January NYSE American: SRCI

Transcription

1 January 2019 NYSE American: SRCI

2 Forward-looking Statements and Other Disclaimers This presentation 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 All statements, other than statements of historical fact, included in this presentation that address activities, events or developments that SRC Energy Inc. (the Company ) expects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements contained in this presentation include statements, estimates and projections regarding the availability of midstream services and infrastructure and the Company's future financial position, operations, performance, costs, business strategy, oil and natural gas reserves, drilling program, capital expenditure budget and sources of financing for the budget, liquidity and capital resources, the timing and success of projects, derivative activities. The words estimate, project, predict, believe, expect, anticipate, potential, could, may, foresee, plan, goal or other similar expressions that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These statements are based on certain assumptions made by the Company based on management's experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of performance. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, 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 the risk factors discussed or referenced in the Company's most recent Form 10-K; risks relating to declines in the prices the Company receives, or sustained depressed prices the company receives, for its oil and natural gas; uncertainties about the estimated quantities of oil and natural gas reserves; drilling and operating risks; the adequacy of the Company s capital resources and liquidity including, but not limited to, access to additional borrowing capacity under the Company s credit facility; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing and the export of oil and natural gas; the impact of potential changes in the Company s credit ratings; environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater contamination; difficult and adverse conditions in the domestic and global capital and credit markets; risks related to the concentration of the Company s operations in the DJ Basin of northeast Colorado; disruptions to, capacity constraints in or other limitations on the pipeline systems that deliver the Company s oil, natural gas liquids and natural gas and other processing and transportation considerations; the costs and availability of equipment, resources, services and personnel required to perform the Company s drilling and operating activities; potential financial losses or earnings reductions from the Company s commodity price risk-management program; risks and liabilities related to the integration of acquired properties or businesses; uncertainties about the Company s ability to replace reserves and economically develop its current reserves; general economic and business conditions, either internationally or domestically; competition in the oil and natural gas industry; uncertainty concerning the Company s assumed or possible future results of operations; and other important factors that could cause actual results to differ materially from those projected. Estimates of the net present value of a property do not necessarily correspond to the current or future fair market value of the property in part due to the foregoing risks and uncertainties. We calculated the example per-well economics figures on slide 7 based on the assumptions set forth in the notes on that slide, results from other wells we have drilled on our acreage and our judgment regarding the expected performance of future wells. The example results may not be representative of expected results for all locations and results from individual wells may vary widely. Accordingly, you should not place undue reliance on any of the Company s forward-looking statements. 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. 2

3 Operating with Local Community Support Voters in Colorado have signaled where oil and gas development is welcome. Larimer Weld Morgan Boulder Gilpin Broomfield Adams Jefferson Denver Douglas Arapahoe SRC is a pure play DJ Basin operator with acreage only in Weld County, Colorado. 3

4 Health, Safety and the Environment SRC s Highest Priority Reduce emissions Tier-4 (low emission) engines utilized in completion fleets Significant use of vapor recovery equipment in facilities Direct pipeline take-away reduces truck traffic and vehicle emissions Vertical well remediation and reclamation program ~160 wells in 2017 with ~500 acres reclaimed ~200 wells in 2018 with ~700 acres reclaimed Focus on safety Community & first responder engagement Stop work authority any worker, any time Engaged at multiple levels (*) (*) Front Range Emergency Response Committee - COGA Operational Safety, Urban Operations, HSE Committees - Rocky Mountain HSE Peer Group - DJ Basin Safety Council and Operators Consortium 4

5 Corporate Execution D&C Capex vs EBITDA ($MM) Net Debt / LTM EBITDAX Net Daily Production (MBOE/D) (1) CAPEX EBITDA $131 $461 $283 $580 $460 9mos Annualized $345 9mos EBITDA 1.1X 1.8X 1.4X MBOE/D based on 9 mos $ EST Est Est preview Drilling and completion budget will align with cash flows at $55 WTI while providing year-over-year production growth Expect formal 2019 guidance in mid-february (1) 2016 production data converted to 3-stream using 3.5 GPM wet gas yield and 25% gas volume shrink 5

6 Review of 2018 Program 2018 Operations Full year average production guidance - ~50 Mboe/d D&C Capex - ~$580 MM 2018 operations funded by operating cash flow and liquidity Drilled 118 gross (101 net) wells and completed 127 gross (112 net) wells in 2018 D&C costs of ~$4.2 MM for 8,000 ML wells and ~$5.3 MM for 10,000 LL wells Attractive returns across the GOR spectrum 2,000<GOR<6,000: Initial oil cut >75% and 45% - 55% oil cut for life of well 6,000<GOR<12,000: Initial oil cut of 50%-60% and 40% - 45% oil cut for life of well GOR>12,000: Initial oil cut of 30%-50% and 15% - 20% oil cut for life of well 6

7 Sound Economics in Today s Environment Example Full-Cycle NPV & IRR Per Well Economics ~600 MBOE ~800 MBOE ~1 MMBOE NPV ~$1.0 MM ~$3.0 MM ~$5.0 MM IRR ~20% ~50% ~85% Full cycle Wattenberg well economics are competitive with other major basins Note: Price Deck: Oil = $55 Flat, NGL = 30% of WTI, Natural Gas = $3.00 Flat Assumed differentials: oil = $6.50 / NGL = 17% / gas = $0.45 Full cycle NPV and IRR information assumes $4.2 MM well costs and average acreage cost of $15,000 per acre. Rate of return and NPV estimates do not reflect corporate, general and administrative expenses. Examples of estimated EURs may not correspond to estimates of reserves as defined under SEC rules. Estimated production volumes reflect 3-stream equivalent 7

8 Expanding Midstream 5 DCP Midstream O Connor 2 with 200 MMcf/d of processing capacity plus 100 MMcf/d of bypass capacity is under construction and expected to be in service Q2 of 2019 Bighorn permits have been submitted for 1 Bcf/d of capacity Gas and NGL pipeline expansions out of the DJ Basin aligned with processing 1 Noble Midstream/Black Diamond Gathering Gathering oil and water in current development area Extensive footprint provides access to multiple sales points and storage capacity 3 2 Planned Processing Expansions # Plant Name Operator In-Service Capacity MMcf/d 1 O Connor 2 (Plant 11) DCP Q of bypass 4 2 Bighorn (Plant 12) DCP 2020 & beyond 1Bcf/d 3 Latham I/II Western Gas Partners Q2/Q /200 4 Ft. Lupton WMB/KKR (Discovery) Late 2018/ /450 5 Pierce Rimrock Mid

9 Current D&C Operations Lincoln Pad: 12 (~8 Net) LL wells Drilling 24 wells Beebe Pad: 12 (~11 Net) LL wells Bost Farm Pad: 12 (~11 Net) LL wells Waiting on Stimulation 12 wells McNear Pad: 12 (~11 Net) LL wells Completion in Progress 48 wells Troudt Pad II: 12 (~12 Net) 12 ML wells Greeley Rothe Federal: 12 (~8 Net) LL wells Troudt Pad I: 12 (~12 Net) 12 LL wells On production earlier in 2018: Leffler 12 LL, Ag 12 LL, Goetzel 12 ML, Falken 6 SL & 12 LL, Donn 13 LL, Boomerang 16 LL & ML, Harvesters State 12 ML Standard Completion Design Niobrara A & Codell Niobrara B & C Comments Average stage length stages in ML, 50 stages in LLs and 60 stages in XLs Perf clusters/stage 4 4 Actively managing entry points to improve proppant distribution and stimulated reservoir volume Average Proppant load 800#/ft 1,300#/ft Engineered completions will pinpoint proppant placement to optimize productivity Surfactant yes yes Surfactant designed for higher GOR reservoirs Frac Fluid Slickwater Hybrid Experimenting with fluid designs in some zones Other completion details: Utilize monobore, plug & perf designs with the added implementation of dissolvable plugs 7500 Utilizing a completion fleet with integrated noise reduction technology in an effort to further reduce environmental impact in urban areas 9

10 SRC Energy Pure play DJ Basin operator with contiguous acreage position 2018 operations funded by cash flow and existing liquidity Multi-year inventory of high return development Expanding infrastructure Strong balance sheet with 1.4x net debt/ebitda and over $450 million of liquidity at the end of the 3 rd quarter of 2018 Active pursuit of health, safety and environmental excellence Engaged with local communities in which we live and operate 10

11 Appendix 11

12 Operational and Financial Performance Commodity Mix Cash Cost ($ / Boe) Gas NGLs Oil Cash G&A Production Taxes LOE 36% 35% 33% 31% 31% 34% 35% 21% 22% 20% 18% 19% 23% 23% 43% 43% 47% 51% 50% 43% 42% $6.71 $6.54 $6.56 $6.89 $5.58 $3.46 $1.66 $1.47 $1.39 $1.67 $0.92 $3.19 $2.71 $3.63 $3.29 $2.33 $1.69 $1.40 $1.54 $1.93 $7.59 $6.74 $1.44 $1.61 $3.47 $2.83 $2.68 $2.30 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Cash Margin ($/Boe) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Net Leverage (Net Debt / LTM EBITDAX) $20.70 $18.74 $22.31 $26.79 $29.15 $26.33 $ x 1.1x 1.8x 1.3x 1.2x 1.4x 0.5x 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 12

13 Hedging Summary as of December 2018 Disclosure on Derivative Instruments The Company has entered, or may enter in the future, into commodity derivative instruments utilizing, price swaps, collars, put or call options to reduce the effect of price changes on a portion of future oil and gas production. The Company s commodity derivative instruments are measured at fair value and are included in the condensed balance sheet as derivative assets and liabilities. All derivative positions are carried at their fair value on the condensed balance sheet and are marked-to-market at the end of each period. Both the unrealized and realized gains and losses resulting from the contract settlement of derivatives are recorded in the gain on derivatives line on the condensed statement of operations. The Company has a master netting agreement on each of the individual oil and gas contracts and therefore the current asset and liability are netted on the condensed balance sheet and the non-current asset and liability are netted on the condensed balance sheet. 13

14 Adjusted EBITDA Reconciliation SRC ENERGY INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited, in thousands) 14