Extraction Oil & Gas, Inc. Announces Second-Quarter 2019 Results

DENVER, Aug. 01, 2019 (GLOBE NEWSWIRE) -- Extraction Oil & Gas, Inc. XOG ("Extraction" or the "Company") today reported financial and operational results for the second quarter of 2019.

Second-Quarter 2019 Highlights

• Average net sales volumes of 82,856 barrels of oil equivalent per day (BOE/d), including 40,113 barrels per day (Bbl/d) of crude oil;
   
• Net income of $43.4 million, or $0.22 per basic and diluted share, driven by a gain on commodity derivatives of $73.5 million. This compared to net income of $8.8 million, or $0.03 per basic and diluted share¹, for the same period in 2018. Adjusted EBITDAX, Unhedged² was $153.1 million and Adjusted EBITDAX was $129.3 million;
   
• Completed entirety of previously announced share repurchase program; acquiring in total 38.2 million shares for $163.2 million, resulting in a 22% reduction in shares outstanding; and
   
• Successfully entered into a large-scale operator agreement with the City of Aurora in the Hawkeye area.

"Extraction demonstrated its ability to effectively navigate the regulatory environment in post-SB181 Colorado by successfully entering into an operator agreement in our Hawkeye area. This agreement gives us the necessary local government approvals covering over 65 locations with an average lateral length of over two miles," said Extraction Oil & Gas President and Acting CEO Matt Owens. "Both our upstream and midstream operations continued as planned during the second quarter as we work to get ready for our upcoming production ramp in the back half of this year. We expect Elevation's Badger gathering facility to begin moving production volumes near the end of the third quarter and for Rocky Mountain Midstream to begin processing gas from East Greeley before the end of October."

"In addition to Extraction's dedicated midstream projects, DCP's Plant 11 is already processing incremental volumes, while RimRock Energy Partners' gas plant is expected to be operational in the middle of August. Rocky Mountain Midstream's next gas plant also remains on schedule for a September startup. These midstream projects coupled with upcoming NGL takeaway expansions out of the DJ Basin are expected to further enhance Extraction's midstream diversity and redundancy."

¹ For further information on the earnings per share, refer to the Condensed Consolidated Statement of Operations, included herein
² Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are non-GAAP financial measures. For a definition of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, read "-Reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged" included herein.

Financial Results

For the second quarter, Extraction reported crude oil, natural gas and NGL sales revenue of $222.1 million, as compared to $260.2 million during the same period in 2018, representing a decrease of 15%, driven primarily by lower crude oil, natural gas and NGL prices. Revenue was approximately flat sequentially, primarily driven by similar levels of production.

Extraction continued to see modestly wider crude oil differentials during the second quarter due to increased quality deducts at Cushing. This continues to be driven by increased supplies of light crude oil into Cushing from the Permian Basin and other shale plays. The Company expects its differentials to normalize in the second half of 2019 as new pipelines such as the EPIC Crude Oil Pipeline and Plains All American's Cactus II System come online thereby reducing the oversupply situation in Cushing.

Extraction reported net income of $43.4 million, or $0.22 per basic and diluted share for the second quarter, driven primarily by a $73.5 million gain on commodity derivatives. This compared to a net income of $8.8 million for the same period in 2018. Adjusted EBITDAX, Unhedged was $153.1 million for the second quarter, down 19% year-over-year and down 3% sequentially. Adjusted EBITDAX was $129.3 million for the second quarter, down 16% year-over-year and down 6% sequentially. Please read "Reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged", included herein.

The following table provides a summary of our sales volumes, average sales prices and certain operating expenses on a per BOE basis for the three and six months ended June 30, 2019 and 2018, respectively:

(1)  One BOE is equal to six thousand cubic feet ("Mcf") of natural gas or one barrel ("Bbl") of oil or NGL based on an approximate energy equivalency. This is an energy content correlation and does not reflect a value or price relationship between the commodities.
(2)  Average prices shown in the table reflect prices both before and after the effects of our settlements of our commodity derivative contracts. Our calculation of such effects includes both gains and losses on settlements for commodity derivatives and amortization of premiums paid or received on options that settled during the period.

Operational Results

Second quarter crude oil volumes of 40,113 Bbl/d increased 3% year-over-year and increased 1% sequentially. Second quarter average net sales volumes were 82,856 BOE/d, an increase of 13% year-over-year and an increase of 3% sequentially. This relatively flat sequential total equivalent and crude oil production was consistent with Extraction's plan and driven primarily by planned midstream outages for gas plant maintenance. Crude oil accounted for approximately 83% of the Company's total revenues recorded during the second quarter.

Extraction's second-quarter 2019 aggregate drilling, completion, and leasehold capital expenditures totaled $223 million, of which $210 million was for D&C. This excludes the impact of a decrease in outstanding elections of $13 million. In addition, Elevation Midstream, our wholly owned midstream subsidiary, incurred $69 million of capital expenditures during the quarter.

During the second quarter, Extraction drilled 33 gross (27 net) wells with an average lateral length of approximately 9,400 feet, completed 36 gross (31 net) wells with an average lateral length of approximately 10,100 feet and turned to sales 36 gross (32 net) wells with an average lateral length of approximately 6,800 feet.

Update on Common Stock and Senior Note Repurchases

During the second quarter, Extraction repurchased 25.2 million shares of its common stock for $100.0 million, bringing the total number of shares repurchased under its previously announced common stock repurchase program to 38.2 million shares for $163.2 million, which fulfilled the Company's previously announced repurchase program.

Extraction also repurchased $14 million of nominal value senior notes for $11 million during the second quarter of 2019, which represents a 23% discount to par value. To-date, the Company has repurchased $50 million of nominal value senior notes for $39 million, which represents a 21% discount to par value. Extraction has $50 million remaining on its previously announced $100 million senior notes repurchase program.

Updated Investor Presentation

Extraction has posted an updated investor presentation to its website. The investor presentation may be viewed on the Company's website (www.extractionog.com) by selecting "Investors," then "News and Events," then "Presentations."

Second-Quarter 2019 Earnings Conference Call Information

Those who would like to participate can dial into the number listed below approximately 15 minutes before the scheduled conference call time and enter confirmation number 8949419 when prompted.

To access the audio webcast and related presentation materials, please visit the Investor Relations section of the Company's website at www.extractionog.com. A replay of the conference call will be available on the website for approximately 30 days following the call.

About Extraction Oil & Gas, Inc.

Denver-based Extraction Oil & Gas, Inc. is an independent energy exploration and development company focused on exploring, developing and producing crude oil, natural gas and NGLs primarily in the Wattenberg Field in the Denver-Julesburg Basin of Colorado. For further information, please visit www.extractionog.com. The Company's common shares are listed for trading on the NASDAQ under the symbol: "XOG."

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this press release constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, increases in oil and gas production, the number of anticipated wells to be drilled or completed after the date hereof, future cash flows and borrowings, pursuit of potential acquisition opportunities, our financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "may," "expect," "estimate," "project," "plan," "believe," "intend," "achievable," "anticipate," "will," "continue," "potential," "should," "could," and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control that could cause actual results to differ materially from the results discussed in the forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for us to predict all such factors. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in the "Risk Factors" section of our most recent Form 10-K and Forms 10-Q filed with the Securities and Exchange Commission and in our other public filings and press releases. These and other factors could cause our actual results to differ materially from those contained in any forward-looking statement.

EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

(1)  For further information, see the reconciliation of Net Income (Loss) attributable to common shareholders in Note 10 of our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2019 and 2018.

EXTRACTION OIL & GAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

EXTRACTION OIL & GAS, INC.
RECONCILIATION OF ADJUSTED EBITDAX AND ADJUSTED EBITDAX, UNHEDGED
(In thousands)
(Unaudited)

Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are not measures of net income (loss) as determined by United States generally accepted accounting principles (GAAP). Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDAX and Adjusted EBITDAX, Unhedged as net income (loss) adjusted for certain cash and non-cash items, including depletion, depreciation, amortization and accretion (DD&A), impairment of long lived assets, exploration expenses, (gain) loss on sale of property and equipment, gain (loss) on commodity derivatives, settlements on commodity derivative instruments, premiums paid for derivatives that settled during the period, stock-based compensation expense, amortization of debt issuance costs, make-whole premiums, gain on repurchase of notes, interest expense, income tax expense (benefit) and non-recurring charges.

Management believes Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are useful because they allow us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDAX and Adjusted EBITDAX, Unhedged because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX and Adjusted EBITDAX, Unhedged should not be considered as alternatives to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance. Certain items excluded from Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital, hedging strategy and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged. Our computations of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged may not be comparable to other similarly titled measure of other companies. We believe that Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are widely followed measures of operating performance.  A reconciliation of Adjusted EBITDAX and Adjusted EBITDAX, Unhedged and net income (loss) for the three and six months ended June 30, 2019 and 2018 is provided in the table above. Additionally, our management team believes Adjusted EBITDAX and Adjusted EBITDAX, Unhedged are useful to an investor in evaluating our financial performance because these measures (i) are widely used by investors in the oil and natural gas industry to measure a company's operating performance without regard to items excluded from the calculation of such term, among other factors; (ii) help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and (iii) are used by our management team for various purposes, including as a measure of operating performance, in presentations to our board of directors, as a basis for strategic planning and forecasting.

Investor Contact: Louis Baltimore, ir@extractionog.com, 720-974-7773
Media Contact: Brian Cain, info@extractionog.com, 720-974-7782