22nd Annual Credit Suisse Energy Summit

Transcription

1 22nd Annual Credit Suisse Energy Summit February 14, 2017

2 Forward Looking & Other Cautionary Statements The following presentation includes forward looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results or the industries or markets in which we operate or participate in general, including the ability to take advantage of opportunities in the oil and gas industry, projections regarding total production, average daily production, the potential to increase working interest through leasing or pooling, lease operating expenses, production taxes as a percentage of revenue, cash G&A expenses, projected internal rates of return, and results of our hedging program. Actual outcomes and results may differ materially from what is expressed or forecast in such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that may prove to be incorrect and are difficult to predict such as oil and gas prices; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; our ability to consummate the pending STACK/SCOOP acquisition; unsuccessful exploratory activities; unsuccessful acquisitions; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to our business and other economic, business, competitive and/or regulatory factors affecting our business generally as set forth in our filings with the Securities and Exchange Commission (SEC). We caution you not to place undue reliance on our forward looking statements, which are only as of the date of this presentation or as otherwise indicated, and we expressly disclaim any responsibility for updating such information. This presentation may include non GAAP financial measures. Such non GAAP measures are not alternatives to GAAP measures, and you should not consider these non GAAP measures in isolation or as a substitute for analysis of our results as reported under GAAP. For additional disclosure regarding such non GAAP measures, including reconciliations to their most directly comparable GAAP measure, please refer to Jones Energy s most recent earnings release at The SEC requires oil and gas companies, in their filings with the SEC, to disclose proved reserves, which are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions (using unweighted average 12 month first day of the month prices), operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The SEC also permits the disclosure of separate estimates of probable or possible reserves that meet SEC definitions for such reserves, however, we currently do not disclose probable or possible reserves in our SEC filings. Our estimates of "resource potential" in this presentation have been prepared internally by our engineers and management without review by independent engineers. These estimates are not permitted to be disclosed in our SEC filings, do not constitute "reserves" as defined by the SEC and are by their nature more speculative than estimates of proved, probable, and possible reserves. Factors affecting ultimate recovery include our ability to acquire the acreage we are targeting and the scope of our ongoing drilling program, which will be directly affected by the availability of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, transportation constraints, regulatory approvals and other factors; and actual drilling results, including geological and mechanical factors affecting recovery rates. Estimates of resource potential and drilling locations may change significantly as we pursue acquisitions. In addition, our production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10 K, Form 10 Qs, Form 8 Ks and other reports and filings with the SEC. Copies are available from the SEC and from the Jones Energy website. 1

3 Jones Energy Overview NYSE Ticker JONE Common Share Price $4.30 Preferred Share Price [1] $76.25 Equity Market Cap ($mm) Common Stock $374 Preferred Stock [1] 140 Total Equity Market Cap $514 Enterprise Value ($mm) ~$1,200 Common Stock Outstanding (mm) Class A 57.2 Class B 29.8 Total Common Stock Outstanding Q16 Production (Mboe/d) 19.2 Note: Common and preferred share prices as of February 10, [1] Par value of $92mm ($50.00/share). 2

4 Proven Mid Con Operator Merge 27 wells Cumulative Horizontal Wells Drilled Drilled ~740 horizontal wells in Mid Con over company history Brown Dolomite 72 wells Tonkawa 6 wells Arkoma Woodford 62 wells Granite Wash 28 wells Cleveland 626 wells 3

5 Executed on 2016 Goals Improve the Balance Sheet Reduced debt outstanding by $106 million through bond buybacks High PV Merge wells de lever company over time Liquidity of ~$280 million [1] Execute on on Drilling Outstanding results from 3 rig program in the Cleveland Increased 2016 production guidance by 7% Leveraging Mid Con expertise to develop Merge assets Capture Opportunities Closed bolt on Cleveland acquisition Closed transformative Merge acquisition Scalable Mid Con footprint provides additional opportunities [1] Liquidity as of December 31,

6 Transformative Merge Acquisition Expands Mid Con footprint to STACK/SCOOP Initial acquisition of ~18,000 net acres primarily in Canadian & Grady Counties, OK for $136.5mm Since closing, JONE has added ~3,140 net acres on average below acquisition cost per acre Initial transaction implied acreage value of ~$7,600 per net acre 330 MMBoe of net unrisked resource potential [1] 1,567 gross drilling locations identified in the Merge 353 gross operated locations with an average working interest of 54% ~90% of asset value tied to acreage in oil fairway Western Anadarko Basin Cleveland Eastern Anadarko Basin Merge Acquisition Arkoma Basin Woodford Note: Operated acreage defined as sections where Company owns greater than 160 net acres. [1] Company internal estimate. 5

7 Merge Highlights Transformative Transaction Best in Class Returns Significant Upside Potential Provides scalable footprint in coveted STACK/SCOOP play Enriches cash flow profile with inventory of high return wells Well level returns among the best in lower 48 Allows Jones to leverage best in class Mid Con expertise in new play Multiple benches provide true stacked pay potential Potential to outperform type curve and lower well costs Significant de levering impact to company over time Attractive entry cost relative to recent transactions Expect to increase working interest through leasing, pooling, etc. 6

8 Industry View of STACK/SCOOP Play Play boundaries driven by geography, not geology Stratigraphic Column CANA STACK JONE Acreage in Merge Area OKC Mississipian Pennsylvanian Oswego Cherokee Morrow Springer Chester Meramec/ Upper Sycamore Osage/ Lower Sycamore SCOOP Devonian Woodford Silurian Hunton JONE Acreage Primary Targets Secondary Targets 7

9 Jones View of STACK/SCOOP Play Woodford productive fairway is continuous from north to south Jones acreage is in the heart of productive fairway Stratigraphic Column Woodford Fairway Meramec/Sycamore Fairway OKC Mississipian Pennsylvanian Oswego Cherokee Morrow Springer Chester Meramec/ Upper Sycamore Osage/ Lower Sycamore Devonian Woodford Silurian Hunton JONE Acreage Primary Targets Secondary Targets 8

10 Stacked Pay Potential with Four Targets Key Acreage Attributes Stacked pay potential High quality Woodford shale Primary initial target Oil rich Brittle mineralogy Emerging Sycamore resource Acquisition Acreage North STACK SCOOP CHESTER SHALE MERAMEC UPPER SYCAMORE South Top Seal Very similar in rock quality to Meramec to the North HUNTON OSAGE LOWER SYCAMORE WOODFORD Upper Lower Reservoir Targets 9

11 ON DEWEY CUSTER WASHITA KIOWA TILLMAN MAJOR BLAINE CADDO COMANCHE COTTON KINGFISHER CANADIAN GRADY GARFIELD STEPHENS McCLAIN LOGAN OKLAHOMA NOBLE CLEVELAND GARVIN CARTER PO MUR Jones View: Quality Over Quantity Reservoir Quality Index based on proprietary petrophysical analysis Identified key reservoir attributes that predict well performance based on data from thousands of wells, including: Porosity Mineralogy Brittleness Organic Content CANA STACK Woodford Productive Fairway Reservoir Quality Index (RQI) Map Reservoir rated on a scale of 0 to 10 RQI 10 SCOOP 0 JONE Acreage 10

12 Compelling Recent Well Results 1 Cimarex (9/2015) Gary 1H 3601X IP30: 1,180 BOE/D (52% oil) 2 Cimarex (9/2014) Straka 1H 36X IP30: 888 BOE/D (55% oil) CANADIAN 8 13 OKLAHOMA 10 Eagle Exploration (1/2016) Terry M H IP30: 926 BOE/D (75% oil) 11 Vitruvian (12/2015) Burnside 3 09X16H IP30: 1,939 BOE/D (11% oil) 3 Citizen (8/2015) Gov. James 1H 32 IP30: 2,074 BOE/D (70% oil) 4 Linn Energy (5/2016) Hinparr XH IP30: 2,180 BOE/D (73% oil) 5 Citizen (3/2016) Rikella 1H 16 9 IP: 665 BOE/D (85% oil) CADDO Newfield (5/2015) Williams 3H 7X IP30: 1,435 BOE/D (78% oil) 13 Marathon (7/2016) 1 11MH Hrdy IP30: 1,870 BOE/D (56% oil) 14 Citizen (11/2015) Rosemary 1H 1 36 IP30: 1,599 BOE/D (70% oil) 6 Citizen (4/2016) Anderson 1H 33 IP: 1,097 BOE/D (66% oil) 15 Citizen (1/2016) Rosemary 2H 1 36 IP30: 1,316 BOE/D (75% oil) 7 Citizen (6/2016) Toy Darrow 2H 8 17 IP30: 1,050 BOE/D (67% oil) GRADY Citizen (4/2016) Rikella 2H 16 9 IP: 1,140 BOE/D (70% oil) 8 Newfield (5/2015) Redhead 1H 9XX IP30: 1,120 BOE/D (76% oil) 11 McCLAIN 17 Cimarex (6/2016) Lydia 1 16H IP30: 1,000 BOE/D (44% oil) 9 Citizen (2/2016) Alma Lee Ezzard 1H IP30: 1,280 BOE/D (21% oil) Shading denotes new data points # # JONE Acreage JONE Pad Site Woodford Meramec/Sycamore Marathon (9/2016) McKinney MH IP30: 1,007 BOE/D (60% oil) 11

13 ON DEWEY CUSTER WASHITA KIOWA TILLMAN MAJOR BLAINE CADDO COMANCHE COTTON KINGFISHER CANADIAN GRADY GARFIELD STEPHENS McCLAIN LOGAN OKLAHOMA NOBLE CLEVELAND GARVIN CARTER PO MUR Resource Attracting Top Operators with Upside Potential Majority of acreage in oil window 9 industry rigs running in the Merge NFX, MRO, CLR, XEC, CHK, LINN, and Citizen Energy currently running rigs Upside potential from downspacing, pad development and stacked pay CANADIAN JONE Acreage Phase Boundary Active Industry Rigs JONE Rig OKLAHOMA Currently assuming average of 8 wells per section in the Woodford and 4 wells per section across multiple benches in the Sycamore/Meramec CADDO GRADY GRAD Y MC CLAIN 12

14 Cleveland Asset Supports the Base Maintaining 3 rig program in 2017 Cleveland still highly economic, competes for capital with Merge at current strip pricing Flexibility to reallocate capital if necessary 3Q16 addition of ~25,000 net acres for $26.3 million, overlaid with existing footprint 8 industry rigs running in the Cleveland, highest since September 2015 Existing JONE Cleveland Acreage Active Industry Rigs JONE Rigs 13

15 Drilling Faster than Ever in the Cleveland 50% decrease in Cleveland AFE since year end 2014 Vendor cost reductions and efficiency gains have resulted in savings Broken all previous drilling records since resuming Cleveland drilling in April 2016 Jones Cleveland AFE progression Average Spud to Spud $mm $4.0 $3.5 $3.0 $2.5 $2.0 $3.8 $2.6 $2.0 Days $1.5 $1.0 $0.5 $0.0 YE2014 Summer 2015 Current E Record 14

16 Best in Class Operating Costs YTD 3Q16 LOE decreased 27% from YTD 3Q15 Significant savings realized due to operational efficiencies and bid reductions Continues to be in a leader among peer group average LOE LTM LOE per Boe Significant YoY LOE Declines $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 JONE: $4.47 Peer Average: $ JONE LOE ($ mm) $35 $30 $25 $20 $15 $10 $5 $0 YTD 3Q15 27% decrease YTD 3Q16 Note: Peers include BBG, BCEI, CPE, CRZO, FANG, MTDR, NOG, OAS, PQ, REXX, RSPP, SGY, SN, SYRG and WPX. 15

17 Portfolio of Outstanding Returns Significant PV 10 uplift for Merge well relative to Cleveland well Single well IRRs of 60 90% at current strip and PV 10 of $5 11 million Outstanding Returns at Current Strip PV 10 ($mm) $12 $10 $8 $6 $4 $2 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% IRR $0 Cleveland well 5,000' lateral STACK/SCOOP oil well 10,000' lateral STACK/SCOOP oil well 0% PV 10 IRR Note: PV 10 based on internal type curve and D&C cost estimates on strip pricing as of 2/9/17. Well level IRRs based solely on D&C cost investment; does not include land, G&A, and other costs. 16

18 2017 Operating Plan and Capital Budget Plan to drill 26 gross (17 net) wells in the Merge Initiate Sycamore drilling in 2Q of 2017 Plan to drill 56 gross (45 net) wells in Cleveland Includes some long laterals Lease budget supports strong ground game Ramp to 3 rig Merge program 2017 drilling results ramp in 2018 production profile Additional cash flow generation and de levering results in Capital Budget ($ in millions) Merge Capital Expenditures Drilling and Completion JONE Operated $88 Non Operated and Other 22 Drilling and Completion Total $110 Leasing and Pooling 20 Total Merge Capital Expenditures $130 Cleveland Capital Expenditures Drilling and Completion $122 Leasing 5 Total Cleveland Capital Expenditures $127 Other Capital Expenditures $18 Total Capital Expenditures ($mm) $275 17

19 Jones Energy: Premier Mid Con Pure Play Decades of Mid Con Operating Expertise Premier Asset Base with Multi Year Inventory Balance Sheet & Liquidity to Facilitate Growth 18

20 APPENDIX

21 2017 Guidance and 1Q Production Guidance 2017E 1Q17E Total Production (MMBoe) Average Daily Production (MBoe/d) Crude Oil (MBbl/d) Natural Gas (MMcf/d) NGLs (MBbl/d) Lease Operating Expense ($mm) $45.0 $50.0 Production Taxes (% of Unhedged Revenue)* 4.5% 5.5% Ad Valorem Taxes ($mm)* $2.7 $3.0 Cash G&A Expense ($mm) $23.0 $25.0 Total Capital Expenditures ($mm) $275 *Production and ad valorem taxes are included as one line item on the Company s income statement. 20

22 Woodford Oil Window Type Curve 5,000 Lateral Oil Gas NGLs Total IP Bbl/d Mcf/d Bbl/d Boe/d 30 Day IP 420 1, Day IP 375 1, Cum. Production MBbl MMcf MBbl MBoe 1 year year year ,000 Production Profile 1,000 EUR 440 1, % of total 49% 27% 24% 100% Key Statistics Bbl/d Mcf/d % Liquids 73% % Oil 50% Gas Shrink 27% NGL Yield (Bbl/Mmcf) 110 Oil Differential ($/Bbl) ($4.00) Gas Differential ($/Mcf) ($1.60) Years 10 NGL Realization (% of WTI) 30% Fixed Opex ($/Mo./Well) $3,500 Oil NGLs Gas AFE ($mm) $4.0 Production Tax Gas/NGL (Yrs 1 3) 2.5% Production Tax Gas/NGL (Yrs 3+) 7.5% Production Tax Oil 4.6% 21

23 Western Anadarko Basin Inventory Hugoton Current Target Formations Lower Permian Wolfcampian Virgilian Brown Dolomite Chase / Council Grove Admire Upper Virgil Douglas Tonkawa 7500' Tonkawa Sandstone Lease Acreage: ~160,000 Gross Locations: 279 Cleveland play is >2 million acres Cottage Grove Pennsylvanian Morrowan Atokan Desmoinesian Missourian Hogshooter Checkerboard Cleveland 8500' Marmaton 9000' Oswego Cherokee Skinner Red Fork Atoka 13 Finger Lime Morrow SH Morrow SD Cleveland Sandstone Lease Acreage: ~212,000 Gross Locations: 788 Marmaton Sandstone Lease Acreage: ~115,000 Gross Locations: 473 JONE Acreage Note: All lease acreage and locations as of year end

24 Current Hedge Position 1Q17 2Q17 3Q17 4Q Oil Hedges Swaps Sold (MBbl) ,603 1, Price ($/Bbl) $68.44 $66.93 $65.09 $66.76 $66.85 $62.84 $64.96 Offset Swaps Purchased (MBbl)[1] Price ($/Bbl) $46.83 $48.57 Collars (MBbl) 810 Floor ($/Bbl) $48.52 Ceiling ($/Bbl) $59.64 Gas Hedges Swaps Sold (MMcf) 4,240 4,320 4,140 4,080 16,780 23,840 3,750 Price ($/Mcf) $3.99 $3.93 $3.88 $3.86 $3.98 $3.49 $3.50 Offset Swaps Purchased (MMcf)[1] 9,900 3,750 Price ($/Mcf) $2.81 $2.86 Collars (MMcf) 11,890 Floor ($/Mcf) $2.55 Ceiling ($/Mcf) $3.19 NGL Swaps (MBbl) Ethane Propane Iso Butane Butane Natural Gasoline Total NGLs ,378 NGL Swap Prices ($/Gal) Ethane Propane $0.44 $0.44 $0.44 $0.44 $0.44 Iso Butane Butane Natural Gasoline [1] Swaps purchased to crystalize $45mm gain 23

25 NGL Hedge Position Detail 1Q17 2Q17 3Q17 4Q Mont Belvieu NGL Swaps (MBbl) Propane Iso Butane Butane Natural Gasoline MB NGLs Mont Belvieu NGL Swap Prices ($/Gal) Propane $0.46 $0.46 $0.46 $0.46 $0.46 Iso Butane Butane Natural Gasoline Conway NGL Swaps (MBbl) Propane Iso Butane Butane Natural Gasoline CW NGLs ,155 Conway NGL Swap Prices ($/Gal) Propane $0.43 $0.43 $0.43 $0.43 $0.43 Iso Butane Butane Natural Gasoline

26 NGL Barrel Component Detail Cleveland Conway (79% of forecasted 2017 NGL production) Basket Ethane 31% Propane 37% Butane 13% Iso Butane 5% Natural Gasoline 14% Cleveland Natural Gasoline 14% Iso Butane 5% Butane 13% Propane 37% Ethane 31% Woodford Mont Belvieu (9% of forecasted 2017 NGL production) Basket Ethane* 13% Propane 46% Butane 19% Iso Butane 4% Natural Gasoline 18% *Assumes ethane rejection in the Woodford Woodford Natural Gasoline 18% Iso Butane 4% Butane 19% Propane 46% Ethane 13% 25

27 Corporate Structure Metalmark, Management & Other Investors Class B Common Stock 29.8 million shares 34% of voting power in Jones Energy, Inc. Class A Common Stock 57.2 million shares 66% of voting power in Jones Energy, Inc. Public Shareholders 34% of total economic interest of JEH LLC Jones Energy, Inc. (NYSE: JONE) 66% of total economic interest of JEH LLC Jones Energy Holdings, LLC (JEH LLC) 26