Jones Energy, Inc. Announces 2014 First Quarter Financial and Operating Results

By Business Wire,  May 07, 2014, 04:30:00 PM EDT


AUSTIN, Texas--(BUSINESS WIRE)-- Jones Energy, Inc. (NYSE:JONE) ("Jones Energy" or "the Company") today announced financial and operating results for the quarter ended March 31, 2014. For the quarter ended March 31, 2014, the Company reported net income of $9.4 million and EBITDAX of $71.7 million.

2014 First Quarter Highlights

  • Increased average daily net production to a record 21.5 MBoe/d, up 19% from the fourth quarter of 2013
  • Increased liquids as a percentage of total production to 57%, up from 52% in the fourth quarter of 2013
  • Increased EBITDAX to $71.7 million, up 38% from the fourth quarter of 2013
  • Increased Cleveland average daily net production to 15.6 MBoe/d, up 44% from the fourth quarter of 2013

Jonny Jones, the Company's Founder, Chairman and CEO, commented, "Despite modest continued impacts from winter weather at the beginning of the quarter, we were able to increase our average daily net production by 19% from the prior quarter. We believe we are in an excellent position to successfully execute our 2014 development plan. We continue to evaluate the results of our Cleveland and Woodford frack trials and plan to have an update in early August. We are moving forward with our plan to spud the first of three Tonkawa test wells this quarter and expect to provide an update on those wells during the third quarter. Finally, on April 1st, we raised $500 million through our 6.75% senior notes offering, which was upsized from the original offering amount of $300 million. This provides us with additional liquidity to execute our 2014 development plan and increases our capacity to take advantage of other opportunities that may arise in the coming months."

Financial Results

Total operating revenues for the three months ended March 31, 2014 increased by $42.7 million (77%) to $98.2 million as compared to $55.5 million for the three months ended March 31, 2013. The majority of the increase was due to higher crude oil production volumes with the remainder of the increase attributable to higher natural gas production volumes combined with higher prices for all products.

Total operating expenses for the three months ended March 31, 2014 increased by $25.0 million (67%) to $62.4 million as compared to $37.4 million for the three months ended March 31, 2013, primarily due to the increase in production volumes.

Adjusted net income for the three months ended March 31, 2014 increased by $5.5 million (40%) to $19.3 million as compared to $13.8 million for the three months ended March 31, 2013, primarily due to the increase in production volumes and higher prices for all products.

Operational Results

Cleveland

The Company spud 29 wells and completed 23 wells in the Cleveland in the first quarter of 2014. As of March 31, 2014, 18 wells were in various stages of completion, and 8 wells were drilling.

The average time from spud to total depth (TD) for a Cleveland well has been reduced by approximately 14% to 19.0 days in the first quarter of 2014 from 22.1 days in 2013. In the first quarter of 2014, the Company set a record for spud to TD of 12.6 days for one of its Cleveland wells.

Daily net production in the Cleveland was 15.6 MBoe/d in the first quarter of 2014, up 44% from the fourth quarter of 2013 and up 73% from the first quarter of 2013. The production increase was primarily driven by an acceleration in drilling activity, in addition to some deferral of production to the first quarter of 2014 due to weather and frack offset impacts in the fourth quarter of 2013, which was partially offset by impacts from severe winter weather in the first quarter of 2014.

The Company is continuing to collect data from the 20 well enhanced frack trial in the Cleveland. All 20 wells were successfully fracked and have been online for more than 60 days. 16 of the 20 wells have been online for more than 90 days with 6 of those 16 wells online for more than 120 days.

The Company has seen an increase in oil production from the frack trial wells, with 18 of the 20 performing at or above the historical type curve for oil. The Company believes the increased oil production is a result of the increased number of frack stages, which is consistent with historical results observed in the Cleveland. The Company will continue to monitor production data on the wells prior to making a decision on whether the level of production is significant enough to justify the incremental capital investment per well. The Company expects to have enough data to make a decision on which technique it will utilize going forward by early August. In the interim, the Company is completing its Cleveland wells using its historic 20 stage open-hole completion technique.

Woodford

The Company spud six wells and completed nine wells in the Woodford in the first quarter of 2014. As of March 31, 2014, four wells were in various stages of completion, and two wells were drilling.

Daily net production in the Woodford was 3.2 MBoe/d in the first quarter of 2014 compared to 4.1 MBoe/d in the first and fourth quarters of 2013. Woodford production in the first quarter of 2014 was in-line with the Company's expectations, but declined from the fourth quarter of 2013 due to frack offset impacts as well as the Company's practice of batch completion, which resulted in completed wells being brought online late in the quarter.

Capital Expenditures

During the first quarter of 2014, the Company spent $108.0 million, of which $97.2 million was related to drilling and completing wells, representing 90% of total capital expenditures in the quarter. The table below summarizes the Company's capital investment by area for 1Q14:

1Q14 Capital Expenditure Summary ($mm)
 
1Q14
Cleveland $ 83.1
Woodford 13.5
Other Areas and Non-Op   0.6
Total Drilling and Completion 97.2
 
Leasehold and Other   10.8
Total Capital Expenditures $ 108.0
 

2Q14 Guidance

The Company is providing production guidance for the second quarter of 2014:

2Q14 Production Guidance    
 
2Q14E
Total Production (MMBoe) 2.00 - 2.05
Average Daily Production (MBoe/d) 22.0 - 22.5
 

Liquidity

On April 1, 2014, the Company issued $500 million in aggregate principal amount of 6.75% senior unsecured notes due 2022 at an offering price equal to 100% of par. The Company received net proceeds of approximately $489 million, of which $160 million was used to repay all of the outstanding borrowings under its second lien term loan facility, with the remaining proceeds used to pay down borrowings under its senior secured revolving credit facility and increase working capital. After giving effect to this offering, the Company's borrowing base on its senior secured revolving credit facility automatically decreased by $25 million to $550 million. As of March 31, 2014, after giving effect to this offering and the application of the net proceeds therefrom, the Company would have had approximately $340 million of available borrowing capacity under its senior secured revolving credit facility and approximately $27 million of cash and cash equivalents, providing total liquidity of approximately $367 million.

Conference Call Details

Jones Energy will host a conference call for investors and analysts to discuss the results for the quarter on Thursday, May 8, 2014 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 (877) 201-0168 (for domestic U.S.) or (647) 788-4901 (International) and entering conference code 32991686. If you are not able to participate in the conference call, a telephonic replay will be available approximately two hours after the call on May 8, 2014 through Thursday, May 15, 2014. Participants may access this replay by dialing (855) 859-2056 (for domestic U.S.) or (404) 537-3406 (International), and entering conference code 32991686. A replay of the conference call may also be found on the Company's website.

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.

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, including guidance regarding the timing and location of our anticipated drilling activity, results of the Company's drilling program, our ability to successfully execute our 2014 development plan and the timing of our decision regarding use of the enhanced frack technique in the Cleveland, as well as production guidance for the second quarter of 2014. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current 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 of planned capital expenditures, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, customers' elections to reject ethane and include it as part of the natural gas stream for the remainder of 2014, 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.

Explanatory Note

The historical financial information contained in this report relates to periods that ended both prior to and after the completion of the initial public offering ("the Offering") of 12,500,000 shares of Class A common stock of Jones Energy, Inc. (the "Company") at a price of $15.00 per share. The Company's Class A common stock began trading on the New York Stock Exchange ("NYSE") under the symbol "JONE" on July 24, 2013, and the Offering closed on July 29, 2013. The consolidated financial statements and related discussion of financial condition and results of operations contained in this report relating to periods prior to the Offering pertain to Jones Energy Holdings LLC ("JEH"). In connection with the completion of the Offering, the Company became a holding company whose sole material asset consists of JEH LLC Units. As the sole managing member of JEH LLC, the Company is responsible for all operational, management and administrative decisions relating to JEH LLC's business and consolidates the financial results of JEH LLC and its subsidiaries.

JEH LLC acts as a holding company of operating subsidiaries that own and operate assets that are used in the exploration, development, production and acquisition of oil and natural gas properties. Prior to the Offering, the equity capital of JEH LLC consisted of several classes of limited liability company units with differing entitlements to distributions. In connection with the Offering, the Jones family, Metalmark Capital, Wells Fargo Central Pacific Holdings, Inc., and certain members of management, or, collectively, the Existing Owners, converted their existing membership interests in JEH LLC into a single class of units (the "JEH LLC Units"), and the Second Amended and Restated Limited Liability Company Agreement of JEH LLC was amended and restated to, among other things, modify JEH LLC's equity capital to consist solely of the JEH LLC Units and admit the Company as the sole managing member of JEH LLC.

Jones Energy, Inc.

Consolidated Statement of Operations

(Values in thousands, except per share data)

The following table summarizes our revenues and expenses for the periods indicated:

 
    Three Months Ended March 31,
  2014       2013  
 
Operating revenues
Oil and gas sales $ 97,867 $ 55,259
Other revenues   377     221  
Total operating revenues   98,244     55,480  
Operating costs and expenses
Lease operating 10,014 5,345
Production taxes 4,762 2,452
Exploration 2,821 126
Depletion, depreciation and amortization 39,345 25,101
Accretion of discount 170 97
General and administrative (including non-cash compensation expense)   5,260     4,312  
Total operating expenses   62,372     37,433  
Operating income   35,872     18,047  
Other income (expense)
Interest expense (8,043 ) (8,187 )
Net loss on commodity derivatives (17,250 ) (11,383 )
Gain on sales of assets   65     70  
Other income (expense), net   (25,228 )   (19,500 )
Income (loss) before income tax 10,644 (1,453 )
 
Income tax provision   1,257     (1 )
Net income (loss) 9,387 (1,452 )
Net income attributable to non-controlling interests   7,715     -  
Net income (loss) attributable to controlling interests $ 1,672   $ (1,452 )
 
 
Earnings per share:
Basic $ 0.13
Diluted $ 0.13
Weighted average shares outstanding:
Basic 12,500
Diluted 12,512
 
 

Jones Energy, Inc.

Consolidated Balance Sheet

(Values in thousands)

    March 31,   December 31,
  2014     2013  
 
Assets
Current assets
Cash $ 27,297 $ 23,820
Restricted Cash 67 45
Accounts receivable, net
Oil and gas sales 80,500 51,233
Joint interest owners 58,895 42,481
Other 4,247 16,782
Commodity derivative assets 4,168 8,837
Other current assets 2,501 2,392
Deferred tax assets   12     12  
Total current assets 177,687 145,602
Oil and gas properties, net, at cost
under the successful efforts method 1,363,393 1,297,228
Other property, plant and equipment, net 3,472 3,444
Commodity derivative assets 20,806 25,398
Other assets 14,264 15,006
Deferred tax assets   618     1,301  
Total assets $ 1,580,240   $ 1,487,979  
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 126,785 $ 89,430
Oil and gas sales payable 82,979 66,179
Accrued liabilities 17,485 10,805
Commodity derivative liabilities 11,830 10,664
Asset retirement obligations   2,794     2,590  
Total current liabilities 241,873 179,668
Long-term debt 678,000 658,000
Deferred revenue 14,287 14,531
Commodity derivative liabilities 104 190
Asset retirement obligations 8,633 8,373
Deferred tax liabilities   3,375     3,093  
Total liabilities   946,272     863,855  
Commitments and contingencies
Stockholders' equity
Class A common stock, $0.001 par value; 12,526,580 shares issued and outstanding 13 13
Class B common stock, $0.001 par value; 36,836,333 shares issued and outstanding 37 37
Additional paid-in-capital 173,626 173,169
Retained earnings (deficit)   (514 )   (2,186 )
Stockholders' equity 173,162 171,033
Non-controlling interest   460,806     453,091  
Total stockholders' equity   633,968     624,124  
Total liabilities and stockholders' equity $ 1,580,240   $ 1,487,979  
 
 

Jones Energy, Inc.

Consolidated Statement of Cash Flow Data

(Values in thousands)

    Three Months Ended March 31,
  2014       2013  
 
Cash flows from operating activities
Net income (loss) $ 9,387 $ (1,452 )
Adjustments to reconcile net income to net cash
provided by operating activities
Exploration expense 2,767 -
Depletion, depreciation, and amortization 39,345 25,101
Accretion of discount 170 97
Amortization of debt issuance costs 700 664
Stock compensation expense 457 120
Other non-cash compensation expense 127 -
Amortization of deferred revenue (244 ) -
Net loss on commodity derivatives 17,250 11,383
Gain on sales of assets (65 ) (70 )
Deferred income taxes 966 (23 )
Other - net 67 165
Changes in assets and liabilities
Accounts receivable (46,893 ) (7,846 )
Other assets 428 (2,768 )
Accounts payable and accrued liabilities   35,746     5,625  
Net cash provided by operations   60,208     30,996  
Cash flows from investing activities
Additions to oil and gas properties (85,028 ) (36,883 )
Net adjustments to purchase price of properties acquired 13,681 -
Proceeds from sales of assets 66 2
Acquisition of other property, plant and equipment (270 ) (51 )
Current period settlements of matured derivative contracts (4,663 ) 4,039
Change in restricted cash   (22 )   -  
Net cash used in investing   (76,236 )   (32,893 )
Cash flows from financing activities
Proceeds from issuance of long-term debt 20,000 -
Repayment under long-term debt - (5,000 )
Payment of debt issuance costs   (495 )   (25 )
Net cash provided by (used in) financing   19,505     (5,025 )
Net increase (decrease) in cash 3,477 (6,922 )
Cash
Beginning of period   23,820     23,726  
End of period $ 27,297   $ 16,804  
Supplemental disclosure of cash flow information
Cash paid for interest $ 6,814 $ 6,325
Change in accrued additions to oil and gas properties 22,714 6,625
Current additions to ARO 330 69
Deferred offering costs 408 1,534
 
 

Jones Energy, Inc.

Selected Financial and Operating Statistics

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

    Three Months Ended March 31,
2014   2013
Net production volumes:
Oil (MBbls) 575 312
Natural gas (MMcf) 5,009 4,266
NGLs (MBbls) 523 406
Total (MBoe) 1,933 1,429
Average net (Boe/d) 21,478 15,878
Average sales price, unhedged:
Oil (per Bbl), unhedged $ 93.78 $ 88.38
Natural gas (per Mcf), unhedged 4.27 3.00
NGLs (per Bbl), unhedged 43.13 36.69
Combined (per Boe) realized, unhedged 50.63 38.67
Average sales price, hedged:
Oil (per Bbl), hedged $ 87.57 $ 86.26
Natural gas (per Mcf), hedged 4.06 4.01
NGLs (per Bbl), hedged 38.75 36.91
Combined (per Boe) realized, hedged 47.05 41.29
Average costs (per Boe):
Lease operating $ 5.18 $ 3.74
Production taxes 2.46 1.72
Depletion, depreciation and amortization 20.35 17.57
General and administrative 2.72 3.02
 
 

Jones Energy, Inc.

Non-GAAP Financial Measures and Reconciliations

(Values in thousands)

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, net gains (losses) on commodity derivatives (excluding current period settlements of matured derivative contracts), and other items. 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 March 31,
  2014       2013  
 
Reconciliation of EBITDAX
to net income
Net income (loss) $ 9,387 $ (1,452 )
Interest expense (excluding amortization of deferred financing costs) 7,343 7,523
Exploration expense 2,821 126
Income taxes 1,257 (1 )
Amortization of deferred financing costs 700 664
Depreciation and depletion 39,345 25,101
Accretion expense 170 97
Other non-cash charges 67 165
Stock compensation expense 457 120
Other non-cash compensation expense 127 -
Net loss on commodity derivatives 17,250 11,383
Current period settlements of matured derivative contracts (6,909 ) 3,748
Amortization of deferred revenue (244 ) -
Gain on sales of assets   (65 )   (70 )
EBITDAX $ 71,706   $ 47,404  
 
 

Jones Energy, Inc.

Non-GAAP Financial Measures and Reconciliations

(Values in thousands, except per share data)

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, and non-cash compensation expense. 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 March 31,
  2014       2013  
 
Net income (loss) $ 9,387 $ (1,452 )
Net loss on commodity derivatives 17,250 11,383
Current period settlements of matured
derivative contracts (6,909 ) 3,748
Non-cash stock compensation expense 457 120
Other non-cash compensation expense 127 -
Tax impact (1)   (1,029 )   -  
Adjusted net income $ 19,283   $ 13,799  
 
Adjusted net income attributable to non-controlling interests   15,828  
Adjusted net income attributable to controlling interests $ 3,455  
 
Weighted average shares outstanding:
Basic 12,500
Diluted 12,512
Adjusted earnings per share (basic and diluted) $ 0.28  
 
Effective tax rate on net income attributable to controlling interests 36.5 %

(1) In arriving at adjusted net income, the tax impact of the adjustments to net income is determined by applying the appropriate tax rate to each adjustment and then allocating the tax impact between the controlling and non-controlling interests.

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 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 March 31,

  2014  
 
Earnings per share (basic and diluted) $ 0.13
Net loss on commodity derivatives 0.35
Current period settlements of matured
derivative contracts (0.14 )
Non-cash stock compensation expense 0.01
Other non-cash compensation expense 0.01
Tax impact   (0.08 )
Adjusted earnings per share (basic and diluted) $ 0.28  

Source: Jones Energy, Inc.



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