NYSE: JONE March 23, 2017
$ 2.35
-0.05 -2.08%

Jones Energy, Inc. Announces 2015 First Quarter Financial and Operating Results

May 06, 2015

AUSTIN, Texas--(BUSINESS WIRE)-- Jones Energy, Inc. (NYSE: JONE) (“Jones Energy” or “the Company”) today announced financial and operating results for the quarter ended March 31, 2015. For the quarter ended March 31, 2015, the Company reported net income of $5.7 million, adjusted net income of $2.9 million, and EBITDAX of $71.2 million.

2015 First Quarter Highlights

  • Average daily net production for the quarter was 26.4 MBoe/d (above the top end of guidance); oil production in the first quarter of 2015 was 8.4 MBoe/d, up 27% from the fourth quarter of 2014
  • Cleveland daily net production for the quarter was 19.0 MBoe/d, up 11% from the fourth quarter of 2014; oil composed 41% of the total average daily volume
  • Spud twelve 33 stage open-hole wells to date, eleven of which have been completed and are either flowing back or producing; production results consistent with expectations
  • Achieved targeted 30% cost savings that reduced the Cleveland 33 stage open-hole AFE from $3.8 million to $2.65 million two months ahead of plan
  • Achieved new company records for spud to rig release of 13.7 days and one day lateral length drilled of over 1,900 feet
  • Reaffirmed borrowing base for senior secured revolving credit facility at $562.5 million

Jonny Jones , the Company’s Founder, Chairman and CEO, commented, “I am excited about our first quarter results, which reflect the success of our intense focus on managing costs and executing our plan for the year. We continue to drive down costs and as a result, well level returns have reached the threshold that supports our planned increase in activity from three to five rigs. Our return to open-hole completions has eliminated the sand flowback issues we were facing last year and is helping to reduce cycle times. In fact, we were able to achieve new company records for both spud to rig release and lateral length drilled in a single day in the first quarter. The spud to rig release record was almost two full days faster than our previous best, and this is in a formation where we have drilled more than 500 horizontal wells over a ten year period.” Mr. Jones went on to say, “I am very proud of what our team has accomplished thus far in 2015. We are likely one of the few companies that will be adding rigs in the middle of the year and we are doing so with a cash flow neutral program. As we add rigs, we will continue to hedge production in order to lock in our favorable margins.

“Our capital raise during the first quarter has positioned us to take advantage of the many opportunities we are starting to see in the market. Our borrowing base was reaffirmed at $562.5 million in April and could have been increased. First quarter capex was spot on compared to our expectations and has us on track to meet or beat our annual guidance. Looking forward, we will continue to exploit any additional efficiencies that the current environment presents in order to maximize the return to our shareholders. Over the past six months, the oil and gas industry has faced significant headwinds, but this is the type of environment where we have thrived in the past and should allow us to differentiate ourselves. As we’ve seen before, environments like these often present excellent growth opportunities to those who are prepared.”

Financial Results

Total operating revenues for the three months ended March 31, 2015 were $58.1 million as compared to $98.2 million for the three months ended March 31, 2014. The decrease was due to lower commodity prices, which was somewhat offset by higher production.

Total operating expenses for the three months ended March 31, 2015 were $79.9 million as compared to $64.2 million for the three months ended March 31, 2014. The increase was primarily due to increased production which resulted in higher lease operating and depletion, depreciation, and amortization expenses. The Company also incurred certain non-recurring charges which were included in other operating expenses.

Adjusted net income for the three months ended March 31, 2015 was $2.9 million as compared to $17.6 million for the three months ended March 31, 2014. The decrease was primarily due to lower average realized prices for all commodities and an increase in operating expenses, which more than offset higher production volumes.

Operational Results

Cleveland

All of the Company’s first quarter development activity was focused on the Cleveland. During the first quarter, the Company spud 14 wells and completed 27 wells, with a total of 34 wells seeing first production during the quarter. As of March 31, 2015, four wells were in various stages of completion, and the Company had three rigs running.

Daily net production in the Cleveland was 19.0 MBoe/d in the first quarter of 2015, up 11% from the fourth quarter of 2014 and up 22% from the first quarter of 2014, despite running only three rigs for the majority of the quarter. Cleveland oil production for the first quarter of 2015 increased by 25% compared to the fourth quarter of 2014. The increase in oil production was a result of reducing the backlog of drilled but uncompleted wells from the fourth quarter of 2014 along with a significant reduction in overall cycle times. The last of the sliding sleeve wells drilled in 2014 and carried into the year were completed during January 2015 and future activity is expected to utilize the open-hole well design. To date, the Company has spud twelve 33 stage open-hole wells, eleven of which have been completed and are either flowing back or producing. Importantly, the production results for the 33 stage wells are consistent with the projected type curve, which was derived from the 64 wells drilled as part of the Company’s 2013 and 2014 completion optimization work.

The current estimated cost of a 33 stage well is below $2.65 million, reflecting a 30% decrease from the December 2014 estimate for the same well. The Company’s goal at the outset of 2015 was to reach this cost target by mid-year and it has been achieved two months early. The Company is also seeing efficiency improvements as shifting back to open-hole completions has resulted in a 50% improvement in average spud to sales times since October 2014. In March 2015, the Company set a new all-time record for spud to rig release of just 13.7 days, achieving this record in a play where the Company has drilled more than 500 horizontal wells.

Capital Expenditures

During the first quarter of 2015, the Company spent $82.6 million, of which $76.1 million was related to drilling and completing wells, representing 92% of total capital expenditures in the quarter. These figures are consistent with the Company’s expectations for the quarter and the level of capital spending is expected to drop significantly in the second quarter. This reduction in drilling and completion activity during the second quarter along with expected lower costs per well should result in greatly reduced spending across the remainder of 2015. The Company expects the $127 million of projected capital spend for the remainder of this year to be relatively evenly distributed throughout the remaining three quarters of the year.

Liquidity and Hedging

During the first quarter, the Company completed three capital market transactions: a private placement of $250 million of 9.25% senior unsecured notes due 2023, a registered direct offering of $50 million of common stock, and a public offering of common stock which raised nearly $77 million in gross proceeds. Total net proceeds of approximately $355 million were used to pay down the balance of the Company’s credit facility. On April 17, 2015, the Company’s borrowing base on its senior secured revolving credit facility was reaffirmed at $562.5 million. The Company’s lead administrative agent had approved a borrowing base increase to $610 million. However, the Company elected to maintain its $562.5 million borrowing base given its substantial liquidity position. As of March 31, 2015, the Company had an undrawn credit facility balance of $472.5 million and approximately $28 million in cash.

During the first quarter and into the second quarter of 2015, the Company has continued to add to its hedge position. The Company has hedged 85% of its estimated oil and natural gas production through 2016 at approximately $85 per barrel and $4.50 per Mcf. A large portion of the Company’s estimated 2015 natural gas liquids production is hedged as well. The Company also has oil and natural gas hedges in place for 2017, 2018, and the first quarter of 2019, although at less significant volume levels. A table providing the latest summary hedge positions is shown below.

    Fiscal Year Ending December 31,
20151     2016     2017     2018     20192

Oil, Natural Gas and NGL Swaps

               
Oil (MBbl) 1,780 1,825 968 755 165
Natural Gas (MMcf) 14,471 16,230 11,660 9,520 2,100
 
Ethane (MBbl) 303 53 - - -
Propane (MBbl) 586 567 - - -
Iso Butane (MBbl) 42 16 7 - -
Butane (MBbl) 128 38 17 - -
Natural Gasoline (MBbl) 170     83     18     -     -
Total NGLs (MBbl) 1,229 757 42 - -
 

Weighted Average Prices

Oil ($ / Bbl) $83.85 $83.56 $79.74 $78.23 $63.67
Natural Gas ($ / Mcf) $4.44 $4.49 $4.35 $4.25 $3.74
 
Ethane ($ / Gal) $0.27 $0.21 - - -
Propane ($ / Gal) $0.88 $0.55 - - -
Iso Butane ($ / Gal) $1.24 $1.32 $1.42 - -
Butane ($ / Gal) $1.21 $1.28 $1.37 - -
Natural Gasoline ($ / Gal) $1.95 $1.90 $1.73 - -
 

1 2015 hedges shown for remaining three quarters of the year.

2 2019 hedges apply to the first quarter.

 

Guidance

The Company is providing guidance for the second quarter and affirming guidance for the full year 2015 as follows:

2015 Guidance
           
2015E         2Q15E
Total Production (MMBoe) 7.9 – 8.7 2.05 – 2.15
Average Daily Production (MBoe/d) 21.7 – 23.7 22.5 – 23.5
 
Oil (MBbls/d) 6.6 – 7.1 6.7 – 7.0
Natural Gas (MMcf/d) 54.8 – 60.3 57.0 – 60.0
NGLs (MBbls/d) 6.0 – 6.6 6.3 – 6.6
 
Lease Operating Expense ($/Boe) $4.75 – $5.25
Production/Ad Valorem Taxes (% of Revenue) 6.5% – 7.5%
Cash G&A Expense ($mm) $25.0 – $28.0
 
Total Capital Expenditures ($mm)     $210.0          
 

Conference Call Details

Jones Energy will host a conference call for investors and analysts to discuss its results for the first quarter on Thursday, May 7, 2015 at 10:30 a.m. ET (9:30 a.m. CT). The conference call can be accessed via webcast through the Investor Relations section of Jones Energy’s website, www.jonesenergy.com, or by dialing (877) 201-0168 (for domestic U.S.) or (647) 788-4901 (International) and entering conference code 28365989. If you are not able to participate in the conference call, an audio replay will be available through May 14, 2015, by dialing (855) 859-2056 (for domestic U.S.) or (404) 537-3406 (International) and entering conference code 28365989. A replay of the conference call may also be found on the Company’s website, www.jonesenergy.com.

About Jones Energy

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

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, including guidance regarding the timing and location of our anticipated drilling and completion activity, our ability and the ability of other companies to add rigs in the middle of the year, our ability to take advantage of additional cost efficiencies, our ability to reduce spending in connection with a reduction in drilling and completion activity, results of our 33 stage open-hole completion technique in the Cleveland formation including projected uplifts in oil production, our ability to mitigate commodity price risk through our hedging program, and our ability to successfully execute our 2015 development plan and guidance for the second quarter and full year 2015. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current 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, natural gas liquids, and natural gas prices, weather and environmental conditions, the timing of planned capital expenditures, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, customers’ elections to reject ethane and include it as part of the natural gas stream for the remainder of 2015, 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 Statements of Operations (Unaudited)

 
Three Months Ended March 31,
(in thousands of dollars except per share data) 2015     (Restated)

2014

 
Operating revenues
Oil and gas sales $ 57,234 $ 97,867
Other revenues   862     377  
Total operating revenues   58,096     98,244  
Operating costs and expenses
Lease operating 12,262 8,344
Production and ad valorem taxes 3,708 6,432
Exploration 164 2,821
Depletion, depreciation and amortization 52,083 41,200
Accretion of ARO liability 194 170
General and administrative (including non-cash compensation expense) 8,511 5,260
Other operating   3,012     -  
Total operating expenses   79,934     64,227  
Total operating income (loss)   (21,838 )   34,017  
Other income (expense)
Interest expense (14,129 ) (8,043 )
Net gain (loss) on commodity derivatives 46,306 (17,250 )
Other income (expense)   (2,299 )   65  
Other income (expense), net   29,878     (25,228 )
Income before income tax 8,040 8,789
 
Income tax provision   2,344     1,081  
Net income 5,696 7,708
Net income attributable to non-controlling interests   3,508     6,339  
Net income attributable to controlling interests $ 2,188   $ 1,369  
 
 
Earnings per share:
Basic $ 0.12 $ 0.11
Diluted $ 0.12 $ 0.11
Weighted average shares outstanding:
Basic 18,304 12,500
Diluted 18,304 12,512
 
       
Jones Energy, Inc.

Consolidated Balance Sheets (Unaudited)

 
March 31, December 31,
(in thousands of dollars) 2015 2014
 
Assets
Current assets
Cash $ 28,271 $ 13,566

Restricted cash

186 149
Accounts receivable, net
Oil and gas sales 32,098 51,482
Joint interest owners 25,024 41,761
Other 15,621 12,512
Commodity derivative assets 121,083 121,519
Other current assets   3,121    

3,374

 
Total current assets 225,404

244,363

Oil and gas properties, net, at cost under the successful efforts method

1,670,402 1,638,860
Other property, plant and equipment, net 3,806 4,048
Commodity derivative assets 97,395 87,055
Other assets 20,761 20,352
Deferred tax assets   221     171  
Total assets $ 2,017,989   $

1,994,849

 
 
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 61,464 $ 136,337
Oil and gas sales payable 56,073 70,469
Accrued liabilities 32,527 19,401
Deferred tax liabilities 671 718
Asset retirement obligations   3,211     3,074  
Total current liabilities 153,946 229,999
Long-term debt 90,000 360,000
Senior notes 736,644 500,000
Deferred revenue 12,852 13,377
Commodity derivative liabilities - 28
Asset retirement obligations 11,331 10,536
Liability under tax receivable agreement 3,248 803
Deferred tax liabilities   28,522    

26,756

 
Total liabilities   1,036,543    

1,141,499

 
Commitments and contingencies
Stockholders' equity
Class A common stock, $0.001 par value; 25,231,004 shares issued and 25,208,402 shares outstanding at March 31, 2015 and 12,672,260 shares issued and 12,649,658 shares outstanding at December 31, 2014 25 13
Class B common stock, $0.001 par value; 36,422,660 shares issued and outstanding at March 31, 2015 and 36,719,499 shares issued and outstanding at December 31, 2014 37 37
Treasury stock, at cost; 22,602 shares at March 31, 2015 and December 31, 2014 (358 ) (358 )
Additional paid-in-capital 306,292 178,763
Retained earnings   41,138     38,950  
Stockholders' equity 347,134 217,405
Non-controlling interest   634,312     635,945  
Total stockholders' equity   981,446     853,350  
Total liabilities and stockholders' equity $ 2,017,989   $

1,994,849

 
 
   
Jones Energy, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 
Three Months Ended March 31,
(in thousands of dollars) 2015     (Restated)

2014

 
Cash flows from operating activities
Net income $ 5,696 $ 7,708

Adjustments to reconcile net income to net cash provided by operating activities

Exploration expense - 2,767
Depletion, depreciation, and amortization 52,083 41,200
Accretion of ARO liability 194 170
Amortization of debt issuance costs 937 700
Accrued interest expense 10,904 3,779
Stock compensation expense 1,424 457
Other non-cash compensation expense 109 127
Amortization of deferred revenue (525 ) (244 )
(Gain) loss on commodity derivatives (46,306 ) 17,250
(Gain) loss on sales of assets 26 (65 )
Deferred income tax provision 2,314 790
Other - net 407 67
Changes in assets and liabilities
Accounts receivable 36,268 (46,893 )
Other assets 323 428
Accounts payable and accrued liabilities   (18,763 )   31,967  
Net cash provided by operations   45,091     60,208  
Cash flows from investing activities
Additions to oil and gas properties (151,104 ) (85,028 )
Net adjustments to purchase price of properties acquired - 13,681
Proceeds from sales of assets 3 66
Acquisition of other property, plant and equipment (62 ) (270 )
Current period settlements of matured derivative contracts 32,611 (4,663 )
Change in restricted cash   (37 )   (22 )
Net cash used in investing   (118,589 )   (76,236 )
Cash flows from financing activities
Proceeds from issuance of long-term debt 65,000 20,000
Repayment under long-term debt (335,000 ) -
Proceeds from senior notes 236,475 -
Payment of debt issuance costs (1,473 ) (495 )
Proceeds from sale of common stock   123,201     -  
Net cash provided by financing   88,203     19,505  
Net increase (decrease) in cash 14,705 3,477
Cash
Beginning of period   13,566     23,820  
End of period $ 28,271   $ 27,297  
Supplemental disclosure of cash flow information
Cash paid for interest $ 1,939 $ 6,814
Change in accrued additions to oil and gas properties (68,521 ) 22,714
Current additions to ARO 736 330
 
 

Jones Energy, Inc.

Selected Financial and Operating Statistics
 

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

    Three Months Ended March 31,
2015     2014     Change
Net production volumes:
Oil (MBbls) 756 575 181
Natural gas (MMcf) 5,964 5,009 955
NGLs (MBbls) 627 523 104
Total (MBoe) 2,377 1,933 444
Average net (Boe/d) 26,411 21,478 4,933
Average sales price, unhedged:
Oil (per Bbl), unhedged $ 44.11 $ 93.78 $ (49.67 )
Natural gas (per Mcf), unhedged 2.43 4.27 (1.84 )
NGLs (per Bbl), unhedged 14.96 43.13 (28.17 )
Combined (per Boe) realized, unhedged 24.08 50.63 (26.55 )
Average sales price, hedged:
Oil (per Bbl), hedged $ 71.98 $ 87.57 $ (15.59 )
Natural gas (per Mcf), hedged 3.69 4.06 (0.37 )
NGLs (per Bbl), hedged 27.41 38.75 (11.34 )
Combined (per Boe) realized, hedged 39.38 47.06 (7.68 )
Average costs (per Boe):
Lease operating $ 5.16 $ 4.32 $ 0.84
Production and ad valorem taxes 1.56 3.33 (1.77 )
Depletion, depreciation and amortization 21.91 21.31 0.60
General and administrative 3.58 2.72 0.86
 
 

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, however, we may modify our definition of EBITDAX in the future. 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 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. 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:

    Three Months Ended March 31,
(in thousands of dollars) 2015     2014
 

Reconciliation of EBITDAX to net income

Net income $ 5,696 $ 7,708
Interest expense 13,361 7,260
Exploration expense - 2,821
Income taxes 2,344 1,081
Amortization of deferred financing costs 768 700
Depreciation and depletion 52,083 41,200
Accretion of ARO liability 194 170
Other non-cash charges 407 67
Stock compensation expense 1,424 457
Other non-cash compensation expense 109 127
Net (gain) loss on commodity derivatives (46,306 ) 17,250
Current period settlements of matured derivative contracts 36,375 (6,909 )
Amortization of deferred revenue (525 ) (244 )
(Gain) loss on sales of assets 26 (65 )
Stand-by rig costs 3,012 -
Financing expenses and other loan fees   2,273     83  
EBITDAX $ 71,241   $ 71,706  
 
 

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, and non-cash compensation expense - and certain unusual or non-recurring items. We believe adjusted net income 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, this measure is 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. Our computations of adjusted net income may not be comparable to other similarly titled measures of other companies. The following tables provide a reconciliation of net income (loss) as determined in accordance with GAAP to adjusted net income for the periods indicated:

    Three Months Ended March 31,
(in thousands of dollars except per share data) 2015     2014
 
Net income $ 5,696 $ 7,708
Net (gain) loss on commodity derivatives (46,306 ) 17,250
Current period settlements of matured derivative contracts 36,375 (6,909 )
Non-cash stock compensation expense 1,424 457
Other non-cash compensation expense 109 127
Stand-by rig costs 3,012 -
Financing expenses 2,250 -
Tax impact(1)   340     (1,029 )
Adjusted net income 2,900 17,604
 
Adjusted net income attributable to non-controlling interests   1,385     14,452  
Adjusted net income attributable to controlling interests $ 1,515   $ 3,152  
 
Three Months Ended March 31,
2015 2014
 
Earnings per share (basic and diluted) $ 0.12 $ 0.11
Net (gain) loss on commodity derivatives (0.83 ) 0.35

Current period settlements of matured derivative contracts

0.65 (0.14 )
Non-cash stock compensation expense 0.03 0.01
Other non-cash compensation expense - 0.01
Stand-by rig costs 0.05 -
Financing expenses 0.04 -
Tax impact(1)   0.02     (0.08 )
Adjusted earnings per share (basic and diluted) $ 0.08   $ 0.26  
 
Effective tax rate on net income attributable to controlling interests 36.1 % 36.5 %
 

(1) In arriving at adjusted net income, the tax impact of the adjustments to net income is determined by applying the appropriate tax rate to each adjustment and then allocating the tax impact between the controlling and non-controlling interests.

Source: Jones Energy, Inc.

Jones Energy, Inc.

Mark Brewer, 512-493-4833

Investor Relations Manager

or

Robert Brooks, 512-328-2953

Executive Vice President & CFO

Back

About Jones Energy

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

Source: Jones Energy, Inc.

Investor Contact:

Jones Energy, Inc.

Robert Brooks, 512-328-2953
Executive Vice President & CFO
ir@jonesenergy.com