OREANDA-NEWS. Alta Mesa Holdings, LP announced its financial results for the first quarter of 2016 and provided highlights of its recent operations. A conference call to discuss these results is scheduled for today at 1 p.m. Central time (888-347-8149).

Financial and operational highlights of note for the quarter include the following:

  • Adjusted EBITDAX totaled $31.1 million
  • Production totaled 1.7 MMBOE, or approximately 18,300 BOE per day
  • Production mix is 73% oil and natural gas liquids

Adjusted EBITDAX

Adjusted EBITDAX (a non-GAAP financial measure, defined below) for the first quarter of 2016 was $31.1 million, compared to $50.7 million for the first quarter of 2015. EBITDAX for the first quarter is within the previous guidance for Q1-2016 of $31 to $33 million. The change in Adjusted EBITDAX between the two periods was affected by lower realized revenue, partially offset by a decrease in general and administrative expense, workovers and severance taxes. Adjusted EBITDAX for the second quarter of 2016 is expected to range between $61 and $63 million.

Production

Production volumes for the first quarter of 2016 totaled approximately 1,670 MBOE, or an average of approximately 18,300 BOE per day, compared to 1,700 MBOE or approximately 19,000 BOE per day in the first quarter of 2015. Production for the first quarter is within the previous guidance for Q1-2016 of 17,000 to 19,000 BOE per day. Alta Mesa has maintained fairly consistent production levels compared to Q1-2015 despite having sold its Eagle Ford Shale production in Q3-2015. The divested production has primarily been offset by increased production in the Sooner Trend STACK play which, in the first quarter of 2016, grew by approximately 3,300 BOE per day, or 43%, to approximately 11,000 BOE per day. The Company’s total production mix was 73% oil and natural gas liquids (84% oil, 16% liquids) for the first quarter 2016. Production for the second quarter of 2016 is expected to average between 19,000 to 21,000 BOE per day.

Realized Revenue & Hedging

Oil, natural gas and natural gas liquids revenues for the first quarter of 2016 totaled $38.0 million compared to $60.4 million in the first quarter of 2015. The change between the two periods for revenues was due primarily to the decrease in commodity prices and in oil and natural gas production. Realized prices for oil (including settlements of derivative contracts) for the first quarter of 2016 were $53.21 per barrel, compared to $74.96 per barrel in the first quarter 2015. Realized prices for natural gas (including settlements of derivative contracts) for the first quarter 2016 were $2.44 per MCF, compared to $3.99 per MCF in first quarter 2015. Alta Mesa has an active hedging program and as of March 31, 2016, had approximately 72% of its forecasted PDP production hedged through 2019 at average annual floor prices ranging from $2.88 per MMBtu to $4.50 per MMBtu for natural gas and $61.05 per Bbl to $67.05 per Bbl for oil.

Total Lease Operating Expense

Total lease operating expense, inclusive of production and ad valorem taxes and workover expenses, for the first quarter of 2016 was $22.3 million compared to $26.0 million for the first quarter of 2015. On per unit of production basis, lease operating expense for the first quarter 2016 was $13.40 per BOE compared to $15.21 per BOE for the first quarter of 2015. The difference in total lease operating expenses between the two periods is due in part to the decline in production taxes due to the decline in oil revenues and in workover expense.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization expense for the first quarter of 2016 was $21.5 million compared to $40.7 million for the first quarter of 2015. On a per unit of production basis, depreciation, depletion and amortization expense for the first quarter 2016 was $12.89 per BOE compared to $23.84 per BOE for the first quarter of 2015.

General and Administrative Expenses

General and administrative expense for the first quarter of 2016 was $10.2 million, down $7.5 million compared to $17.7 million for the first quarter of 2015. The difference in general and administrative expense between the two periods is primarily due to a decrease in salary, benefits and performance bonus and a decrease in accrued settlement expense, partially offset by an increase in legal fees. On a per unit basis, the expense decreased to $6.11 per BOE in the first quarter 2016 from $10.36 per BOE in the first quarter 2015.

Net Loss

Net loss for the first quarter of 2016 was ($24.2) million, compared to a net loss of ($109.2) million for the first quarter of 2015. The difference in net loss between the two periods was primarily due to lower impairment expense, depreciation depletion and amortization expense, and general and administrative expense, partially offset by lower realized revenue.

Borrowing Base Redetermination

Pending approval by all the lenders in the bank group, the Company anticipates that the borrowing base for its Credit Facility will be reaffirmed at its current level of $300 million. Alta Mesa is in compliance with all of the financial covenants associated with this Credit Facility and its Senior Secured Term Loan. The next scheduled redetermination of the borrowing base is November 1, 2016. The credit facility is provided by a syndicate of ten banks agented by Wells Fargo Bank, N.A. and co-agented by Union Bank, N.A.

Liability Management

Alta Mesa continues to evaluate its liability management options and may in the future engage in negotiations with holders of its senior notes or other debt holders regarding potential alternative transactions, along with possible avenues for increasing its near-term liquidity. There can be no assurance that any such negotiations will be successful or that Alta Mesa will enter into any alternative transaction. 

Operational Highlights

STACK Play in Sooner Trend, Oklahoma:

Alta Mesa's assets in the Sooner Trend in Oklahoma are concentrated in large, contiguous acreage blocks with multiple productive zones at depths generally from between 4,000 feet and 8,000 feet. Activity in these fields is focused on the continued implementation of a multi-year, multi-rig program to develop several pay zones with horizontal drilling and multi-stage hydraulic fracturing of the Mississippian age Osage, Meramec and Manning zones; the Pennsylvanian Oswego; and the definition of similar exploitation opportunities in the Woodford Shale, Hunton Lime, and other formations. In the first quarter of 2016, the Company completed four horizontal wells in the Osage zone. The Company had 16 horizontal wells in progress as of the end of the first quarter of 2016, eight of which were completed subsequent to the end of the quarter. Six of the wells in progress for the first quarter of 2016 were part of the Company’s Joint Development Agreement with Bayou City Energy Management. Currently, the Company is operating three drilling rigs in Sooner Trend for horizontal development with potential to bring on one or two additional drillings rigs in 2016.  Capital expenditures for this area in the first quarter of 2016 were $31.5 million out of $38.3 million.  Average daily production for this core area in the first quarter of 2016 was approximately 11,000 BOE per day (77% oil and natural gas liquids). Production in the Sooner Trend was up 43% and 15% as compared to the first and fourth quarters of 2015, respectively. During the first quarter of 2016, production from several wells was either curtailed or shut-in while awaiting connection to midstream infrastructure which is currently under construction or commissioning. The midstream facility is expected to commence operations in late May 2016.  The Company estimates the impact of these limitations during the first quarter was 15% to 20% of the Company's total production. 

Weeks Island Area, Louisiana:

Alta Mesa’s assets in this area are comprised of the Weeks Island field, located in Iberia Parish and the Cote Blanche Island field in St. Mary Parish. Each of these is a historically-prolific oil field with multiple stacked pay zones that are structurally and stratigraphically trapped around a piercement salt dome, which the Company believes offer significant future opportunities for added production and reserves. During 2016 Alta Mesa will be focusing on maintaining production in this area through more efficient lifting operations and workovers.  Average daily production for the first quarter of 2016 was approximately 4,100 BOE per day, of which 93% was oil. Production from the Weeks Island Area has remained above 4,000 BOE per day since November 2013. 

           ALTA MESA HOLDINGS, LP AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(unaudited)

           
  Three Months Ended
  March 31,
  2016    2015
  (in thousands)
OPERATING REVENUES AND OTHER          
Oil $    31,244     $    49,432  
Natural gas      4,691          8,241  
Natural gas liquids      2,105          2,676  
Other revenues      127          193  
Total operating revenues      38,167          60,542  
Gain on sale of assets      2,648          134  
Gain — derivative contracts      10,815          26,759  
Total operating revenues and other      51,630          87,435  
OPERATING EXPENSES          
Lease and plant operating expense      18,540          18,394  
Production and ad valorem taxes      2,395          4,273  
Workover expense      1,397          3,322  
Exploration expense      3,286          24,508  
Depreciation, depletion, and amortization expense      21,493          40,725  
Impairment expense      1,764          73,050  
Accretion expense      539          544  
General and administrative expense      10,183          17,696  
Total operating expenses      59,597          182,512  
LOSS FROM OPERATIONS      (7,967 )        (95,077 )
OTHER INCOME (EXPENSE)          
Interest expense      (16,395 )        (14,309 )
Interest income      206          175  
Total other income (expense)      (16,189 )        (14,134 )
LOSS BEFORE STATE INCOME TAXES      (24,156 )        (109,211 )
Provision for state income taxes      1        — 
NET LOSS $    (24,157 )   $    (109,211 )

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
(unaudited)

           
  March 31,   December 31,
  2016    2015
  (in thousands)
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents $    3,785     $    8,869  
Short-term restricted cash      142,040          105  
Accounts receivable, net of allowance of $788 and $1,402, respectively      24,221          27,111  
Other receivables      10,078          18,526  
Receivables due from affiliate      2,517          1,053  
Prepaid expenses and other current assets      4,168          4,774  
Derivative financial instruments      50,947          62,631  
Total current assets      237,756          123,069  
PROPERTY AND EQUIPMENT          
Oil and natural gas properties, successful efforts method, net      543,275          525,942  
Other property and equipment, net      10,450          11,097  
Total property and equipment, net      553,725          537,039  
OTHER ASSETS          
Investment in LLC — cost      9,000          9,000  
Deferred financing costs, net      1,831          1,199  
Notes receivable due from affiliate      9,401          9,213  
Advances to operators    —          37  
Deposits and other assets      1,131          1,333  
Derivative financial instruments      38,906          41,635  
Total other assets      60,269          62,417  
TOTAL ASSETS $    851,750     $    722,525  
LIABILITIES AND PARTNERS' DEFICIT          
CURRENT LIABILITIES          
Accounts payable and accrued liabilities $    94,874     $    84,002  
Asset retirement obligations      794          729  
Total current liabilities      95,668          84,731  
LONG-TERM LIABILITIES          
Asset retirement obligations, net of current portion      57,963          60,491  
Long-term debt, net      860,604          717,775  
Notes payable to founder      26,046          25,748  
Other long-term liabilities      12,675          10,829  
Total long-term liabilities      957,288          814,843  
TOTAL LIABILITIES       1,052,956          899,574  
Commitments and Contingencies          
PARTNERS' DEFICIT      (201,206 )        (177,049 )
TOTAL LIABILITIES AND PARTNERS' DEFICIT $    851,750     $    722,525  

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES 
CONSOLIDATED STATEMENT OF CASH FLOWS 
 (unaudited)

           
  Three Months Ended
  March 31,
  2016    2015
  (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss $    (24,157 )   $    (109,211 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      
Depreciation, depletion, and amortization expense      21,493          40,725  
Impairment expense      1,764          73,050  
Accretion expense      539          544  
Amortization of deferred financing costs        934          721  
Amortization of debt discount      127          127  
Dry hole expense      212          18,382  
Expired leases      1,166          324  
(Gain) — derivative contracts      (10,815 )        (26,759 )
Settlements of derivative contracts      25,228          33,712  
Interest converted into debt      298          298  
Interest on notes receivable      (188 )        (172 )
(Gain) on sale of assets      (2,648 )        (134 )
Changes in assets and liabilities:          
Restricted cash      (141,935 )      —  
Accounts receivable      2,890          8,777  
Other receivables      8,448          (1,791 )
Receivable due from affiliate      (1,464 )        (2,339 )
Prepaid expenses and other non-current assets      845          (1,442 )
Settlement of asset retirement obligation      (191 )        (491 )
Accounts payable, accrued liabilities, and other long-term liabilities      15,669          24,106  
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES      (101,785 )        58,427  
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures for property and equipment      (44,435 )        (95,586 )
Proceeds from sale of property    —         25,500  
Investment in restricted cash related to property divestiture    —         24,588  
NET CASH USED IN INVESTING ACTIVITIES      (44,435 )        (45,498 )
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from long-term debt      141,935          21,000  
Repayments of long-term debt    —         (30,000 )
Additions to deferred financing costs      (799 )      —  
Capital distributions    —         (540 )
NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES      141,136          (9,540 )
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS      (5,084 )        3,389  
CASH AND CASH EQUIVALENTS, beginning of period      8,869          1,349  
CASH AND CASH EQUIVALENTS, end of period $    3,785     $    4,738  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the period for interest $    3,960     $    1,993  
Cash paid during the period for state taxes $    1     $  —  
Change in asset retirement obligations $    322     $    363  
Change in accruals or liabilities for capital expenditures $    (3,340 )   $    (28,474 )


Prices

Below is a table of average hedged and unhedged prices received by the Company.

Average Prices including settlements of derivative contracts   Q1-2016
Natural Gas (per Mcf) $ 2.44  
Oil (per Bbl)   53.21  
Natural Gas Liquids (per Bbl)   11.26  
Combined realized (per BOE)   37.94  
   
Average Prices excluding settlements of derivative contracts   Q1-2016
Natural Gas (per Mcf) $ 1.73  
Oil (per Bbl)   30.51  
Natural Gas Liquids (per Bbl)   10.99  
Combined (per BOE)   22.81