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Jones Energy, Inc. Announces 2018 Second Quarter Financial and Operating Results

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AUSTIN, Texas, Aug. 06, 2018 (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, 2018 as well as initial production guidance for the third quarter of 2018.

Highlights:

  • The Company has proactively initiated discussions with its unsecured noteholders. The aim of these liability management discussions is to achieve increased financial flexibility to optimize the value of Jones Energy's core Merge and Western Anadarko Basin ("WAB") assets for the benefit of all stakeholders.
  • Jones Energy remains active in its evaluation of strategic alternatives as well as its pursuit of a DrillCo with an exclusive joint development partner in order to accelerate drilling and value creation.
  • 2018 Merge wells brought online showing average peak IP30 of 183 boe/d per 1,000' of lateral in the Meramec and 120 Boe/d per 1,000' of lateral in the Woodford (3-stream).
  • Net loss for the second quarter of 2018 of $46.9 million, or a net loss of $0.47 per share, non-GAAP adjusted net loss of $28.7 million, or an adjusted net loss of $0.29 per share, and EBITDAX of $29.7 million.1

Operational and Strategic Direction Update

On July 23, 2018, the Company named Carl Giesler as Chief Executive Officer. Mr. Giesler commented, "Thank you to our Board of Directors and the entire Jones Energy team for the warm welcome and, more importantly, the renewed energy, commitment, and focus."

Mr. Giesler continued, "From an operating perspective, production remained strong through the second quarter of 2018.  The Merge program now represents 41% of total company production, as compared to 8% this time last year. Additionally, our 2018 Merge HBP-focused drilling remains on-schedule to be completed in November. As part of ongoing operational improvements, we are tightening our landing-point selection and focusing on staying in zone. We are also enhancing casing and completion designs, refining flowback methodology and lifting techniques to minimize risk and optimize well results. We believe our contiguous position of 22,500 net acres with more than 500 identified operated drilling locations in the Merge will improve in value as we and other area operators test spacing and further refine completions and other processes.

"In the WAB, we have had consistently strong results in our core Cleveland drilling since improving our completions and flowback protocols in a cost-neutral manner late last year. Additionally, we are seeing early flowback from our first Marmaton well and other recent results from the Cleveland that highlight potential upside in the WAB.  We continue to identify operated producing well-bores for lower-risk, low-capex, high-return, quick-payback work-over opportunities as well as shutting-in wells that have become uneconomic. We believe there exists significant value, which is sometimes overlooked, in our Western Anadarko asset as part of the greater Jones Energy portfolio.

"From a strategic perspective, we believe our cash position provides us a multi-year runway to drive value through executing on our core Merge and WAB assets.  To extend that runway, management and the Board of Directors are focused on various initiatives to reduce our debt and increase our financial flexibility. We have taken several key steps in recent weeks and look forward to providing you additional updates as the DrillCo and other objectives are achieved.

"No doubt, we have a lot of work to do. Fortunately, we believe the quality of our people, the strength of our asset base and the improving commodity price environment will allow us to achieve our goals."

Financial Results

Total operating revenues for the three months ended June 30, 2018 were $65.3 million as compared to $48.6 million for the three months ended June 30, 2017.  Total revenues, including current period settlements of matured derivative contracts, were $52.7 million for the three months ended June 30, 2018 as compared to $66.5 million for the three months ended June 30, 2017.  

Total operating expenses for the three months ended June 30, 2018 were $70.1 million as compared to $73.2 million for the three months ended June 30, 2017, excluding a one-time impairment charge of $148 million related to the Company's sale of its Arkoma Basin properties. Lease Operating Expenses ("LOE") for the three months ended June 30, 2018 totaled $11.6 million, or $5.10 per Boe, which is in line with the first quarter 2018 LOE which averaged $5.12 per Boe.

For the three months ended June 30, 2018, the Company reported a net loss of $46.9 million, of which a net loss of $43.5 million, or $0.47 per share, is attributable to common shareholders. This compares to a net loss of $134.0 million, of which a net loss of $84.2 million, or $1.28 per share, was attributable to common shareholders, for the three months ended June 30, 2017. Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, the Company had adjusted net loss for the second quarter 2018 of $28.7 million, or adjusted net loss attributable to common shareholders of $0.29 per share, as compared to adjusted net income of $4.7 million, or net income of $0.10 per share for the three months ended June 30, 2017.

Earnings before interest, income taxes, depreciation, amortization, and exploration expense ("EBITDAX") for the second quarter 2018 was $29.7 million. EBITDAX for the second quarter 2018 was negatively impacted by $12.5 million of hedging related losses. This compares to second quarter 2017 EBITDAX of $48.3 million.  

Preferred Dividend Update

During the second quarter, the Company's Board of Directors declared a contingent dividend on the Company's 8.0% Series A Perpetual Convertible Preferred Stock ("Preferred Stock"), payable in Class A common stock on May 15, 2018 to holders of record as of May 1, 2018. It was announced on May 15, 2018 that the Dividend Valuation Price did not meet the required Floor Price2, and the dividend was not paid. The right to receive that dividend accrued for holders of Preferred Stock. As a reminder, the Company has exercised one of its five dividend holidays available to it without penalty.  

Following the end of the 2018 second quarter, on July 17, 2018 the Company's Board of Directors declared a contingent dividend on the Preferred Stock, payable in Class A common stock on August 15, 2018 to holders of record as of August 1, 2018 under the same terms, including the requirement that the Dividend Valuation Price of the stock must meet the required Floor Price in order to be paid. If the dividend is not paid, the right to receive the dividend will again accrue for holders of Preferred Stock and the Company will have exercised its second dividend holiday.

Operating Results

For the three months ended June 30, 2018, Jones Energy produced 2,272 MBoe, or 24,967 Boe/d, of which production from the Merge accounted for 41%. The table below provides a breakout of 2018 second quarter production.

  Three months ended June 30, 2018:    
  Oil
(MBbls)
  Natural Gas
(MMcf)
  NGLs
(MBbls)
  Total
(MBoe)
  % of Total
Cleveland 339   3,048   383   1,230   54 %
Merge 291   2,309   261   937   41 %
Other   404   30   105   5 %
Total 638   5,761   674   2,272   100 %

Merge

During the second quarter, the Company spud three wells and completed seven wells in the Merge. Of the wells completed and brought online, three were landed in the Meramec and four were in the Woodford. Merge production for the second quarter 2018 of 10.3 MBoe/d represents an increase of 51% over first quarter 2018 production of 6.8 Mboe/d. The Merge now represents 41% of total Company production. 

Merge wells continue to show solid performance in the Company's designated development areas of El Reno, Minco and Tuttle across Canadian and Grady Counties, OK. The average of wells drilled in the 2018 program in these areas have seen peak IP30 (3-stream) rates of 183 Boe/d per 1,000' of lateral in the Meramec and 120 Boe/d per 1,000' of lateral in the Woodford. Jones Energy continues to improve its operational performance by focusing on optimizing landing points, geo-steering and completion designs. Specifically, teams are fully integrating 3D seismic into their landing point selection and maximizing time in the most productive target interval as defined by proprietary data from our 40 operated wells in the Merge. Further, the Company has identified that certain casing designs, completion methods, flowback techniques and lift protocols correlate to improved performance. Regarding current completion designs, the Company has increased its stage count in the Meramec and improved cluster efficiency in both plays through limited entry perforating and effective fluid diversion. Jones Energy will continue to optimize all aspects of its early development efforts.

Jones Energy continues to progress its 2018 Merge HBP program and has one rig running on its Merge acreage. As of August 6, 2018, the Company has drilled 32 of its 38 operated sections and remains on-track to complete its HBP Merge program in November.

Western Anadarko Basin

Average daily net production was 13.5 MBoe/d in the WAB for the second quarter of 2018. During the quarter, the Company spud two wells and completed one well in the Western Anadarko. Of the two wells spud, one well was a Cleveland target and one well was an exploration Marmaton target. The single well completed and brought online during the quarter was a Cleveland well. The Marmaton target was completed in July and is in early stages of flowback. This Marmaton well represents the Company's first operated well in that play, and if successful, could unlock additional upside for the WAB asset.

Jones Energy is enhancing base production on its 534 operated wells in the WAB employing industry best-practices to improve lifting efficiency. Examples include a targeted re-frac program, application of emerging artificial lift solutions, and field-wide telemetry installations. The Company believes this ongoing well-level focus serves to maximize production from existing wellbores in a known proven reservoir.

Jones Energy currently has one rig active in the WAB.

Capital Expenditures

During the second quarter 2018, the Company spent $47.1 million of capital expenditures, of which $39.2 million was related to operated drilling and completion ("D&C") capital and $5.5 million was related to D&C spending on non-operated wells. 90% of all D&C capital was related to Merge activity. The remaining $2.4 million of capital spend was related to leasing and maintenance. Year-to-date capital expenditures for the Company total $110.5 million.

Initial 2018 Third Quarter Production Guidance

Jones Energy is announcing initial production guidance of 1.8 to 2.0 MMBoe, or 19,500 to 21,700 Boe/d, for the 2018 third quarter. Full-year production and cost guidance remain suspended and subject to the Company's ongoing review of its financial and operating plans. The following table provides a breakout of initial 2018 third quarter production guidance.

   
 3Q 2018 Production Guidance 3Q18E
  Total Production (MMBoe) 1.8 – 2.0 
  Average Daily Production (MBoe/d) 19.5 – 21.7
     Crude Oil (MBbl/d) 5.6 – 6.2
     Natural Gas (MMcf/d) 48.3 – 53.7
     NGLs (MBbl/d)  5.9 – 6.5

Liquidity and Hedging

During the second quarter of 2018, the Company used $25 million of cash to pay down its revolver balance and had no outstanding borrowings as of June 30, 2018 under that facility. Jones Energy also amended the terms of its credit facility, removing all financial maintenance covenants and aligning other covenants to those contained in the Company's 9.25% senior secured first lien notes and reducing the borrowing base to twenty-five dollars. As of June 30, 2018, the Company had approximately $148 million in cash and as of August 2, 2018 had approximately $129 million of cash. The following table summarizes the Company's net commodity derivative contracts outstanding as of August 6, 2018:

    3Q18 4Q18       2019   2020  
Oil Hedges              
Swaps Sold (MBbl)      630    620        1,020    660  
Price ($/Bbl)   $ 50.94 $ 50.92     $ 50.04 $ 50.00  
               
Collars (MBbl)      -     -         810    -   
Floor ($/Bbl)      -     -      $ 48.52    -   
Ceiling ($/Bbl)     -   -     $ 59.64   -  
               
Gas Hedges              
               
Swaps Sold (MMcf)      4,800    4,800        7,260    8,400  
Price ($/Mcf)   $ 2.98 $ 2.97     $ 2.84 $ 2.79  
               
Collars (MMcf)      -     -         11,890    -   
Floor ($/Mcf)      -     -      $ 2.55    -   
Ceiling ($/Mcf)      -     -      $ 3.19    -   
               
NGL Swaps (MBbl)              
Ethane      -     -         -     -   
Propane      205    195        -     -   
Iso Butane      30    30        -     -   
Butane      80    75        -     -   
Natural Gasoline      90    90        -     -   
Total NGLs      405    390        -     -   
               
NGL Swap Prices ($/Gal)            
Ethane      -     -         -    -  
Propane   $ 0.57 $ 0.57        -    -  
Iso Butane      0.72    0.72        -    -  
Butane      0.69    0.69        -    -  
Natural Gasoline      1.05    1.05        -    -  

Jones Energy will not hold a conference call in conjunction with its second quarter 2018 earnings release and expects to file its 10-Q with the SEC on Wednesday, August 8, 2018.

About Jones Energy

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

Investor Contact:

Page Portas, 512-493-4834
Investor Relations Associate
Or
Robert Brooks, 512-328-2953
Executive Vice President & CFO

ir@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.

2As defined in the Certificate of Designations for the Preferred Stock and as adjusted in accordance with the terms of the Certificate of Designations.

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 2018, the timing and location of the development of the Merge, expectations regarding our liability management program and potential strategic transactions, including the proposed DrillCo, levels of single-well authorizations for expenditures and the cost to drill and complete wells and the resultant impact on the 2018 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 2018.  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) 2018   2017   2018   2017
Operating revenues                      
Oil and gas sales $ 64,748     $ 48,114     $ 122,886     $ 88,791  
Other revenues   507       512       (142 )     1,068  
Total operating revenues   65,255       48,626       122,744       89,859  
Operating costs and expenses                      
Lease operating   11,592       9,425       21,821       18,231  
Production and ad valorem taxes   3,284       2,790       6,035       1,884  
Transportation and processing costs   885             1,591        
Exploration   1,528       6,725       4,827       9,669  
Depletion, depreciation and amortization   44,729       45,336       86,170       80,990  
Impairment of oil and gas properties         148,016             148,016  
Accretion of ARO liability   264       266       515       467  
General and administrative   7,896       8,633       15,466       16,674  
Total operating expenses   70,178       221,191       136,425       275,931  
Operating income (loss)   (4,923 )     (172,565 )     (13,681 )     (186,072 )
Other income (expense)                      
Interest expense   (23,055 )     (12,677 )     (44,917 )     (25,564 )
Net gain (loss) on commodity derivatives   (30,145 )     21,527       (39,167 )     43,847  
Other income (expense)   5,774       27,501       13,504       28,081  
Other income (expense), net   (47,426 )     36,351       (70,580 )     46,364  
Income (loss) before income tax   (52,349 )     (136,214 )     (84,261 )     (139,708 )
Income tax provision (benefit)   (5,418 )     (2,236 )     (8,410 )     (2,215 )
Net income (loss)   (46,931 )     (133,978 )     (75,851 )     (137,493 )
Net income (loss) attributable to non-controlling interests   (5,416 )     (51,762 )     (8,975 )     (53,890 )
Net income (loss) attributable to controlling interests $ (41,515 )   $ (82,216 )   $ (66,876 )   $ (83,603 )
Dividends and accretion on preferred stock   (1,963 )     (1,966 )     (3,931 )     (3,993 )
Net income (loss) attributable to common shareholders $ (43,478 )   $ (84,182 )   $ (70,807 )   $ (87,596 )
                       
Earnings (loss) per share:                      
Basic - Net income (loss) attributable to common shareholders $ (0.47 )   $ (1.28 )   $ (0.77 )   $ (1.37 )
Diluted - Net income (loss) attributable to common shareholders $ (0.47 )   $ (1.28 )   $ (0.77 )   $ (1.37 )
                       
Weighted average Class A shares outstanding:                  
Basic   93,429       65,681       92,253       63,948  
Diluted   93,429       65,681       92,253       63,948  
                               
                               

Jones Energy, Inc.
Consolidated Balance Sheet (Unaudited)

       
  June 30,    December 31, 
(in thousands of dollars) 2018   2017
Assets      
Current assets          
Cash and cash equivalents $ 148,070     $ 19,472  
Accounts receivable, net          
Oil and gas sales   39,990       34,492  
Joint interest owners   34,789       31,651  
Other   1,167       1,236  
Commodity derivative assets   723       3,474  
Other current assets   7,070       14,376  
Total current assets   231,809       104,701  
Oil and gas properties, net, at cost under the successful efforts method   1,620,083       1,597,040  
Other property, plant and equipment, net   2,243       2,719  
Commodity derivative assets   1,371       172  
Other assets   993       5,431  
Total assets $ 1,856,499     $ 1,710,063  
Liabilities and Stockholders' Equity          
Current liabilities          
Trade accounts payable $ 43,725     $ 72,663  
Oil and gas sales payable   39,930       31,462  
Accrued liabilities   46,199       21,604  
Commodity derivative liabilities   46,686       36,709  
Other current liabilities   3,863       4,049  
Total current liabilities   180,403       166,487  
Long-term debt   978,727       759,316  
Deferred revenue   4,675       5,457  
Commodity derivative liabilities   14,949       8,788  
Asset retirement obligations   20,146       19,652  
Liability under tax receivable agreement   50,529       59,596  
Other liabilities   874       811  
Deferred tax liabilities   9,732       14,281  
Total liabilities   1,260,035       1,034,388  
Commitments and contingencies (Note 15)          
Mezzanine equity          
Series A preferred stock, $0.001 par value; 1,837,995 shares issued and outstanding at June 30, 2018 and 1,839,995 shares issued and outstanding at December 31, 2017   91,534       89,539  
Stockholders' equity          
Class A common stock, $0.001 par value; 93,799,481 shares issued and 93,776,879 shares outstanding at June 30, 2018 and 90,139,840 shares issued and 90,117,238 shares outstanding at December 31, 2017   94       90  
Class B common stock, $0.001 par value; 9,074,330 shares issued and outstanding at June 30, 2018 and 9,627,821 shares issued and outstanding at December 31, 2017   9       10  
Treasury stock, at cost: 22,602 shares at June 30, 2018 and December 31, 2017   (358 )     (358 )
Additional paid-in-capital   611,242       606,319  
Retained (deficit) / earnings   (207,081 )     (136,274 )
Stockholders' equity   403,906       469,787  
Non-controlling interest   101,024       116,349  
Total stockholders' equity   504,930       586,136  
Total liabilities and stockholders' equity $ 1,856,499     $ 1,710,063  
               
               

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,
    2018   2017   Change
Revenues (in thousands of dollars):                  
Oil and gas sales   $ 64,748     $ 48,114   $ 16,634  
Other revenues     507       512     (5 )
Current period settlements of matured derivative contracts     (12,537 )     17,921     (30,458 )
Total operating revenues   $ 52,718     $ 66,547   $ (13,829 )
                   
Net production volumes:                  
Oil (MBbls)     638       525     113  
Natural gas (MMcf)     5,761       5,836     (75 )
NGLs (MBbls)     674       668     6  
Total (MBoe)     2,272       2,166     107  
Average net (Boe/d)     24,967       23,802     1,165  
                   
Average sales price, unhedged:                  
Oil (per Bbl), unhedged   $ 65.73     $ 44.40   $ 21.33  
Natural gas (per Mcf), unhedged     1.22       2.19     (0.97 )
NGLs (per Bbl), unhedged     23.40       18.02     5.38  
Combined (per Boe), unhedged     28.50       22.21     6.29  
                   
Average sales price, hedged:                  
Oil (per Bbl), hedged   $ 49.77     $ 61.30   $ (11.53 )
Natural gas (per Mcf), hedged     1.45       4.04     (2.59 )
NGLs (per Bbl), hedged     17.93       15.36     2.57  
Combined (per Boe), hedged     22.98       30.49     (7.51 )
                   
Average costs (per BOE):                  
Lease operating   $ 5.10     $ 4.35   $ 0.75  
Production and ad valorem taxes     1.45       1.29     0.16  
Depletion, depreciation and amortization     19.69       20.93     (1.24 )
General and administrative     3.48       3.99     (0.51 )
                   
                   

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

    Six months ended June 30, 
(in thousands of dollars)   2018   2017
Cash flows from operating activities            
Net income (loss)   $ (75,851 )   $ (137,493 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities            
Depletion, depreciation, and amortization     86,170       80,990  
Exploration (dry hole and lease abandonment)     907       6,880  
Impairment of oil and gas properties           148,016  
Accretion of ARO liability     515       467  
Amortization of debt issuance costs     7,261       1,953  
Stock compensation expense     974       3,736  
Deferred and other non-cash compensation expense     84       180  
Amortization of deferred revenue     (782 )     (942 )
(Gain) loss on commodity derivatives     39,167       (43,847 )
(Gain) loss on sales of assets     (1,945 )     119  
Deferred income tax provision     (8,410 )     6  
Change in liability under tax receivable agreement     (9,081 )     (28,266 )
Other - net     376       1,307  
Changes in operating assets and liabilities            
Accounts receivable     (9,246 )     (4,188 )
Other assets     7,574       (12,407 )
Accrued interest expense     15,583       (1,301 )
Accounts payable and accrued liabilities     (6,484 )     6,268  
Net cash provided by operations     46,812       21,478  
Cash flows from investing activities            
Additions to oil and gas properties     (114,832 )     (107,250 )
Net adjustments to purchase price of properties acquired           2,391  
Proceeds from sales of assets     6,566       2,730  
Acquisition of other property, plant and equipment     (71 )     (436 )
Current period settlements of matured derivative contracts     (25,655 )     45,738  
Net cash (used in) investing     (133,992 )     (56,827 )
Cash flows from financing activities            
Proceeds from issuance of long-term debt     20,000       75,000  
Repayment of long-term debt     (231,000 )     (72,000 )
Proceeds from senior notes     438,867        
Payment of debt issuance costs     (11,537 )      
Payment of cash dividends on preferred stock     (97 )     (3,367 )
Net distributions paid to JEH unitholders           (562 )
Net payments for share based compensation     (455 )     (462 )
Proceeds from sale of common stock           8,352  
Net cash provided by / (used in) financing     215,778       6,961  
Net increase (decrease) in cash and cash equivalents     128,598       (28,388 )
Cash and cash equivalents            
Beginning of period     19,472       34,642  
End of period   $ 148,070     $ 6,254  
Supplemental disclosure of cash flow information            
Cash paid for interest, net of capitalized interest   $ 23,055     $ 24,064  
Change in accrued additions to oil and gas properties     (1,425 )     13,155  
Asset retirement obligations incurred, including changes in estimate     280       395  
                 
                 

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) 2018    2017    2018    2017 
Reconciliation of net income to EBITDAX                      
Net income (loss) $ (46,931 )   $ (133,978 )   $ (75,851 )   $ (137,493 )
Interest expense   23,055       12,677       44,917       25,564  
Exploration expense   1,528       6,725       4,827       9,669  
Income taxes   (5,418 )     (2,236 )     (8,410 )     (2,215 )
Depreciation and depletion   44,729       45,336       86,170       80,990  
Impairment of oil and natural gas properties         148,016             148,016  
Accretion of ARO liability   264       266       515       467  
Change in TRA liability   (5,599 )     (27,598 )     (9,081 )     (28,266 )
Other non-cash charges   25       1,266       376       1,307  
Stock compensation expense   (356 )     1,764       974       3,736  
Deferred and other non-cash compensation expense   7       44       84       180  
Net (gain) loss on derivative contracts   30,145       (21,527 )     39,167       (43,847 )
Current period settlements of matured derivative contracts   (12,537 )     17,921       (21,477 )     44,253  
Amortization of deferred revenue   (408 )     (484 )     (782 )     (942 )
(Gain) loss on sale of assets   1,179       55       (1,945 )     119  
Financing expenses and other loan fees   34       24       59       48  
EBITDAX $ 29,717     $ 48,271     $ 59,543     $ 101,586  
                               
                               

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)   2018   2017
Net income (loss)   $   (46,931 )   $   (133,978 )
Net (gain) loss on derivative contracts       30,145         (21,527 )
Current period settlements of matured derivative contracts       (12,537 )       17,921  
Impairment of oil and gas properties       —         148,016  
Exploration       1,528         6,725  
Non-cash stock compensation expense       (356 )       1,764  
Deferred and other non-cash compensation expense       7         44  
Financing expenses       638         —  
Tax impact of adjusting items (1)       (3,645 )       (31,247 )
Change in TRA liability       (5,599 )       (27,598 )
Change in valuation allowance       8,067         44,577  
Adjusted net income (loss)       (28,683 )       4,697  
Adjusted net income (loss) attributable to non-controlling interests       (3,659 )       (3,991 )
Adjusted net income (loss) attributable to controlling interests       (25,024 )       8,688  
Dividends and accretion on preferred stock       (1,963 )       (1,966 )
Adjusted net income (loss) attributable to common shareholders   $   (26,987 )   $   6,722  
             
Weighted average Class A shares outstanding:            
Basic       93,429         65,681  
Diluted       93,429         65,681  
             
Adjusted earnings per share (basic and diluted)   $  (0.29 )   $  0.10  
                 
                 

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, 
      2018   2017
Earnings per share (basic and diluted):   $ (0.47 ) $ (1.28 )
Net (gain) loss on derivative contracts     0.29     (0.23 )
Current period settlements of matured derivative contracts     (0.12 )   0.19  
Impairment of oil and gas properties         1.55  
Exploration     0.01     0.07  
Non-cash stock compensation expense         0.02  
Deferred and other non-cash compensation expense          
Financing expenses     0.01      
Tax impact of adjusting items (1)     (0.04 )   (0.48 )
Change in TRA liability     (0.06 )   (0.42 )
Change in valuation allowance     0.09     0.68  
Adjusted earnings per share (basic and diluted)   $ (0.29 ) $ 0.10  
           
           
Weighted average Class A shares outstanding:          
Basic     93,429     65,681  
Diluted     93,429     65,681  
Effective tax rate on net income (loss) attributable to controlling interests     21.3 %   40.3 %

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