DENVER, March 18, 2021 (GLOBE NEWSWIRE) -- Extraction Oil & Gas (NASDAQ: XOG) (“Extraction” or the “Company”) today reported financial and operating results for the fourth-quarter and full-year 2020 and provided updated guidance for the full-year 2021.
Fourth-Quarter and Full-Year 2020 Highlights
- Achieved average net sales volumes of 82,944 barrels of oil equivalent per day (Boe/d), of which 37% was crude oil and 62% total liquids, for the three months ended December 31, 2020. Average net sales volumes for the year ended December 31, 2020, were 88,907 Boe/d, of which 39% was crude oil and 63% total liquids.
- Emerged from financial restructuring with total debt of $265 million drawn on its $500 million credit facility
- Eliminated major midstream minimum volume commitments and negotiated new, cost-competitive midstream agreements
- Appointed a new, highly engaged Board of Directors focused on shareholder alignment
- Expecting to exit 2021 with no debt outstanding
“Extraction now has a strong balance sheet, low cost structure and shareholder-aligned governance structures complementing the high-quality asset base and safe operations for which we have been well-known,” said Tom Tyree, Chief Executive Officer of Extraction. “We are well-positioned to operate at the front of the industry cost curve, generate significant cash flow, repay our outstanding debt and establish a dividend policy by year-end,” he said. “We plan to accomplish this while continuing to reduce our environmental impact and focus on returning real value to our communities.”
Financial Results
For the fourth quarter, Extraction reported crude oil, natural gas and NGL sales revenue of $171 million, as compared to $286 million during the same period in 2019, representing a decrease of $114 million, driven primarily by lower production and lower commodity prices.
Extraction reported net loss of $444 million, or $3.22 per basic and diluted share1 for the fourth quarter, driven by lower realized sales prices and impairment expenses of $207 million. This compared to a net loss of $1.4 billion for the same period in 2019. Adjusted EBITDAX2 was $113 million for the fourth quarter, down 45% quarter-over-quarter. Adjusted EBITDAX, Unhedged was $105 million for the fourth quarter, down 48% quarter-over-quarter. Please read “Non-GAAP Financial Measures,” included herein.
Debt and Liquidity
As of March 15, 2021, Extraction had $26 million in cash and $254 million drawn on its revolving credit facility, which has elected commitments of $500 million.
1 For further information on the earnings per share, refer to the 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 “Non-GAAP Financial Measures,” included herein.
Production, Pricing and Expenses
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 months and year ended December 31, 2020 and 2019, respectively:
| For the Three Months Ended | For the Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales (MBoe): (1) | 7,631 | 10,219 | 32,540 | 32,385 | ||||||||||||
| Oil sales (MBbl) | 2,802 | 4,606 | 12,543 | 15,436 | ||||||||||||
| Natural gas sales (MMcf) | 17,488 | 21,277 | 72,311 | 64,710 | ||||||||||||
| NGL sales (MBbl) | 1,914 | 2,067 | 7,945 | 6,164 | ||||||||||||
| Sales (Boe/d): (1) | 82,944 | 111,077 | 88,907 | 88,728 | ||||||||||||
| Oil sales (Bbl/d) | 30,455 | 50,065 | 34,270 | 42,291 | ||||||||||||
| Natural gas sales (Mcf/d) | 190,092 | 231,272 | 197,571 | 177,288 | ||||||||||||
| NGL sales (Bbl/d) | 20,807 | 22,467 | 21,708 | 16,889 | ||||||||||||
| Average sales prices: (2) | ||||||||||||||||
| Oil sales (per Bbl) (3) | $ | 39.60 | $ | 47.73 | $ | 30.50 | $ | 46.74 | ||||||||
| Oil sales with derivative settlements (per Bbl) (3) | 43.03 | 48.43 | 37.15 | 45.16 | ||||||||||||
| Differential ($/Bbl) to average NYMEX WTI (4) | (3.06 | ) | (8.68 | ) | (7.92 | ) | (8.71 | ) | ||||||||
| Natural gas sales (per Mcf) | 1.94 | 1.62 | 1.34 | 1.68 | ||||||||||||
| Natural gas sales with derivative settlements (per Mcf) | 1.85 | 1.64 | 1.47 | 1.68 | ||||||||||||
| Differential ($/Mcf) to average NYMEX Henry Hub (5) | (1.09 | ) | (0.79 | ) | (1.00 | ) | (1.10 | ) | ||||||||
| NGL sales (per Bbl) | 13.82 | 14.58 | 9.72 | 12.18 | ||||||||||||
| Average price per Boe (3) | 22.46 | 27.84 | 17.10 | 27.96 | ||||||||||||
| Average price per Boe with derivative settlements (3) | 23.51 | 28.31 | 19.95 | 27.19 | ||||||||||||
| Expense per Boe: | ||||||||||||||||
| Lease operating expenses | $ | 1.58 | $ | 2.82 | $ | 2.39 | $ | 3.00 | ||||||||
| Transportation and gathering | 5.15 | 2.35 | 4.26 | 1.64 | ||||||||||||
| Production taxes | 1.21 | 2.13 | 0.89 | 2.11 | ||||||||||||
| Exploration and abandonment expenses | 9.70 | 5.49 | 7.96 | 2.74 | ||||||||||||
| Depletion, depreciation, amortization and accretion | 11.58 | 16.87 | 10.21 | 16.20 | ||||||||||||
| General and administrative expenses | 1.03 | 1.27 | 1.70 | 3.05 | ||||||||||||
| Cash general and administrative expenses (6) | 0.78 | 0.81 | 1.50 | 1.69 | ||||||||||||
| Stock-based compensation | 0.25 | 0.46 | 0.20 | 1.36 | ||||||||||||
| Total operating expenses per Boe (7) | 30.25 | 30.93 | 27.41 | 28.74 | ||||||||||||
| Production taxes as a percent of revenue | 5.4 | % | 7.6 | % | 5.2 | % | 7.5 | % | ||||||||
_______________
(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) Includes amounts allocated to a satisfied performance obligation, recognized within oil sales for the years ended December 31, 2020 and 2019, and for the three months ended December 31, 2019, pursuant to ASC 606, Revenue Recognition.
(4) Excludes non-cash amounts allocated to a satisfied performance obligation, recognized within oil sales for the years ended December 31, 2020 and 2019, and for the three months ended December 31, 2019, pursuant to ASC 606, Revenue Recognition.
(5) Based on the difference between our average realized price and the NYMEX Henry Hub Average as converted into Mcf using a conversions factor of 1.1 to 1.
(6) Cash general and administrative expenses for the years ended December 31, 2020 and 2019 include expense of $2.2 million and $2.3 million, respectively, related to the terms of separation agreements with former executive officers. Excluding these one-time expenses results in cash general and administrative expense per Boe of $1.43 and $1.62 for the years ended December 31, 2020 and 2019, respectively.
(7) Excludes midstream operating expenses, impairment of long lived assets, (gain) loss on sale of property and equipment, and other operating expenses.
Operating Results
Fourth quarter average net sales volumes were 82,944 Boe/d, a decrease of 25% from the fourth quarter in 2019. Fourth quarter crude oil volumes of 30,455 Bbl/d decreased 39% from the fourth quarter in 2019. Fourth quarter NGL volumes of 20,807 Bbl/d decreased 7% from the fourth quarter in 2019. During the fourth quarter of 2020, crude oil and NGLs accounted for approximately 65% and 15% of the Company’s total revenues recorded, respectively.
Extraction incurred approximately $160 million in capital expenditures during 2020, drilling 37 gross (25.7 net) wells with an average lateral length of 2.3 miles and completing 45 gross (34.1 net) wells with an average lateral length of 2.4 miles. The Company also acquired approximately $17 million of leasehold and surface acreage during the year.
“Over the past year, our team put tremendous effort into finding ways to lower our cost structure,” said Matt Owens, President and Chief Operating Officer of Extraction. “I am proud to say this effort was successful, as we anticipate drilling the lowest-cost wells in company history – and we achieved savings in excess of 20% on the operating expense side.”
2021 Guidance
The Company is revising its previously issued guidance to reflect various operating updates as well as pricing assumptions of $60/Bbl WTI oil price, $2.80/MMbtu gas and NGL realizations of 30% of WTI for the remainder of the year:
| Production | 66-74 MBoe/d (36-38% oil; 59-63% liquids) | |
| D&C capex | $140-180 MM | |
| Land net capex | $10-20 MM | |
| Lease operating expense | $2.25-2.75/Boe | |
| Recurring cash G&A expense | $29-31 MM | |
| Production tax expense | 8-9% of Revenue less T&M expense | |
| T&M expense (beginning 2Q21) | $2.75-3.25/Boe | |
| WTI differential (beginning 2Q21) | $6.00-7.00/Bbl |
The Company expects to exit 2021 with no debt outstanding and, subject to market conditions, the Company expects to establish a dividend policy by year-end 2021.
Proved Reserves at December 31, 2020
Extraction’s estimated 2020 year-end proved reserves are 146 MMBoe, a 43% decrease when compared to year-end 2019 proved reserves of 254 MMBoe. This decrease was driven primarily by PUD expirations in accordance with the SEC five-year drilling rule caused by the change in business strategy to focus on Free Cash Flow generation rather than production growth. The Company’s estimated proved developed reserves at year-end 2020 were 112 MMBoe, a decrease of 22% year-over-year. Year-end 2020 proved reserves are comprised of approximately 45 MMBbl of oil and 39 MMBbl of NGLs.
During the year ended December 31, 2020, Extraction recognized $198 million in impairment expense on its oil and gas properties as a result of lower forecasted commodity prices and a more measured pace of development to focus on Free Cash Flow generation. In accordance with Securities and Exchange Commission (“SEC”) guidelines, Extraction’s proved reserves at December 31, 2020 were computed using SEC pricing of $39.57 per barrel of crude oil and $1.99 per million British Thermal Units for natural gas, before adjustments for energy content, quality, midstream fees, and basis differentials. Prices adhere to the SEC requirement to use the unweighted arithmetic average of the first-day-of-the-month price for the preceding twelve months without giving effect to derivative transactions. Reserve estimates for 2020 were prepared by Extraction’s independent reservoir engineering firm, Ryder Scott Company, L.P.
The table below reconciles the components driving the 2020 proved reserves decrease:
| MMBoe | ||
| Balance, December 31, 2019 | 254 | |
| Revisions of previous estimates (1) | (87 | ) |
| Purchase of reserves | — | |
| Extensions, discoveries, and other additions | 14 | |
| Sale of reserves | (2 | ) |
| Production | (33 | ) |
| Balance, December 31, 2020 | 146 | |
(1) Change primarily due to revisions of PUD expirations due to the SEC five-year drilling rule caused by the change in business strategy to focus on cash flow rather than maximizing production and reserves growth.
Fourth-Quarter and Full-Year 2020 Earnings Conference Call Information
| Date: | Friday, March 19, 2021 |
| Time: | 10:00 AM EDT / 8:00 AM MDT |
| Dial - In Numbers: | 1-844-229-9561 (Domestic toll-free) |
| Conference ID: | 9956953 |
To access the audio webcast, 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
Extraction Oil & Gas is a Denver-based independent energy company differentiated by its financial, operational and governance model. The Company is focused on developing and producing crude oil, natural gas and NGLs in the Denver-Julesburg Basin of Colorado. Extraction’s common shares are listed for trading on NASDAQ under the symbol XOG. For more information, please visit www.extractionog.com.
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, anticipated levels of free cash flow and debt, shareholder returns, 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.
Investor Contact: John Wren, ir@extractionog.com
Media Contact: Brian Cain, info@extractionog.com
EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Debtor-In-Possession)
| December 31, 2020 | December 31, 2019 | ||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and cash equivalents | $ | 205,890 | $ | 32,382 | |||
| Accounts receivable | 76,695 | 137,112 | |||||
| Inventory, prepaid expenses and other | 36,382 | 36,702 | |||||
| Commodity derivative asset | 6,971 | 17,554 | |||||
| Total Current Assets | 325,938 | 223,750 | |||||
| Property and Equipment (successful efforts method), at cost: | |||||||
| Oil and gas properties | 5,092,901 | 5,204,881 | |||||
| Less: accumulated depletion, depreciation, amortization and impairment charges | (3,459,689 | ) | (2,985,983 | ) | |||
| Net oil and gas properties | 1,633,212 | 2,218,898 | |||||
| Gathering systems and facilities, net of accumulated depreciation | — | 315,777 | |||||
| Other property and equipment, net of accumulated depreciation and impairment charges | 56,701 | 72,542 | |||||
| Net Property and Equipment | 1,689,913 | 2,607,217 | |||||
| Non-Current Assets: | |||||||
| Commodity derivative asset | — | 13,229 | |||||
| Other non-current assets | 9,348 | 82,761 | |||||
| Total Non-Current Assets | 9,348 | 95,990 | |||||
| Total Assets | $ | 2,025,199 | $ | 2,926,957 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current Liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 80,082 | $ | 190,864 | |||
| Revenue payable | 49,376 | 108,493 | |||||
| Production taxes payable | 2,595 | 115,489 | |||||
| Commodity derivative liability | 2,147 | 1,998 | |||||
| Accrued interest payable | 692 | 20,625 | |||||
| Asset retirement obligations | — | 27,058 | |||||
| DIP Credit Facility | 106,727 | — | |||||
| Prior Credit Facility | 453,747 | — | |||||
| Total Current Liabilities | 695,366 | 464,527 | |||||
| Non-Current Liabilities: | |||||||
| Prior Credit Facility | — | 470,000 | |||||
| Senior Notes, net of unamortized debt issuance costs | — | 1,085,777 | |||||
| Production tax payable | 33,627 | 98,740 | |||||
| Commodity derivative liability | — | 108 | |||||
| Other non-current liabilities | — | 54,579 | |||||
| Asset retirement obligations | — | 68,850 | |||||
| Total Non-Current Liabilities | 33,627 | 1,778,054 | |||||
| Liabilities Subject to Compromise | 2,143,497 | — | |||||
| Total Liabilities | 2,872,490 | 2,242,581 | |||||
| Commitments and Contingencies | |||||||
| Series A Convertible Preferred Stock, $0.01 par value; 50,000,000 shares authorized; 185,280 issued and outstanding | 191,754 | 175,639 | |||||
| Stockholders' Equity (Deficit): | |||||||
| Extraction Oil & Gas, Inc. | (1,039,045 | ) | 244,373 | ||||
| Noncontrolling interest | — | 264,364 | |||||
| Total Stockholders' Equity (Deficit) | (1,039,045 | ) | 508,737 | ||||
| Total Liabilities and Stockholders' Equity | $ | 2,025,199 | $ | 2,926,957 | |||
EXTRACTION OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Debtor-In-Possession)
| For the Three Months Ended December 31, | For the Year Ended December 31, | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| (Unaudited) | |||||||||||||||
| Revenues: | |||||||||||||||
| Oil sales | $ | 110,945 | $ | 219,838 | $ | 382,526 | $ | 721,429 | |||||||
| Natural gas sales | 33,967 | 34,488 | 96,701 | 108,873 | |||||||||||
| NGL sales | 26,450 | 30,133 | 77,204 | 75,072 | |||||||||||
| Gathering and compression | — | 1,261 | 1,473 | 1,261 | |||||||||||
| Total Revenues | 171,362 | 285,720 | 557,904 | 906,635 | |||||||||||
| Operating Expenses: | |||||||||||||||
| Lease operating expenses | 12,060 | 28,810 | 77,836 | 97,254 | |||||||||||
| Midstream operating expenses | — | 2,258 | 3,935 | 2,258 | |||||||||||
| Transportation and gathering | 39,295 | 23,999 | 138,552 | 53,140 | |||||||||||
| Production taxes | 9,210 | 21,762 | 29,038 | 68,182 | |||||||||||
| Exploration and abandonment expenses | 74,030 | 56,069 | 258,932 | 88,794 | |||||||||||
| Depletion, depreciation, amortization and accretion | 88,343 | 172,403 | 332,319 | 524,537 | |||||||||||
| Impairment of long lived assets | 206,728 | 1,326,762 | 208,463 | 1,337,996 | |||||||||||
| (Gain) loss on sale of property and equipment | (122 | ) | 1,750 | (122 | ) | 421 | |||||||||
| General and administrative expense | 7,832 | 13,008 | 55,182 | 98,845 | |||||||||||
| Other operating expenses | 4,065 | — | 79,615 | — | |||||||||||
| Total Operating Expenses | 441,441 | 1,646,821 | 1,183,750 | 2,271,427 | |||||||||||
| Operating Loss | (270,079 | ) | (1,361,101 | ) | (625,846 | ) | (1,364,792 | ) | |||||||
| Other Income (Expense): | |||||||||||||||
| Commodity derivatives gain (loss) | (19,073 | ) | (76,490 | ) | 164,968 | (37,107 | ) | ||||||||
| Loss on deconsolidation of Elevation Midstream, LLC | — | — | (73,139 | ) | — | ||||||||||
| Reorganization items, net | (148,863 | ) | — | (676,855 | ) | — | |||||||||
| Interest expense (1) | (8,084 | ) | (24,442 | ) | (57,143 | ) | (79,232 | ) | |||||||
| Other income (loss) | (131 | ) | 1,199 | 481 | 4,535 | ||||||||||
| Total Other Expense | (176,151 | ) | (99,733 | ) | (641,688 | ) | (111,804 | ) | |||||||
| Loss Before Income Taxes | (446,230 | ) | (1,460,834 | ) | (1,267,534 | ) | (1,476,596 | ) | |||||||
| Income tax benefit | 2,200 | 110,076 | — | 109,176 | |||||||||||
| Net Loss | $ | (444,030 | ) | $ | (1,350,758 | ) | $ | (1,267,534 | ) | $ | (1,367,420 | ) | |||
| Loss Per Common Share | |||||||||||||||
| Basic and diluted | $ | (3.22 | ) | $ | (9.84 | ) | $ | (9.34 | ) | $ | (9.29 | ) | |||
| Weighted Average Common Shares Outstanding | |||||||||||||||
| Basic and diluted | 138,353 | 138,525 | 138,149 | 151,481 | |||||||||||
(1) Absent the automatic stay described in Note 8—Long-Term Debt in our Annual Report on Form 10-K, interest expense for the year ended December 31, 2020 would have been $94.5 million.
EXTRACTION OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Debtor-In-Possession)
| For the Three Months Ended | For the Year Ended | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| (Unaudited) | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net loss | $ | (444,030 | ) | $ | (1,350,758 | ) | $ | (1,267,534 | ) | $ | (1,367,420 | ) | |||
| Reconciliation of net loss to net cash provided by operating activities: | |||||||||||||||
| Depletion, depreciation, amortization and accretion | 88,343 | 172,403 | 332,319 | 524,537 | |||||||||||
| Abandonment of unproved properties | 74,120 | 47,563 | 253,142 | 73,729 | |||||||||||
| Impairment of long lived assets | 206,728 | 1,326,762 | 208,463 | 1,337,996 | |||||||||||
| (Gain) loss on sale of property and equipment | (122 | ) | 1,750 | (122 | ) | 1,431 | |||||||||
| Gain on sale of assets of unconsolidated subsidiary | — | — | — | (1,010 | ) | ||||||||||
| Gain on repurchase of 2026 Senior Notes | — | — | — | (10,486 | ) | ||||||||||
| Amortization of debt issuance costs | 340 | 1,683 | 3,685 | 5,482 | |||||||||||
| Non-cash lease expenses | 1,175 | 3,407 | 11,724 | 11,146 | |||||||||||
| Non-cash reorganization items, net | (2,762 | ) | — | 10,636 | — | ||||||||||
| Contract asset | — | 2,525 | 12,317 | 24,700 | |||||||||||
| (Gain) loss on commodity derivatives | 19,073 | 94,339 | (164,968 | ) | 37,107 | ||||||||||
| Settlements on commodity derivatives | 12,808 | (1,068 | ) | 89,800 | (678 | ) | |||||||||
| Premiums paid on commodity derivatives | — | — | — | (2,852 | ) | ||||||||||
| Loss on deconsolidation of Elevation Midstream, LLC | — | — | 73,139 | — | |||||||||||
| Earnings in unconsolidated subsidiaries | — | — | (480 | ) | (2,285 | ) | |||||||||
| Distributions from unconsolidated subsidiary | — | 570 | — | 3,200 | |||||||||||
| Deferred income tax benefit | (2,200 | ) | (110,076 | ) | — | (109,176 | ) | ||||||||
| Stock-based compensation | 2,049 | 4,651 | 6,511 | 43,954 | |||||||||||
| Changes in current assets and liabilities: | |||||||||||||||
| Accounts receivable—trade | 36,284 | 5,026 | 16,900 | 3,630 | |||||||||||
| Accounts receivable—oil, natural gas and NGL sales | (9,080 | ) | (29,290 | ) | 41,674 | (12,996 | ) | ||||||||
| Inventory, prepaid expenses and other | 9,311 | (1,410 | ) | (17,555 | ) | (332 | ) | ||||||||
| Accounts payable and accrued liabilities | 24,560 | 716 | 87,228 | (5,753 | ) | ||||||||||
| Accrued damages for rejected and settled contracts | 88,041 | — | 582,439 | — | |||||||||||
| Revenue payable | 6,839 | 14,125 | (147 | ) | (7,598 | ) | |||||||||
| Production taxes payable | 12,680 | 28,746 | (3,631 | ) | 40,957 | ||||||||||
| Accrued interest payable | (4,677 | ) | 3,353 | 11,743 | (1,624 | ) | |||||||||
| Asset retirement expenditures | (2,558 | ) | (13,621 | ) | (21,308 | ) | (27,702 | ) | |||||||
| Net cash provided by operating activities | 116,922 | 201,396 | 265,975 | 557,957 | |||||||||||
| Cash flows from investing activities: | |||||||||||||||
| Oil and gas property additions | (31,602 | ) | (109,666 | ) | (249,984 | ) | (635,853 | ) | |||||||
| Sale of property and equipment | 3,273 | 14,323 | 14,420 | 56,305 | |||||||||||
| Gathering systems and facilities additions, net of cost reimbursements | — | (33,333 | ) | 4,193 | (202,513 | ) | |||||||||
| Other property and equipment additions | (123 | ) | (6,515 | ) | (3,697 | ) | (39,090 | ) | |||||||
| Investment in unconsolidated subsidiaries | — | (7,525 | ) | (10,033 | ) | (30,012 | ) | ||||||||
| Distributions from unconsolidated subsidiary, return of capital | — | (569 | ) | — | — | ||||||||||
| Sale of assets of unconsolidated subsidiary | — | — | — | 1,010 | |||||||||||
| Net cash used in investing activities | (28,452 | ) | (143,285 | ) | (245,101 | ) | (850,153 | ) | |||||||
| Cash flows from financing activities: | |||||||||||||||
| Borrowings under Prior Credit Facility | — | 90,000 | 200,500 | 465,000 | |||||||||||
| Repayments under Prior Credit Facility | — | (170,000 | ) | (70,000 | ) | (280,000 | ) | ||||||||
| Borrowings under DIP Credit Facility | — | — | 35,000 | — | |||||||||||
| Repayments under DIP Credit Facility | (3,273 | ) | — | (3,273 | ) | — | |||||||||
| Repurchase of 2026 Senior Notes | — | — | — | (39,325 | ) | ||||||||||
| Repurchase of common stock | — | — | — | (137,743 | ) | ||||||||||
| Payment of employee payroll withholding taxes | — | (687 | ) | (120 | ) | (1,851 | ) | ||||||||
| Debt issuance costs and other financing fees | (472 | ) | (49 | ) | (1,745 | ) | (2,104 | ) | |||||||
| Dividends on Series A Preferred Stock | — | (2,721 | ) | — | (10,885 | ) | |||||||||
| Proceeds from issuance of Preferred Units | — | — | — | 99,000 | |||||||||||
| Preferred Unit issuance costs | — | — | — | (2,500 | ) | ||||||||||
| Net cash (used in) provided by financing activities | (3,745 | ) | (83,457 | ) | 160,362 | 89,592 | |||||||||
| Effect of deconsolidation of Elevation Midstream, LLC | — | — | (7,728 | ) | — | ||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | 84,725 | (25,346 | ) | 173,508 | (202,604 | ) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 121,165 | 57,728 | 32,382 | 234,986 | |||||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | 205,890 | $ | 32,382 | $ | 205,890 | $ | 32,382 | |||||||
| Supplemental cash flow information: | |||||||||||||||
| Property and equipment included in accounts payable and accrued liabilities | $ | 14,878 | $ | 118,152 | $ | 14,878 | $ | 118,152 | |||||||
| Cash paid for interest | $ | 12,844 | $ | 21,206 | $ | 47,032 | $ | 93,084 | |||||||
| Cash paid for reorganization items | $ | 23,902 | $ | — | $ | 34,356 | $ | — | |||||||
| Preferred Units commitment fees and dividends paid-in-kind | $ | — | $ | 6,143 | $ | 6,160 | $ | 19,992 | |||||||
| Series A Preferred Stock dividends paid-in-kind | $ | — | $ | 4,632 | $ | 8,749 | $ | 4,632 | |||||||
| Accretion of beneficial conversion feature of Series A Preferred Stock | $ | 1,914 | $ | 1,725 | $ | 7,366 | $ | 6,640 | |||||||
| Derivative unwinds decreasing Prior Credit Facility | $ | — | $ | — | $ | 96,065 | $ | — | |||||||
| Draw on letter of credit increasing Prior Credit Facility | $ | — | $ | — | $ | 24,311 | $ | — | |||||||
Non-GAAP Financial Measures
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 (DD&A), impairment of long lived assets, non-recurring charges in other operating expenses, exploration and abandonment expenses, (gain) loss on sale of property and equipment, commodity derivatives gain (loss), settlements on commodity derivative instruments, premiums paid for derivatives that settled during the period, stock-based compensation expense, amortization of debt issuance costs, interest expense, gain on repurchase of senior notes, income tax benefit, loss on deconsolidation of Elevation Midstream, LLC and reorganization items, net. We define Adjusted EBITDAX, Unhedged as Adjusted EBITDAX adjusted for settlements on commodity derivative instruments and premiums paid for derivatives that settled during the period.
EXTRACTION OIL & GAS, INC.
RECONCILIATION OF ADJUSTED EBITDAX AND ADJUSTED EBITDAX, UNHEDGED
(In thousands)
(Unaudited)
| For the Three Months Ended | For the Year Ended | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Reconciliation of Net Loss to Adjusted EBITDAX: | |||||||||||||||
| Net Loss | $ | (444,030 | ) | $ | (1,350,758 | ) | $ | (1,267,534 | ) | $ | (1,367,420 | ) | |||
| Add back: | |||||||||||||||
| Depletion, depreciation, amortization and accretion | 88,343 | 172,403 | 332,319 | 524,537 | |||||||||||
| Impairment of long lived assets | 206,728 | 1,326,762 | 208,463 | 1,337,996 | |||||||||||
| Other operating expenses | 4,065 | — | 79,615 | — | |||||||||||
| Exploration and abandonment expenses | 74,030 | 56,069 | 258,932 | 88,794 | |||||||||||
| (Gain) loss on sale of property and equipment | (122 | ) | 1,750 | (122 | ) | 421 | |||||||||
| Commodity derivatives gain (loss) | 19,073 | 76,490 | (164,968 | ) | 37,107 | ||||||||||
| Settlements on commodity derivative instruments | 8,052 | 2,641 | 188,822 | (5,790 | ) | ||||||||||
| Premiums paid for derivatives that settled during the period | — | 981 | — | (18,929 | ) | ||||||||||
| Stock-based compensation expense | 2,049 | 4,651 | 6,511 | 43,954 | |||||||||||
| Amortization of debt issuance costs | 340 | 1,683 | 3,685 | 5,482 | |||||||||||
| Interest expense | 7,744 | 22,759 | 53,458 | 84,236 | |||||||||||
| Gain on repurchase of 2026 Senior Notes | — | — | — | (10,486 | ) | ||||||||||
| Income tax benefit | (2,200 | ) | (110,076 | ) | — | (109,176 | ) | ||||||||
| Loss on deconsolidation of Elevation Midstream, LLC | — | — | 73,139 | — | |||||||||||
| Reorganization items, net | 148,863 | — | 676,855 | — | |||||||||||
| Adjusted EBITDAX | $ | 112,935 | $ | 205,355 | $ | 449,175 | $ | 610,726 | |||||||
| Deduct: | |||||||||||||||
| Settlements on commodity derivative instruments | 8,052 | 2,641 | 188,822 | (5,790 | ) | ||||||||||
| Premiums paid for derivatives that settled during the period | — | 981 | — | (18,929 | ) | ||||||||||
| Adjusted EBITDAX, Unhedged | $ | 104,883 | $ | 201,733 | $ | 260,353 | $ | 635,445 | |||||||
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 months and years ended December 31, 2020 and 2019 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.
Free Cash Flow
The following tables present a reconciliation of Discretionary Cash Flow and Adjusted Cash Flow used in Investing and Free Cash Flow to the GAAP financial measure of net cash provided by operating activities and net cash used in investing for each of the periods indicated.
| EXTRACTION OIL & GAS, INC. | |||||||||||||||||||||||
| RECONCILIATION OF FREE CASH FLOW | |||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||
| December 31, 2020 | December 31, 2020 | ||||||||||||||||||||||
| Upstream | Midstream | Consolidated | Upstream | Midstream | Consolidated | ||||||||||||||||||
| Cash Flow from Operating Activities | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 116,922 | $ | — | $ | 116,922 | $ | 263,095 | $ | 2,880 | $ | 265,975 | |||||||||||
| Changes in current assets and liabilities | (161,402 | ) | — | (161,402 | ) | (695,436 | ) | (1,907 | ) | (697,343 | ) | ||||||||||||
| Discretionary cash flows | (44,480 | ) | — | (44,480 | ) | (432,341 | ) | 973 | (431,368 | ) | |||||||||||||
| Cash Flow from Investing Activities | |||||||||||||||||||||||
| Net cash used in investing activities | (28,452 | ) | — | (28,452 | ) | (239,261 | ) | (5,840 | ) | (245,101 | ) | ||||||||||||
| Change in accounts payable and accrued liabilities related to capital expenditures | 24,020 | — | 24,020 | 74,247 | 2,210 | 76,457 | |||||||||||||||||
| Adjusted cash flow used in investing | (4,432 | ) | — | (4,432 | ) | (165,014 | ) | (3,630 | ) | (168,644 | ) | ||||||||||||
| Other non-recurring adjustments (1) | 126 | — | 126 | 1,729 | — | 1,729 | |||||||||||||||||
| Other non-recurring adjustments (2) | 88,041 | — | 88,041 | 582,439 | — | 582,439 | |||||||||||||||||
| Free Cash Flow | $ | 39,255 | $ | — | $ | 39,255 | $ | (13,187 | ) | $ | (2,657 | ) | $ | (15,844 | ) | ||||||||
| For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||
| December 31, 2019 | December 31, 2019 | ||||||||||||||||||||||
| Upstream | Midstream | Consolidated | Upstream | Midstream | Consolidated | ||||||||||||||||||
| Cash Flow from Operating Activities | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 199,097 | $ | 2,299 | $ | 201,396 | $ | 554,171 | $ | 3,786 | $ | 557,957 | |||||||||||
| Changes in current assets and liabilities | (9,807 | ) | 2,162 | (7,645 | ) | 10,589 | 829 | 11,418 | |||||||||||||||
| Discretionary cash flows | 189,290 | 4,461 | 193,751 | 564,760 | 4,615 | 569,375 | |||||||||||||||||
| Cash Flow from Investing Activities | |||||||||||||||||||||||
| Net cash used in investing activities | (101,787 | ) | (41,498 | ) | (143,285 | ) | (623,506 | ) | (226,647 | ) | (850,153 | ) | |||||||||||
| Change in accounts payable and accrued liabilities related to capital expenditures | 16,626 | 23,400 | 40,026 | 23,372 | 428 | 23,800 | |||||||||||||||||
| Adjusted cash flow used in investing | (85,161 | ) | (18,098 | ) | (103,259 | ) | (600,134 | ) | (226,219 | ) | (826,353 | ) | |||||||||||
| Other non-recurring adjustments (1) | 6,647 | — | 6,647 | 16,496 | — | 16,496 | |||||||||||||||||
| Free Cash Flow | $ | 110,776 | $ | (13,637 | ) | $ | 97,139 | $ | (18,878 | ) | $ | (221,604 | ) | $ | (240,482 | ) | |||||||
| (1) Amount incurred for the construction of our field office that is included in other property and equipment in Extraction's consolidated statements of cash flows. | |||||||||||||||||||||||
| (2) Accrued damages for rejected and settled contracts within changes in current assets and liabilities on the consolidated statements of cash flows. | |||||||||||||||||||||||
Our Free Cash Flow is not a measure of net income (loss) as determined by GAAP. We define Free Cash Flow as Discretionary Cash Flow (non-GAAP) less Adjusted Cash Flow used in Investing (non-GAAP) adjusted for Other Non-Recurring Adjustments (non-GAAP). Discretionary Cash Flow is defined as net cash provided by operating activities (GAAP) less changes in working capital (current assets and liabilities). Adjusted Cash Flow used in Investing is defined as cash flow used in investing activities (GAAP) adjusted for changes in accounts payable and accrued liabilities related to capital expenditures.
Free Cash Flow is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Free Cash Flow can provide additional transparency into the drivers of trends in our operating cash flows, such as production, realized sales prices and operating costs, as it disregards the timing of settlement of operating assets and liabilities. We believe Free Cash Flow provides additional information that may be useful in an analysis of our ability to generate cash to fund exploration and development activities, construct and support of midstream assets, and to return capital to stockholders.