Rosehill Resources Inc. Completes Initial Delaware Basin Acreage Acquisition and Provides 2018 Guidance

HOUSTON, Dec. 14, 2017 (GLOBE NEWSWIRE) — Rosehill Resources Inc. (“Rosehill” or the “Company”) (NASDAQ:ROSE) (NASDAQ:ROSEW) today announced that it has completed its previously announced acquisition of 4,565 net acres and certain producing oil and gas properties in the Southern Delaware Basin for $78 million. This transaction nearly doubles the Company’s total net acreage to 9,200 net acres with the potential for additional acreage acquisitions through March 8, 2018, under the terms of the agreement. Additionally, the Company announced its 2018 guidance and preliminary 2019 forecast. 

Highlights:

  • Purchase price of $78 million for the initial identified 4,565 net acres, which includes producing properties with limited production of 40 barrels of oil equivalent (BOE) per day;
  • Rosehill may acquire up to an additional 4,500 net acres under the same terms, subject to certain conditions;
  • Acquisition acreage has a high average working interest of approximately 86% with all acreage held by production or by lease term through at least 2020;
  • Increases horizontal drilling potential by over 160 gross locations on the initial acreage, with opportunities in multiple Wolfcamp A, Wolfcamp B and Bone Spring horizons; additional upside potential from deeper Wolfcamp and Woodford horizons and from shallower Avalon horizons;
  • Establishes second core operating area in the Delaware Basin in northwestern Pecos County and enhanced size and scale allows for operational efficiencies;
  • Contiguous acreage position enables 7,500 to 10,000 foot laterals, which can significantly improve well economics;
  • 2018 production and Adjusted EBITDAX guidance up over 175% and 225%, respectively, compared to the midpoint of 2017 guidance; 
  • Preliminary 2019 production and Adjusted EBITDAX forecast provides growth of 50% over midpoint of 2018 guidance;
  • 2018 capital investment program of $350 million to $375 million (approximately 80-85% to fund drilling and completion); and
  • Surpassed 9,000 net BOE per day of production in early December (73% oil and 82% total liquids), while continuing completion and first production activities on six additional wells

J.A. (Alan) Townsend, Rosehill’s President and Chief Executive Officer, commented, “We are excited to close the acquisition of the initial identified acreage in Pecos County.  This acquisition provides meaningful growth to our portfolio by nearly doubling our acreage and drilling locations, with further growth through additional acreage purchases from the seller over the next 90 days. We are very encouraged by continued improvement in offset operator results and our geological assessment indicates an anomalously thick Wolfcamp A/B interval in and around the acquisition area.”

Townsend added, “We continue to see strong early results from our operational activities in Loving County. Our recent production rate of over 9,000 BOE per day, has us on target to surpass 10,000 net BOE per day as we enter into 2018. We believe there is tremendous upside in our Delaware Basin assets and we remain focused on delivering value-adding growth by executing on our plan. Our operational plan for 2018 and preliminary forecast for 2019 is fully funded within existing liquidity and anticipated growth in our borrowing base. We are very excited about the trajectory of our production and EBITDAX growth, and we are committed to adding value for our shareholders.”

Acquisition Financing

The Company secured financing for the transaction from certain private funds and accounts managed by EIG Global Energy Partners, LLC (collectively, “EIG”). The financing package includes a $100 million senior secured second lien note and $150 million of redeemable Series B preferred stock, with an additional $50 million in redeemable Series B preferred stock to be issued at the Company’s option.  The proceeds were used to fund the acquisition of the initial identified 4,565 net acres, to fully repay all amounts outstanding under the Company’s revolving credit facility, and to pay related financing costs. The remaining proceeds will be used to fund any portion of the additional acreage the Company may acquire as part of the transaction and to fund capital development. 

The secured second lien note has an interest rate of 10% per annum to be paid quarterly in cash and was issued at 97% of par. The note matures in January 2023 and can be prepaid at Rosehill’s option.

The Series B preferred stock has a dividend rate of 10% per annum to be paid quarterly in cash, with a Company option to pay the dividend in kind up to 40% of the first four quarterly dividends.  The Series B preferred stock is redeemable at any time at Rosehill’s option at various return thresholds and at EIG’s option after the sixth year outstanding and under other certain circumstances at the same return thresholds.

KLR Group, LLC acted as financial advisor to the Company. Vinson & Elkins L.L.P. acted as legal counsel to the Company in connection with the acquisition and related financing, and Haynes & Boone, LLP acted as legal counsel to the Company in connection with related revolving credit facility matters.  Kirkland & Ellis LLP acted as legal counsel to EIG.

2018 Guidance and Preliminary 2019 Forecast

Rosehill’s projections for the fiscal years ended December 31, 2018 and 2019 are provided below.  The 2018 guidance assumes the Company will utilize a two-rig drilling program for the first three quarters of 2018, with a third rig to be added during the fourth quarter, and a dedicated frac crew for the full year. The preliminary 2019 forecast assumes the Company will continue to utilize a three-rig drilling program and a dedicated frac crew. The Company expects to drill between 50 and 54 wells in 2018, completing between 42 and 46 wells. The Company expects to enter 2018 with six to eight drilled uncompleted wells (“DUCs”) and to exit 2018 with 12 to 16 DUCs.

  2018 Guidance 2019 Forecast
     
Price Assumptions WTI/HH (1) $55 / $3.00 $55 / $3.00
Total Capital ($MM) (2) $350 – $375 $400 – $475
Production (BOEPD) 15,500 – 17,000 23,000 – 25,500
Adjusted EBITDAX ($MM) (3) $170 – $190 $260 – $280
Debt/Adjusted EBITDAX 1.4x – 1.6x 1.5x – 1.8x

(1) Amounts represent WTI crude and Henry Hub natural gas prices utilized for projections. NGLs estimated at 33% of WTI.

(2) Approximately 80 – 85% of total capital is drilling and completion; total capital does not include any additional acreage that the Company may acquire from the seller as part of the announced acquisition.  

(3) Adjusted EBITDAX is a non-GAAP financial measure.  For a discussion of Adjusted EBITDAX and a reconciliation to its nearest GAAP measure, please see “Non-GAAP Measures.”

 A presentation updated with additional details regarding the closing of the acquisition is available on the Company’s website www.rosehillresources.com in the news and media section.

About Rosehill Resources Inc.

Rosehill Resources Inc. is an oil and gas exploration company with producing assets in Texas and New Mexico with its investment activity focused on the Delaware Basin portion of the Permian Basin. The Company’s strategy for growth includes the organic development of its two core acreage areas in Loving and Lea counties, and Pecos and Reeves counties, as well as focused acquisitions in the Delaware Basin.

Forward-Looking Statements

This communication includes certain statements that may constitute “forward-looking statements” for purposes of the federal securities laws. All statements, other than statements of historical fact included in this communication, regarding our opportunities in the Delaware Basin, our strategy, future operations, financial position, estimated results of operations, future earnings, future capital spending plans, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “guidance,” “forecast” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

You should not place undue reliance on these forward-looking statements. Although the Company believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements in this communication are reasonable, no assurance can be given that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to, its ability to acquire additional acreage from the sellers pursuant to the acquisition purchase agreement, the ultimate timing, outcome and results of integrating the acquired assets into its business and its ability to realize the anticipated benefits, commodity price volatility, inflation, lack of availability of drilling and completion equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks and uncertainties discussed under Risk Factors in the Company’s Registration Statement on Form S-3, as amended, filed with the SEC on June 14, 2017, and in other public filings with the Securities and Exchange Commission (the “SEC”) by the Company. The Company’s SEC filings are available publicly on the SEC’s website at www.sec.gov. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. All forward-looking statements speak only as of the date of this communication.  Except as otherwise required by applicable law, the Company disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this communication.

Non-GAAP Measures

Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by Rosehill’s management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines Adjusted EBITDAX as net income (loss) before interest expense, income taxes, depreciation, depletion, and amortization, accretion and impairment of oil and natural gas properties, (gains) losses on commodity derivatives excluding net cash receipts (payments) on settled commodity derivatives, gains and losses from the sale of assets, transaction costs incurred in connection with the Transaction and other non-cash operating items. Adjusted EBITDAX is not a measure of net income as determined by United States generally accepted accounting principles (“U.S. GAAP”).

Management believes Adjusted EBITDAX is useful because it allows for more effective evaluation and comparison of our operating performance and results of operations from period to period without regard to our financing methods or capital structure. Rosehill excludes the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within the industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with U.S. GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. Rosehill’s computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

We have provided below a reconciliation of Adjusted EBITDAX to net income, the most directly comparable GAAP financial measure.

$ – thousands 2017 Guidance   2018 Guidance   2019 Forecast
                       
Net income (loss) $ 4,342   $ 13,642     $ 51,000 $ 58,000   $ 78,000 $ 86,000
Interest expense, net   1,000     1,500       13,000   17,000     21,000   26,000
Income tax expense   700     900       8,000   10,000     11,000   13,000
Depreciation, depletion, amortization and accretion   40,000     45,000       98,000   105,000     150,000   155,000
Transaction costs   2,469     2,469                  
(Gain) loss on commodity derivative instruments, net   (3,202 )   (3,202 )                
Net cash received (paid) in settlement of commodity derivative instruments   (309 )   (309 )                
Inventory write down                          
Gain on sale of other assets                          
Adjusted EBITDAX $ 45,000   $ 60,000     $ 170,000 $ 190,000   $ 260,000 $ 280,000
                       

Contact Information:

Alan Townsend
President and Chief Executive Officer
281-675-3400

Craig Owen
Chief Financial Officer
281-675-3400

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