Jones Energy, Inc. Announces 2017 Third Quarter Financial and Operating Results, and Updated 2017 Guidance

AUSTIN, Nov. 07, 2017 - Jones Energy, Inc. (NYSE:JONE) (“Jones Energy” or “the Company”) today announced financial and operating results for the third quarter ended September 30, 2017 and updated guidance for 2017, including initial fourth quarter 2017 guidance.


Highlights:

- Strong initial rates seen from six recently completed wells in the Merge, with rates still increasing.

- First pair of long lateral Merge wells drilled at Company-record pace, currently undergoing completions.

- Suspended drilling activity in Western Anadarko, released last remaining rig in October.

- Average daily net production for third quarter 2017 of 21.4 Mboe/d.

- Working with lenders to increase financial flexibility to enable increased Merge activity in 2018.

- Net loss for the third quarter of 2017 of $83.0 million, non-GAAP adjusted net loss of $10.9 million, or a loss of $0.13 per share, and EBITDAX of $47.1 million.1

Jonny Jones, the Company’s Founder, Chairman, and CEO, commented, “During the third quarter our Merge activity continued to ramp with our second rig deploying in July. In the Merge today, we have 13 wells online and the asset is beginning to make significant contributions to production, achieving an average of 3,576 Boe/d for the quarter. Our prolific Bomhoff wells continue to show strong performance and we are encouraged by early results from the offsetting Rosewood pad, which is still inclining. I look forward to providing you with updated peak results as they are achieved.”


Financial Results

Total operating revenues for the three months ended September 30, 2017 were $44.2 million as compared to $33.4 million for the three months ended September 30, 2016. Total revenues including current period settlements of matured derivative contracts were $66.1 million for the three months ended September 30, 2017 as compared to $60.9 million for the three months ended September 30, 2016.

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1 Adjusted net income, adjusted net income per share and EBITDAX are supplemental non-GAAP financial measures that are used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. For additional information, including reconciliations to the most comparable GAAP financial measures, please see “Non-GAAP Financial Measures and Reconciliations” below.


Total operating expenses for the three months ended September 30, 2017 were $68.6 million as compared to $53.9 million for the three months ended September 30, 2016. LOE continues to track the low end of full year 2017 guidance, at $9.5 million, or $4.80 per Boe for the three months ended September 30, 2017.

For the three months ended September 30, 2017, the Company reported a net loss of $83.0 million, of which a net loss of $66.8 million, or $0.91 per share, is attributable to common shareholders. This compares to a net loss of $22.4 million, of which a net loss of $10.6 million, or $0.24 per share, was attributable to common shareholders for the three months ended September 30, 2016. Excluding hedge losses and certain other items that the Company does not view as indicative of its ongoing financial performance, the Company had adjusted net loss for the third quarter 2017 of $10.9 million, or adjusted net loss of $0.13 per share attributable to common shareholders, as compared to adjusted net loss of $1.0 million, or a loss of $0.02 per share attributable to common shareholders for the three months ended September 30, 2016.

Earnings before interest, income taxes, depreciation, amortization, and exploration expense (“EBITDAX”) for the third quarter of 2017 was $47.1 million. This compares to third quarter 2016 EBITDAX of $46.8 million.


Operating Results

During the third quarter of 2017 Jones Energy produced 1,970 MBoe, or 21,413 Boe/d, which was slightly above the high end of guidance, supported by natural gas outperformance. Merge production continued to increase rapidly, representing approximately 17% of total Company production for the third quarter of 2017 as compared to approximately 9% of total Company production for the second quarter of 2017, in each case excluding volumes related to the Arkoma divestiture. Total Merge volumes nearly doubled in the third quarter over second quarter, from 170 MBoe produced in the second quarter to 329 MBoe produced in the third quarter.

Production from the Arkoma properties was included for the first month of the third quarter, until the closing of the asset sale on August 1, 2017. A breakout of third quarter production is shown in the table below.

Three months ended September 30, 2017:

             Oil (MBbls)   Natural Gas (MMcf)   NGLs (MBbls)   Total (MBoe)
Cleveland        367           3,369                431          1,360
Merge            105             772                 95            329
Arkoma*           (2)            (22)                24             18
Other             11           1,052                 77            263
Total            481           5,171                627          1,970

* Arkoma asset sale closed August 1, 2017


Eastern Anadarko (Merge)

During the third quarter, the Company spud 11 wells and completed three wells in the Merge. Following the end of the quarter, completion operations which began during the quarter on the Hardesty and Rosewood pads, were completed and the wells placed on production in mid-October. As of today, Jones Energy has spud a total of 21 wells, drilled 18 wells to TD, and placed 13 wells on production in the Merge. Third quarter Merge production averaged 3,576 Boe/d, of which 60.8% was liquids.

Jones Energy is currently running two rigs in the Merge and plans to add a third rig entering 2018. Jones Energy recently drilled its first pair of long lateral wells (approximately 10,000 ft) from the Stejskal pad, which included one Meramec and one Woodford target. The Stejskal-1HX was drilled at a Company-best rate of 14.4 days spud to TD, and is currently undergoing completions.

The Company continues to see strong production from its initial Meramec wells, with the Bomhoff 2H achieving a peak IP90 rate of 1,218 Boe/d consisting of 463 Bbls/d of oil and 4,534 Mcf/d of natural gas. Peak IP90 oil rates for the Bomhoff 2H are 34% above type curve expectations. The Bomhoff 2H had previously achieved a peak IP30 rate of 1,345 Boe/d, consisting of 548 Bbls/d of oil and 4,777 Mcf/d of natural gas. The Company’s second Meramec well, the Garrett 1H achieved a peak IP90 rate of 850 Boe/d, consisting of 496 Bbls/d of oil and 2,122 Mcf/d of natural gas. Peak IP90 oil rates for the Garrett 1H are 25% above type curve expectations. The recently completed batch of six wells, which include four Meramec and two Woodford wells, have not yet reached peak IP30 rates, but are showing strong initial performance.


Western Anadarko (Cleveland)

During the third quarter, Jones Energy spud 10 wells, including two long laterals, in the Western Anadarko and initiated a large completion campaign beginning in mid-August which continued through the end of October. The Company completed a total of 18 wells in the third quarter. Wells completed were put online beginning in late August through the end of the quarter, which resulted in a small impact on third quarter production. Average daily net production in the Cleveland was 14.8 MBoe/d in the third quarter of 2017.

Jones Energy dropped one core Cleveland rig in August, a second rig in September and released its remaining rig in October. As a result of the updated rig schedule, the Company does not expect to drill any Cleveland wells for the remainder of 2017, but expects completion crews to place six previously drilled wells on production during the fourth quarter.


Capital Expenditures

During the third quarter of 2017, the Company spent $66.7 million on capital expenditures, of which $57.9 million was drilling and completion capital and the remainder was related to leasing, maintenance capital and spending on non-operated wells. Capital expenditures for the first nine months of 2017 totaled $184.7 million.
The Company now anticipates Capex to be approximately $10 million less than the revised mid-year budget of $250 million based on changes to the rig program, for a new total of $240 million.


Updated 2017 Guidance

The Company now projects average daily production of 20,800 to 21,200 Boe/d for full year 2017. Initial fourth quarter 2017 guidance of 19,000 to 20,800 Boe/d has also been announced. A table has been provided below with updated full year and fourth quarter 2017 guidance by category.

2017 Guidance                        Previous       Updated	 	 
                                       2017E         2017E          4Q17E
Total Production (MMBoe)            7.6 – 8.0      7.6 – 7.7      1.8 – 1.9
Average Daily Production (MBoe/d)  20.7 – 22.0    20.8 – 21.2    19.0 – 20.8
  Crude Oil (MBbl/d)                5.5 – 5.9      5.2 – 5.3      5.5 – 6.0
  Natural Gas (MMcf/d)             52.0 – 55.3    54.2 – 55.4	 44.6 – 49.5
  NGLs (MBbl/d)                     6.5 – 6.9      6.6 – 6.7	  6.1 – 6.5
 	 	 	 	 	 
Lease Operating Expense ($mm)     $40.0 – $45.0  $40.0 – $45.0	 	 
Production Taxes 
   (% of Unhedged Revenue)*        4.5% – 5.5%    4.5% – 5.5%	 	 
Ad Valorem Taxes ($mm)*            $2.7 – $3.0    $2.7 – $3.0	 	 
Cash G&A Expense ($mm)              $23 – $25      $23 – $25	

* Production and ad valorem taxes are included as one line item on the Company’s income statement


Liquidity and Hedging

As of September 30, 2017, the Company had $151 million of outstanding borrowings under its revolving credit facility, resulting in approximately $224 million of total unborrowed capacity, and approximately $6 million in cash. The Company is working with its lenders to increase its financial flexibility, including modifying its financial covenants under the Revolver. The Company believes that it will be successful in its negotiations with its lenders, and expects such negotiations to be finalized in the coming weeks.

During the third quarter of 2017, Jones Energy unwound its remaining $15 million of 2018 crystalized hedges. Net proceeds from the unwind have the effect of reducing debt and increasing EBITDAX by approximately $15 million. The following table summarizes the Company’s net commodity derivative contracts outstanding as of November 7, 2017:

4Q 2017 2018 2019 2020
Oil Hedges
Swaps Sold (MBbl) 489 2,364 1,020 660
Price ($/Bbl) $ 63.16 $ 51.08 $ 50.04 $ 50.00

Collars (MBbl) - - 810 -
Floor ($/Bbl) - - $ 48.52 -
Ceiling ($/Bbl) - - $ 59.64 -

Gas Hedges
Swaps Sold (MMcf) 5,046 22,310 9,820 8,400
Price ($/Mcf) $ 3.70 $ 2.96 $ 2.83 $ 2.79

Collars (MMcf) - - 11,890 -
Floor ($/Mcf) - - $ 2.55 -
Ceiling ($/Mcf) - - $ 3.19 -

NGL Swaps (MBbl)
Ethane - - - -
Propane 227 850 - -
Iso Butane 24 120 - -
Butane 81 335 - -
Natural Gasoline 93 360 - -
Total NGLs 425 1,665 - -

NGL Swap Prices ($/Gal)
Ethane - - - -
Propane $ 0.47 $ 0.57 - -
Iso Butane 0.57 0.72 - -
Butane 0.61 0.69 - -
Natural Gasoline 1.04 1.05 - -


Conference Call Details

Jones Energy will host a conference call for investors and analysts to discuss its results on Wednesday, November 8, 2017 at 10:30 a.m. ET (9:30 a.m. CT). The conference call can be accessed via webcast through the Investor Relations section of Jones Energy’s website, www.jonesenergy.com, or by dialing (833) 231-8272 (for domestic U.S.) or (647) 689-4117 (International) and entering conference code 6587688. If you are not able to participate in the conference call, the webcast replay and a downloadable audio file will be available shortly following the call through the Investor Relations section of the Company’s website, www.jonesenergy.com.


About Jones Energy

Jones Energy, Inc. is an independent oil and natural gas company engaged in the development and acquisition of oil and natural gas properties in the Anadarko basin of Texas and Oklahoma. Additional information about Jones Energy may be found on the Company’s website at: www.jonesenergy.com.



Investor Contact:

Jones Energy, Inc.
Page Portas, 512-493-4834
Investor Relations Associate Or

Robert Brooks, 512-328-2953
Executive Vice President & CFO
ir@jonesenergy.com



Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, updated guidance regarding the number of rigs that will be running in 2017, our ability to amend our revolving credit facility to modify certain financial covenants, the timing and location of the development of the new Merge acreage, well performance (including in comparison to type curves), the cost to drill and complete wells and the resultant impact on the 2017 capital budget, and projections regarding total production, average daily production, percentage liquids, operating expenses, production and ad valorem taxes as a percentage of revenue, cash G&A expenses and capital expenditure levels for the full year and third quarter of 2017. These statements are based on certain assumptions made by the Company based on management’s experience and perception of historical trends, current economic and market conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include, but are not limited to, changes in oil and natural gas prices, actual well performance, weather and environmental conditions, our ability to comply with the covenants in our debt agreements, the timing and amount of planned capital expenditures, availability of funding for planned capital expenditures, availability and method of funding of acquisitions and divestitures, or the ability to integrate any acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as the Company’s ability to access them, the proximity to and capacity of transportation facilities, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting the Company’s business and other important factors that could cause actual results to differ materially from those projected as described in the Company’s reports filed with the SEC.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.



Jones Energy, Inc.
Consolidated Statement of Operations (Unaudited)

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