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Grizzly Energy, LLC Reports 2nd Quarter 2k19 Results

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Grizzly Energy, LLC (“Grizzly” or the “Company”) reported financial results for the quarter ended June 30, 2k19, and other operational results.

Key Highlights

  1. Completed successful financial restructuring on July 16, 2k19, eliminating more than $500.0(M) in debt
  2. The enhanced liquidity position of $56.0(M) at August 16, 2k19
  3. Reported production volumes of 295(M) cubic feet equivalent (MMcfe) per day
  4. Lease operating costs were $29.0(M)
  5. Selling, general and administrative costs (excluding share-based compensation and severance costs) were $8.3(M)

On March 31, 2k19, the Company and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the cases commenced thereby, the “Chapter 11 Cases”) in the United StatesBankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). Chapter 11 Cases were jointly administered under the caption “In re Vanguard Natural Resources, Inc., et al.”

On July 9, 2k19, the Bankruptcy Court entered an order confirming the Amended Joint Plan of Reorganization of Vanguard Natural Resources, Inc. and its Debtor Affiliates (the “Plan”) and on July 16, 2k19, the Company consummated the Plan and emerged from the Chapter 11 Cases. As part of the transactions undertaken pursuant to the Plan, Vanguard was converted from a Delaware corporation to a Delaware limited liability company and renamed Grizzly Energy, LLC. References to “Vanguard” refer to the Company throughout the period previous to the Effective Date while references to “Grizzly” refer to the Company throughout the period following the Effective Date.

2nd Quarter 2k19 Highlights

Average production of 295 MMcfe per day in the 2nd quarter of 2k19 represents a 1 percent (%) decline compared to 297 MMcfe per day for the 1st quarter of 2k19. The production decline from the 1st quarter was primarily attributable to a decline in production from the Pinedale field in the Green River Basin due to declined activity and lower NGL volumes as a result of the Piceance Basin Meeker processing plant’s rejection of ethane.

These declines were offset by production from the Permian Basin where we have seen success with our Red Lake recompletion program and in the Arkoma Basin where we participated in four new horizontal Woodford wells with Encana and brought operated wells back online that had previously been shut-in due to fracing operations. On an Mcfe basis, crude oil, natural gas, and NGLs accounted for 15 percent (%), 69 percent (%) and 16 percent (%), respectively, of our 2nd quarter 2k19 production.

Lease operating costs inclined 11 percent (%) throughout the 2nd quarter of 2k19 to $29.0(M) ($1.08 per Mcfe) compared to $26.2(M) ($0.98 per Mcfe) in the 1st quarter of 2k19. The incline compared to the 1st quarter was primarily due to inclined facility and workover activity in the northern basins in which we operate, which is typical throughout the warmer season.

Transportation and gathering costs related to certain of our natural gas and NGLs contracts, where we have concluded we are the principal and the ultimate 3rd party is our customer, were $8.5(M) throughout the 2nd quarter of 2k19 ($0.32 per Mcfe), declined from $9.5(M) in the 1st quarter of 2k19 (0.36 per Mcfe). We recognize revenue on a gross basis for these contracts with transportation, gathering, processing and compression fees presented as an expense in our condensed consolidated statement of operations.

Selling, general and administrative costs, excluding restructuring costs (“SG&A”) were $9.2(M) throughout the 2nd quarter of 2k19 ($0.34 per Mcfe), a 26 percent (%) decline compared to $12.6(M) in the 1st quarter of 2k19 ($0.47 per Mcfe). Excluding non-cash compensation of $0.6(M) and severance costs of approximately $0.3(M), SG&A was $8.3(M) for the 2nd quarter of 2k19, compared to $11.2(M) for the 1st quarter of 2k19.

This 26 percent (%) decline was primarily attributable to lower salaries and wages as a result of employee workforce reductions. SG&A was also higher in the 1st quarter compared to the 2nd quarter due to professional fees paid for management consulting efficiency initiatives.

Depreciation, depletion and amortization costs (“DD&A”) were $39.0(M) in the 2nd quarter of 2k19 ($1.45 per Mcfe), representing an incline of 9 percent (%) from $35.7(M) in the 1st quarter of 2k19 ($1.34 per Mcfe). DD&A inclined primarily due to a higher depletion rate resulting from lower estimates of oil and natural gas reserves.

We reported a net loss attributable to Vanguard stockholders for the 2nd quarter of 2k19 of $372.1(M) compared to a net loss attributable to Vanguard stockholders of $82.3(M) in the 1st quarter of 2k19. The incline in the Company’s reported net loss for the 2nd quarter of 2k19 is primarily attributable to the impairment on oil and natural gas properties and lower natural gas sales. The most significant factors causing us to record an impairment of oil and natural gas properties in 2k19 was the reduction in our proved reserves and the reduction in the value of our unproved properties resulting from a decline in forward natural gas prices.

Adjusted Net Loss Attributable to Vanguard Stockholders (a non-GAAP financial measure defined below) was $14.8(M) in the 2nd quarter of 2k19 compared to Adjusted Net Loss of $17.1(M) in the 1st quarter of 2k19. Adjusted Net Loss for the 2nd quarter of 2k19 included adjustments for net non-cash costs of $332.3(M), primarily comprised of a $323.2(M) impairment charge on our oil and natural gas properties and a $47.5(M) loss on termination of commodity derivative contracts, offset by a $38.5(M) gain from the change in fair value of commodity derivative contracts.

Adjusted Net Loss for the 1st quarter of 2k19 included adjustments for net non-cash costs of $45.9(M), primarily comprised of a $45.0(M) loss from the change in fair value of commodity derivative contracts, a $0.5(M) impairment charge on our oil and natural gas properties and a $0.4(M) net loss on asset sales.

Adjusted EBITDA (a non-GAAP financial measure defined below) was $26.8(M) in the 2nd quarter of 2k19, representing a 26 percent (%) decline compared to Adjusted EBITDA of $36.3(M) for the 1st quarter of 2k19. The decline compared to the 1st quarter of 2k19 was attributable primarily to lower realized natural gas and NGL prices resulting in lower revenues.

Capital expenditures for the 2nd quarter of 2k19 were $10.5(M), down from $11.0(M) in the 1st quarter of 2k19. This $0.5(M) decline from the 1st quarter was primarily attributable to lower capital spend in the Pinedale and Arkoma Woodford Basins, offset by inclined capital in the Permian Basin related to our successful recompletion program in the Red Lake field.

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