NYSE: JONE October 23, 2017
$ 1.27
-0.14 -9.93%

Jones Energy, Inc. Announces 2017 Second Quarter Financial and Operating Results and Lowers 2017 Capex Budget

August 03, 2017

AUSTIN, Texas, Aug. 03, 2017 (GLOBE NEWSWIRE) -- Jones Energy, Inc. (NYSE:JONE) (“Jones Energy” or “the Company”) today announced financial and operating results for the second quarter ended June 30, 2017, lowered its 2017 capital expenditure, or Capex, budget and provided updated guidance for 2017, including initial third quarter 2017 guidance.   

Highlights

  • Reducing 2017 Capex budget to $250 million from $275 million, raising midpoint of 2017 production guidance net of Arkoma Basin divestiture.
  • Average daily net production for second quarter 2017 of 23.8 Mboe/d, 12% above the midpoint of guidance.
  • Dropped one core Cleveland rig late July. The plan is to drop second core Cleveland rig in September 2017.
  • Second Meramec well GARRETT achieved 672 Bbls/d and 2,344 Mcf/d, with rates still increasing.
  • Sold Arkoma Basin properties for $65 million, deal closing is credit accretive.
  • Net loss for the second quarter of 2017 of $145.3 million, which includes a $161.9 million impairment charge related to the Arkoma sale, non-GAAP adjusted net income of $5.7 million, or $0.12 per share and EBITDAX of $48.3 million.1

Jonny Jones, the Company’s Founder, Chairman, and CEO, commented, “Our Merge program continues to build momentum with seven wells on production and pad drilling underway with a two-rig program. Today we announced second quarter results that highlight continued outperformance from our Cleveland base production. Earlier this week we also announced the closing of the sale of our Arkoma Basin properties. The Arkoma represented approximately 3.0 Mboe/d of production; however, due to the continued outperformance of our remaining base, we are raising the midpoint of our 2017 production guidance net of the divestiture.  As we continue to execute on the 2017 program, we now believe that we can achieve our 2017 goals with less Capex than initially budgeted. As such, I’m pleased to announce we are lowering our 2017 Capex budget to $250 million from the initial budget of $275 million.”

Financial Results

Total operating revenues for the three months ended June 30, 2017 were $48.6 million as compared to $29.1 million for the three months ended June 30, 2016.  Total revenues including current period settlements of matured derivative contracts were $66.5 million for the three months ended June 30, 2017 as compared to $60.6 million for the three months ended June 30, 2016.  

Total operating expenses for the three months ended June 30, 2017 were $235.1 million as compared to $55.9 million for the three months ended June 30, 2016. During the second quarter of 2017 the Company incurred impairment charges of $161.9 million in relation to its Arkoma sale, whereas no impairment charges were incurred during the second quarter of 2016.  Operating expenses for the second quarter of 2017 were $73.2 million not including the one-time impairment. During the second quarter, the company also incurred exploration expenses of $6.7 million, of which $5.2 million was related to leasehold abandonment mainly in the Western Anadarko.    

For the three months ended June 30, 2017, the Company reported a net loss of $145.3 million, of which a net loss of $91.2 million, or $1.39 per share, is attributable to common shareholders. This compares to a net loss of $58.6 million, of which a net loss of $23.2 million, or $0.69 per share, was attributable to common shareholders for the three months ended June 30, 2016. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, and adjusting for non-controlling interest, the Company had adjusted net income for the second quarter 2017 of $5.7 million, or adjusted net income of $0.12 per share, as compared to adjusted net loss of $5.7 million, or a loss of $0.08 per share for the three months ended June 30, 2016.

Earnings before interest, income taxes, depreciation, amortization, and exploration expense (“EBITDAX”) for the second quarter 2017 was $48.3 million. This compares to second quarter 2016 EBITDAX of $46.2 million.  

Operating Results

During the second quarter of 2017 Jones Energy produced 2,166 MBoe, or 23,802 Boe/d, which was 12% above the midpoint of prior guidance. The production beat included outperformance from both the Cleveland and Arkoma assets. During the second quarter, the Arkoma asset contributed approximately 3.0 MBoe/d; however, our sale of the Arkoma Basin properties closed on August 1, 2017. Guidance for full year 2017 and third quarter 2017 provided in this release has been adjusted for the divestiture. A breakout of second quarter production is shown in the table below.

  Three months ended June 30, 2017:
  Oil
(MBbls)
 Natural Gas
(MMcf)
 NGLs
(MBbls)
 Total
(MBoe)
Cleveland  448  3,817  503  1,587
Merge  64  377  43  170
Arkoma  2  1,117  85  273
Other  11  525  37  136
Total  525  5,836  668  2,166

Eastern Anadarko (Merge)

During the second quarter, the Company spud five wells and completed three wells in the Merge, of which one was a Woodford and two were Meramec. Jones Energy has spud twelve wells and completed seven wells in the Merge to date. Second quarter Merge production was 1.9 Mboe/d, with June production averaging 3.2 Mboe/d.

Jones Energy is running two rigs in the Merge and plans to add a third rig by year end 2017. One rig is drilling the two-well HARDESTY pad while the other is drilling the three-well ROSEWOOD pad. The NOLA MAY SHAY 19-9-6 1H, the Company’s third Meramec well, was successfully completed and is flowing back. The Company’s second Meramec well, the GARRETT has achieved 672 Bo/d and 2,344 Mcf/d to-date with rates still increasing. The BOMHOFF pad continues to show strong production, but the wells have not yet reached a peak 30-day rate.

Jones Energy has updated its drilling schedule and now expects to drill 24 gross (15 net) Merge wells in 2017, of which 17 gross wells are planned to be Meramec and the remaining to be Woodford. The program includes a mix of single well locations and two-well and three-well pads. The Company now plans to drill six long lateral wells in the second half of 2017, of which three are planned to be 10,000’ laterals and three are planned to be 7,500’ laterals. The updated number of total wells planned for the year reflects the increased number of days allotted for long lateral drilling and completion time associated with pad drilling. The Company is now using Gen-3 completion designs for its Woodford wells, which include increased proppant loading and tighter frac spacing then prior completion designs. The new design is expected to result in single well Woodford AFEs for 5,000’ laterals of $5.1 to $5.8 million. In the Meramec, Jones Energy projects single well AFEs for 5,000’ laterals of $5.4 - $6.1 million. The higher end of both ranges represents drilling in the deeper part of the Company’s acreage. Merge Operated D&C capital for the full year 2017 program is now projected to be $83 million versus the initial budget of $88 million.

Western Anadarko (Cleveland)

During the second quarter, the Company spud 16 wells and completed four wells in the Cleveland, with the lower number of completions being a result of the current frac schedule.  Average daily net production in the Cleveland was 17.4 MBoe/d in the second quarter of 2017. 

Jones Energy dropped one core Cleveland rig in late July and is currently running two rigs in the Western Anadarko. Jones Energy plans to drop the remaining core Cleveland rig in September. One rig continues in the long lateral development area of Hutchinson County, TX. The Company now expects to drill 43 gross (40.5 net) wells in the 2017 program in the Cleveland. As a result of the updated rig schedule, full year 2017 Cleveland D&C capital is now projected to be $110 million versus the initial budget of $122 million.

Capital Expenditures
During the second quarter of 2017, the Company spent $47.5 million on capital expenditures excluding lease acquisitions, of which $46.8 million was drilling and completion capital and the remainder was related to maintenance capital and spending on non-operated wells. The Company spent $9.9 million on lease acquisitions in the second quarter, bringing total capital expenditures for the second quarter of 2017 to $57.4. Year-to-date capital expenditures total $115.4 million.

Jones Energy now budgets full year 2017 Capex of $250 million versus the initial budget of $275 million. The updated budget reflects reduced activity in the Cleveland, realized and projected cost inflation, increased costs related to frac designs in the Merge, increased costs related to long lateral drilling, and less than anticipated non-op spending from the initial budget. The Company continues to have a high degree of flexibility in its program and could take further action if conditions merit.

Updated 2017 Guidance
Jones Energy is incorporating the recent Arkoma Basin divestiture and updated capital plan into its updated full year 2017 guidance. The Company now projects an average daily production of 20,700 to 22,000 Boe/d for full year 2017, which is an increase in guidance net of the divested Arkoma Basin assets which were producing 3.0 MBoe/d. Initial third quarter 2017 guidance of 20,000 to 21,000 Boe/d has also been announced.  A table has been provided below with full year and third quarter 2017 guidance by category. 

2017 GuidancePrevious PF Arkoma Updated  
 2017E Divestiture
 2017E 3Q17E
Total Production (MMBoe)7.6 – 8.4 7.1 – 8.0 7.6 – 8.0 1.8 – 1.9
Average Daily Production (MBoe/d)20.7 – 23.0 19.6 – 21.9 20.7 – 22.0 20.0 – 21.0
Crude Oil (MBbl/d)5.7 – 6.3 5.7 – 6.3 5.5 – 5.9 5.3 – 5.6
Natural Gas (MMcf/d)51 – 57 47 – 53 52 – 55.3 49.3 – 51.6
NGLs (MBbl/d)6.5 – 7.2 6.1 – 6.8 6.5 – 6.9 6.5 – 6.8
        
Lease Operating Expense ($mm)$45.0 – $50.0 $43.5 - $48.5 $40.0 – $45.0  
Production Taxes (% of Unhedged Revenue) *4.5% – 5.5%   4.5% – 5.5%  
Ad Valorem Taxes ($mm) *$2.7 – $3.0   $2.7 – $3.0  
Cash G&A Expense ($mm)$23 – $25   $23 – $25  
        
* Production and ad valorem taxes are included as one line item on the Company’s income statement

 

2017 Guidance, Continued Previous Current
  2017E 2017E
Capital Expenditures ($mm)    
Merge JONE Operated D&C $88 $83
Merge Non-Operated D&C and Other  22  17
Total Merge D&C $110 $100
Merge Leasing and Pooling  20  23
Total Merge Capital Expenditures $130 $123
     
Cleveland D&C $122 $110
Cleveland Leasing  5  5
Total Cleveland Capital Expenditures $127 $115
     
Other $18 $12
Total Capital Expenditures $275 $250
       

Liquidity and Hedging

As of June 30, 2017, the Company had $181 million outstanding borrowings under its revolving credit facility, $244 million undrawn under its revolving credit facility and approximately $6 million in cash, resulting in approximately $250 million of total liquidity. Following the closing of the Arkoma Basin properties, the Company’s borrowing based was reduced to $375 million.

The estimated mark-to-market value of the Company’s commodity price hedges as of June 30, 2017 was approximately $30 million incorporating strip pricing as of August 1, 2017. During the second quarter of 2017, Jones Energy unwound approximately $8 million of its crystalized hedges. Net proceeds from the unwind have the effect of reducing debt and increasing EBITDAX by approximately $8 million. The following table summarizes the Company’s net commodity derivative contracts outstanding as of August 3, 2017 and summarizes approximately $15 million in remaining crystallized hedge gains in 2018:

   3Q174Q17  2017201820192020
Oil Hedges          
Swaps Sold (MBbl) 525480  1,0052,364900240
Price ($/Bbl) $62.48$63.43  $62.94$51.08$50.05$50.10
Swaps Sold (MBbl) --  -294--
Price ($/Bbl) --  -$78.58--
Offset Swaps Purchased (MBbl)--  -294--
Price ($/Bbl) --  -$46.79--
Collars (MBbl) --  --810-
Floor ($/Bbl) --  --$48.52-
Ceiling ($/Bbl) --  --$59.64-
           
Gas Hedges         
Swaps Sold (MMcf) 5,1105,070  10,18022,3109,8203,600
Price ($/Mcf) $3.72$3.70  $3.71$2.96$2.83$2.81
Swaps Sold (MMcf) --  -3,930--
Price ($/Mcf) --  -$4.27--
Offset Swaps Purchased (MMcf)--  -3,930--
Price ($/Mcf) --  -$2.81--
Collars (MMcf) --  --11,890-
Floor ($/Mcf) --  --$2.55-
Ceiling ($/Mcf) --  --$3.19-
           
NGL Swaps (MBbl)         
Ethane  --  ----
Propane  231227  458850--
Iso Butane  2524  49120--
Butane  8181  162335--
Natural Gasoline 9393  186360--
Total NGLs 430425  8551,665--
NGL Swap Prices ($/Gal)        
Ethane  --  ----
Propane  $0.47$0.47  $0.470.57--
Iso Butane  0.60.57  0.590.72--
Butane  0.610.61  0.610.69--
Natural Gasoline 1.041.04  1.041.05--

Conference Call Details

Jones Energy will host a conference call for investors and analysts to discuss its results on Friday, August 4, 2017 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 (833) 231-8272 (for domestic U.S.) or (647) 689-4117 (International) and entering conference code 56297957.  If you are not able to participate in the conference call, the webcast replay and a downloadable audio file will be available shortly following the call through the Investor Relations section of 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 Eastern and Western Anadarko basin of Texas and Oklahoma.  Additional information about Jones Energy may be found on the Company’s website at: www.jonesenergy.com.

_______________

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, updated guidance regarding the number of rigs that will be running in 2017, the timing and location of the development of the new Merge acreage, levels of single-well authorizations for expenditures and the cost to drill and complete wells and the resultant impact on the 2017 capital budget, and projections regarding total production, average daily production, percentage liquids, operating expenses, production and ad valorem taxes as a percentage of revenue, cash G&A expenses and capital expenditure levels for the full year and third quarter of 2017.  These statements are based on certain assumptions made by the Company based on management’s experience and perception of historical trends, current economic and market conditions, anticipated future developments and other factors believed to be appropriate.  Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements.  These include, but are not limited to, changes in oil and natural gas prices, weather and environmental conditions, the timing and amount of planned capital expenditures, availability and method of funding of acquisitions and divestitures, or the ability to integrate any acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as the Company’s ability to access them, the proximity to and capacity of transportation facilities, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting the Company’s business and other important factors that could cause actual results to differ materially from those projected as described in the Company’s reports filed with the SEC.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

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

  Three months ended June 30,  Six months ended June 30, 
(in thousands of dollars except per share data) 2017 2016 2017
 2016
Operating revenues            
Oil and gas sales $48,114  $28,398  $88,791  $53,478 
Other revenues  512   746   1,068   1,524 
Total operating revenues  48,626   29,144   89,859   55,002 
Operating costs and expenses            
Lease operating  9,425   7,545   18,231   16,162 
Production and ad valorem taxes  2,790   1,727   1,884   3,328 
Exploration  6,725   77   9,669   239 
Depletion, depreciation and amortization  45,336   38,137   80,990   79,899 
Impairment of oil and gas properties  161,886      161,886    
Accretion of ARO liability  266   297   467   590 
General and administrative  8,633   8,126   16,674   15,630 
Total operating expenses  235,061   55,909   289,801   115,848 
Operating income (loss)  (186,435)  (26,765)  (199,942)  (60,846)
Other income (expense)            
Interest expense  (12,677)  (12,807)  (25,564)  (27,605)
Gain on debt extinguishment     8,878      99,530 
Net gain (loss) on commodity derivatives  21,527   (40,002)  43,847   (22,783)
Other income (expense)  29,834   (338)  30,414   (113)
Other income (expense), net  38,684   (44,269)  48,697   49,029 
Income (loss) before income tax  (147,751)  (71,034)  (151,245)  (11,817)
Income tax provision (benefit)  (2,419)  (12,388)  (2,398)  (1,685)
Net income (loss)  (145,332)  (58,646)  (148,847)  (10,132)
Net income (loss) attributable to non-controlling interests  (56,093)  (35,401)  (58,221)  (5,798)
Net income (loss) attributable to controlling interests $(89,239) $(23,245) $(90,626) $(4,334)
Dividends and accretion on preferred stock  (1,966)     (3,993)   
Net income (loss) attributable to common shareholders $(91,205) $(23,245) $(94,619) $(4,334)
             
Earnings (loss) per share:            
Basic - Net income (loss) attributable to common shareholders $(1.39) $(0.69) $(1.48) $(0.13)
Diluted - Net income (loss) attributable to common shareholders $(1.39) $(0.69) $(1.48) $(0.13)
             
Weighted average Class A shares outstanding:            
Basic  65,681   33,598   63,948   33,410 
Diluted  65,681   33,598   63,948   33,410 

Jones Energy, Inc.
Consolidated Balance Sheet (Unaudited)

(in thousands of dollars)June 30, 2017
 December 31, 2016
Assets     
Current assets     
Cash$6,254  $34,642 
Restricted Cash     
Accounts receivable, net     
Oil and gas sales 24,557   26,568 
Joint interest owners 9,032   5,267 
Other 7,205   6,061 
Commodity derivative assets 39,823   24,100 
Other current assets 11,381   2,684 
Assets held for sale 3,455    
Total current assets 101,707   99,322 
Assets held for sale, net 64,200    
Oil and gas properties, net, at cost under the successful efforts method 1,545,991   1,743,588 
Other property, plant and equipment, net 2,812   2,996 
Commodity derivative assets 5,914   34,744 
Deferred tax assets     
Other assets 5,395   6,050 
Total assets$1,726,019  $1,886,700 
Liabilities and Stockholders' Equity     
Current liabilities     
Trade accounts payable$56,053  $36,527 
Oil and gas sales payable 22,301   28,339 
Accrued liabilities 19,571   25,707 
Commodity derivative liabilities 3,036   14,650 
Liability under tax receivable agreement     
Other current liabilities 8,099   2,584 
Liabilities related to assets held for sale 7,472    
Total current liabilities 116,532   107,807 
Liabilities related to assets held for sale 1,143    
Long-term debt 728,163   724,009 
Deferred revenue 6,106   7,049 
Commodity derivative liabilities 123   1,209 
Asset retirement obligations 19,061   19,458 
Liability under tax receivable agreement 11,807   43,045 
Other liabilities 902   792 
Deferred tax liabilities 2,911   2,905 
Total liabilities 886,748   906,274 
      
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at June 30, 2017 and December 31, 2016 89,288   88,975 
Stockholders' equity     
Class A common stock, $0.001 par value; 66,671,659 shares issued and 66,649,057 shares outstanding at June 30, 2017 and 57,048,076 shares issued and 57,025,474 shares outstanding at December 31, 2016 67   57 
Class B common stock, $0.001 par value; 29,823,927 shares issued and outstanding at June 30, 2017 and 29,832,098 shares issued and outstanding at December 31, 2016 30   30 
Treasury stock, at cost: 22,602 shares at June 30, 2017 and December 31, 2016 (358)  (358)
Additional paid-in-capital 477,390   447,137 
Retained (deficit) / earnings (121,477)  (8,652)
Stockholders' equity 355,652   438,214 
Non-controlling interest 394,331   453,237 
Total stockholders’ equity 749,983   891,451 
Total liabilities and stockholders' equity$1,726,019  $1,886,700 

Jones Energy, Inc.
Selected Financial and Operating Statistics

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

  Three Months Ended June 30,
  2017 2016 Change
Revenues (in thousands of dollars):         
Oil and gas sales $48,114 $28,398 $19,716 
Other revenues  512  746  (234)
Current period settlements of matured derivative contracts  17,921  31,410  (13,489)
Total operating revenues $66,547 $60,554 $5,993 
          
Net production volumes:         
Oil (MBbls)  525  396  129 
Natural gas (MMcf)  5,836  4,608  1,228 
NGLs (MBbls)  668  529  139 
Total (MBoe)  2,166  1,693  473 
Average net (Boe/d)  23,802  18,604  5,198 
          
Average sales price, unhedged:         
Oil (per Bbl), unhedged $44.40 $40.68 $3.72 
Natural gas (per Mcf), unhedged  2.19  1.11  1.08 
NGLs (per Bbl), unhedged  18.02  13.56  4.46 
Combined (per Boe), unhedged  22.21  16.77  5.44 
Average sales price, hedged:         
Oil (per Bbl), hedged $61.30 $87.87 $(26.57)
Natural gas (per Mcf), hedged  4.04  3.40  0.64 
NGLs (per Bbl), hedged  15.36  17.64  (2.28)
Combined (per Boe), hedged  30.49  35.33  (4.84)
Average costs (per BOE):         
Lease operating $4.35 $4.46 $(0.11)
Production and ad valorem taxes  1.29  1.02  0.27 
Depletion, depreciation and amortization  20.93  22.53  (1.60)
General and administrative  3.99  4.80  (0.81)

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

 Six months ended June 30, 
(in thousands of dollars)2017 2016
Cash flows from operating activities     
Net income (loss)$(148,847) $(10,132)
Adjustments to reconcile net income (loss) to net cash provided by operating activities     
Depletion, depreciation, and amortization 80,990   79,899 
Exploration (dry hole and lease abandonment) 6,880   27 
Impairment of oil and gas properties 161,886    
Accretion of ARO liability 467   590 
Amortization of debt issuance costs 1,953   2,107 
Stock compensation expense 3,736   3,084 
Deferred and other non-cash compensation expense 180   401 
Amortization of deferred revenue (942)  (1,241)
(Gain) loss on commodity derivatives (43,847)  22,783 
(Gain) loss on sales of assets 119   1 
(Gain) on debt extinguishment    (99,530)
Deferred income tax provision 6   (3,291)
Change in liability under tax receivable agreement (30,599)  (162)
Other - net 1,307   1,111 
Changes in operating assets and liabilities     
Accounts receivable (4,188)  11,353 
Other assets (12,590)  (482)
Accrued interest expense (1,301)  (4,201)
Accounts payable and accrued liabilities 6,268   3,683 
Net cash provided by operations 21,478   6,000 
Cash flows from investing activities     
Additions to oil and gas properties (107,250)  (27,592)
Net adjustments to purchase price of properties acquired 2,391    
Proceeds from sales of assets 2,730   5 
Acquisition of other property, plant and equipment (436)  12 
Current period settlements of matured derivative contracts 45,738   77,622 
Net cash (used in) / provided by investing (56,827)  50,047 
Cash flows from financing activities     
Proceeds from issuance of long-term debt 75,000   75,000 
Repayment of long-term debt (72,000)   
Purchase of senior notes    (84,589)
Payment of cash dividends on preferred stock (3,367)   
Net distributions paid to JEH unitholders (562)  (10,109)
Net payments for share based compensation (462)   
Proceeds from sale of common stock 8,352   1,056 
Net cash provided by / (used in) financing 6,961   (18,642)
Net increase (decrease) in cash (28,388)  37,405 
Cash     
Beginning of period 34,642   21,893 
End of period$6,254  $59,298 
Supplemental disclosure of cash flow information     
Cash paid for interest$24,064  $29,700 
Change in accrued additions to oil and gas properties 13,155   1,980 
Asset retirement obligations incurred, including changes in estimate 395   160 

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

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

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

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

 Three Months Ended June 30,  Six Months Ended June 30, 
(in thousands of dollars)2017
 2016
 2017
 2016
Reconciliation of EBITDAX to net income           
Net income (loss)$(145,332) $(58,646) $(148,847) $(10,132)
Interest expense 12,677   12,807   25,564   27,605 
Exploration expense 6,725   77   9,669   239 
Income taxes (2,419)  (12,388)  (2,398)  (1,685)
Depreciation and depletion 45,336   38,137   80,990   79,899 
Impairment of oil and natural gas properties 161,886      161,886    
Accretion of ARO liability 266   297   467   590 
Change in TRA liability (29,931)  267   (30,599)  (162)
Other non-cash charges 1,266   1,645   1,307   1,111 
Stock compensation expense 1,764   1,899   3,736   3,084 
Deferred and other non-cash compensation expense 44   133   180   401 
Net (gain) loss on derivative contracts (21,527)  40,002   (43,847)  22,783 
Current period settlements of matured derivative contracts 17,921   31,410   44,253   74,081 
Amortization of deferred revenue (484)  (596)  (942)  (1,241)
(Gain) loss on sale of assets 55   (3)  119   1 
(Gain) on debt extinguishment    (8,878)     (99,530)
Financing expenses and other loan fees 24   73   48   273 
EBITDAX$48,271  $46,236  $101,586  $97,317 

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

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

  Three Months Ended June 30, 
(in thousands except per share data) 2017 2016
Net income (loss) $(145,332) $(58,646)
Net (gain) loss on derivative contracts  (21,527)  40,002 
Current period settlements of matured derivative contracts  17,921   31,410 
Impairment of oil and gas properties  161,886    
Exploration  6,725   77 
Non-cash stock compensation expense  1,764   1,899 
Deferred and other non-cash compensation expense  44   133 
(Gain) on debt extinguishment     (8,878)
Financing expenses      
Change in TRA liability  (29,931)  267 
Tax impact of adjusting items  (34,141)  (11,390)
Change in valuation allowance  48,261   (597)
Adjusted net income (loss)  5,670   (5,723)
Adjusted net income (loss) attributable to non-controlling interests  (3,991)  (2,948)
Adjusted net income (loss) attributable to controlling interests  9,661   (2,775)
Dividends and accretion on preferred stock  (1,966)   
Adjusted net income (loss) attributable to common shareholders $7,695  $(2,775)
       
Weighted average Class A shares outstanding:       
Basic  65,681   33,598 
Diluted  65,681   33,598 
       
Adjusted earnings per share (basic and diluted) $0.12  $(0.08)

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

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

   Three Months Ended June 30, 
   2017 2016
Earnings per share (basic and diluted):  $(1.39) $(0.69) 
Net (gain) loss on derivative contracts  (0.23)  0.59  
Current period settlements of matured derivative contracts  0.19   0.46  
Impairment of oil and gas properties  1.70     
Exploration  0.07   0.03  
Non-cash stock compensation expense  0.02     
Deferred and other non-cash compensation expense     (0.13) 
(Gain) on debt extinguishment       
Financing expenses       
Change in TRA liability  (0.46)  0.01  
Tax impact of adjusting items  (0.51)  (0.33) 
Change in valuation allowance  0.73   (0.02) 
Adjusted earnings per share (basic and diluted) $0.12  $(0.08) 
        
EPS attributed to 2Q 2017 hedge unwinds (gain)  (0.05)    
Adjusted earnings per share (basic and diluted), adjusted for hedge unwinds $0.07  $  
        
Weighted average Class A shares outstanding:        
Basic  65,681   33,598  
Diluted  65,681   33,598  
Effective tax rate on net income (loss) attributable to controlling interests  40.3 % 36.8 %
          
Investor Contact:
Page Portas, 512-493-4834
Investor Relations Associate
Or
Robert Brooks, 512-328-2953
Executive Vice President & CFO

ir@jonesenergy.com

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Source: Jones Energy, Inc.
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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