Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 8-K


Current Report

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 31, 2019


SRC Energy Inc.
(Exact name of registrant as specified in its charter)
______________________________

COLORADO
(State or other jurisdiction of
incorporation or organization)
001-35245
(Commission
File Number)
20-2835920
(I.R.S. Employer
Identification Number)


1675 Broadway, Suite 2600
Denver, Colorado 80202

Registrant’s telephone number, including area code: (720) 616-4300
_____________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock $.001 par value
 
SRCI
 
NYSE American


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o







Item 2.02    Results of Operations and Financial Condition.
On July 31, 2019, SRC Energy Inc. (the "Company") issued a press release describing operating and financial results for the quarter ended June 30, 2019 and certain related information. A copy of the press release is attached hereto as Exhibit 99.1.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01    Financial Statements and Exhibits.
(d) Exhibits.
 
 
 
 
Exhibit No.
 
Description
99.1
 
Press Release of SRC Energy Inc., dated July 31, 2019








SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: July 31, 2019
SRC Energy Inc.

By:
/s/ James P. Henderson    
James P. Henderson
Chief Financial Officer






EXHIBIT INDEX
Exhibit No.
 
Description
 
Press Release of SRC Energy Inc., dated July 31, 2019



Exhibit
Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13033345&doc=3

July 31, 2019

SRC Energy Inc. Reports Second Quarter 2019 Financial Results


Denver--(GlobeNewswire - 7/31/2019) -- SRC Energy Inc. (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 Wattenberg Field in the Denver-Julesburg Basin, reports its financial results for the three and six months ended June 30, 2019.

Second Quarter 2019 Highlights
Revenues were $162.6 million and $352.1 million for the three and six months ended June 30, 2019, respectively
Net income was $54.5 million or $0.22 per diluted share and $104.2 million or $0.43 per diluted share for the three and six months ended June 30, 2019, respectively
Adjusted EBITDA was $127.9 million and $287.5 million for the three and six months ended June 30, 2019, respectively (see further discussion regarding the presentation of adjusted EBITDA in "About Non-GAAP Financial Measures" below)
Drilling and completion capital expenditures of $91 million and $201 million for the three and six months ended June 30, 2019, respectively, were funded from EBITDA
Reduced the balance outstanding on SRC's revolving credit facility by $30 million

Second Quarter 2019 Financial Results
The following table presents certain per unit metrics that compare results of the corresponding reporting periods:
 
 
Three Months Ended
 
Six Months Ended
Net Volumes
 
6/30/2019
 
3/31/2019
 
% Chg.
 
6/30/2018
 
% Chg.
 
6/30/2019
 
6/30/2018
 
% Chg.
Crude Oil (MBbls)
 
2,441
 
2,967
 
(18)%
 
1,846
 
32%
 
5,408
 
3,887
 
39%
NGL (MBbls)
 
1,111
 
1,054
 
5%
 
992
 
12%
 
2,165
 
1,750
 
24%
Natural Gas (MMcf)
 
11,905
 
11,391
 
5%
 
8,987
 
32%
 
23,296
 
16,706
 
39%
Sales Volumes: (MBOE)
 
5,536
 
5,919
 
(6)%
 
4,336
 
28%
 
11,455
 
8,422
 
36%
Average Daily Volumes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Daily Production (BOE)
 
60,833
 
65,771
 
(8)%
 
47,646
 
28%
 
63,288
 
46,528
 
36%
Product Price Received
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crude Oil ($/Bbl) (1)
 
$52.75
 
$48.33
 
9%
 
$61.22
 
(14)%
 
$50.32
 
$58.48
 
(14)%
Natural Gas Liquids ($/Bbl)
 
$9.39
 
$12.59
 
(25)%
 
$17.65
 
(47)%
 
10.95
 
18.30
 
(40)%
Natural Gas ($/Mcf) (1)
 
$1.58
 
$2.52
 
(37)%
 
$1.64
 
(4)%
 
$2.04
 
$1.87
 
9%
Avg. Sales Price ($/BOE) (1)
 
$28.53
 
$31.32
 
(9)%
 
$33.50
 
(15)%
 
$29.97
 
$34.50
 
(13)%
Per Unit Cost Information ($/BOE)
 
 
 
 
 
 
Lease Operating Expense
 
$2.39
 
$2.93
 
(18)%
 
$2.68
 
(11)%
 
$2.67
 
$2.31
 
16%
Production Tax
 
$2.38
 
$1.20
 
98%
 
$3.47
 
(31)%
 
$1.77
 
$3.38
 
(48)%
DD&A Expense
 
$10.48
 
$10.29
 
2%
 
$9.66
 
8%
 
$10.38
 
$9.38
 
11%
Net G&A Expense (2)
 
$1.67
 
$1.60
 
4%
 
$2.17
 
(23)%
 
$1.64
 
$2.26
 
(27)%
Gross G&A Expense (3)
 
$2.30
 
$2.22
 
4%
 
$2.93
 
(22)%
 
$2.26
 
$3.02
 
(25)%
(1) - Includes transportation and gathering expense (2) - Net of capitalized portion (3) - Gross of capitalized portion





Revenues for the three months ended June 30, 2019 decreased 14% compared to the three months ended March 31, 2019 and increased 11% compared to the three months ended June 30, 2018. While sales volumes decreased 8% quarter-over-quarter, 9% lower average realized prices compounded the revenue decline in a quarter-over-quarter comparison. The year-over-year increase in revenues was driven by growth in sales volumes. Natural gas liquids pricing during the quarter ended June 30, 2019 was impacted by generally weaker product pricing for ethane, propane and other components of the NGL stream in US markets.

The Company's 2019 second quarter net income totaled $54.5 million, or $0.22 per diluted share, compared to net income of $49.8 million, or $0.20 per diluted share, in the first quarter of 2019 and $49.6 million, or $0.20 per diluted share, in the second quarter of 2018.

Midstream Operations Update
Gas gathering and processing constraints have continued to limit activity and have ultimately impacted well productivity within the DJ Basin. DCP Midstream’s system-wide producer allocation remains in effect with an intent of stabilizing line pressures. Despite the allocation limitation, we encountered significant planned and unplanned downtime which further reduced system capacity throughout the 2nd quarter. This resulted in consistently high line pressures, restricting our ability to maintain consistent production levels.

As DCP Midstream's O'Connor II plant commissioning phase is finalized and throughput ramps up over the upcoming weeks, we expect some improvement in line pressure as the system balances out over the remainder of the year. DCP’s recent announcement of its agreement with Western Midstream Partners, including the Latham II plant, should help further relieve constraints by mid-2020.


Management Comment
Lynn A. Peterson, Chairman and CEO of SRC Energy Inc. commented, "While our operations were mostly in line with guidance as set out earlier, we continue to face significant ongoing operational challenges stemming from a lack of gas processing capacity and timing of associated expansions. The second quarter was hindered by several midstream interruptions which impacted our production volume and the composition of our production."

Mr. Peterson continued, "Our 2019 budget was built around anticipated midstream constraints and in the second quarter we began to reduce our activity level, in line with our 2019 budget. We released our completion crew in mid-May, which is reflected in lower capital expenditures for the quarter. In addition, we will release one of our drilling rigs in the third quarter. We expect to continue with one drilling rig throughout the balance of 2019 and into 2020. In an ongoing effort to reduce gas emissions and be a leader in the communities where we operate, we will test a new electric hydraulic stimulation fleet, designed by Halliburton, in the third quarter."

Mr. Peterson concluded, "Despite the operational issues, SRC generated positive free cash flow for the three and six months ended June 30, 2019, allowing us to reduce the amount outstanding under our revolving line of credit.”


Conference Call
The Company will host a conference call on Thursday, August 1, 2019 at 10:00 a.m. Eastern time (8:00 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, Vice President of Midstream and Marketing Jo Ann Stockton 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.

To participate in this call please dial:
Domestic Dial-in Number: (877) 407-9122
International Dial-in Number: (201) 493-6747

Webcast: https://78449.themediaframe.com/dataconf/productusers/srci/mediaframe/31583/indexl.html




Replay Information:
Conference ID #:  13692888
Replay Dial-In (Toll Free US & Canada):  877-660-6853
Replay Dial-In (International):  201-612-7415
Expiration Date:  8/15/19


Upcoming Investor Conferences
Presentations provided in conjunction with these events will be available on SRC's website at www.srcenergy.com the morning of the respective presentation. Members of SRC senior management will participate in the following hosted investor events, please refer to the Company’s website for specific presentation dates:

Barclays CEO Energy-Power Conference - September 3-5, 2019 - New York, NY


About SRC Energy Inc.

SRC Energy Inc. is a Denver based oil and natural gas exploration and production company. SRC's core area of operations is in the Greater Wattenberg Field of the Denver-Julesburg Basin of 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 in the release relate to, among other things, future development activities, production and midstream matters. 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: risks associated with the construction of new midstream facilities, the impact of those facilities and other risks associated with the availability of adequate midstream infrastructure; 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 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. Please see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 for discussion of the potential effects on our business of SB19-181, which was passed by the Colorado General Assembly in April 2019.


Company Contact:
John Richardson (Investor Relations Manager)



SRC Energy Inc.
Tel 720-616-4308
E-mail: jrichardson@srcenergy.com





Reconciliation of Non-GAAP Financial Measure
We define adjusted EBITDA, a non-GAAP financial measure, as net income 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, its nearest GAAP measure:
SRC ENERGY INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Adjusted EBITDA:
 
 
 
 
 
 
 
Net income
$
54,468

 
$
49,624

 
$
104,219

 
$
115,420

Depreciation, depletion, and accretion
58,027

 
41,877

 
118,945

 
78,958

Stock-based compensation expense
3,142

 
3,146

 
6,825

 
5,942

Mark-to-market of commodity derivative contracts:
 
 
 
 
 
 
 
Total (gain) loss on commodity derivatives contracts
(8,285
)
 
14,294

 
14,628

 
20,075

Cash settlements on commodity derivative contracts
3,089

 
(4,566
)
 
7,715

 
(6,121
)
Cash premiums paid for commodity derivative contracts
(658
)
 

 
(977
)
 

Interest income
(92
)
 
(5
)
 
(161
)
 
(14
)
Income tax expense
18,237

 
3,347

 
36,271

 
9,158

Adjusted EBITDA
$
127,928

 
$
107,717

 
$
287,465

 
$
223,418





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, 2019, which is available at www.sec.gov.
SRC ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
 
 
 
 
ASSETS
June 30, 2019
 
December 31, 2018
Current assets:
 
 
 
Cash and cash equivalents
$
27,839

 
$
49,609

Other current assets
121,789

 
182,831

Total current assets
149,628

 
232,440

 
 
 
 
Oil and gas properties and other equipment
2,623,634

 
2,518,700

Other assets
11,824

 
3,574

 
 
 
 
Total assets
$
2,785,086

 
$
2,754,714

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities
264,999

 
353,833

 
 
 
 
Revolving credit facility
165,000

 
195,000

Notes payable, net of issuance costs
539,977

 
539,360

Asset retirement obligations
38,609

 
40,052

Other liabilities
78,884

 
40,177

Total liabilities
1,087,469

 
1,168,422

 
 
 
 
Shareholders' equity:
 
 
 
Common stock and paid-in capital
1,499,456

 
1,492,350

Retained earnings
198,161

 
93,942

Total shareholders' equity
1,697,617

 
1,586,292

 
 
 
 
Total liabilities and shareholders' equity
$
2,785,086

 
$
2,754,714




SRC ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)

 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
104,219

 
$
115,420

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depletion, depreciation, and accretion
118,945

 
78,958

Provision for deferred taxes
36,271

 
9,158

Other, non-cash items
23,715

 
15,807

Changes in operating assets and liabilities
18,433

 
16,419

Net cash provided by operating activities
301,583

 
235,762

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisitions of oil and gas properties and leaseholds
116

 
(16,402
)
Capital expenditures for drilling and completion activities
(276,095
)
 
(213,906
)
Other capital expenditures
(28,566
)
 
(25,404
)
Proceeds from sales of oil and gas properties and other
12,802

 
766

Net cash used in investing activities
(291,743
)
 
(254,946
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Equity financing activities
(1,126
)
 
3,025

Debt financing activities
(30,484
)
 
22,857

Net cash provided by (used in) financing activities
(31,610
)
 
25,882

 
 
 
 
Net increase in cash and cash equivalents
(21,770
)
 
6,698

Cash and cash equivalents at beginning of period
49,609

 
48,772

Cash and cash equivalents at end of period
$
27,839

 
$
55,470




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,
 
2019
 
2018
 
2019
 
2018
Oil, natural gas, and NGL revenues
$
162,602

 
$
147,087

 
$
352,057

 
$
294,320

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Lease operating expenses
13,230

 
11,612

 
30,590

 
19,508

Transportation and gathering
4,664

 
1,880

 
8,718

 
3,735

Production taxes
13,185

 
15,058

 
20,271

 
28,501

Depreciation, depletion, and accretion
58,027

 
41,877

 
118,945

 
78,958

General and administrative
9,243

 
9,406

 
18,712

 
19,006

Total expenses
98,349

 
79,833

 
197,236

 
149,708

 
 
 
 
 
 
 
 
Operating income
64,253

 
67,254

 
154,821

 
144,612

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Commodity derivatives gain (loss)
8,285

 
(14,294
)
 
(14,628
)
 
(20,075
)
Interest expense, net of amounts capitalized

 

 

 

Interest income
92

 
5

 
161

 
14

Other income
75

 
6

 
136

 
27

Total other income (expense)
8,452

 
(14,283
)
 
(14,331
)
 
(20,034
)
 
 
 
 
 
 
 
 
Income before income taxes
72,705

 
52,971

 
140,490

 
124,578

 
 
 
 
 
 
 
 
Income tax expense
18,237

 
3,347

 
36,271

 
9,158

Net income
$
54,468

 
$
49,624

 
$
104,219

 
$
115,420

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.20

 
$
0.43

 
$
0.48

Diluted
$
0.22

 
$
0.20

 
$
0.43

 
$
0.47

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
243,404,917

 
242,255,724

 
243,348,141

 
242,005,211

Diluted
244,130,245

 
244,464,776

 
243,709,915

 
243,954,673


Released 7/31/2019