d increased 14% year-over-year and increased 1% sequentially. Crude oil accounted for approximately 80% of the Company’s total revenues and over 52% of the Company’s total equivalent volumes recorded during the third quarter. Third quarter average net sales volumes were 75,680 BOE/d, an increase of 20% year-over-year and 3% sequentially.

Extraction estimates the limited allocation it received on DCP's midstream system negatively impacted its production by approximately 18 MBOE/d during the third quarter and expects DCP's constraints to impact its full-year 2018 production by over approximately 17 MBOE/d, which is incorporated into its guidance announced on October 18, 2018. The Company expects these constraints on DCP's system to persist with limited relief after DCP's Plant 11 is placed into service during the second quarter of 2019.

For the third-quarter 2018, Extraction’s aggregate drilling, completion, and leasehold capital expenditures totaled $186.7 million, of which $161.0 million was drilling and completion additions and $25.7 million was leasehold and surface acreage additions. This excludes the impact of the decrease in outstanding elections of $16.1 million. In addition, Elevation Midstream, LLC,  our wholly owned midstream subsidiary, incurred $37.5 million of capital expenditures. Elevation's capital budget results in no capital outlay from Extraction and the financing is non-recourse to Extraction's balance sheet.

During the third quarter, Extraction reached total depth on 41 gross (30 net) wells with an average lateral length of approximately 9,700 feet and completed 31 gross (26 net) wells with an average lateral length of approximately 6,500 feet. We turned to sales 71 gross (61 net) wells with an average lateral length of approximately 9,600 feet. Of these 71 wells, 57 are on DCP's midstream system. The Company completed 1,091 total stages during the quarter while pumping approximately 340 million pounds of proppant.

Updated Investor Presentation

Extraction has posted an updated investor presentation to its website. The investor presentation may be viewed on the Company’s website (www.extractionog.com) by selecting “Investors,” then “News and Events,” then “Presentations.”

Third-Quarter 2018 Earnings Conference Call Information

Those who would like to participate can dial into the number listed below approximately 15 minutes before the scheduled conference call time, and enter confirmation number 6475178 when prompted.

To access the audio webcast and related presentation materials, please visit the Investor Relations section of the Company’s website at www.extractionog.com. A replay of the conference call will be available on the website for approximately 30 days following the call.

About Extraction Oil & Gas, Inc.

Denver-based Extraction Oil & Gas, Inc. is an independent energy exploration and development company focused on exploring, developing and producing crude oil, natural gas and NGLs primarily in the Wattenberg Field in the Denver-Julesburg Basin of Colorado. For further information, please visit www.extractionog.com. The Company's common shares are listed for trading on the NASDAQ under the symbol: “XOG.”

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this press release constitute “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 facts, included herein concerning, among other things, planned capital expenditures, increases in oil and gas production, the number of anticipated wells to be drilled or completed after the date hereof, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project," "plan," "believe," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could," and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control that could cause actual results to differ materially from the results discussed in the forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for us to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in the “Risk Factors” section of our most recent Form 10-K and Forms 10-Q filed with the Securities and Exchange Commission and in our other public filings and press releases. These and other factors could cause our actual results to differ materially from those contained in any forward-looking statement.

EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

EXTRACTION OIL & GAS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

1. For further information, see the reconciliation of Net Income (Loss) to Net Income (Loss) available to common shareholders in Note 10 of our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 and 2017.
       

EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

EXTRACTION OIL & GAS, INC.
RECONCILIATION OF ADJUSTED EBITDAX AND ADJUSTED EBITDAX, UNHEDGED
(In thousands)
(Unaudited)

Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are not measures of net income (loss) as determined by United States generally accepted accounting principles (“GAAP”). Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDAX as net income (loss) adjusted for certain cash and non-cash items, including depletion, depreciation, amortization and accretion, impairment of long lived assets, exploration expenses, (gain) loss on sale of property and equipment and assets of unconsolidated subsidiaries, acquisition transaction expenses, (gain) loss on commodity derivatives, settlements on commodity derivative instruments, premiums paid for derivatives that settled during the period, stock-based compensation expense, amortization of debt issuance costs, make-whole premiums, interest expense, income taxes and non-recurring charges. We define Adjusted EBITDAX, Unhedged as Adjusted EBITDAX adjusted for settlements on commodity derivative instruments and premiums paid for derivative that settled during the period.

Management believes Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDAX and Adjusted EBITDAX, Unhedged 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 and Adjusted EBITDAX, Unhedged should not be considered as alternatives to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance. Certain items excluded from Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital, hedging strategy and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged. Our computations of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged may not be comparable to other similarly titled measure of other companies. We believe that Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are widely followed measures of operating performance.  A reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged and net income (loss) for the three and nine months ended September 30, 2018 and 2017 is provided in the table above. Additionally, our management team believes Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are useful to an investor in evaluating our financial performance because these measures (i) are widely used by investors in the oil and natural gas industry to measure a company’s operating performance without regard to items excluded from the calculation of such term, among other factors; (ii) help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and (iii) are used by our management team for various purposes, including as a measure of operating performance, in presentations to our board of directors, as a basis for strategic planning and forecasting.

Investor Contact: Louis Baltimore, ir@extractionog.com, 720-974-7773
Media Contact: Brian Cain, info@extractionog.com, 720-974-7782