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Goodrich Petroleum Third Quarter 2021 Results

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Goodrich Petroleum Corp. reported its Q3 2021 results.

Highlights:

• Net loss was $48.0 million in the quarter, or ($3.52) per basic and fully diluted share. The Company incurred a non-cash mark-to-market loss of $64.9 million in the quarter due to the change in fair value of unsettled derivatives not designated as hedges as future prices for natural gas rose during the quarter.

• Adjusted net income (net income prior to change in fair value of unsettled derivatives not designated as hedges) was $16.9 million, or $1.24 per basic share and $1.10 per fully diluted share for the quarter.

• Operating Income was $31.6 million in the quarter. Net cash provided by operating activities was $29.9 million in the quarter, which was negatively impacted by a change in working capital of $2.4 million.

• Adjusted EBITDA was $33.2 million in the quarter.

• Discretionary Cash Flow was $32.3 million and Capital Expenditures totaled $27.9 million in the quarter.

• Production averaged approximately 166,000 Mcfe per day for the quarter, which grew by 7% sequentially over the second quarter. Production for the quarter was negatively impacted by downtime on non-operated wells.

• Average realized price per unit was $3.85 per Mcfe, or $3.03 per Mcfe including settled hedges, and per unit operating expense was $1.77 per Mcfe for the quarter, which included non-cash expense of $0.91 per Mcfe.

Other Financials

Per unit cash operating expense was $0.86 per Mcfe, a 3% sequential decrease from the second quarter, and total per unit cash expense including cash interest was $0.92 per Mcfe for the quarter, broken out as follows:

• Lease operating expense ("LOE") decreased sequentially by 25% to $0.21 per Mcfe, which included $0.02 per Mcfe of workover expense
• Production and other taxes increased 33% sequentially to $0.08 per Mcfe due to the severance tax abatement period ending for wells that have reached payout or two years since first production
• Transportation and processing expense decreased 3% sequentially to $0.32 per Mcfe
• General and Administrative ("G&A") expense payable in cash increased by 14% sequentially to $0.25 per Mcfe due to an increase in accrual for expected payments due to better performance measures than target under the Company's annual incentive plan and long term cash incentive plan. G&A including stock based compensation increased by 17% sequentially to $0.28 per Mcfe; and
• Cash interest expense was $0.06 per Mcfe

Cash Margin was $2.11 per Mcfe (70%), comprised of a net realized price including hedges of $3.03 per Mcfe less per unit cash expenses (including interest) detailed above of $0.92 per Mcfe. The Company expects margin expansion for the rest of this year with anticipated higher realized prices in the fourth quarter.

Return on Invested Capital ("ROIC"), defined as trailing twelve month Adjusted EBITDA divided by total assets less current liabilities, was 76% at quarter-end. Adjusted Return on Invested Capital as defined as trailing twelve month Adjusted EBITDA divided by total assets less current liabilities exclusive of the Company's current derivative liability, was 45% at quarter-end. The Company expects ROIC to increase through the end of the year with higher volumes and higher realized prices.

Please see the disclosures and tables at the end of this press release for discussion of the non-US GAAP measures presented above and in the discussion below and a reconciliation of such measures to the most directly comparable US GAAP financial measure.

Recent Developments

Credit Facility

In conjunction with its fall redetermination under its reserve based lending facility, the Company and the participating banks have an upcoming amendment to the credit facility establishing a new borrowing base of $150 million, a $30 million increase from its previous borrowing base.

Financial Results

Net Income/Loss

Net loss was $48.0 million in the quarter, or ($3.52) per basic and fully diluted share versus net loss of $16.4 million, or ($1.30) per basic and fully diluted share in the prior year period. Adjusted net income was $16.9 million, or $1.24 per basic share and $1.10 per fully diluted share in the quarter.

Net cash provided by operating activities was $29.9 million in the quarter, which was negatively impacted by a change in working capital of $2.4 million, versus $13.5 million in the prior year period. Adjusted EBITDA was $33.2 million in the quarter and discretionary cash flow ("DCF"), defined as net cash provided by operating activities before changes in working capital, was $32.3 million in the quarter, versus Adjusted EBITDA of $12.7 million and DCF of $11.8 million in the prior year period.

Production totaled approximately 15.3 Bcfe in the quarter, or an average of approximately 166,000 Mcfe per day (99% natural gas), versus 11.5 Bcfe, or an average of approximately 125,500 Mcfe per day (98% natural gas), in the prior year period.

Oil and natural gas revenues were $58.7 million and oil and natural gas revenues adjusted for cash settled derivatives of $12.5 million paid was $46.2 million. In the prior year period, oil and natural gas revenues were $21.5 million and oil and natural gas revenues adjusted for cash settled derivatives of $1.6 million received was $23.1 million. Average realized price per unit was $3.85 per Mcfe ($3.77 per Mcf of natural gas and $70.40 per barrel of oil) in the quarter, versus $1.86 per Mcfe in the prior year period ($1.78 per Mcf of natural gas and $39.63 per barrel of oil).

Lease operating expense ("LOE") was $3.3 million, or $0.21 per Mcfe, in the quarter, versus $2.8 million, or $0.25 per Mcfe, in the prior year period. LOE for the quarter included $0.3 million, or $0.02 per Mcfe, for workovers, versus $0.3 million, or $0.03 per Mcfe, in the prior year period. Lease operating expense for the quarter excluding workovers was $3.0 million, or $0.19 per Mcfe, versus $2.5 million, or $0.22 per Mcfe in the prior year period.

Production and other taxes were $1.3 million in the quarter, or $0.08 per Mcfe, versus $0.6 million, or $0.05 per Mcfe, in the prior year period. The increase in taxes for the quarter was due to the severance tax abatement period ending for wells that have reached payout or two years since first production.

Transportation and processing expense was $4.8 million, or $0.32 per Mcfe, in the quarter, versus $4.3 million, or $0.38 per Mcfe, in the prior year period.

Depreciation, depletion and amortization ("DD&A") expense was $13.4 million, or $0.88 per Mcfe, in the quarter, versus $10.3 million, or $0.90 per Mcfe, in the prior year period.

General and administrative expense was $4.3 million, or $0.28 per Mcfe, in the quarter, versus $3.9 million, or $0.34 per Mcfe, in the prior year period. G&A expense payable in cash was $3.8 million, or $0.25 per Mcfe, versus $2.9 million or $0.25 per Mcfe, in the prior year period. The increase in G&A for the quarter was due to an increase in accrual for expected payments due to better performance measures than target under the Company's annual incentive plan and long term cash incentive plan.

Operating income, defined as revenues minus operating expenses, totaled $31.6 million in the quarter. Adjusted operating income adjusted for cash settled derivatives was $19.1 million for the quarter, which included $12.5 million paid for cash settled derivatives. In the prior year period, operating loss totaled $3.6 million and adjusted operating loss adjusted for cash settled derivatives was $2.0 million, which included $1.6 million received for cash settled derivatives.

Interest expense totaled $2.2 million in the quarter, which included interest payable in cash of $0.9 million incurred on the credit facility and non-cash interest of $1.3 million incurred primarily on the Company's second lien notes, which included $1.1 million paid in-kind interest and $0.2 million amortization of debt discount and issuance costs. Interest expense totaled $1.7 million in the prior year period, which included interest payable in cash of $1.0 million incurred on the credit facility and non-cash interest of $0.7 million incurred primarily on the Company's second lien notes, which included $0.5 million paid in-kind interest and $0.2 million amortization of debt discount and issuance costs.

Capital Expenditures

Capital expenditures totaled $27.9 million in the quarter, of which a majority was spent on drilling and completion costs, versus $16.9 million in the prior year period, of which a majority was also spent on drilling and completion costs. The Company conducted drilling and completion operations on 12 gross (4.5 net) wells in the quarter and added 4 gross (2.2 net) wells to production. The Company had 8 gross (2.3 net) wells in the drilling or completion process at the end of the quarter.

Balance Sheet

The Company exited the quarter with $5.5 million of cash, $90.4 million outstanding under the Company's credit facility, and total principal debt outstanding, including the credit facility and second lien notes, of $122.9 million.

Derivatives

The Company had a loss of $77.4 million on its derivatives not designated as hedges in the quarter, which was comprised of a loss of $12.5 million on cash settlements and a $64.9 million loss representing the change of the fair value of our open natural gas and oil derivative contracts. The Company had a loss of $11.1 million on its derivatives not designated as hedges in the prior year period, which was comprised of a $12.7 million loss representing the change of the fair value of our open natural gas and oil derivative contracts, offset by a gain of $1.6 million on cash settlements.