Form 8-K EP Energy Corp For: Mar 14

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  March 14, 2019

 

 

EP ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

EP ENERGY LLC

(Exact name of registrant as specified in its charter)

 

 

 

1001 Louisiana Street

Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

 

(713) 997-1200

(Registrant’s telephone number, including area code)

 

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth company                                              o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

 

 

 

The information in this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and is not deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.

 

Item 2.02   Results of Operations and Financial Condition

 

On March 14, 2019, EP Energy Corporation (the “Company”) issued a press release announcing its financial and operating results for the fourth quarter and year ended December 31, 2018 and year-end 2018 proved reserves. The Company will hold a webcast conference call on March 15, 2019 to discuss those results.  A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and incorporated into this Item 2.02 by reference.

 

Item 7.01   Regulation FD Disclosure

 

On March 14, 2019, the Company provided its financial and operational outlook for first quarter 2019.   A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and incorporated into this Item 7.01 by reference.

 

Item 9.01  Financial Statements and Exhibits

 

(d) Exhibits.

 

Exhibit No.		Description
99.1		Press release dated March 14, 2019 announcing financial and operating results for the fourth quarter and year ended December 31, 2018, including year-end 2018 proved reserves and first quarter 2019 outlook.

 

2

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.

 

Date:   March 14, 2019

 

	EP ENERGY CORPORATION
	By:	/s/ Kyle A. McCuen
		Kyle A. McCuen
		Senior Vice President, Chief Financial Officer
		and Treasurer
	EP ENERGY LLC
	By:	/s/ Kyle A. McCuen
		Kyle A. McCuen
		Senior Vice President, Chief Financial Officer
		and Treasurer

 

3

Exhibit 99.1

 

 

News

For Immediate Release

 

EP Energy Announces Fourth Quarter and Full Year 2018 Results

 

HOUSTON, TEXAS, March 14, 2019—EP Energy Corporation (NYSE: EPE) today reported 2018 financial and operational results for the company.

 

2018 Key Results:

 

·                  Net Loss of $1,003 million including $1,103 million non-cash impairment charge

 

·                  Adjusted EBITDAX of $813 million

 

·                  80.7 thousand barrels of oil equivalent per day (MBoe/d), including 45.8 thousand barrels of oil production per day (MBbls/d)

 

·                  $984 million of oil and gas expenditures, including acquisitions and other capital of $340 million

 

·                  $644 million of adjusted oil and gas expenditures

 

·                  136 completed (based on wells fracture stimulated or frac’d) gross wells

 

·                  Capital efficiency improvements in all basins

 

·                  Drilled and completed company’s first ever horizontal wells in Northeastern Utah

 

·                  Expanded Eagle Ford net acreage footprint by approximately 30%

 

·                  Proved reserves of 325 million barrels of oil equivalent (MMBoe) which includes reducing our PUD development timeframe from five years to three years which was a negative 64 MMBoe impact

 

 

2018 Operating and Financial Performance

 

Below is a summary of fourth quarter 2018 results compared to the fourth quarter 2017 and full year 2018 results compared to 2017:

 

		4Q’17		4Q’18		4Q’18 vs. 4Q’17		2017		2018		2018 vs 2017
Oil Production (MBbls/d)		43.6		44.3		+ 2	%	46.1		45.8		- 1	%
Equivalent Production (MBoe/d)		80.6		79.5		- 1	%	82.3		80.7		- 2	%
Percent Oil (%)		54		56		+ 3	%	56		57		+ 1	%
LOE per Unit ($/Boe)		5.60		4.84		- 14	%	5.42		5.35		- 1	%
Adjusted LOE per Unit ($/Boe)(1),(2)		5.60		4.83		- 14	%	5.42		5.28		- 3	%
Lease Operating Expense ($MM)		42		35		- 15	%	163		158		- 4	%
Adjusted Lease Operating Expense ($MM)(1),(2)		42		35		- 16	%	163		156		- 4	%
G&A expense per Unit ($/Boe)(3)		1.35		2.86		+112	%	2.69		3.03		+ 13	%
Adjusted G&A expense per Unit ($/Boe)(1)		2.05		1.99		- 3	%	2.62		2.24		- 15	%
Net (Loss) ($MM)		(72	)	(919	)	- 1,176	%	(194	)	(1,003	)	- 417	%
Hedge Settlements ($MM)		7		9		-29	%	93		(25	)	- 215	%
Adjusted EBITDAX ($MM)(1)		181		195		+ 8	%	691		813		+ 18	%
Oil and Gas Expenditures ($MM)		145		107		- 26	%	587		984		+ 68	%
Adjusted Oil and Gas Expenditures (excl. Acquisitions and Other ) ($MM)(1)		145		99		- 32	%	558		644		+ 15	%

 

(1) See Disclosure of Non-GAAP Financial Measures for applicable definitions and reconciliations to GAAP terms.

 

(2) Does not include less than $1 million and approximately $2 million or $0.01 per Boe and  $0.07 per Boe for the quarter and year ended     December 31, 2018 of adjustments under a joint venture agreement.

 

(3) Includes approximately $33 million reduction from LTI forfeitures for the quarter and year ended December 31, 2017.

 

Fourth Quarter 2018

 

For the quarter ended December 31, 2018, EP Energy reported a $3.70 diluted net loss per share and $0.13 adjusted loss per share. The reported net loss for the fourth quarter of 2018 was $919 million, versus a $72 million net loss in the same 2017 period, which is primarily due to non-cash impairment charges.  Adjusted EBITDAX for the fourth quarter 2018 was $195 million, up from $181 million in the fourth quarter of 2017, due to higher oil volumes, lower cash costs and higher realized pricing on oil physical sales.

 

The company ended the year with fourth quarter operating expenses of $1,328 million, up from $217 million in the fourth quarter of 2017 due to non-cash impairment charges in 2018.  Adjusted cash operating costs were $89 million for the fourth quarter 2018, down from $101 million in the same 2017 period. Adjusted cash operating costs were $12.16 per barrel of oil equivalent (Boe) for the fourth quarter 2018, down from $13.65 per Boe in the same 2017 period mainly due to lower lease operating costs.

 

Capital expenditures in the fourth quarter 2018 were $107 million, down from $145 million in the same period 2017, primarily due to decreased drilling activity in the Permian in 2018.  Capital expenditures for

 

 

each area during the fourth quarter of 2018 were approximately $83 million in the Eagle Ford, $22 million in Northeastern Utah, and $2 million in Permian.  In the fourth quarter 2018, the company completed 27 gross wells, 22 of which were in the Eagle Ford and 5 in NEU.

 

Full Year 2018

 

For the year ended December 31, 2018, EP Energy reported a $4.05 diluted net loss per share and $0.25 adjusted loss per share. Reported net loss was $1,003 million for the year 2018, compared to a $194 million net loss in the same 2017 period, which includes approximately $1,103 million  asset impairment charges related to the Permian in 2018.  Adjusted EBITDAX for the year 2018 was $813 million, up from $691 million in 2017 due primarily to lower lease operating expenses, lower adjusted general and administrative expenses, and higher realized pricing on oil and NGL volumes in 2018.

 

Total operating expenses for the year ended December 31, 2018 were $2,039 million, up from $927 million in the same 2017 period.  The difference was driven by non-cash impairment charges of  $1,103 million related to the company’s Permian assets in 2018.  Adjusted cash operating costs were  $406 million for the year 2018, down from $427 million in the same 2017 period. Adjusted cash operating costs per unit were $13.77 per Boe for the year 2018, down from $14.23 per Boe in the same 2017 period primarily due to lower lease operating expenses, lower transportation costs, and lower adjusted general and administrative expense in 2018.

 

Adjusted oil and gas expenditures in 2018 were $644 million, up from $558 million in the same period 2017.  In 2018, the company spent $425 million in Eagle Ford (excluding $315 million of acquisition capital), $99 million in the Permian (excluding $23 million in capital adjustments under a joint venture agreement) and $120 million in Northeastern Utah (excluding $2 million in acquisition capital).  In 2018, the company completed 136 gross wells, which was approximately 13 less than EP Energy completed in

 

 

2017.  In 2018, the company completed 85 wells in the Eagle Ford, 24 wells in the Permian, and 27 wells in Northeastern Utah. In addition the company ended the year with 29 DUC’s.

 

Note: See Disclosure of Non-GAAP Financial Measures section of this release for applicable definitions and reconciliations to GAAP terms.

 

Financial Position and Liquidity

 

At December 31, 2018, EP Energy’s balance sheet included $4.4 billion of total debt and approximately $27 million of cash and cash equivalents.  As of December 31, 2018, the company had $537 million of total liquidity. The company also repurchased $84 million of unsecured notes during the year at a discount. In 2019 the company repurchased an additional $50 million of its unsecured notes at a discount as of February 28, 2019.

 

Operations Update

 

For the year ended December 31, 2018, average daily production was 80.7 MBoe/d, including 45.8 MBbls/d of oil.  Fourth quarter 2018 average daily production was 79.5 MBoe/d, including 44.3 MBbls/d of oil. During the fourth quarter of 2018, the company completed (frac’d) 27 gross wells (13 net).  The decrease in the fourth quarter of 2018 production is due to lower net completions in the second half of 2018.

 

Northeastern Utah (NEU)

 

EP Energy’s assets in Northeastern Utah averaged approximately 17.0 MBoe/d during the fourth quarter of 2018, which included 11.5 MBbls/d of oil while also completing five gross wells (2 net). The company’s focus in 2018 in NEU was horizontal well development and recompletion activity. During 2018 EP Energy successfully completed the company’s first ever horizontal wells in the basin. In the first quarter of 2019, the company expects to average one operated rig focused on horizontal drilling while bringing four gross wells (two net) to sales.

 

Eagle Ford

 

EP Energy’s assets in Eagle Ford averaged approximately 37.3 MBoe/d during the fourth quarter of 2018, which included 24.7 MBbls/d of oil while also completing 22 gross wells (11 net). During 2018 the company expanded its footprint by almost 30% in the Eagle Ford through A&D activity. The company

 

 

expects to average three operated rigs and one completion crew while bringing approximately 13 gross wells (8 net ) to sales in the first quarter of 2019.

 

Permian

 

EP Energy’s assets in the Permian basin averaged approximately 25.2 MBoe/d per day during the fourth quarter of 2018, which included 8.1 MBbls/d of oil. The company will not have any rigs or completion crews in the first quarter of 2019 in the Permian.

 

Hedge Program Update

 

In 2018, EP Energy realized negative $25 million from settlements on financial derivatives.  At year-end 2018, the mark-to-market value of the company’s hedge positions was approximately $114 million.

 

A summary of the company’s 2019 and 2020 hedge positions is listed below:

 

		2019			2020
Total Fixed Price Hedges
Oil volumes (MMBbls)		13.7			11.7
Average ceiling price ($/Bbl)		$	66.41		$	65.11
Average floor price ($/Bbl)		$	55.93		$	55.90
Natural gas volumes (TBtu)		25.6			—
Average ceiling prices ($/MMBtu)		$	3.72		$	—
Average floor prices ($/MMBtu)		$	2.86		$	—

 

Note:  Positions are as of March 13, 2019 (Contract months: January 2019 - Forward)

 

The table includes WTI three-way collars of 12.1 MMBbls and 11.7 MMBbls in 2019 and 2020, respectively, and WTI collars of 1.6 MMBbls in 2019.

 

2018 Proved Reserves

 

Ryder Scott, who was engaged in prior years to solely audit year-end reserves estimates, prepared the reserves estimates on EP Energy’s behalf in 2018. EP Energy’s proved oil and natural gas reserves were 325 MMBoe as of December 31, 2018, a 17 percent decrease compared to proved reserves at December 31, 2017 of 392 MMBoe. Our PUD reserves at December 31, 2018 reflect the effects of adjusting our PUD bookings methodology from a five-year to a three-year timeframe as a result of the current economic price environment, a lower projected capital budget in 2019, and our available liquidity and access to the capital markets. Our December 31, 2018 PUD reserves are 64 MMBoe lower as a result of this change. Proved developed reserves increased ten percent from 205 MMBoe in 2017 to 234 MMBoe in 2018.  In 2018, total proved reserves were 72 percent proved developed and 70 percent liquids.

 

 

The SEC first-day-of-the-month 12-month average prices for reserves as of December 31, 2018 were $65.56 per Bbl for oil and $3.10 per MMBtu for natural gas, up from $51.34 per Bbl for oil and $2.98 per MMBtu for natural gas in the prior 12-month period.

 

First Quarter 2019 Outlook

 

Given the uncertainty of commodity prices, EP Energy has elected to provide quarterly guidance updates. Production in first quarter 2019 is impacted by reduced net completion count over 4Q’18 and 1Q’19. First quarter 2019 capital expenditures is impacted by the build in DUC inventory.

 

The company has provided production and capital guidance for the first quarter of 2019 below:

 

		1Q’19
Oil production (MBbls/d)		38 - 39
Total production (MBoe/d)		72 - 73
Oil & Gas Expenditures ($ million)		$160 - $170
Eagle Ford		~85%
Permian		~0%
NEU		~15%
Average gross drilling rigs
Eagle Ford		3
Permian		—
NEU		1
Gross completions (based on fracture stimulated or frac’d)		~17
Ending drilled but uncompleted inventory		~45
Operating Costs
Lease operating expense ($MM)		$38 - $41
Lease operating expense ($/Boe)		$6.00 - $6.50
G&A expense ($/Boe)		$2.75 - $3.15
Adjusted G&A expense ($/Boe)(1)		$2.20 - $2.60
Transportation and commodity purchases ($/Boe)		$3.75 - $4.05
Taxes, other than income ($/Boe)(2)		$1.80 - $1.95
DD&A ($/Boe)		$14.50 - $15.50

 

(1) Adjusted G&A represents G&A expense less approximately $0.55 - $0.55 per Boe of non-cash compensation expense.

 

(2) Severance taxes are based on $55/Bbl WTI.

 

 

Webcast Information

 

EP Energy has scheduled a webcast at 10 a.m. Eastern Time, 9 a.m. Central Time, on March 15, to discuss its fourth quarter and full year financial and operational results.  The webcast may be accessed online through the company’s website at epenergy.com in the Investor Center.  Materials to be discussed during the webcast will be available in the Investor Center one hour prior to the webcast.  A limited number of telephone lines will be available to participants by dialing 888-317-6003 (conference ID# 4069531) 10 minutes prior to the start of the webcast.  A replay of the webcast will be available through April 15, 2019 on the company’s website in the Investor Center or by dialing 877-344-7529 (conference ID# 10129100).

 

About EP Energy

 

The EP Energy team is driven to deliver superior returns for our investors by developing the oil and natural gas that feeds America’s growing energy needs. The company focuses on enhancing the value of its high quality asset portfolio, increasing capital efficiency, maintaining financial flexibility, and pursuing accretive acquisitions and divestitures.  EP Energy is working to set the standard for efficient development of hydrocarbons in the U.S.  Learn more at epenergy.com.

 

 

The following table provides the company’s production results, average realized prices, results of operations and certain non-GAAP financial measures for the periods presented.  See Disclosure of Non-GAAP Financial Measures for applicable definitions and reconciliations to GAAP terms.

 

		Quarter ended December 31,				Year ended December 31,
		2018		2017		2018		2017
Oil Sales Volumes (MBbls/d)
Eagle Ford		24.7		19.4		25.0		22.4
NEU		11.5		12.2		11.7		12.3
Permian		8.1		12.0		9.1		11.4
Total Oil Sales Volumes		44.3		43.6		45.8		46.1
Natural Gas Sales Volumes (MMcf/d)
Eagle Ford		36		32		36		39
NEU		33		34		32		33
Permian		53		64		55		55
Total Natural Gas Sales Volumes		122		130		123		127
NGLs Sales Volumes (MBbls/d)
Eagle Ford		6.6		5.9		6.1		6.8
NEU		—		—		—		—
Permian		8.3		9.4		8.2		8.2
Total NGLs Sales Volumes		14.9		15.3		14.3		15.0
Equivalent Sales Volumes (MBoe/d)
Eagle Ford		37.3		30.6		37.1		35.7
NEU		17.0		17.9		17.1		17.9
Permian		25.2		32.1		26.5		28.7
Total Equivalent Sales Volumes		79.5		80.6		80.7		82.3
Net loss ($ in millions)		(919	)	(72	)	(1,003	)	(194	)
Adjusted EBITDAX ($ in millions)		195		181		813		691
Basic and diluted net loss per common share ($)		(3.70	)	(0.29	)	(4.05	)	(0.79	)
Adjusted EPS ($)		(0.13	)	(0.07	)	(0.25	)	(0.39	)
Oil and Gas Expenditures ($ in millions)(1)		107		145		984		587
Adjusted Oil and Gas Expenditures ($ in millions)		99		145		644		558
Total Operating Expenses ($/Boe)		181.47		29.16		69.25		30.86
Adjusted Cash Operating Costs ($/Boe)		12.16		13.65		13.77		14.23
Depreciation, depletion and amortization rate ($/Boe)		17.90		16.01		17.23		16.22
Average realized prices(2)
Oil price on physical sales ($/Bbl)		55.31		54.13		62.34		48.23
Oil, including financial derivatives ($/Bbl)(3)		56.71		55.70		60.37		53.50
Natural gas price on physical sales ($/Mcf)		1.76		2.14		1.66		2.32
Natural gas, including financial derivatives ($/Mcf)(3)		2.16		2.44		1.96		2.47
NGLs price on physical sales ($/Bbl)		20.29		22.72		22.88		18.87
NGLs, including financial derivatives ($Bbl)(3)		19.51		20.98		21.79		18.46

 

(1)              The quarter and year ended December 31, 2018 includes $8 million and $340 million, respectively, of acquisition capital and capital adjustments under a joint venture agreement. The year ended December 31, 2017 includes $29 million of acquisition capital.

 

(2)              Oil and natural gas prices on physical sales reflect operating revenues for oil and natural gas reduced by oil and natural gas purchases associated with managing our physical sales.

 

(3)     Prices per unit are calculated using total financial derivative cash settlements.

 

 

EP ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions)

(Unaudited)

 

		Quarter ended December 31,						Year ended December 31,
		2018			2017			2018			2017
Operating revenues
Oil		$	225		$	217		$	1,045		$	812
Natural gas		20			26			75			110
NGLs		28			32			120			103
Financial derivatives		206			(51		)	84			41
Total operating revenues		479			224			1,324			1,066
Operating expenses
Oil and natural gas purchases		—			—			3			2
Transportation costs		24			29			100			115
Lease operating expense		35			42			158			163
General and administrative		21			10			89			81
Depreciation, depletion and amortization		131			119			507			487
Gain on sale of assets		(2		)	—			(3		)	—
Impairment charges		1,103			—			1,103			2
Exploration and other expense		2			2			5			12
Taxes, other than income taxes		14			15			77			65
Total operating expenses		1,328			217			2,039			927
Operating (loss) income		(849		)	7			(715		)	139
Other income		2			—			4			—
Gain (loss) on extinguishment/modification of debt		25			—			73			(16		)
Interest expense		(97		)	(81		)	(365		)	(326		)
Loss before income taxes		(919		)	(74		)	(1,003		)	(203		)
Income tax benefit		—			2			—			9
Net loss		$	(919	)	$	(72	)	$	(1,003	)	$	(194	)

 

 

EP ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

		December 31, 2018			December 31, 2017
ASSETS
Current assets(1)		$	385		$	466
Property, plant and equipment, net(2)		3,774			4,422
Other non-current assets		22			12
Total assets		$	4,181		$	4,900
LIABILITIES AND EQUITY
Current liabilities		$	440		$	448
Long-term debt, net of debt issue costs		4,285			4,022
Other non-current liabilities		4,340			4,060
Total stockholders’ equity		(599		)	392
Total liabilities and equity		$	4,181		$	4,900

 

(1)         Balance as of December 31, 2017 includes $172 million of assets held for sale.

 

(2)         Balance is net of accumulated depreciation, depletion and amortization of $3,651 million and $3,179 million as of December 31, 2018 and December 31, 2017, respectively.

 

EP ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

		Year ended December 31,
		2018			2017
Net loss		$	(1,003	)	$	(194	)
Adjustments to reconcile net loss to net cash provided by operating activities
Non-cash expenses		1,564			505
Asset and liability changes		(139		)	64
Net cash provided by operating activities		422			375
Net cash used in investing activities		(790		)	(577		)
Net cash provided by financing activities		350			227
Change in cash, cash equivalents and restricted cash		(18		)	25
Cash, cash equivalents and restricted cash - beginning of period		45			20
Cash, cash equivalents and restricted cash - end of period		$	27		$	45

 

 

Disclosure of Non-GAAP Financial Measures

 

The Securities and Exchange Commission’s Regulation G applies to any public disclosure or release of material information that includes a non-GAAP financial measure. In the event of such a disclosure or release, Regulation G requires (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP.

 

Non-GAAP Terms

 

Adjusted EPS is defined as diluted earnings per share adjusted for certain items that EP Energy considers to be significant to understanding our underlying performance for a given period.  Adjusted EPS is useful in analyzing the company’s ongoing earnings potential and understanding certain significant items impacting the comparability of EP Energy’s results. Adjusted EPS is calculated as net income (loss) per common share adjusted for the impact of financial derivatives (mark-to-market effects of financial derivatives, net of cash settlements and cash premiums related to these derivatives), gains and losses on extinguishment/modification of debt, gains and/or losses on sale of assets, impairment charges, other costs that affect comparability, including transition, severance and other costs and changes in the valuation allowance on deferred tax assets.

 

Below is a reconciliation of consolidated diluted net income (loss) per share to Adjusted EPS:

 

		Quarter ended December 31, 2018
		Pre-Tax			After-Tax			Diluted EPS(1)
		($ in millions, except earnings per share amounts)
Net loss					$	(919	)	$	(3.70	)
Adjustments(2)
Impact of financial derivatives(3)		$	(197	)	$	(153	)	$	(0.62	)
Transition, severance and other costs		2			2			$	0.01
Gain on extinguishment/modification of debt		(25		)	(19		)	$	0.01
Gain on sale of assets		(2		)	(2		)	(0.01		)
Impairment charges		1,103			859			3.46
Valuation allowance on deferred tax assets					200			0.81
Total adjustments		$	881		$	887		$	3.57
Adjusted EPS								$	(0.13	)
Diluted weighted average shares								249

 

 

		Year ended December 31, 2018
		Pre-Tax			After-Tax			Diluted EPS(1)
		($ in millions, except earnings per share amounts)
Net loss					$	(1,003	)	$	(4.05	)
Adjustments(2)
Impact of financial derivatives(3)		$	(109	)	$	(85	)	$	(0.34	)
Transition, severance and other costs		9			7			0.03
Gain on extinguishment/modification of debt		(73		)	(57		)	(0.23		)
Gain on sale of assets		(2		)	(2		)	(0.01		)
Impairment charges		1,103			859			3.47
Valuation allowance on deferred tax assets					218			$	0.88
Total adjustments		$	928		$	940		$	3.80
Adjusted EPS								$	(0.25	)
Diluted weighted average shares								248

 

(1)         Diluted per share amounts are based on actual amounts rather than the rounded totals presented.

 

(2)         All individual adjustments for all periods presented assume a statutory federal and blended state tax rate, as well as any other income tax effects specifically attributable to that item.

 

(3)         Represents mark-to-market impact net of cash settlements and cash premiums related to financial derivatives. There were no cash premiums received or paid for the periods presented.

 

EBITDAX is defined as net income (loss) plus interest and debt expense, income taxes, depreciation, depletion and amortization and exploration expense. Adjusted EBITDAX is defined as EBITDAX, adjusted as applicable in the relevant period for the net change in the fair value of derivatives (mark-to-market effects of financial derivatives, net of cash settlements and cash premiums related to these derivatives), the non-cash portion of compensation expense (which represents non-cash compensation expense under our long-term incentive programs adjusted for cash payments made under these plans), transition, severance and other costs that affect comparability, fees paid to Sponsors, gains and losses on extinguishment/modification of debt, gains and/or losses on sale of assets and impairment charges.

 

Below is a reconciliation of our consolidated net income (loss) to EBITDAX and Adjusted EBITDAX:

 

 

		Quarter ended December 31,						Year ended December 31,
		2018			2017			2018			2017
		($ in millions, except equivalent volumes and per unit)
Net loss		$	(919	)	$	(72	)	$	(1,003	)	$	(194	)
Income tax benefit		—			(2		)	—			(9		)
Interest expense, net of capitalized interest		97			81			365			326
Depreciation, depletion and amortization		131			119			507			487
Exploration expense		1			2			4			9
EBITDAX		(690		)	128			(127		)	619
Mark-to-market on financial derivatives(1)		(206		)	51			(84		)	(41		)
Cash settlements and cash premiums on financial derivatives(2)		9			7			(25		)	93
Non-cash portion of compensation expense(3)		4			(29		)	13			(22		)
Transition, severance and other costs(4)		2			19			9			19
Fees paid to Sponsors(5)		—			5			—			5
Gain on sale of assets		(2		)	—			(3		)	—
(Gain) loss on extinguishment/modification of debt		(25		)	—			(73		)	16
Impairment charges		1,103			—			1,103			2
Adjusted EBITDAX		$	195		$	181		$	813		$	691

 

(1)         Represents the income statement impact of financial derivatives.

 

(2)         Represents actual cash settlements related to financial derivatives. There were no cash premiums received or paid for the periods presented.

 

(3)         Non-cash portion of compensation expense represents compensation expense (net of forfeitures) under long-term incentive programs adjusted for cash payments made under these plans.

 

(4)         Reflects transition and severance costs related to workforce reductions.

 

(5)         Represents fees paid in connection with the release of members of the new leadership team from a portfolio company of funds managed by Apollo Global Management LLC and payment of certain legal expenses.

 

 

Adjusted cash operating costs is a non-GAAP measure that is defined as total operating expenses, excluding depreciation, depletion and amortization expense, exploration expense, impairment charges, gains/losses on sale of assets, the non-cash portion of compensation expense (which represents compensation expense under our long-term incentive programs adjusted for cash payments made under these plans) and transition, severance and other costs that affect comparability.  We use this measure to describe the costs required to directly or indirectly operate our existing assets and produce and sell our oil and natural gas, including the costs associated with the delivery and purchases and sales of produced commodities. Accordingly, we exclude depreciation, depletion, and amortization and impairment charges as such costs are non-cash in nature. We exclude exploration expense from our measure as it is substantially non-cash in nature and is not related to the costs to operate our existing assets. Similarly, gains and losses on the sale of assets are excluded as they are unrelated to our existing assets. We exclude the non-cash portion of compensation expense as well as transition, severance and other costs that affect comparability, as we believe such adjustments allow investors to evaluate our costs against others in our industry and this item can vary across companies due to different ownership structures, compensation objectives or the occurrence of transactions.

 

Below is a reconciliation of our GAAP operating expenses to non-GAAP adjusted cash operating costs:

 

		Quarter Ended December 31,
		2018						2017
		Total ($MM)			Per Unit ($/Boe)(1)			Total ($MM)			Per Unit ($/Boe)(1)
Oil and natural gas purchases		$	—		$	—		$	—		$	—
Transportation costs		24			3.32			29			3.92
Lease operating expense		35			4.84			42			5.60
General and administrative		21			2.86			10			1.35
Depreciation, depletion and amortization		131			17.90			119			16.01
Gain on sale of assets		(2		)	(0.31		)	—			—
Impairment charges		1,103			150.70			—			—
Exploration and other expense		2			0.29			2			0.20
Taxes, other than income taxes		14			1.87			15			2.08
Total operating expenses		$	1,328		$	181.47		$	217		$	29.16
Adjustments:
Depreciation, depletion and amortization		$	(131	)	$	(17.90	)	$	(119	)	$	(16.01	)
Impairment charges		(1,103		)	(150.70		)	—			—
Exploration expense		(1		)	(0.15		)	(2		)	(0.20		)
Gain on sale of assets		2			0.31			—			—
Non-cash portion of compensation expense(2)		(4		)	(0.56		)	29			3.95
Transition, severance and other costs(2)		(2		)	(0.31		)	(19		)	(2.56		)
Fees paid to Sponsors(2)		—			—			(5		)	(0.18		)
Adjusted cash operating costs and per unit adjusted cash costs		$	89		$	12.16		$	101		$	13.65
Total consolidated equivalent volumes (MBoe)					7,318						7,412

 

 

		Year Ended December 31,
		2018						2017
		Total ($MM)			Per-Unit ($/Boe)(1)			Total ($MM)			Per-Unit ($/Boe)(1)
Oil and natural gas purchases		$	3		$	0.10		$	2		$	0.07
Transportation costs		100			3.41			115			3.83
Lease operating expense		158			5.35			163			5.42
General and administrative		89			3.03			81			2.69
Depreciation, depletion and amortization		507			17.23			487			16.22
Gain on sale of assets		(3		)	(0.13		)	—			—
Impairment charges		1,103			37.47			2			0.04
Exploration and other expense		5			0.18			12			0.40
Taxes, other than income taxes		77			2.61			65			2.19
Total operating expenses		$	2,039		$	69.25		$	927		$	30.86
Adjustments:
Depreciation, depletion and amortization		$	(507	)	$	(17.23	)	$	(487	)	$	(16.22	)
Impairment charges		(1,103		)	(37.47		)	(2		)	(0.04		)
Gain on sale of assets		3			0.13			—			—
Exploration expense		(4		)	(0.12		)	(9		)	(0.30		)
Non-cash portion of compensation expense(2)		(13		)	(0.47		)	22			0.75
Transition, restructuring and other costs(2)		(9		)	(0.32		)	(19		)	(0.64		)
Fees paid to Sponsors(2)		—			—			(5		)	(0.18		)
Adjusted cash operating costs and per-unit adjusted cash costs		$	406		$	13.77		$	427		$	14.23
Total consolidated equivalent volumes (MBoe)					29,439						30,024

 

(1)         Per unit costs are based on actual amounts rather than the rounded totals presented.

 

(2)         Amounts are excluded in the calculation of adjusted general and administrative expense.

 

Adjusted general and administrative expenses are defined as general and administrative expenses excluding the non-cash portion of compensation expense which represents compensation expense (net of forfeitures) under our long-term incentive programs adjusted for cash payments under these plans and transition, severance and other costs. Adjusted cash general and administrative expense are defined as Adjusted general and administrative expenses including capitalized labor.

 

Below is a reconciliation of our GAAP general and administrative expense to non-GAAP adjusted general and administrative expense and non-GAAP adjusted cash general and administrative expense: