News Releases

SRC Energy Inc. Reports Second Quarter 2017 Financial and Operating Results

August 3, 2017

DENVER, CO -- (Marketwired) -- 08/03/17 -- SRC Energy Inc.(NYSE MKT: SRCI) (NYSE American: SRCI) ("SRC", the "Company", "we", "us" or "our"), a U.S. oil and gas exploration and production company with operations focused on the Greater Wattenberg Field in the Denver-Julesburg Basin, reports its financial and operating results for the three and six months ended June 30, 2017.

Second Quarter 2017 Highlights

  • Revenues were $75.0 million for the three months ended June 30, 2017
  • Net income was $27.9 million or $0.14 per diluted share for the three months ended June 30, 2017
  • Adjusted EBITDA was $55.9 million for the three months ended June 30, 2017 (see further discussion regarding the presentation of adjusted EBITDA in "About Non-GAAP Financial Measures" below)

Second Quarter 2017 Financial Results

The following tables present certain per unit metrics that compare results of the corresponding reporting periods:

         
    Three Months Ended   Six Months Ended
Net Volumes   6/30/2017   6/30/2016   % Chg.*   6/30/2017   6/30/2016   % Chg.*
    3-Stream   2-Stream       3-Stream   2-Stream    
Crude Oil (MBbls)   1,262   508   148%   1,942   1,035   88%
Natural Gas Liquids (MBbls)   662   -   NM   1,005   -   NM
Natural Gas (MMcf)   6,264   3,015   108%   9,710   6,136   58%
Sales Volumes: (MBOE)   2,969   1,010   194%   4,566   2,057   122%
Average Daily Volumes                        
Daily Production (BOE/day)   32,624   11,098   194%   25,224   11,304   123%
Product Price Received                        
Crude Oil ($/Bbl)   $41.15   $35.06   17%   $41.75   $29.37   42%
Natural Gas Liquids ($/Bbl)   $13.18   -   NM   $14.12   -   NM
Natural Gas ($/Mcf)   $2.29   $2.04   12%   $2.42   $1.93   25%
Average Realized Price ($/BOE)   $25.28   $23.71   7%   $26.03   20.52   27%
Per Unit Cost Information ($/BOE)
Lease Operating Exp.   $1.69   $6.77   (75)%   $1.92   5.42   (65)%
Production Tax   $3.19   $2.12   50%   $2.39   1.93   24%
DD&A Expense   $8.90   $11.16   (20)%   $8.69   11.36   (24)%
Total G&A Expense   $2.56   $7.45   (66)%   $3.46   7.28   (52)%
* SRC began reporting on a 3-Stream basis in the first quarter of 2017 therefore some prior year comparisons may not be meaningful.
 

Oil, natural gas and natural gas liquids revenues for the three months ended June 30, 2017 increased 213% compared to the three months ended June 30, 2016. This was due to a 194% increase in sales volumes combined with a 7% improvement in average realized sales price per BOE. As of June 30, 2017, substantially all of SRC's production was from horizontal wells.

During the three months ended June 30, 2017, SRC experienced decreased production expenses compared to the three months ended June 30, 2016 on an aggregate and per-unit basis. Unit operating costs benefited from larger volumes of early production from horizontal wells turned to sales during the quarter. The consolidation of the Company's operations into a more centralized geographic operating area, and a 28% reduction in SRC's net number of vertical wells through divestitures and plugging activities also contributed to lower aggregate and per-unit LOE costs.

The Company's 2017 second quarter net income totaled $27.9 million, or $0.14 per diluted share compared to a net loss of $153.8 million or $(0.89) per diluted share in the year ago quarter. The three months ended June 30, 2016 was impacted by an impairment charge of $144.1 million. Adjusted EBITDA in the second quarter was $55.9 million as compared to $11.2 million in the year ago quarter.

Operational Highlights

 
Second Quarter 2017 Operating Activity
    Lateral Length   # of wells on Pad   WI %   # of Wells Drilled   # of Wells Completed   # of Wells Turned to Sales
Evans West Pad   2 LL/ 3 XL   11   96%           5
Williams   ML   8   100%       8   8
Kawata Pad   ML   10   67%       6   10
Orr Pad   ML   12   96%       12    
Orr State Pad   ML   12   95%       6    
Goetzel Pad   ML   12   77%   11   4    
Hood Pad   ML   12   84%   12        
Beebe Pad   ML   12   71%   6        
Leffler Pad   LL   12   84%   3        
Total wells               32   36   23
ML ~7,500' LL ~10,000' XL ~12,000'
 

SRC has entered into an agreement with another operator to trade approximately 4,000 net acres of the Company's non-contiguous acreage for a like number of acres within the Company's core acreage position, further consolidating SRC's development area. This transaction is expected to close in the third quarter of 2017.

Management Comment

Lynn A. Peterson, Chairman and CEO of SRC Energy Inc., commented, "although we discuss it frequently at conferences and in meetings, the quality of our acreage and the strength of our team is now very evident in our production growth over the last few quarters. As we press forward with our development plan, we will continue to search for opportunities to enhance the value of our assets while maintaining the ability to flex our activity levels up or down, which is a critical strategic objective. We continue to believe that the Company is well positioned to respond to changing market conditions going forward."

Concluding, Mr. Peterson added, "Our execution year-to-date has been outstanding, and I want to commend our entire team as well as the service providers we depend upon. Looking forward, as the midstream infrastructure evolves in the DJ Basin, we continue to work closely with SRC's partners to ensure our plans can continue to be executed in a timely manner. The expansion of the natural gas processing and oil gathering infrastructure over the next few months and years are crucial steps for all active operators in the DJ Basin, and we look forward to the added predictability that it will bring."

Conference Call

The Company will host a conference call on Friday, August 4, 2017 at 11:00 a.m. Eastern time (9:00 a.m. Mountain time) to discuss the results. The call will be conducted by Chairman and CEO Lynn A. Peterson, CFO James Henderson, Chief Development Officer Nick Spence, Chief Operations Officer Mike Eberhard, and Manager of Investor Relations John Richardson. A Q&A session will immediately follow the discussion of the results for the quarter. Please refer to SRC's website at www.srcenergy.com for the most recent corporate presentation and other news and information.

Dial-in (Toll-Free): (877) 407-9122
Dial-in (International): (201) 493-6747

Replay Information:

Conference ID #: 411931
Replay Dial-In (Toll Free): 877-660-6853
Replay Dial-In (International): 201-612-7415
Expiration Date: 8/18/17

Webcast URL:http://syrginfo.equisolvewebcast.com/q2-2017

About SRC Energy Inc.

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

Important Cautions Regarding Forward Looking Statements

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

Reconciliation of Non-GAAP Financial Measures

We define adjusted EBITDA, a non-GAAP financial measure, as net income (loss) adjusted to exclude the impact of the items set forth in the table below. We exclude those items because they can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. We believe that adjusted EBITDA is widely used in our industry as a measure of operating performance and may also be used by investors to measure our ability to meet debt covenant requirements. The following table presents a reconciliation of adjusted EBITDA to net income (loss), its nearest GAAP measure:

 
SRC ENERGY INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands)
         
    Three Months Ended June 30,
    2017   2016
Adjusted EBITDA:            
  Net income (loss)   $ 27,936     $ (153,848 )
  Depreciation, depletion, and accretion     26,427       11,274  
  Full cost ceiling impairment     -       144,149  
  Income tax expense     -       101  
  Stock-based compensation     2,685       2,392  
  Mark-to-market of commodity derivative contracts:            
    Total gain on commodity derivatives contracts     (1,328 )     5,704  
    Cash settlements on commodity derivative contracts     153       1,592  
    Cash premiums paid for commodity derivative contracts     -       -  
  Interest income, net of interest expense     (20 )     (167 )
      Adjusted EBITDA   $ 55,853     $ 11,197  
                 

Condensed Consolidated Financial Statements

Condensed consolidated financial statements are included below. Additional financial information, including footnotes that are considered an integral part of the condensed consolidated financial statements, can be found in SRC's Quarterly Report on Form 10-Q for the period ended June 30, 2017, which is available at www.sec.gov.

 
SRC ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
         
ASSETS   June 30, 2017   December 31, 2016
Current assets:            
  Cash and cash equivalents   $ 36,677     $ 18,615  
  Other current assets     72,011       35,569  
    Total current assets     108,688       54,184  
             
Oil and gas properties and other equipment     1,062,428       908,736  
Goodwill     40,711       40,711  
Other assets     21,806       20,482  
             
    Total assets   $ 1,233,633     $ 1,024,113  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities     158,297       92,240  
             
Revolving credit facility     90,000       -  
Notes payable, net of issuance costs     76,010       75,614  
Asset retirement obligations     12,673       13,775  
Other liabilities     2,286       1,745  
    Total liabilities     339,266       183,374  
             
Shareholders' equity:            
  Common stock and paid-in capital     1,155,113       1,149,199  
  Retained deficit     (260,746 )     (308,460 )
Total shareholders' equity     894,367       840,739  
             
Total liabilities and shareholders' equity   $ 1,233,633     $ 1,024,113  
                 
     
SRC ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
     
    Six Months Ended June 30,
    2017   2016
Cash flows from operating activities:            
  Net income (loss)   $ 47,816     $ (205,249 )
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
    Depletion, depreciation, and accretion     39,656       23,366  
    Full cost ceiling impairment     -       189,770  
    Other, non-cash items     887       13,586  
    Changes in operating assets and liabilities     (13,901 )     (9,238 )
    Net cash provided by operating activities     74,458       12,235  
             
Cash flows from investing activities:            
  Acquisitions of oil and gas properties and leaseholds     (29,998 )     (498,701 )
  Capital expenditures for drilling and completion activities     (178,606 )     (46,009 )
  Other capital expenditures     (12,695 )     (1,402 )
  Cash held in escrow     (1,546 )     (18,212 )
  Proceeds from sales of oil and gas properties     77,155       23,496  
    Net cash used in investing activities     (145,690 )     (540,828 )
             
Cash flows from financing activities:            
  Equity financing activities     (451 )     543,092  
  Debt financing activities     89,745       (2,364 )
    Net cash provided by financing activities     89,294       540,728  
             
Net increase in cash and equivalents     18,062       12,135  
Cash and equivalents at beginning of period     18,615       66,499  
Cash and equivalents at end of period   $ 36,677     $ 78,634  
                 
 
SRC ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except share and per share data)
         
    Three Months Ended June 30,   Six Months Ended June 30,
    2017   2016   2017   2016
Oil, natural gas, and NGL revenues   $ 75,036     $ 23,947     $ 118,826     $ 42,220  
Sales of purchased oil     -       -       1,268       -  
    Total revenues     75,036       23,947       120,094       42,220  
                         
Expenses:                        
  Lease operating expenses     5,018       6,845       8,740       11,144  
  Production taxes     9,464       2,137       10,930       3,970  
  Costs of purchased oil     -       -       1,518       -  
  Depreciation, depletion, and accretion     26,427       11,274       39,656       23,366  
  Full cost ceiling impairment     -       144,149       -       189,770  
  Unused commitment charge     -       232       669       300  
  General and administrative     7,605       7,520       15,805       14,963  
    Total expenses     48,514       172,157       77,318       243,513  
                         
Operating income (loss)     26,522       (148,210 )     42,776       (201,293 )
                         
Other income:                        
  Commodity derivatives gain (loss)     1,328       (5,704 )     4,707       (4,024 )
  Interest expense, net     -       -       -       -  
  Interest income     20       157       31       165  
  Other income     66       10       302       4  
    Total other income     1,414       (5,537 )     5,040       (3,855 )
                         
Income (Loss) before income taxes     27,936       (153,747 )     47,816       (205,148 )
                         
Income tax expense     -       101       -       101  
Net income (loss)   $ 27,936     $ (153,848 )   $ 47,816     $ (205,249 )
                         
Net income (loss) per common share:                        
  Basic   $ 0.14     $ (0.89 )   $ 0.24     $ (1.40 )
  Diluted   $ 0.14     $ (0.89 )   $ 0.24     $ (1.40 )
                         
Weighted-average shares outstanding:                        
  Basic     200,831,063       172,013,551       200,769,817       146,703,144  
  Diluted     201,224,172       172,013,551       201,266,609       146,703,144  
                                 

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

Source: SRC Energy Inc.