Lonestar Resources (LONE) Q2 Results

[dan_s]

SECOND QUARTER HIGHLIGHTS

Lonestar reported a 7% sequential increase in net oil and gas production during the three months ended June 30, 2017 ("2Q17"). Net oil and gas production averaged 5,635 Boe/d in the second quarter of 2017 compared to 5,266 Boe/d during three months ended March 31, 2017 ("1Q17"). The Company expects to grow production at an accelerated rate during the remainder of 2017 and 2018 as drilling activity accelerates on the Company's expanded acreage position.

Adjusted EBITDAX for the quarter ended June 30, 2017 increased 10% to $12.7 million, compared to $11.5 million for the quarter ended March 31, 2017. < Compares to my forecast of $13.2 million EBITDAX for Q2

On June 15, 2017, Lonestar closed its previously-announced acquisition of oil and gas properties in the Eagle Ford Shale play (from Sanchez Energy). After post-closing adjustments, Lonestar paid total consideration of $99 million in cash and approximately 2.7 million shares of Lonestar Series B preferred stock, which are convertible into 2.7 million Class A common shares. The properties, located in Karnes, Gonzales, DeWitt, Lavaca and Fayette Counties, Texas, had Proved reserves of approximately 25.4 million barrels of crude oil, 3.1 million barrels of natural gas liquids, and 17.5 billion cubic feet of natural gas, equating to 31.4 million barrels of oil equivalent ("MMBOE"), as estimated by Lonestar, as of December 31, 2016.

Lonestar estimates that net oil and gas production for the third quarter of 2017 will average between 7,600 Boe/d and 8,100 Boe/d, which would represent a sequential increase of 35 to 44% over our 2Q17 production.

Lonestar's Chief Executive Officer, Frank D. Bracken, III, stated, "The second quarter is a springboard for Lonestar. While the 2Q17 results minimally reflect the positive impact of our Eagle Ford Shale acquisitions, 3Q17 results will fully reflect their impact, as well as newly-completed wells. Moreover, as we assimilate our new acquisitions, we are increasingly confident in our ability to enhance the value of these assets by better managing the current producing assets and by applying Lonestar's technical abilities to drilling new wells on the properties. We are also encouraged by the apparent coming slowdown in drilling and completion activity disclosed by a number of industry participants which should result in more pliable energy service costs and better availability at a time when Lonestar expects to scale-up our drilling and completion program. In summary, we accomplished much in the first half of 2017, as we significantly grew Lonestar through acquisitions, had exceptional drilling results, and greatly strengthened our financial position and locked-in cash flow and returns by hedging. As a result, we are well-positioned to build shareholder value into the second half of 2017 and beyond."

Production growth was the result of the addition of the Wildcat B1H well (50% WI) in May, and the inclusion of the recent acquisitions for 15 days of the second quarter.

2Q17 production volumes consisted of 3,564 barrels of oil per day (63%), 1,004 barrels of NGLs per day (18%), and 6,402 Mcf of natural gas per day (19%). The Company's production mix for the second quarter of 2017 was 81% liquid hydrocarbons. While 2Q17 production volumes increased 7%, crude oil production increased 10% sequentially, further improving the profitability of Lonestar's production.

During the quarter ended June 30, 2017, Lonestar placed 1.0 gross / 0.5 net wells onstream. Lonestar has placed 2 gross / 2 net wells online at Cyclone thus far in 3Q17, and anticipates placing an additional 2 gross / 2 net wells at Cyclone later in 3Q17.

Lonestar's operating cost structure saw modest sequential increases in the three months ended June 30, 2017, which was predominately caused by the Marquis and Battlecat acquisitions and several non-recurring charges:

Since its inception, Lonestar has implemented a strategy using commodity derivatives to reduce financial risk and create a higher degree of certainty to our cash flows and our returns. As part of this ongoing strategy, Lonestar entered into additional WTI crude oil swaps across 2017, 2018, and 2019.

Subsequent to the end of the second quarter:

Lonestar reported a net loss attributable to its common stockholders of $23.5 million, or ($1.07) per weighted average share, during the three months ended June 30, 2017. Excluding, on a tax-adjusted basis, certain items that the Company does not view as either recurring or indicative of its ongoing financial performance, our adjusted net loss for 2Q17 was $1.2 million, or ($0.06) per common share. < Adjusted net loss compares to my forecast of ($0.27) per share.

Difference between "Reported Earnings" and "Adjusted Earnings":
1) During the three months ended June 30, 2017, the Company recorded an impairment charge of approximately $27.1 million relating to its West Poplar property located in Montana. Upon completion of the Company's recent acquisitions in the Eagle Ford Shale, the Company expects to direct virtually all of its capital expenditures towards development of its Eagle Ford Shale properties. Given the reduced likelihood of directing capital towards to the West Poplar asset, the Company fully impaired the asset in the second quarter;
2) Lonestar expensed $2.7 million in investment banking fees related to its recently announced Eagle Ford Shale property acquisitions;
3) the Company expensed $2.8 million related to the early extinguishment of its second lien notes;
4) the Company recognized a $3.8 million non-cash gain on our commodity derivative contracts related to the change in the mark-to-market value of our derivative contracts.

[dan_s]

From 10Q: Liquidity and Capital Resources

We expect that our primary sources of liquidity and capital resources will be cash flows generated by operating activities and
borrowings under our $500,000,000 Senior Secured Credit Facility (the “Senior Secured Credit Facility”).

We have historically financed our acquisition and development activity through cash flows generated by operating activities,
borrowings under our Senior Secured Credit Facility, and the issuance of bonds. As circumstances warrant, we may access the capital
markets and issue equity or debt from time to time on an opportunistic basis in a continued effort to optimize our balance sheet and to
fund our operations and capital expenditures in the future, dependent upon market conditions and available pricing. Such uses of
proceeds may include repayment of our debt, development or acquisition of additional acreage, and general corporate purposes. There
can be no assurance that future funding transactions will be available on favorable terms, or at all, and we therefore cannot guarantee
the outcome of any such transactions.

At June 30, 2017, we had $6.6 million in cash and cash equivalents and approximately $43 million of additional availability
under our Senior Secured Credit Facility. We believe that our existing cash and cash equivalents, cash expected to be generated from
operations and the availability of borrowing under our Senior Secured Credit Facility will be sufficient to meet our liquidity
requirements, anticipated capital expenditures and payments due under our existing credit facility and notes outstanding for at least the
next 12 months.

Based on my forecast, Cash Flow From Operations s/b approximately $25 million in 2H 2017. This s/b enough to cover most of their capex spending.

[dan_s]

I have updated my forecast model of Lonestar and posted it to the EPG website, under the Small-Cap tab.

My forecast assumes a one rig program through the remainder of this year and a two rig program in 2018. I expect them to add a rig on the properties acquired from Sanchez.

My valuation remains $14.00/share, which compares to First Call's price target of $7.81.

My confidence in the forecast model for Lonestar continues to increase and I could justify a higher valuation. Cash flow from operations s/b around $1.00 the next two quarters and jump to $3.00/share in 2018. Much of it is locked in by hedges.

First Calls' cash flow per share from operations forecasts are:
$1.78 for 2017
$2.77 for 2018

[davidc257]

Lone is getting severely bashed today - why more so than others?

[dan_s]

On any given day, the only reason is that there are more sellers than buyers.

[cmm3rd]

COO Schneider on 8/23 filed a Form 4 reporting an open market purchase of 7,200 shares at $2.88 on 8/23.