Jones Energy, Inc. Announces 2018 Second Quarter Financial and Operating Results

AUSTIN, Texas, Aug. 06, 2018 (GLOBE NEWSWIRE) -- Jones Energy, Inc. (NYSE:JONE) (“Jones Energy” or “the Company”) today announced financial and operating results for the second quarter ended June 30, 2018 as well as initial production guidance for the third quarter of 2018.

Highlights:

• The Company has proactively initiated discussions with its unsecured noteholders. The aim of these liability management discussions is to achieve increased financial flexibility to optimize the value of Jones Energy’s core Merge and Western Anadarko Basin (“WAB”) assets for the benefit of all stakeholders.
• Jones Energy remains active in its evaluation of strategic alternatives as well as its pursuit of a DrillCo with an exclusive joint development partner in order to accelerate drilling and value creation.
• 2018 Merge wells brought online showing average peak IP30 of 183 boe/d per 1,000’ of lateral in the Meramec and 120 Boe/d per 1,000’ of lateral in the Woodford (3-stream).
• Net loss for the second quarter of 2018 of $46.9 million, or a net loss of $0.47 per share, non-GAAP adjusted net loss of $28.7 million, or an adjusted net loss of $0.29 per share, and EBITDAX of $29.7 million.¹

Operational and Strategic Direction Update

On July 23, 2018, the Company named Carl Giesler as Chief Executive Officer. Mr. Giesler commented, “Thank you to our Board of Directors and the entire Jones Energy team for the warm welcome and, more importantly, the renewed energy, commitment, and focus.”

Mr. Giesler continued, “From an operating perspective, production remained strong through the second quarter of 2018.  The Merge program now represents 41% of total company production, as compared to 8% this time last year. Additionally, our 2018 Merge HBP-focused drilling remains on-schedule to be completed in November. As part of ongoing operational improvements, we are tightening our landing-point selection and focusing on staying in zone. We are also enhancing casing and completion designs, refining flowback methodology and lifting techniques to minimize risk and optimize well results. We believe our contiguous position of 22,500 net acres with more than 500 identified operated drilling locations in the Merge will improve in value as we and other area operators test spacing and further refine completions and other processes.

“In the WAB, we have had consistently strong results in our core Cleveland drilling since improving our completions and flowback protocols in a cost-neutral manner late last year. Additionally, we are seeing early flowback from our first Marmaton well and other recent results from the Cleveland that highlight potential upside in the WAB.  We continue to identify operated producing well-bores for lower-risk, low-capex, high-return, quick-payback work-over opportunities as well as shutting-in wells that have become uneconomic. We believe there exists significant value, which is sometimes overlooked, in our Western Anadarko asset as part of the greater Jones Energy portfolio.

“From a strategic perspective, we believe our cash position provides us a multi-year runway to drive value through executing on our core Merge and WAB assets.  To extend that runway, management and the Board of Directors are focused on various initiatives to reduce our debt and increase our financial flexibility. We have taken several key steps in recent weeks and look forward to providing you additional updates as the DrillCo and other objectives are achieved.

“No doubt, we have a lot of work to do. Fortunately, we believe the quality of our people, the strength of our asset base and the improving commodity price environment will allow us to achieve our goals.”

Financial Results

Total operating revenues for the three months ended June 30, 2018 were $65.3 million as compared to $48.6 million for the three months ended June 30, 2017.  Total revenues, including current period settlements of matured derivative contracts, were $52.7 million for the three months ended June 30, 2018 as compared to $66.5 million for the three months ended June 30, 2017.  

Total operating expenses for the three months ended June 30, 2018 were $70.1 million as compared to $73.2 million for the three months ended June 30, 2017, excluding a one-time impairment charge of $148 million related to the Company’s sale of its Arkoma Basin properties. Lease Operating Expenses (“LOE”) for the three months ended June 30, 2018 totaled $11.6 million, or $5.10 per Boe, which is in line with the first quarter 2018 LOE which averaged $5.12 per Boe.

For the three months ended June 30, 2018, the Company reported a net loss of $46.9 million, of which a net loss of $43.5 million, or $0.47 per share, is attributable to common shareholders. This compares to a net loss of $134.0 million, of which a net loss of $84.2 million, or $1.28 per share, was attributable to common shareholders, for the three months ended June 30, 2017. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, the Company had adjusted net loss for the second quarter 2018 of $28.7 million, or adjusted net loss attributable to common shareholders of $0.29 per share, as compared to adjusted net income of $4.7 million, or net income of $0.10 per share for the three months ended June 30, 2017.

Earnings before interest, income taxes, depreciation, amortization, and exploration expense (“EBITDAX”) for the second quarter 2018 was $29.7 million. EBITDAX for the second quarter 2018 was negatively impacted by $12.5 million of hedging related losses. This compares to second quarter 2017 EBITDAX of $48.3 million.  

Preferred Dividend Update

During the second quarter, the Company’s Board of Directors declared a contingent dividend on the Company’s 8.0% Series A Perpetual Convertible Preferred Stock (“Preferred Stock”), payable in Class A common stock on May 15, 2018 to holders of record as of May 1, 2018. It was announced on May 15, 2018 that the Dividend Valuation Price did not meet the required Floor Price², and the dividend was not paid. The right to receive that dividend accrued for holders of Preferred Stock. As a reminder, the Company has exercised one of its five dividend holidays available to it without penalty.  

Following the end of the 2018 second quarter, on July 17, 2018 the Company’s Board of Directors declared a contingent dividend on the Preferred Stock, payable in Class A common stock on August 15, 2018 to holders of record as of August 1, 2018 under the same terms, including the requirement that the Dividend Valuation Price of the stock must meet the required Floor Price in order to be paid. If the dividend is not paid, the right to receive the dividend will again accrue for holders of Preferred Stock and the Company will have exercised its second dividend holiday.

Operating Results

For the three months ended June 30, 2018, Jones Energy produced 2,272 MBoe, or 24,967 Boe/d, of which production from the Merge accounted for 41%. The table below provides a breakout of 2018 second quarter production.

Merge

During the second quarter, the Company spud three wells and completed seven wells in the Merge. Of the wells completed and brought online, three were landed in the Meramec and four were in the Woodford. Merge production for the second quarter 2018 of 10.3 MBoe/d represents an increase of 51% over first quarter 2018 production of 6.8 Mboe/d. The Merge now represents 41% of total Company production. 

Merge wells continue to show solid performance in the Company’s designated development areas of El Reno, Minco and Tuttle across Canadian and Grady Counties, OK. The average of wells drilled in the 2018 program in these areas have seen peak IP30 (3-stream) rates of 183 Boe/d per 1,000’ of lateral in the Meramec and 120 Boe/d per 1,000’ of lateral in the Woodford. Jones Energy continues to improve its operational performance by focusing on optimizing landing points, geo-steering and completion designs. Specifically, teams are fully integrating 3D seismic into their landing point selection and maximizing time in the most productive target interval as defined by proprietary data from our 40 operated wells in the Merge. Further, the Company has identified that certain casing designs, completion methods, flowback techniques and lift protocols correlate to improved performance. Regarding current completion designs, the Company has increased its stage count in the Meramec and improved cluster efficiency in both plays through limited entry perforating and effective fluid diversion. Jones Energy will continue to optimize all aspects of its early development efforts.

Jones Energy continues to progress its 2018 Merge HBP program and has one rig running on its Merge acreage. As of August 6, 2018, the Company has drilled 32 of its 38 operated sections and remains on-track to complete its HBP Merge program in November.

Western Anadarko Basin

Average daily net production was 13.5 MBoe/d in the WAB for the second quarter of 2018. During the quarter, the Company spud two wells and completed one well in the Western Anadarko. Of the two wells spud, one well was a Cleveland target and one well was an exploration Marmaton target. The single well completed and brought online during the quarter was a Cleveland well. The Marmaton target was completed in July and is in early stages of flowback. This Marmaton well represents the Company’s first operated well in that play, and if successful, could unlock additional upside for the WAB asset.

Jones Energy is enhancing base production on its 534 operated wells in the WAB employing industry best-practices to improve lifting efficiency. Examples include a targeted re-frac program, application of emerging artificial lift solutions, and field-wide telemetry installations. The Company believes this ongoing well-level focus serves to maximize production from existing wellbores in a known proven reservoir.

Jones Energy currently has one rig active in the WAB.

Capital Expenditures

During the second quarter 2018, the Company spent $47.1 million of capital expenditures, of which $39.2 million was related to operated drilling and completion (“D&C”) capital and $5.5 million was related to D&C spending on non-operated wells. 90% of all D&C capital was related to Merge activity. The remaining $2.4 million of capital spend was related to leasing and maintenance. Year-to-date capital expenditures for the Company total $110.5 million.

Initial 2018 Third Quarter Production Guidance

Jones Energy is announcing initial production guidance of 1.8 to 2.0 MMBoe, or 19,500 to 21,700 Boe/d, for the 2018 third quarter. Full-year production and cost guidance remain suspended and subject to the Company’s ongoing review of its financial and operating plans. The following table provides a breakout of initial 2018 third quarter production guidance.

Liquidity and Hedging

During the second quarter of 2018, the Company used $25 million of cash to pay down its revolver balance and had no outstanding borrowings as of June 30, 2018 under that facility. Jones Energy also amended the terms of its credit facility, removing all financial maintenance covenants and aligning other covenants to those contained in the Company’s 9.25% senior secured first lien notes and reducing the borrowing base to twenty-five dollars. As of June 30, 2018, the Company had approximately $148 million in cash and as of August 2, 2018 had approximately $129 million of cash. The following table summarizes the Company’s net commodity derivative contracts outstanding as of August 6, 2018:

Jones Energy will not hold a conference call in conjunction with its second quarter 2018 earnings release and expects to file its 10-Q with the SEC on Wednesday, August 8, 2018.

About Jones Energy

Jones Energy, Inc. is an independent oil and natural gas company engaged in the exploration, development and acquisition of oil and natural gas properties in the Anadarko basin of Oklahoma and Texas.  Additional information about Jones Energy may be found on the Company’s website at: www.jonesenergy.com.

Investor Contact:

Page Portas, 512-493-4834
Investor Relations Associate
Or
Robert Brooks, 512-328-2953
Executive Vice President & CFO

ir@jonesenergy.com

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¹Adjusted net income, adjusted net income per share and EBITDAX are supplemental non-GAAP financial measures that are used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. For additional information, including reconciliations to the most comparable GAAP financial measures, please see “Non-GAAP Financial Measures and Reconciliations” below.

²As defined in the Certificate of Designations for the Preferred Stock and as adjusted in accordance with the terms of the Certificate of Designations.

Forward-Looking Statements

This press release 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 press release 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 press release specifically include the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, updated guidance regarding the number of rigs that will be running in 2018, the timing and location of the development of the Merge, expectations regarding our liability management program and potential strategic transactions, including the proposed DrillCo, levels of single-well authorizations for expenditures and the cost to drill and complete wells and the resultant impact on the 2018 capital budget, and projections regarding total production, average daily production, percentage liquids, operating expenses, production and ad valorem taxes as a percentage of revenue, cash G&A expenses and capital expenditure levels for the full year and third quarter of 2018.  These statements are based on certain assumptions made by the Company based on management’s experience and perception of historical trends, current economic and market conditions, anticipated future developments and other factors believed to be appropriate.  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.  These include, but are not limited to, changes in oil and natural gas prices, weather and environmental conditions, the timing and amount of planned capital expenditures, availability and method of funding of acquisitions and divestitures, or the ability to integrate any acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as the Company’s ability to access them, the proximity to and capacity of transportation facilities, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting the Company’s business and other important factors that could cause actual results to differ materially from those projected as described in the Company’s reports filed with the SEC.

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.

Jones Energy, Inc.
Consolidated Statement of Operations (Unaudited)

Jones Energy, Inc.
Consolidated Balance Sheet (Unaudited)

Jones Energy, Inc.
Selected Financial and Operating Statistics

The following table sets forth summary data regarding revenues, production volumes, average prices and average production costs associated with our sale of oil and natural gas for the periods indicated:

Jones Energy, Inc.
Consolidated Statement of Cash Flow Data (Unaudited)

Jones Energy, Inc.
Non-GAAP Financial Measures and Reconciliations

EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.

We define EBITDAX as earnings before interest expense, income taxes, depreciation, depletion and amortization, exploration expense, gains and losses from derivatives less the current period settlements of matured derivative contracts, and the other items described below.  EBITDAX is not a measure of net income as determined by United States generally accepted accounting principles, or GAAP.  Management believes EBITDAX is useful because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure.  We exclude the items listed above from net income in arriving at 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.  EBITDAX has limitations as an analytical tool and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity. Certain items excluded from 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 historical costs of depreciable assets.  Our presentation of EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items and should not be viewed as a substitute for GAAP.  Our computations of EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net income (loss) as determined in accordance with GAAP to EBITDAX for the periods indicated:

Jones Energy, Inc. 
Non-GAAP Financial Measures and Reconciliations

Adjusted Net Income is a supplemental non-GAAP financial measure that is used by management and external users of the Company’s consolidated financial statements.  We define Adjusted Net Income as net income excluding the impact of certain non-cash items including gains or losses on commodity derivative instruments not yet settled, impairment of oil and gas properties, non-cash compensation expense, and the other items described below.  We believe adjusted net income and adjusted earnings per share are useful to investors because they provide readers with a more meaningful measure of our profitability before recording certain items for which the timing or amount cannot be reasonably determined.  However, these measures are provided in addition to, not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP.  The following table provides a reconciliation of net income (loss) as determined in accordance with GAAP to adjusted net income for the periods indicated:

Jones Energy, Inc.
Non-GAAP Financial Measures and Reconciliations

Adjusted Earnings per Share is a supplemental non-GAAP financial measure that is used by management and external users of the Company’s consolidated financial statements.  We define Adjusted Earnings per Share as earnings per share plus that portion of the components of adjusted net income allocated to the controlling interests divided by weighted average shares outstanding.  We believe adjusted earnings per share is useful to investors because it provides readers with a more meaningful measure of our profitability before recording certain items for which the timing or amount cannot be reasonably determined.  However, these measures are provided in addition to, not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP.  The following table provides a reconciliation of earnings per share to adjusted earnings per share for the period indicated: