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Rosehill Resources Inc. Announces Fourth Quarter and Full Year 2017 Results; Recent Production Increases to Over 15,000 Net BOE Per Day

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HOUSTON, April 17, 2018 (GLOBE NEWSWIRE) -- Rosehill Resources Inc. ("Rosehill" or the "Company") (NASDAQ:ROSE) (NASDAQ:ROSEW) (NASDAQ:ROSEU) today reported operational and financial results for the fourth quarter and full year 2017 and 2018 key items.

Fourth Quarter and Full Year 2017 Highlights:

  • Reported a net loss attributable to Rosehill of $5.3 million, or $0.87 per diluted share, for the three months ended December 31, 2017 and of $8.5 million, or a loss of $1.43 per diluted share for the full year of 2017
  • Delivered adjusted EBITDAX of $18.8 million for the fourth quarter of 2017 and of $46.8 million for the full year of 2017
  • Increased proved reserves to 31.1 million BOE ("MMBOE"), as determined under SEC guidelines, with a standardized measure of $350 million and a PV-10 of $368 million at year-end 2017  
  • Acquired 6,505 acres in northwest Pecos County in the White Wolf acquisition, establishing a second core operating area in the Delaware Basin, more than doubling our acreage and drilling inventory in two related transactions in December 2017
  • Sold non-core Barnett Shale assets in November 2017 to become a pure play Delaware Basin company
  • Spud 10 operated horizontal wells and completed 12 wells in the fourth quarter of 2017, with 5 total drilled and uncompleted ("DUC") wells at December 31, 2017

2018 Key Items:

  • Increased production average for the month of March to a record high of over 15,000 net barrels of oil equivalent ("BOE") per day (72% oil and 86% total liquids), an increase of over 100% over the average for the fourth quarter 2017 of 7,352 BOE per day
  • Successfully syndicated a new revolving credit facility, increasing the borrowing base 100% to $150 million with a $500 million total capacity
  • Continued operational improvements have reduced drill times (spud to total depth) to under 15 days in Loving County, from over 30 days a year ago
  • Spud the first well in the southern Delaware basin on April 11, 2018, surveying, staking and permitting activities are ongoing

J.A. (Alan) Townsend, Rosehill's President and Chief Executive Officer, commented, "2017 was a remarkable and exciting year for Rosehill Resources.  Since our formation in April 2017, we have added significant value through the drill bit and with the White Wolf acquisition, which more than doubled our acreage position and location count in the Delaware Basin. Our production grew significantly in 2017, from just over 5,000 BOE per day ("BOEPD") in late April 2017, to over 10,000 BOEPD in late December 2017. We more than doubled our proved reserves to 31.1 MMBOE and our PV-10 valuation more than quadrupled to $368 million. We continue to execute on our strategy and deliver excellent results. I am very confident that we have the right operational and management teams in place to grow and maximize the value of our assets."

Townsend continued, "We have achieved a number of our milestones already in 2018. We continue to deliver strong production growth, achieving a new all-time high net production rate in March of over 15,000 BOEPD. We entered into a new, syndicated credit facility that doubled our borrowing base to $150 million giving us additional liquidity to continue to execute on our capital program and expand our production and reserve growth. We have begun the process of developing our White Wolf acreage through surveying, staking and permitting activities and have spud our first well in April. We are well positioned to drive shareholder value and make 2018 a tremendous year for Rosehill."

Operational Update

In the fourth quarter of 2017, the Company's net daily production averaged 7,352 net BOE per day, which was comprised of 5,188 barrels of oil per day, 1,040 barrels of natural gas liquids ("NGLs") per day and 6.7 million cubic feet of gas ("MMCF") per day an increase of 39% compared to the third quarter of 2017 average.  Rosehill operated two rigs, drilled 9 gross horizontal wells, completed 12 wells in the fourth quarter and had 5 drilled uncompleted wells ("DUCs") in inventory at the end of 2017, which was 5 fewer than forecast.  Rosehill averaged 13 days from spud to total depth in the upper Wolfcamp A and 14 days in the lower Wolfcamp A in the fourth quarter. The Company continues to experience strong improvement in drilling efficiency that has reduced spud to total depth in Loving County from over 30 days at year end 2016 to under 15 days across all zones.

For the full year 2017, the Company's net daily production averaged 5,838 net BOE per day, which was comprised of 3,483 barrels of oil per day, 1,118 barrels of NGLs per day and 7.4 MMCF of gas per day, an increase of 56% compared to full year 2016 average. Rosehill spud 28 gross horizontal wells and completed 22 wells in 2017.

Rosehill continues to demonstrate and expect strong production growth in 2018 and beyond. In January 2018, despite severe cold weather, simultaneous operations downtime from Rosehill and offset operator activities, the Company's net daily production averaged under 9,000 BOEPD. As new wells continued to clean up from initial flowback and downtime decreased, the Company's average net daily production for February improved to almost 11,000 net BOEPD. March saw an even more pronounced increase in production, with total Company production averaging over 15,000 net BOEPD (72% oil).

In early 2018, the Company began flowback on a three well pad on the Weber lease in Loving County, with wells producing from the Wolfcamp and Bone Spring formations. The pad has not experienced facility constraints or other operational limiting factors. These wells have performed above the Company's type curve expectations for their formations, with combined peak IP 30 rates of approximately 4,300 gross barrels of oil per day or 296 barrels of oil per thousand lateral foot.

Financial Results

For the fourth quarter of 2017, the Company reported a net loss attributable to Rosehill of $5.3 million, or $0.87 per diluted share, as compared to a net loss of $7.1 million, or $1.21 per diluted share, in the fourth quarter of 2016. The fourth quarter 2017 included an $18.1 million non-cash, pre-tax loss on commodity derivative instruments and a $5.0 million pre-tax gain on sale of assets.

For the year ended December 31, 2017, the Company reported a net loss attributable to Rosehill of $8.5 million, or $1.43 per diluted share, as compared to a net loss of $15.2 million, or $2.59 per diluted share, in the same period in 2016. The full year 2017 included a $16.6 million non-cash, pre-tax loss on commodity derivative instruments and a $5.0 million pre-tax gain on sale of assets.

Adjusted EBITDAX (a non-GAAP measure defined and reconciled below) totaled $18.8 million for the fourth quarter of 2017, as compared to $5.1 million in the same period in 2016. Adjusted EBITDAX for the year ended December 31, 2017 was $46.8 million, up from $18.9 million for the same period in 2016.

For the fourth quarter of 2017, average realized prices (all prices excluding the effects of derivatives) were $52.66 per barrel of oil, $2.54 per Mcf of natural gas and $21.58 per barrel of NGLs, resulting in a total equivalent price of $42.54 per BOE, up 35% from the same period in 2016.

Rosehill's cash operating costs for the fourth quarter of 2017 were $14.58 per BOE, which includes lease operating expenses ("LOE"), gathering and transportation, production taxes and general and administrative expenses ("G&A") and excludes costs associated with the reverse recapitalization and stock-based compensations.

During 2017 and the fourth quarter of 2017, Rosehill incurred capital costs, excluding asset retirement costs and leasing and acquisition costs, of $222 million and $111 million, respectively.    The increase in total 2017 capital over the Company's plan was driven primarily by faster drill times, completing 5 more wells in 2017 than forecast, drilling and completion costs on wells in progress and facilities coming online earlier than anticipated to meet the increase in operational efficiencies.

Capital Structure and Liquidity

As of December 31, 2017, Rosehill had $21 million in cash on hand, and $93 million in long-term debt, net, $81 million in Series A convertible preferred stock and $141 million in Series B redeemable preferred stock.  As of December 31, 2017, total liquidity was approximately $146 million which included cash on hand, $75 million of availability under the revolving credit facility (see update below) and the Company's ability to issue an additional $50 million shares of Series B preferred stock.

Credit Facility Update

In March 2018, the Company entered into a new $500 million revolving credit facility maturing in 2022, with an initial borrowing base of $150 million. The borrowing base will be redetermined semi-annually, with lenders and Rosehill each having the right to one interim redetermination between any two consecutive scheduled redeterminations.  The first scheduled redetermination date is August 1, 2018. The facility was provided by a syndicate of five financial institutions led by JPMorgan Chase Bank, N.A.

Reserves Update

Rosehill's proved reserves increased 135% from year-end 2016 to 31.1 MMBOE at December 31, 2017, consisting of 59% oil, 20% NGLs and 21% natural gas. The Company's probable and possible reserves at December 31, 2017 were 3.1 MMBOE and 71.6 MMBOE, respectively. 

The PV-10 value of proved reserves at SEC pricing of $51.34 per barrel of oil, $31.82 per barrel of NGLs and $2.98 per thousand cubic feet of natural gas increased 353% from December 31, 2016 to $368 million (a non-GAAP measure defined and reconciled below). With the divestiture of its Barnett Shale assets in 2017, all of Rosehill's reserves are now located in the Delaware Basin. The 2017 reserve estimates do not include any reserves attributable to the net acreage purchased in the White Wolf acquisition that the Company closed in December 2017.

White Wolf Acquisition and Development Plans

On December 8, 2017, Rosehill acquired 4,565 net acres and other associated assets and interests in the Southern Delaware Basin for approximately $78 million. On December 21, 2017, the Company acquired an additional 1,940 net acres, certain mineral and royalty interests, two producing wells, and other associated assets in the Southern Delaware Basin for $39 million from the same sellers. On March 8, 2018 the 90-day period for acquiring additional acreage under the White Wolf purchase agreement expired. Rosehill did not acquire any additional acreage in the White Wolf area in 2018 and its total acreage position in this area stands at 6,505 net acres (11,150 total net acres in both of Rosehill's core areas in the Delaware Basin).

This acquisition increased the Company's total gross horizontal drilling locations to over 470, with opportunities in multiple Wolfcamp A, Wolfcamp B and Bone Spring horizons and additional upside potential from deeper Wolfcamp and shallower Bone Springs horizons. The Southern Delaware acreage has a high average working interest of 86% with all acreage held by production or by lease term through at least 2020. The high working interest and contiguous acreage position affords Rosehill a high degree of operational control and enables 7,500 to 10,000-foot laterals to be drilled on a portion of the acreage, which can significantly improve well economics.

The Company is surveying, staking and permitting the first four Southern Delaware well locations and spud the first well on April 11, 2018, with early well results expected this summer. The Company plans to obtain cores and perform extensive data gathering on the first four wells to best determine the optimal development of the new White Wolf acreage. Initial drilling at White Wolf will provide a technical framework for full-scale development and will also help anchor the new 3D seismic survey expected to be acquired in the second quarter of 2018. All four initial wells will core the Bone Spring, Wolfcamp A and down through the Wolfcamp B, which has proven to be a very prolific reservoir in the White Wolf area.

The Company has been planning and building out the infrastructure as well as negotiating and securing marketing contracts for future production in the White Wolf area. Rosehill has secured a gas market for its production and is analyzing various oil marketing options. Rosehill expects to drill 16 to 22 new wells in the White Wolf area in 2018 and complete 12 to 16 of those wells. While the majority of these wells will have lateral lengths of approximately 5,000 feet, the Company is projecting four to eight extended lateral wells greater than 7,000 feet in 2018.

Sale of Barnett Assets

On November 2, 2017, the Company announced the closing of the sale of its remaining Barnett Shale assets for approximately $7 million, subject to customary purchase price adjustments. The assets were producing approximately 675 net BOEPD, with 54% gas and 45% natural gas liquids. The sale proceeds were used for general corporate purposes. Following this sale, Rosehill became a pure play Delaware Basin company.

Commodity Hedging

As of December 31, 2017, the Company had the following outstanding derivative contracts:

    2018   2019   2020   2021   2022
Commodity derivative swaps
Oil:                  
  Notional volume (Bbls) 2,350,000     1,704,000     960,000     360,000     250,000  
  Weighted average fixed price ($/Bbl) $ 54.28     $ 52.85     $ 51.37     $ 50.69     $ 50.21  
Natural Gas:                  
  Notional volume (MMBtu) 4,040,000     2,160,000     1,500,000     1,200,000     1,000,000  
  Weighted average fixed price ($/MMbtu) $ 3.10     $ 2.89     $ 2.84     $ 2.86     $ 2.86  
                                         

After December 31, 2017 and through April 6, 2018, the Company entered into the following commodity derivative instruments: 

    2018   2019   2020   2021   2022
Commodity derivative swaps
Oil:                  
  Notional volume (Bbls) 360,000     960,000             50,000  
  Weighted average fixed price ($/Bbl) $ 62.05     $ 55.19     $     $     $ 50.89  
Natural Gas:                  
  Notional volume (MMBtu)     60,000             200,000  
  Weighted average fixed price ($/Mbtu) $     $ 2.65     $     $     $ 2.93  
                     
Commodity derivative two-way collars
Oil:                  
  Notional volume (Bbls) 210,000     420,000              
  Weighted average ceiling price ($/Bbl) $ 58.25     $ 60.03     $     $    
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