OREANDA-NEWS. Alta Mesa Holdings, LP announced its financial results for the second quarter of 2016 and provided highlights of its recent operations. A conference call to discuss these results is scheduled for today at 2 p.m. Central time (888-347-8149).

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

  • Production totaled 1.8 MMBOE, or 20 MBOE per day
  • Sooner Trend STACK Q2-2016 production averaged 12,300 BOE per day
  • Production Cost per BOE is down 10% vs Q2-2015
  • Net Loss in Q2-2016 totaled $70.2 million
  • Adjusted EBITDAX in Q2-2016 totaled $64.0 million

Net Loss

Net loss in the second quarter of 2016 was $70.2 million, compared to a net loss of $39.5 million in the second quarter of 2015. The difference in net loss between the two periods is primarily due to lower revenue as a result of lower commodity prices, the change in commodity derivative contracts and higher impairment expense, partially offset by increased production, lower production costs, lower exploration expense and lower depreciation depletion and amortization expense.

Adjusted earnings before interest, income taxes, depreciation, depletion and amortization and exploration costs (“Adjusted EBITDAX”) in the second quarter of 2016 was $64.0 million, compared to $65.1 million in the second quarter of 2015.This was above the previously provided guidance for Q2-2016 of $61 to $63 million. Adjusted EBITDAX in the second quarter of 2016 includes the settlement of approximately $37 million of oil and natural gas derivative contracts prior to contract expiry. The change in Adjusted EBITDAX between the two periods was due to lower commodity prices, partially offset by increased production, lower lease operating expense and lower production taxes. Adjusted EBITDAX for the third quarter of 2016 is expected to range between $36 and $38 million. Adjusted EBITDAX is a Non-GAAP financial measure and is described in the attached table under “Non-GAAP Financial Information and Reconciliation.”

Production

Production volumes in the second quarter of 2016 totaled 1.8 MMBOE, or an average of approximately 20,200 BOE per day, compared to 1.7 MMBOE or approximately 19,000 BOE per day in the second quarter of 2015. Production in the second quarter was within the previously provided guidance for Q2-2016 of 19,000 to 21,000 BOE per day. The Company’s total production mix was 69% oil and natural gas liquids (81% oil, 19% liquids), and 31% natural gas for the second quarter 2016. Production in the second quarter of 2016 in the Company’s Sooner Trend STACK play averaged approximately 12,300 BOE per day, up approximately 45% compared to 8,500 BOE per day in the second quarter of 2015. Total Company production for the third quarter of 2016 is expected to average between 22,000 to 24,000 BOE per day.

Revenue and Hedge Activity

Revenue from the sale of oil, natural gas and natural gas liquids in the second quarter of 2016 before the effects of commodity derivative contracts totaled $53.7 million as compared to $71.5 million in the second quarter of 2015. The variance in revenues between the two periods was primarily due to lower commodity prices, offset in part by slightly higher production. The settlement of derivative contracts totaled $40.8 million and $24.7 million in the second quarter of 2016 and 2015, respectively and included crude oil hedge settlements ahead of contract expiry of $34.4 million and natural gas hedge settlements ahead of contract expiry of $2.4 million during the second quarter of 2016. Alta Mesa has an active hedging program and as of June 30, 2016, had approximately 69% 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 $49.65 per Bbl to $67.05 per Bbl for oil.

Production Cost

Production costs, which includes lease operating expense, production and ad valorem taxes and workover expenses, in the second quarter of 2016 were $18.8 million compared to $19.7 million in the second quarter of 2015. On a per unit of production basis, production cost in the second quarter 2016 was $10.23 per BOE compared to $11.41 per BOE in the second quarter of 2015. The difference in production costs between the two periods is due in part to the decline in production taxes, resulting from lower oil revenues and decreased compression expense and salt water disposal, partially offset by an increase in field services and marketing and gathering expense.

Depreciation, Depletion and Amortization Expense

Depreciation, depletion and amortization expense in the second quarter of 2016 was $22.9 million compared to $38.2 million in the second quarter of 2015. On a per unit of production basis, depreciation, depletion and amortization expense in the second quarter of 2016 was $12.50 per BOE compared to $22.16 per BOE in the second quarter of 2015.

General and Administrative Expense

General and administrative expense in the second quarter of 2016 was $12.1 million, compared to $12.0 million in the second quarter of 2015. The slight increase in general and administrative expense between the two periods is primarily due to an increase in legal fees and credit facility arrangement fees offset by a decrease in salary, benefits and performance bonuses and a decrease in accrued legal settlement expenses. On a per unit basis, general and administrative expenses were $6.58 per BOE and $6.93 per BOE in the second quarters of 2016 and 2015, respectively.

Operational Highlights

STACK Play in Sooner Trend, Oklahoma:

Alta Mesa's assets in the Sooner Trend in Oklahoma are concentrated in and around large, contiguous acreage blocks with multiple productive zones at depths generally 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. The Company has increased its acreage position in the Sooner Trend both within, and contiguous with, its legacy acreage position which is currently over 92,000 net acres.   As of June 30, 2016, the Company had four drilling rigs operating in this area with plans to potentially add one additional rig during 2016. In the second quarter of 2016, the Company completed 18 horizontal wells in the Osage formation. Six of the completed wells for the second quarter of 2016 were part of the Company’s Joint Development Agreement with BCE-Stack Development LLC (BCE).  Alta Mesa had 21 horizontal wells in progress as of the end of the second quarter of 2016, 11 of which were drilled as part of the BCE Joint Development Agreement. Six of the 21 horizontal wells in progress as of June 30, 2016 were on production subsequent to the end of the second quarter. Production during the second quarter of 2016 was approximately 12,300 BOE per day (73% oil and natural gas liquids), up 45% compared to approximately 8,500 BOE per day for the second quarter of 2015.

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. Average daily production for the second quarter of 2016 was approximately 3,900 BOE per day, of which 90% was oil. 

 

Safe Harbor Statement and Disclaimer

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, regarding Alta Mesa’s strategy, future operations, financial position, potential alternative debt transactions, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this press release, the words “could”, “should”, “will”, “play”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on Alta Mesa’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Forward-looking statements may include statements about Alta Mesa’s: business strategy; negotiations regarding and status of potential alternative debt transactions reserves quantities and the present value of its reserves; financial strategy, liquidity and capital required for its development program;  future oil and natural gas prices; timing and amount of future production of oil and natural gas; hedging strategy and results; future drilling plans; marketing of oil and natural gas; leasehold or business acquisitions; costs of developing its properties; liquidity and access to capital; uncertainty regarding its future operating results; and plans, objectives, expectations and intentions contained in this press release that are not historical. Alta Mesa cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond its control, incident to the exploration for and development and production of oil and natural gas. These risks include, but are not limited to, commodity price volatility, low prices for oil and/or natural gas, global economic conditions, inflation, increased operating cost, lack of availability of drilling and production equipment and services, environmental risks, weather risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and other risks. Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reservoir engineers. Specifically, future prices received for production and costs may vary, perhaps significantly, from the prices and costs assumed for purposes of these estimates.  Prices for oil or gas began a severe decline in the third quarter of 2014 and remain depressed as of the date of this press release. Prices are currently below the average calculated for 2015, and sustained lower prices will cause the twelve-month weighted average price to decrease over time as the lower prices are reflected in the average price, which may result in the estimated quantities and present values of Alta Mesa’s reserves being reduced. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered. Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, Alta Mesa’s actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we may issue. Except as otherwise required by applicable law, Alta Mesa disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.             

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
                       
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016    2015   2016    2015
                       
  (in thousands)
OPERATING REVENUES AND OTHER                      
Oil $    43,843     $    60,212     $    75,087     $    109,644  
Natural gas      5,796          8,181          10,487          16,422  
Natural gas liquids      4,010          3,141          6,115          5,817  
Other revenues      174          221          301          414  
Total operating revenues      53,823          71,755          91,990          132,297  
Gain on sale of assets      1,083          25          3,731          159  
Gain (loss) on derivative contracts      (38,293 )        (15,160 )        (27,478 )        11,599  
Total operating revenues and other      16,613          56,620          68,243          144,055  
OPERATING EXPENSES                      
Lease and plant operating expense      14,924          15,494          33,464          33,888  
Production and ad valorem taxes      2,731          4,264          5,126          8,537  
Workover expense      1,118          (67 )        2,515          3,255  
Exploration expense      3,428          5,833          6,714          30,341  
Depreciation, depletion, and amortization expense      22,931          38,247          44,424          78,972  
Impairment expense      11,555          4,311          13,319          77,361  
Accretion expense      536          456          1,075          1,000  
General and administrative expense      12,076          11,963          22,259          29,659  
Total operating expenses      69,299          80,501          128,896          263,013  
LOSS FROM OPERATIONS      (52,686 )        (23,881 )        (60,653 )       (118,958 )
OTHER INCOME (EXPENSE)                      
Interest expense      (17,672 )        (15,306 )        (34,067 )        (29,615 )
Interest income      227          254          433          429  
Total other income (expense)      (17,445 )        (15,052 )        (33,634 )        (29,186 )
LOSS BEFORE STATE INCOME TAXES      (70,131 )        (38,933 )        (94,287 )       (148,144 )
Provision for state income taxes      106          576          107          576  
NET LOSS $    (70,237 )   $    (39,509 )   $    (94,394 )   $   (148,720 )

 

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) 
           
  June 30,   December 31,
  2016    2015
  (in thousands)
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents $    9,447     $    8,869  
Short-term restricted cash      122,040          105  
Accounts receivable, net of allowance of $909 and $1,402, respectively      34,038          27,111  
Other receivables      4,149          18,526  
Receivables due from affiliate      2,668          1,053  
Prepaid expenses and other current assets      6,918          4,774  
Derivative financial instruments      3,802          62,631  
Total current assets      183,062          123,069  
PROPERTY AND EQUIPMENT          
Oil and natural gas properties, successful efforts method, net      556,722          525,942  
Other property and equipment, net      9,980          11,097  
Total property and equipment, net      566,702          537,039  
OTHER ASSETS          
Investment in LLC — cost      9,000          9,000  
Deferred financing costs, net      1,566          1,199  
Notes receivable due from affiliate      9,591          9,213  
Advances to operators      955          37  
Deposits and other long-term assets      2,004          1,333  
Derivative financial instruments      17,330          41,635  
Total other assets      40,446          62,417  
TOTAL ASSETS $    790,210     $    722,525  
LIABILITIES AND PARTNERS' DEFICIT          
CURRENT LIABILITIES          
Accounts payable and accrued liabilities $    91,635     $    84,002  
Asset retirement obligations     —          729  
Derivative financial instruments      8,632         —  
Total current liabilities      100,267          84,731  
LONG-TERM LIABILITIES          
Asset retirement obligations, net of current portion      58,814          60,491  
Long-term debt, net      861,498          717,775  
Notes payable to founder      26,348          25,748  
Derivative financial instruments      1,702         —  
Other long-term liabilities      13,024          10,829  
Total long-term liabilities      961,386          814,843  
TOTAL LIABILITIES       1,061,653          899,574  
Commitments and Contingencies (Note 9)          
PARTNERS' DEFICIT      (271,443 )        (177,049 )
TOTAL LIABILITIES AND PARTNERS' DEFICIT $    790,210     $    722,525  

 

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
           
  Six Months Ended
  June 30,
  2016    2015
  (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss $    (94,394 )   $    (148,720 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                  
Depreciation, depletion, and amortization expense      44,424          78,972  
Impairment expense      13,319          77,361  
Accretion expense      1,075          1,000  
Amortization of deferred financing costs      1,965          1,513  
Amortization of debt discount      255          255  
Dry hole expense      215          18,994  
Expired leases      2,435          517  
Loss (gain) on derivative contracts      27,478          (11,599 )
Settlements of derivative contracts      65,991          58,456  
Interest converted into debt      600          599  
Interest on notes receivable      (378 )        (347 )
(Gain) on sale of assets      (3,731 )        (159 )
Changes in assets and liabilities:          
Restricted cash      (121,935 )       —  
Accounts receivable      (6,927 )        6,442  
Other receivables      14,377          2,450  
Receivables due from affiliate      (1,615 )        (2,838 )
Prepaid expenses and other non-current assets      (3,951 )        (9,784 )
Settlement of asset retirement obligation      (741 )        (1,275 )
Accounts payable, accrued liabilities, and other long-term liabilities      14,619          10,598  
NET CASH (USED IN)  PROVIDED BY OPERATING ACTIVITIES      (46,919 )        82,435  
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures for property and equipment      (94,997 )        (141,806 )
Proceeds from sale of property      1,358          25,500  
Investment in restricted cash related to property divestiture      —          24,588  
NET CASH USED IN INVESTING ACTIVITIES      (93,639 )        (91,718 )
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from long-term debt      141,935          185,500  
Repayments of long-term debt      —          (160,934 )
Additions to deferred financing costs      (799 )        (4,293 )
Capital distributions     —          (3,810 )
NET CASH PROVIDED BY FINANCING ACTIVITIES      141,136          16,463  
NET INCREASE IN CASH AND CASH EQUIVALENTS      578          7,180  
CASH AND CASH EQUIVALENTS, beginning of period      8,869          1,349  
CASH AND CASH EQUIVALENTS, end of period $    9,447     $    8,529  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the period for interest $    31,071     $    26,435  
Cash paid during the period for state taxes $    422     $    750  
Change in asset retirement obligations $    577     $    110  
Change in accruals or liabilities for capital expenditures $    (4,869 )   $    (32,115 )
                   

Below is a table of average prices received by the Company, with and without the effect of derivative contract settlements.

Average Prices excluding derivative contract settlements Q2-2016
Natural Gas (per Mcf) $ 1.69  
Oil (per Bbl)   43.12  
Natural Gas Liquids (per Bbl)   16.30  
Combined (per BOE)   29.24  
 

Average Prices including derivative contract settlements

  

Q2-2016
Natural Gas (per Mcf) $ 2.64  
Oil (per Bbl)   80.03  
Natural Gas Liquids (per Bbl)   16.11  
Combined realized (per BOE)   51.45  
   

Non-GAAP Financial Information and Reconciliation

Alta Mesa presents Adjusted EBITDAX because it believes Adjusted EBITDAX is an important supplemental measure of its performance that is frequently used by others in evaluating companies in its industry. Adjusted EBITDAX is not a measurement of Alta Mesa’s financial performance under GAAP, and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measure derived in accordance with GAAP or as an alternative to net cash provided by operating activities as a measure of Alta Mesa’s profitability or liquidity. Adjusted EBITDAX is a non-GAAP financial measure and as used herein represents net income before interest expense, exploration expense, depletion, depreciation and amortization, impairment of oil and natural gas properties, accretion of asset retirement obligations, tax expense, gain/loss on sale of assets and the non-cash portion of gain/loss on oil and natural gas derivative contracts. Adjusted EBITDAX has significant limitations, including that it does not reflect Alta Mesa’s cash requirements for capital expenditures, contractual commitments, working capital or debt service. In addition, other companies may calculate Adjusted EBITDAX differently than Alta Mesa does, limiting its usefulness as a comparative measure. The following table sets forth a reconciliation of net loss as determined in accordance with GAAP to Adjusted EBITDAX for the periods indicated (unaudited, dollars in thousands):

    Three Months Ended
    June 30,
        2016         2015  
Net loss   $ (70,237 )   $ (39,509 )
Adjustments to net loss:        
 Provision for income taxes     106       576  
 Interest expense     17,672       15,306  
 Exploration expense     3,428       5,833  
 Depreciation, depletion and amortization     22,931       38,247  
 Impairment expense     11,555       4,311  
 Accretion expense     536       456  
(Gain)/Loss on sale of assets     (1,083 )     (25 )
(Gain)/Loss – oil & natural gas derivative contracts     79,056       39,903  
         
Adjusted EBITDAX   $ 63,964     $ 65,098