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Rosehill Resources Inc. Reports Third Quarter 2019 Results

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HOUSTON, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Rosehill Resources Inc. ("Rosehill" or the "Company") (NASDAQ:ROSE, ROSEW, ROSEU)) today reported financial and operational results for the quarter ended September 30, 2019.

Third Quarter 2019 Highlights and Recent Items:

  • Average net production of 20,576 barrels of oil equivalent ("BOE") per day ("BOEPD") (74% oil and 88% total liquids), with September average net production of approximately 23,000 BOEPD

  • Reported net income attributable to Rosehill of $20.9 million, or $0.88 per diluted share, for the third quarter of 2019, which included a $41.9 million non-cash, pre-tax gain on commodity derivative instruments

  • Delivered Adjusted EBITDAX (a non-GAAP measure defined and reconciled below) of $49.1 million

  • Enhanced liquidity through an increase in the borrowing base under the Company's credit facility to $340 million, up from $300 million

  • Improved capital efficiency through a 16% decrease in drilling and completion cost per lateral foot for wells drilled thus far in 2019 compared to wells drilled in 2018

  • Planned additional drilling of four to six Northern Delaware wells late in 2019 supported by continued improvement in well costs, liquidity, and hedge position. Additionally, we expect to place two Northern Delaware Wolfcamp B wells and one Southern Delaware Wolfcamp A well onto production in fourth quarter of 2019

  • Commodity hedge portfolio value increased to $62.0 million, net as of the end of the quarter

  • Updated 2019 guidance based on anticipated activity and financial results

Management Comments

David French, Rosehill's President and Chief Executive Officer, commented, "We continue to focus on operational improvements highlighted in the third quarter by a strong exit production rate and the resumption of drilling operations after a short pause catching up on our completions backlog. Activity in the Northern Delaware featured solid IP30's of nearly 1,500 BOEPD and 75% oil. In the Southern Delaware, we continue to sharpen our technical edge where our well design is getting a further refinement with optimized landing targets based on newly processed 3D seismic, new offset drilling and completion data, and a thorough outside-in frac modeling peer review. We recognize industry approaches to the area vary, and we believe value will be driven by dedicated and disciplined technical work. We look forward to highlighting results based on the geologic and reservoir characterization work underway."

"From a 2019 steering standpoint, we recognize the commodity environment has been weaker for gas and NGLs and we have reflected that in our updated EBITDAX guidance. However, we are buoyed by operational results, second half well cost savings, and a depth of portfolio that supports bringing a couple of pads of 2020 wells forward in late 2019. We elected to adjust our 2019 drilling program to keep one rig active through the end of the year, and this puts us in a position to have up to six DUCs around the New Year. We believe continuing limited drilling allows for operational continuity and expands cash flow strength as we cross into 2020. Rosehill looks forward to highlighting the overall 2020 operational picture next month as we roll out our plan."

Operational Results

For the third quarter of 2019, the Company's net production averaged 20,576 BOEPD, a 9% increase compared to the average for the second quarter of 2019, comprised of 15,152 barrels of oil per day, 2,848 barrels of natural gas liquids ("NGLs") per day and 15.5 million cubic feet of gas ("MMCF") per day. Rosehill drilled one horizontal well, completed 12 wells and had one drilled uncompleted well at the end of the third quarter of 2019.

Northern Delaware - In the Northern Delaware, the Company completed nine wells in the quarter, bringing the total completed well count for the first nine months of 2019 to 15 wells. The results for certain recently connected wells, along with additional results for wells previously reported, are presented in the table below.

  BOEPD per  
Well Formation Period BOEPD 1,000' LL Oil %
Kyle 26 B007, A001, B001 Lower Wolfcamp A IP30 (average) 1,470 306 75 %
Z&T 32 A005, B006, C006 2nd Bone Spring - Sand IP30 (average) 961 222 75 %
Z&T 20 E006 2nd Bone Spring - Sand IP180 985 224 70 %

For the fourth quarter of 2019, the Company plans to drill four to six additional wells in Northern Delaware and complete these wells early in 2020.  The Company currently plans to target the 2nd Bone Spring Sand formation for these wells based on recent positive production results in this formation and lower expected well costs.

Southern Delaware - In the Southern Delaware, the Company completed three wells in the quarter, bringing the total completed well count for the first nine months of 2019 to twelve wells.  The results for certain recently connected wells, along with additional results for wells previously reported, are presented in the table below.

  BOEPD per  
Well Formation Period BOEPD 1,000' LL Oil %
Four Wells Section 14/16 (Hilow, Milow, Silow, Grace) Wolfcamp A IP30 (average) 678 116 87 %
Silow 14 Wolfcamp A IP30 924 159 86 %
State Neal Lethco 1210 Wolfcamp A IP90 702 70 91 %

Financial Results

For the third quarter of 2019, the Company reported net income attributable to Rosehill of $20.9 million, or $0.88 per diluted share, as compared to a net loss of $31.4 million, or $4.76 per diluted share, in the third quarter of 2018. The third quarter of 2019 included a $41.9 million non-cash, pre-tax gain on commodity derivative instruments compared to a $62.3 million non-cash, pre-tax loss on commodity derivative instruments in the third quarter of 2018.

Adjusted EBITDAX totaled $49.1 million for the third quarter of 2019, as compared to $56.7 million in the third quarter of 2018. This decrease of 13% was driven primarily by lower commodity prices and increased lease operating expenses ("LOE"), which more than offset the impact of higher production.

For the third quarter of 2019, average realized prices (all prices excluding the effects of derivatives) were $52.90 per barrel of oil, $0.27 per Mcf of natural gas and $8.10 per barrel of NGLs, resulting in a total equivalent price of $40.28 per BOE, a decrease of 11% from the third quarter of 2018.

The Company's cash operating costs for the third quarter of 2019 were $12.56 per BOE, which includes LOE, gathering and transportation costs, production taxes and general and administrative expenses, and excludes costs associated with stock-based compensation. Third quarter cash operating costs per BOE increased 10% as compared to the third quarter of 2018, primarily attributable to increased LOE. Third quarter LOE was negatively impacted by workover activities as well as generator costs related to delays in establishing adequate commercial power.

Guidance Update, Capital Expenditures and Liquidity

Based on recent developments, most notably around natural gas & NGL pricing and anticipated activity levels, the Company is providing revised 2019 guidance summarized in the table below.

  2019
Original
Revised
Guidance
Production (BOEPD) 20,000 - 21,500 20,000- 21,500
Total Capital ($MM) $220 - $240 $235 - $245
Adjusted EBITDAX ($MM) $210 - $230 $190 - $210
Debt/TTM Adjusted EBITDAX 1.4x - 1.6x 1.7x - 1.9x

During the third quarter of 2019, Rosehill incurred capital costs, excluding asset retirement costs, of $57.5 million. The portion of capital costs related to facilities during the third quarter of 2019 was $5.5 million. For the first nine months of 2019, Rosehill incurred capital costs, excluding asset retirement costs, of $201.3 million. The portion of capital costs related to facilities and other during the first nine months of 2019 was $30.0 million and $1.9 million, respectively.

On September 30, 2019 the Company's lenders approved an increase to the borrowing base under the Company's revolving credit facility from $300 million to $340 million. The borrowing base was evaluated using reserve data as of July 1, 2019. As of September 30, 2019, Rosehill had $4.1 million in cash on hand and $365.2 million in long-term debt. Cash on hand and availability under our revolving credit facility was approximately $74 million at September 30, 2019.

Commodity Hedging

Included below is a summary of the Company's derivative contracts as of September 30, 2019.

    2019   2020   2021   2022
Commodity derivative swaps
                             
Oil:              
  Notional volume (Bbls) (1)(2) 666,000     1,000,000          
  Weighted average fixed price ($/Bbl) $ 53.59     $ 67.69     $     $  
Natural gas:              
  Notional volume (MMBtu) 662,389     1,970,368     1,615,792     1,276,142  
  Weighted average fixed price ($/MMbtu) $ 2.87     $ 2.75     $ 2.79     $ 2.85  
Ethane:              
  Notional volume (Gallons) 3,552,696              
  Weighted average fixed price ($/Gallons) $ 0.28     $     $     $  
Propane:              
  Notional volume (Gallons) 2,368,422              
  Weighted average fixed price ($/Gallons) $ 0.79     $     $     $  
Pentanes:              
  Notional volume (Gallons) 789,516              
  Weighted average fixed price ($/Gallons) $ 1.47     $     $     $  
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