Ascent Resources Utica Holdings Reports Third Quarter 2020 Operating And Financial Results

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Nov 11, 2020, 16:00 ET

OKLAHOMA CITY, Nov. 11, 2020 /PRNewswire/ --

Third Quarter 2020 Highlights:

Averaged net production of 2.0 bcfe per day, despite nearly 210 mmcfe per day of elective curtailments
Decreased average well cost to approximately $569 per lateral foot during the quarter, resulting in capital expenditures incurred of $122 million
Adjusted EBITDAX⁽¹⁾ of $210 million and net cash provided by operating activities of $183 million
Generated $59 million of free cash flow⁽¹⁾during the quarter
Deliberate, multi-year hedge program delivered realizations totaling $114 million, or $0.63 per mcfe
Successfully exchanged 92.7% of our 10% Senior Notes due 2022 while extending our weighted average maturity profile to approximately five years
Borrowing base reaffirmed at $1.85 billion in November 2020
Reiterating production, free cash flow and capital guidance for the year

⁽¹⁾ A non-GAAP financial measure. See the Non-GAAP reconciliations included in this press release for the definition of, and other important information regarding, this non-GAAP financial measure.

Ascent Resources Utica Holdings, LLC ("Ascent", "we" or "our") today reported its third quarter 2020 operating and financial results and reiterated full year 2020 guidance. In addition, Ascent announced a conference call with analysts and investors at 9 AM CST / 10 AM EST, Thursday, November 12, 2020. For more detailed information on Ascent, please refer to the latest investor presentation and additional information located on our website at https://www.ascentresources.com/investors.

"The third quarter of 2020 was yet another example of Ascent demonstrating our ability to deliver best-in-class operational results and basin-leading capital efficiencies while reaffirming our ability to generate sustainable positive free cash flow," said Jeff Fisher, Chairman and Chief Executive Officer of Ascent. "During the quarter, we saw our overall capital efficiency continue to improve as we produced 2.0 bcfe net per day while only incurring $122 million of capital expenditures. We also made the strategic decision to curtail approximately 210 mmcfe per day of net production during the quarter due to low commodity prices and increased volatility. Our outstanding results this quarter were accomplished while continuing to prioritize the health and safety of our employees, contractors and the communities in which we operate. We are excited to reiterate our production and free cash flow guidance while projecting total capital to come in at the low end of our guidance range."

Third Quarter 2020 Results

For the third quarter of 2020, Ascent reported a net loss of $552 million and adjusted net loss of $22 million, compared to net income of $130 million and adjusted net income of $86 million in the third quarter of 2019. Ascent's adjusted EBITDAX and capital expenditures incurred for the third quarter of 2020 were $210 million and $122 million, respectively. Free cash flow increased by $130 million, to $59 million in the third quarter of 2020 compared to the same quarter last year.

Average net daily production for the third quarter of 2020 was 1,982 mmcfe per day, and if you include the 19 bcfe of net curtailments, this represents a 5% increase relative to the third quarter of 2019. Net production during the quarter consisted of 1,785 mmcf per day of natural gas, 12,185 bbls per day of oil and 20,652 bbls per day of natural gas liquids ("NGL").

Financial Position

As of September 30, 2020, Ascent's principal amount of debt outstanding was approximately $2.8 billion, including $1.2 billion drawn under its revolving credit facility. As of September 30, 2020, Ascent had $155 million of letters of credit issued and $527 million of available capacity under its fully committed $1.85 billion borrowing base. Combined with $5 million of cash on hand, Ascent had total liquidity of $532 million exiting the third quarter. As of September 30, 2020, Ascent's leverage ratio was 2.7x.

In November 2020, Ascent's borrowing base was reaffirmed at $1.85 billion pursuant to the scheduled semi-annual borrowing base redetermination under our credit agreement.

Successful Exchange of 2022 Senior Notes Completed

Subsequent to quarter end, Ascent successfully completed the exchange of $857 million, or 92.7%, of the outstanding principal value of its Senior Notes due 2022. The 2022 Notes were exchanged for $538 million of New Term Loans due 2025 and $340 million of New Senior Notes due 2027. Additionally, as part of the exchange, our sponsors contributed $20 million of new capital in a clean-up facility in order to provide incremental liquidity to the business and underscore their continued support of Ascent. "We are extremely pleased with the positive results and participation in the exchange as we believe it validates our high-quality assets, management team and operational capabilities that we have worked hard to establish. The transaction extends our weighted average maturity profile to approximately five years and provides us with the ability to use free cash flow to deleverage the balance sheet going forward," said Brooks Shughart, Chief Financial Officer of Ascent.

Hedging Update

Ascent has significant hedges in place for the balance of 2020 and beyond to prudently reduce exposure to volatility in commodity prices as well as to protect our expected operating cash flow. As of September 30, 2020, Ascent had hedged over 1.5 bcf per day of natural gas production for the remainder of the calendar year 2020 at approximately $2.68 per mmbtu ($2.87 per mcf). In addition, Ascent has hedged 2,500 bbls per day of crude oil production at an average price above $48.00 per bbl for the remainder of calendar year 2020.

About Ascent Resources

Ascent is the eighth largest producer of natural gas in the United States in terms of daily production and is focused on acquiring, developing, producing, and operating natural gas and oil properties located in the Utica Shale in Southeast Ohio. With a continued focus on good corporate citizenship, Ascent is committed to delivering low-cost clean-burning energy to our country and the world, while reducing environmental impacts. For more information, visit www.ascentresources.com.

Contact:
Chris Benton – Director of Finance & Investor Relations
[email protected]

This news release contains forward-looking statements within the meaning of US federal securities laws. Forward-looking statements express views of Ascent regarding future plans and expectations. Forward-looking statements in this news release include, but are not limited to, statements regarding future operations, business strategy, liquidity and cash flows of Ascent. These statements are based on numerous assumptions and are subject to known and unknown risks and uncertainties, including, commodity price volatility, inherent uncertainty in estimating natural gas, oil and NGL reserves, environmental and regulatory risks, availability of capital, and the other risks described in Ascent's most recent investor presentation provided at www.ascentresources.com/investors. Actual future results may vary materially from those expressed or implied in this news release and Ascent's business, financial condition, results of operations and cash flow could be materially and adversely affected by such risks and uncertainties. As a result, forward-looking statements should be understood to be only predictions and statements of Ascent's current beliefs; they are not guarantees of performance.

ASCENT RESOURCES UTICA HOLDINGS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2020		2019		2020		2019

Revenues:
Natural gas	$	300,643	$	352,867	$	868,249	$	1,173,381
Oil	37,177		72,173		107,736		174,928
NGL	27,243		29,379		80,590		90,971
Commodity derivative (loss) gain	(386,020)		175,031		(248,066)		357,523
Total Revenues	(20,957)		629,450		808,509		1,796,803
Operating Expenses:
Lease operating expenses	19,203		18,128		57,839		52,279
Gathering, processing and transportation expenses	227,247		219,697		689,896		619,968
Production and ad valorem taxes	9,344		9,522		28,343		25,969
Exploration expenses	28,096		25,178		77,907		82,916
General and administrative expenses	15,063		14,864		50,112		45,705
Natural gas and oil depreciation, depletion and amortization	195,120		183,815		572,001		499,323
Depreciation and amortization of other assets	928		817		2,794		2,364
Total Operating Expenses	495,001		472,021		1,478,892		1,328,524
(Loss) Income from Operations	(515,958)		157,429		(670,383)		468,279
Other (Expense) Income:
Interest expense, net	(33,279)		(28,854)		(98,432)		(74,865)
Change in fair value of embedded derivative	—		1,259		—		4,404
(Losses) gains on purchases or exchanges of debt	(3,632)		—		9,671		—
Other income	437		315		1,024		2,892
Total Other Expense	(36,474)		(27,280)		(87,737)		(67,569)
Net (Loss) Income	$	(552,432)	$	130,149	$	(758,120)	$	400,710

ASCENT RESOURCES UTICA HOLDINGS, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	September 30,		December 31,
($ in thousands)	2020		2019

Current Assets:
Cash and cash equivalents	$	4,968	$	7,346
Accounts receivable – natural gas, oil and NGL sales	177,183		260,759
Accounts receivable – joint interest and other	13,096		20,425
Short-term derivative assets	2,482		248,118
Other current assets	6,508		8,468
Total Current Assets	204,237		545,116
Property and Equipment:
Natural gas and oil properties, based on successful efforts accounting	8,682,979		8,233,964
Other property and equipment	31,517		30,818
Less: accumulated depreciation, depletion and amortization	(2,465,098)		(1,890,506)
Property and Equipment, net	6,249,398		6,374,276
Other Assets:
Long-term derivative assets	258		70,778
Other long-term assets	17,482		20,248
Total Assets	$	6,471,375	$	7,010,418

Current Liabilities:
Accounts payable	$	54,524	$	68,364
Revenue payable	69,905		99,300
Accrued interest	66,548		36,787
Current portion of long-term debt, net	96,536		—
Short-term derivative liabilities	150,945		—
Other current liabilities	220,512		280,841
Total Current Liabilities	658,970		485,292
Long-Term Liabilities:
Long-term debt, net of current portion	2,672,065		2,838,676
Long-term derivative liabilities	211,073		—
Other long-term liabilities	5,203		5,067
Total Long-Term Liabilities	2,888,341		2,843,743
Member's Equity	2,924,064		3,681,383
Total Liabilities and Member's Equity	$	6,471,375	$	7,010,418

ASCENT RESOURCES UTICA HOLDINGS, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2020		2019		2020		2019

Cash Flows from Operating Activities:
Net (loss) income	$	(552,432)	$	130,149	$	(758,120)	$	400,710
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion and amortization	196,048		184,632		574,795		501,687
Change in fair value of commodity derivatives	500,175		(67,418)		677,647		(246,380)
Change in fair value of interest rate derivatives	26		—		528		—
Impairment of unproved natural gas and oil properties	26,327		24,213		75,006		79,352
Non-cash interest expense	6,088		6,983		19,394		20,770
Change in fair value of embedded derivative	—		(1,259)		—		(4,404)
Gains on purchases or exchanges of debt	—		—		(13,303)		—
Stock-based compensation	710		—		710		—
Other	37		(539)		(1,564)		508
Changes in operating assets and liabilities	6,004		52,354		79,454		166,967
Net Cash Provided by Operating Activities	182,983		329,115		654,547		919,210
Cash Flows from Investing Activities:
Drilling and completion costs	(126,353)		(292,166)		(472,233)		(889,878)
Acquisitions of natural gas and oil properties	(30,512)		(56,849)		(111,499)		(202,141)
Proceeds from divestitures of natural gas and oil properties	—		11,218		—		14,541
Additions to other property and equipment	(84)		(970)		(1,461)		(2,964)
Net Cash Used in Investing Activities	(156,949)		(338,767)		(585,193)		(1,080,442)
Cash Flows from Financing Activities:
Proceeds from credit facility borrowings	230,000		180,000		695,000		915,000
Repayment of credit facility borrowings	(260,000)		(170,000)		(715,000)		(758,000)
Repayment of long-term debt	(23)		—		(50,995)		—
Cash paid for debt issuance costs	(4)		—		(2,294)		—
Other	—		—		1,557		—
Net Cash (Used in) Provided by Financing Activities	(30,027)		10,000		(71,732)		157,000
Net (Decrease) Increase in Cash and Cash Equivalents	(3,993)		348		(2,378)		(4,232)
Cash and Cash Equivalents, Beginning of Period	8,961		6,450		7,346		11,030
Cash and Cash Equivalents, End of Period	$	4,968	$	6,798	$	4,968	$	6,798

ASCENT RESOURCES UTICA HOLDINGS, LLC
NATURAL GAS, OIL AND NGL PRODUCTION AND PRICES
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019

Net Production Volumes:
Natural gas (mmcf)	164,208			168,570			490,108			455,330
Oil (mbbls)	1,121			1,447			3,404			3,446
NGL (mbbls)	1,900			2,365			7,423			5,682
Natural Gas Equivalents (mmcfe)	182,333			191,443			555,068			510,097

Average Daily Net Production Volumes:
Natural gas (mmcf/d)	1,785			1,832			1,789			1,668
Oil (mbbls/d)	12			16			12			13
NGL (mbbls/d)	21			26			27			21
Natural Gas Equivalents (mmcfe/d)	1,982			2,081			2,026			1,869
% Natural Gas	90		%	88		%	88		%	89		%
% Liquids	10		%	12		%	12		%	11		%

Average Sales Prices:
Natural gas ($/mcf)	$	1.83		$	2.09		$	1.77		$	2.58
Oil ($/bbl)	$	33.16		$	49.87		$	31.65		$	50.76
NGL ($/bbl)	$	14.34		$	12.42		$	10.86		$	16.01

Natural Gas Equivalents ($/mcfe)	$	2.00		$	2.37		$	1.90		$	2.82
Settlements of commodity derivatives ($/mcfe)	0.63			0.56			0.77			0.22
Average sales price, after effects of settled derivatives ($/mcfe)	$	2.63		$	2.93		$	2.67		$	3.04

ASCENT RESOURCES UTICA HOLDINGS, LLC
CAPITAL EXPENDITURES INCURRED
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2020		2019		2020		2019

Capital Expenditures Incurred:
Drilling and completion costs incurred	$	91,622	$	287,777	$	412,737	$	880,473
Acquisition and leasehold costs incurred	10,559		31,664		47,166		111,148
Capitalized interest incurred	19,483		28,736		64,119		98,896
Total Capital Expenditures Incurred	$	121,664	$	348,177	$	524,022	$	1,090,517

ASCENT RESOURCES UTICA HOLDINGS, LLC
RECONCILIATIONS OF ADJUSTED NET INCOME (LOSS)
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2020		2019		2020		2019

Net (Loss) Income	$	(552,432)	$	130,149	$	(758,120)	$	400,710
Adjustments to reconcile net (loss) income to adjusted net (loss) income:
Impairment of unproved natural gas and oil properties	26,327		24,213		75,006		79,352
Change in fair value of commodity derivatives	500,175		(67,418)		677,647		(246,380)
Change in fair value of interest rate derivatives	26		—		528		—
Losses (gains) on purchases or exchanges of debt	3,632		—		(9,671)		—
Stock-based compensation	710		—		710		—
Non-recurring legal expense	—		—		5,572		—
Change in fair value of embedded derivative	—		(1,259)		—		(4,404)
Other	—		62		—		314
Adjusted Net (Loss) Income (Non-GAAP)^(a)(b)	$	(21,562)	$	85,747	$	(8,328)	$	229,592


^(a)	As shown above, and on pages 10, 11 and 12, Ascent uses adjusted net income (loss), EBITDAX, adjusted EBITDAX, discretionary cash flow and free cash flow (non-GAAP measures) as supplemental measures to evaluate the performance of its assets. Ascent believes these non-GAAP measures provide meaningful information to our investors, as discussed below. These non-GAAP measures, as used and defined by Ascent, are not measures of performance as determined by United States generally accepted accounting principles (US GAAP) and may not be comparable to similarly titled measures employed by other companies.

	Non-GAAP measures should not be considered in isolation or as substitutes for operating income, net income or loss, cash flows provided by operating, investing and financing activities or other income or cash flow statement data prepared in accordance with US GAAP. Non-GAAP measures provide no information regarding a company's capital structure, borrowings, interest costs, capital expenditures and working capital movement. Non-GAAP measures do not represent funds available for discretionary use because those funds may be required for debt service, capital expenditures, working capital, exploration expenses and other commitments and obligations. However, Ascent's management team believes these non-GAAP measures are useful to an investor in evaluating Ascent's financial performance because these measures:

	•	Are widely used by investors in the natural gas and oil industry to measure a company's operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure, and the method by which assets were acquired, among other factors;

	•	Are more comparable to estimates used by analysts;

	•	Help investors to more meaningfully evaluate and compare the results of Ascent's operations from period to period by removing the effect of its capital structure from its operating structure;

	•	Excludes one-time items, non-cash items or items whose timing cannot be reasonably estimated; and

	•	Are used by Ascent's management team for various purposes, including as a measure of operating performance, in presentations to its Board of Managers and as a basis for strategic planning and forecasting.

	There are significant limitations to using non-GAAP measures as measures of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect Ascent's net income or loss, the lack of comparability of results of operations of different companies, and the different methods of calculating non-GAAP measures reported by different companies.

^(b)	Ascent defines "adjusted net (loss) income" as net income (loss) before impairment of unproved natural gas and oil properties; changes in fair value of commodity derivatives; change in fair value of interest rate derivatives; (gains) losses on purchases or exchanges of debt; stock-based compensation; non-recurring legal expense (benefit); change in fair value of embedded derivative; acquisition expenses; impairment of other property and equipment; and other non-recurring items.

ASCENT RESOURCES UTICA HOLDINGS, LLC
RECONCILIATIONS OF EBITDAX, ADJUSTED EBITDAX AND NET DEBT
(Unaudited)

EBITDAX and Adjusted EBITDAX

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2020		2019		2020		2019

Net (Loss) Income	$	(552,432)	$	130,149	$	(758,120)	$	400,710
Adjustments to reconcile net (loss) income to EBITDAX:
Exploration expenses	28,096		25,178		77,907		82,916
Natural gas and oil depreciation, depletion and amortization	195,120		183,815		572,001		499,323
Depreciation and amortization of other assets	928		817		2,794		2,364
Interest expense, net	33,279		28,854		98,432		74,865
EBITDAX (Non-GAAP)^(a)(b)	(295,009)		368,813		(6,986)		1,060,178
Adjustments to reconcile EBITDAX to Adjusted EBITDAX:
Change in fair value of commodity derivatives	500,175		(67,418)		677,647		(246,380)
Losses (gains) on purchases or exchanges of debt	3,632		—		(9,671)		—
Stock-based compensation	710		—		710		—
Non-recurring legal expense	—		—		5,572		—
Change in fair value of embedded derivative	—		(1,259)		—		(4,404)
Other	—		62		—		314
Adjusted EBITDAX (Non-GAAP)^(b)(c)	$	209,508	$	300,198	$	667,272	$	809,708


^(a)	Ascent defines "EBITDAX" as net income (loss) before exploration expenses; depreciation, depletion and amortization; and interest expense, net.

^(b)	See footnote (a) on page 9 for a discussion around our uses of non-GAAP measures.

^(c)	Ascent defines "adjusted EBITDAX" as EBITDAX before changes in fair value of commodity derivatives; (gains) losses on purchases or exchanges of debt; stock-based compensation; non-recurring legal expense (benefit); acquisition expenses; change in fair value of embedded derivative; and other non-recurring items.

ASCENT RESOURCES UTICA HOLDINGS, LLC
RECONCILIATIONS OF EBITDAX, ADJUSTED EBITDAX AND NET DEBT (CONTINUED)
(Unaudited)

Last Twelve Months ("LTM") EBITDAX and Adjusted EBITDAX

	Three Months Ended								Twelve Months Ended
	December 31,		March 31,		June 30,		September 30,		September 30,
($ in thousands)	2019		2020		2020		2020		2020

Net Income (Loss)	$	65,255	$	85,362	$	(291,050)	$	(552,432)	$	(692,865)
Adjustments to reconcile net income (loss) to EBITDAX:
Exploration expenses	41,561		26,953		22,858		28,096		119,468
Natural gas and oil depreciation, depletion and amortization	203,091		175,550		201,331		195,120		775,092
Depreciation and amortization of other assets	875		924		942		928		3,669
Interest expense, net	34,249		33,920		31,233		33,279		132,681
EBITDAX (Non-GAAP)^(a)(b)	345,031		322,709		(34,686)		(295,009)		338,045
Adjustments to reconcile EBITDAX to Adjusted EBITDAX:
Change in fair value of commodity derivatives	(3,077)		(62,375)		239,847		500,175		674,570
(Gains) losses on purchases or exchanges of debt	—		(13,493)		190		3,632		(9,671)
Stock-based compensation	—		—		—		710		710
Non-recurring legal expense	—		—		5,572		—		5,572
Change in fair value of embedded derivative	(622)		—		—		—		(622)
Other	61		—		—		—		61
Adjusted EBITDAX (Non-GAAP)^(b)(c)	$	341,393	$	246,841	$	210,923	$	209,508	$	1,008,665


^(a)	Ascent defines "EBITDAX" as net income (loss) before exploration expenses; depreciation, depletion and amortization; and interest expense, net.

^(b)	See footnote (a) on page 9 for a discussion around our uses of non-GAAP measures.

^(c)	Ascent defines "adjusted EBITDAX" as EBITDAX before changes in fair value of commodity derivatives; (gains) losses on purchases or exchanges of debt; stock-based compensation; non-recurring legal expense (benefit); acquisition expenses; change in fair value of embedded derivative; and other non-recurring items.

Net Debt and Net Debt to LTM Adjusted EBITDAX

	September 30,
($ in thousands)	2020			2019

Net Debt:
Total debt^(a)	$	2,759,135		$	2,757,755
Less: cash and cash equivalents	4,968			6,798
Net Debt^(b)	$	2,754,167		$	2,750,957

Net Debt to LTM Adjusted EBITDAX:
Net Debt^(b)	$	2,754,167		$	2,750,957
LTM Adjusted EBITDAX^(c)	$	1,008,665		$	1,128,110
Net Debt to LTM Adjusted EBITDAX	2.7		x	2.4		x


^(a)	Total debt represents outstanding principal balances and includes the current portion of our long-term debt.

^(b)	Ascent defines "Net Debt" as total debt less cash and cash equivalents. Management uses net debt to determine our outstanding debt obligations that would not be readily satisfied by its cash and cash equivalents on hand.

^(c)	Adjusted EBITDAX for the LTM ended September 30, 2020 and September 30, 2019, respectively.

ASCENT RESOURCES UTICA HOLDINGS, LLC
RECONCILIATIONS OF DISCRETIONARY CASH FLOW AND FREE CASH FLOW
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands)	2020		2019		2020		2019

Net Cash Provided by Operating Activities	$	182,983	$	328,982	$	654,547	$	919,210
Adjustments to reconcile Net Cash Provided by Operating Activities to Discretionary Cash Flow:
Changes in operating assets and liabilities	(6,004)		(52,354)		(79,454)		(166,967)
Discretionary Cash Flow (Non-GAAP)^(a)(b)	176,979		276,628		575,093		752,243
Adjustments to reconcile Discretionary Cash Flow to Free Cash Flow:
Drilling and completion costs incurred	(91,622)		(287,777)		(412,737)		(880,473)
Acquisition and leasehold costs incurred	(10,559)		(31,664)		(47,166)		(111,148)
Capitalized interest incurred	(19,483)		(28,736)		(64,119)		(98,896)
Non-recurring legal expense	—		—		5,572		—
Other	3,632		—		3,632		—
Free Cash Flow (Non-GAAP)^(b)(c)	$	58,947	$	(71,549)	$	60,275	$	(338,274)


^(a)	Discretionary cash flow is widely accepted as a financial indicator of a natural gas and oil company's ability to generate cash which is used to internally fund exploration and development activities and service debt. Ascent defines "discretionary cash flow" as net cash provided by operating activities before changes in operating assets and liabilities.

^(b)	See footnote (a) on page 9 for a discussion around our uses of non-GAAP measures.

^(c)	Free cash flow is an indicator of a company's ability to generate funding to maintain or expand its asset base, make distributions and repurchase or extinguish debt. Ascent defines "free cash flow" as discretionary cash flow less incurred drilling and completion costs, acquisitions of natural gas and oil properties and certain non-recurring items.