Approach Resources Inc. 2017 Q4 - Results - Earnings Call Slides

The following slide deck was published by Approach Resources Inc. in conjunction with their 2017 Q4 earnings call.

Comments

[nikonikos]

it can make a difference. over the next year based on permitted wells SEM and EPE will test wells directly offsetting Approach. Time will tell but those wells should be night and day vs the typical AREX well.

AREX has been slow to adopt new practices bc budget constrained way more than most companies that are larger

[nikonikos]

its all in the frac design. EPE and more recently SEM (private) have brought in wells in equivalent acreage within 10 miles and equivalent depths that are have much higher oil cumulatives.
Especially SEM. The trend will look different in a year and AREX may or may not figure it out themselves. Bottom line is they will have more valuable acreage in the eyes of the market.

The key is to compare wells of similar vintage. EOG sold to SEM. EOG results not much better than AREX. SEM uses same acreage to triple oil EUR. SEM will be able to get oil EUR up to 400 mbo. EUR could be 400 mbo, 2+ BCF + NGLs on AREX in 1 year w proper frac design

[User 21793061]

I guess you have to look at a map. Ten miles could make a difference in some cases.

[dogwood1855]

Many valid points. Deadshot - I think if you review EP Energy next door north Crockett results may look a little better. Geology certainly is a learning curve in south midland as you all have noted. Central midland wells deep, cost more to drill due to depth - but this depth causes more pressure pushing more oil up and in a shorter time. Most Permian wells are currently depleting at a rate of 70-90% over three years... great for cash flow and short payback (assuming oil price is good). However, As well saw in 2015, 2016, 2017 most shale due to this decline rate + oil price had to spend way way outside cash flow so production would not fall flat on face. Balkan and eagle ford are in decline and in around two years so will Permian.... once you get to certain level of production due to this enormous decline rate it takes more and more wells just to maintain

Due to lower depth, and lower pressure southern midland has less decline rate with slower payback. One positive is a This is reason AREX has been able to spend a relatively low capex to maintain production past three years. But oil % is issue = low price acre valuation for southern midland. Personally, could oil in greater amount be there tech just needs figure method to bring it up?

Agree completely on too much gas currently coming out of Permian. I think this will be issue in 2018. However, the large number of export lng coming online will help solve this issue next year. New pipeline coming next year as well.

Do the Wilks have a vision for this southern midland area? From reading, do the wilks know much more on oil and geology than us? With conversion at $3.33 and then buying all they could at higher levels recently after anderson conversion .. do the wilks clearly have knowledge, commitment and a future vision for this southern midland field area?? Time will tell if the wilks are correct and how the southern midland AREX story plays out??? But, higher oil will certainly help any energy investment and higher oil will certainly flush out the AREX short games ..... Could the AREX share price story be a very positive one for 2018/2019?? what do you all think oil will trade at this summer?

[Flipper2058]

" With conversion at $3.33"
Remember they bought bonds very cheaply but from an accounting viewpoint it is "$3.33" (based on par for those bonds), their actually cash cost could be well below $1.

[User 21793061]

Seems to be very gassy (only 40% oil on a 3 stream basis). I worry that gas takeaway may become tight in the Permian and those companies with more crude % will have a tendency to crowd onto the gas pipes (since they can even rail/truck their oil even if a crude pipeline lags). Companies with heavy gas percentage will be hurting if Waha price differential to HH drops lower and lower.

[KL999]

Oil is 28% of reserves. Most Permian wells get more gassy the longer they are in production.

Bottom line is lower returns in Arex location. Land value will remain low as long as that is true. Higher oil/gas of course can increase land value everywhere.

[KL999]

Their payback period is pretty long. Rate of return well below the premier Midland locations. Hence the low value per acre implied by the market (and their recent acquisition).

Unless wells get much better. The low oil percent is an issue.

[User 33983175]

700 MBOE?

700?

There's no way they are going to get 700 MBOE out of these wells. Not even close.

Their far and away best well that is public from 2016/2017 has accumulated 135 MBOE in just over a year, and it is down to 150 BOEPD now. It would have to stay at that rate for 10 years flat in order to achieve a 700 MBOE EUR, but it has declined 167 BOEPD in the last 4 months, and is not showing any signs of flattening yet.

The rest of their public 2016/2017 wells haven't managed half of that accumulation in the same amount of time.

[dogwood1855]

So AREX is releasing false information? How do EPE results in north Crockett look that are next door?

[User 33983175]

They are releasing accurate cum information, but whoever is forecasting their type curves is being very, very, very generous.

I'll look El Paso up later.