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Erin Energy Announces Second Quarter 2017 Results

August 09, 2017

Provides Operational Update on its West and East Africa Operations

HOUSTON--(BUSINESS WIRE)-- Erin Energy Corporation (Erin Energy or the Company) (NYSE MKT:ERN) (JSE:ERN) announced today financial and operational results for the quarter ended June 30, 2017.

Second Quarter Highlights:

  • Crude sales volumes of more than 309,000 net barrels of oil;
  • $14.6 million in revenue;
  • Average daily production of 5,100 net barrels of oil.

“During the second quarter, we produced more than 420,000 net barrels of oil and generated revenues of approximately $15 million,” said Femi Ayoade, Chief Executive Officer.

“We closed on our farm-out with FAR in The Gambia and completed preparations for our drilling campaign, which we plan to commence this week. We are excited to begin our drilling campaign, increase Oyo production, and look to turn to the exploration of the Miocene in Nigeria.”

Operational Update

Production volumes for the quarter were approximately 5,100 net barrels of oil compared to approximately 5,400 net barrels in the comparative period 2016. The Company’s crude oil inventory was approximately $8.9 million at June 30, 2017.

The Pacific Bora drilling rig arrived on the Oyo field on August 1 and will commence drilling of the Oyo-9 well within the week. The well is expected to add an additional 6,000 to 7,000 barrels of oil per day from the field.

The Company has the option to drill up to two additional wells with the Pacific Bora. Subject to capital availability, the Company will use the Pacific Bora to drill one to two of its Miocene exploration prospects. Erin Energy has four drill-ready prospects, which target P50 Prospective Resources of 2.4 billion barrels of oil.

In The Gambia, the Company closed on its farm-out agreement with FAR Ltd. (FAR), an Australian Securities Exchange listed oil and gas company. As part of the farm-out agreement, FAR acquired an 80% interest and the operatorship of offshore A2 and A5 blocks, with the Company retaining a 20% working interest in both blocks. Under the terms of the farm-out agreement, FAR will carry $8.0 million of the Company’s share of costs in a planned exploration well to be drilled in late 2018. In addition, if the Company’s share of the exploration well is less than $8.0 million, the balance is to be paid in cash to the Company.

In Kenya, the Company continues to evaluate the prospectivity of identified leads on its onshore blocks and is currently designing an additional, targeted 2-D seismic acquisition on the blocks.

In Ghana, Erin Energy continues to conduct geotechnical subsurface studies of existing 3-D seismic data to further high-grade its prospect inventory on the Expanded Shallow Water Tano block. The Company is also planning a new 3-D marine seismic acquisition survey. The Company expects to issue a formal invitation to tender to marine seismic vendors during the second half of 2017. Actual field operations will take place after the resolution of the Ghana-Cote d’Ivoire maritime border dispute arbitration later this year.

Financial Summary

Second-quarter 2017 revenues were $14.6 million compared to $23.2 million in the second-quarter 2016.

For the second-quarter 2017, net daily production was approximately 5,100 bopd, compared with 5,400 bopd for the comparative period in 2016. The Company lifted and sold approximately 309,000 net barrels of oil at an average price of $47.15 per barrel, compared to approximately 508,000 net barrels of oil at an average price of $45.58 per barrel during the comparative period 2016.

In the second-quarter 2017, the Company reported a net loss of $(98.6) million, or a loss of $(0.46) per basic and diluted share, primarily as a result of a non-cash impairment of its oil and gas properties of $78.7 million, compared to a net loss of $(22.6) million, or a loss of $(0.11) per basic and diluted share for the comparative period 2016. When adjusted for certain items that impact the comparability of results, the Company had an adjusted net loss(1) of $(7.6) million or $(0.04) loss per basic and diluted share.

As of June 30, 2017, cash, cash equivalents and restricted cash were approximately $23.2 million.

(1) Non-GAAP financial measures. Please see attached Appendix A for the reconciliations of adjusted net loss and adjusted net loss per share.

Conference Call and Webcast Information

The Company will host a conference call on Thursday, August 10, 2017 at 10:00 a.m. CT (11:00 ET) to discuss the results and update its current operations.

The dial-in number to access the conference call is 1-844-883-3907 in the United States or 1-412-317-9253 internationally. Participants should ask the call operator to be placed on the “Erin Energy Results Conference Call.”

For those unable to participate in the Company’s conference call, a replay will be available for audio playback until August 17, 2017. The number to access the conference call replay is 1-877-344-7529 or outside the US 1-412-317-0088. The passcode for the replay is 10111006.

Erin Energy Corporation is an independent oil and gas exploration and production company focused on energy resources in sub-Saharan Africa. Its asset portfolio consists of 7 licenses across 4 countries covering an area of 19,000 square kilometres (~5 million acres), including current production and other exploration projects offshore Nigeria, as well as exploration licenses offshore Ghana and The Gambia, and onshore Kenya. Erin Energy is headquartered in Houston, Texas, and is listed on the New York and Johannesburg Stock Exchanges under the ticker symbol ERN.

For more information about Erin Energy or to request a hard copy of the Company’s most recent complete audited financial statements free of charge, please call +1 713 797 2940 or visit www.erinenergy.com.

Non-GAAP Financial Measures

Adjusted net loss and adjusted net loss per share are supplemental non-GAAP financial measures used by management and external users of the Company's consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines adjusted net loss as net loss excluding certain non-cash and non-recurring items, including non-cash changes in the fair value of assets, non-cash and non-recurring charges. The Company defines adjusted net loss per share as adjusted net loss per common share attributable to Erin Energy Corporation. We believe adjusted net loss and adjusted net loss per share are useful to investors because they provide investors with a more meaningful measure of our profitability before recording certain items for which the timing or amount cannot be reasonably determined. However, these measures are provided in addition to, not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP. Our computations of adjusted net loss and adjusted net loss per share may not be comparable to other similarly titled measures of other companies. The attached table presents a reconciliation of net loss and net loss per share, the most directly comparable GAAP financial measures, to adjusted net loss and adjusted net loss per share, respectively, for the periods indicated.

Forward-Looking Statements

This news release 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 1934. All statements, other than statements of historical fact, concerning activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Although the Company believes the expectations reflected in these forward-looking statements are reasonable, they involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect.

The Company’s actual results could differ materially from those anticipated or implied in these forward-looking statements due to a variety of factors, including the Company’s ability to successfully finance, drill, produce and/or develop the wells and prospects identified in this release, and risks and other risk factors discussed in the Company’s periodic reports filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. You should not place undue reliance on forward-looking statements, which speak only as of their respective dates. The Company undertakes no duty to update these forward-looking statements.

   

ERIN ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 
Three Months Ended June 30, Six Months Ended June 30,
2017   2016 2017   2016
Revenues:
Crude oil sales, net of royalties $ 14,588   $ 23,151   $ 45,866   $ 28,080  
 
Operating costs and expenses:
Production costs 14,635 22,123 37,190 44,687
Crude oil inventory (increase) decrease (3,031 ) 729 (83 ) (102 )
Workover expenses (713 ) 7,585 (713 ) 7,585
Exploratory expenses 802 1,200 2,398 3,262
Depreciation, depletion and amortization 11,759 14,856 37,170 19,668
Accretion of asset retirement obligations 478 461 945 913
Impairment of oil and gas properties 78,711 78,711
Loss on settlement of asset retirement obligations 205
General and administrative expenses 3,278   3,396   6,672   7,354  
Total operating costs and expenses 105,919   50,350   162,290   83,572  
 
Operating loss (91,331 ) (27,199 ) (116,424 ) (55,492 )
 
Other income (expense):
Currency transaction gain 1,350 10,465 3,485 11,328
Interest expense (10,908 ) (5,954 ) (14,874 ) (11,379 )
Loss on disposal of other property and equipment (149 ) (149 )
Gain on sale of oil and gas properties 2,348 2,348
Gain on fair value of derivative liability 37     37    
Total other expense, net (7,322 ) 4,511   (9,153 ) (51 )
 
Loss before income taxes (98,653 ) (22,688 ) (125,577 ) (55,543 )
Income tax expense        
Net loss before non-controlling interest (98,653 ) (22,688 ) (125,577 ) (55,543 )
 
Net loss attributable to non-controlling interest 88   116   505   560  
 
Net loss attributable to Erin Energy Corporation $ (98,565 ) $ (22,572 ) $ (125,072 ) $ (54,983 )
 
Net loss attributable to Erin Energy Corporation per common share:
Basic $ (0.46 ) $ (0.11 ) $ (0.59 ) $ (0.26 )
Diluted $ (0.46 ) $ (0.11 ) $ (0.59 ) $ (0.26 )
Weighted average common shares outstanding:
Basic 213,297 212,290 213,070 212,067
Diluted 213,297 212,290 213,070 212,067
   

ERIN ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except for share and per share amounts)

 
June 30,
2017

December 31,

2016

ASSETS
Current assets:
Cash and cash equivalents $ 10,654 $ 7,177
Restricted cash 12,600 2,600
Accounts receivable - partners 5,279 674
Accounts receivable - related party 2,427 1,956
Accounts receivable - other 5 29
Crude oil inventory 8,879 9,398
Prepaids and other current assets 4,627   872  
Total current assets 44,471   22,706  
 
Property, plant and equipment:
Oil and gas properties (successful efforts method of accounting), net 145,944 265,713
Other property, plant and equipment, net 481   716  
Total property, plant and equipment, net 146,425   266,429  
 
Other non-current assets 35   66  
 
Total assets $ 190,931   $ 289,201  
 
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities $ 249,846 $ 244,963
Accounts payable and accrued liabilities - related party 32,708 29,513
Current portion of long-term debt, net 41,937 12,627
Derivative liability 656    
Total current liabilities 325,147   287,103  
 
Long-term notes payable - related party, net 129,812 129,796
Long-term debt, net 61,778 74,446
Asset retirement obligations 23,421   22,476  
 
Total liabilities 540,158   513,821  
 
Commitments and contingencies (Note 9)
 
Capital deficiency:
Preferred stock $0.001 par value - 50,000,000 shares authorized; none issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
Common stock $0.001 par value - 416,666,667 shares authorized; 213,564,393 and 212,622,218 shares outstanding as of June 30, 2017 and December 31, 2016, respectively 214 213
Additional paid-in capital 794,179 792,972
Accumulated deficit (1,143,364 ) (1,018,292 )
Treasury stock at cost, 304,481 and 99,932 shares as of June 30, 2017 and December 31, 2016, respectively (936 ) (228 )
Total deficit - Erin Energy Corporation (349,907 ) (225,335 )
Non-controlling interest 680   715  
Total capital deficiency (349,227 ) (224,620 )
Total liabilities and capital deficiency $ 190,931   $ 289,201  
 

ERIN ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 
Six Months Ended June 30,
2017   2016
Cash flows from operating activities
Net loss, including non-controlling interest $ (125,577 ) $ (55,543 )
 
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation, depletion and amortization 37,170 19,668
Accretion of asset retirement obligations 945 913
Impairment of oil and gas properties 78,711
Amortization of debt discount and debt issuance costs 2,142 1,789
Unrealized foreign currency transaction gain (1,014 ) (8,686 )
Loss on disposal of other property and equipment 149
Gain on sale of oil and gas properties (2,348 )
Gain on fair value of derivative liability (37 )
Settlement of accounts payable and accrued expenses (6,166 )
Share-based compensation 1,207 1,619
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (504 ) 603
Increase in crude oil inventory (83 ) (102 )
Increase in prepaids and other current assets (3,724 ) (688 )
Increase in accounts payable and accrued liabilities 23,508   41,895  
Net cash provided by operating activities 4,379   1,468  
 
Cash flows from investing activities
Capital expenditures (5,747 ) (9,667 )
Net cash used in investing activities (5,747 ) (9,667 )
 
Cash flows from financing activities
Proceeds from exercise of stock options and warrants 167
Payments for treasury stock arising from withholding taxes upon restricted stock vesting and exercise of stock options (708 ) (192 )
Proceeds from MCB Finance Facility 24,443
Repayments of term loan facility (235 ) (5,981 )
Proceeds from short-term notes payable 504
Proceeds from notes payable - related party, net 6,129
Debt issuance costs (8,655 ) (693 )
Funds restricted for debt service (10,000 )
Funds released from restricted cash   8,661  
Net cash provided by financing activities 4,845   8,595  
 
Net increase in cash and cash equivalents 3,477 396
Cash and cash equivalents at beginning of period 7,177   8,363  
Cash and cash equivalents at end of period $ 10,654   $ 8,759  
 
Supplemental disclosure of cash flow information
Cash paid for:
Interest, net of amounts capitalized $ 4,769 $ 5,680
Supplemental disclosure of non-cash investing and financing activities:
Discount on notes payable pursuant to issuance of warrants $ 693 $ 53
Reduction in oil and gas properties arising from settlements of accounts payable and accrued liabilities $ 11,051 $
 

Appendix A

 

ERIN ENERGY CORPORATION

ADJUSTED NET LOSS AND ADJUSTED NET LOSS PER SHARE

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended
June 30
Six Months Ended
June 30
2017   2016 2017   2016
Net loss to Adjusted net loss reconciliation:
Net loss attributable to Erin Energy Corporation $ (98,565 ) $ (22,572 ) $ (125,072 ) $ (54,983 )
Add:
Depreciation, depletion and amortization 12,237 15,317 38,115 20,581
Impairment of oil and gas properties   78,711     -     78,711     -  
Adjusted net loss $ (7,617 ) $ (7,255 ) $ (8,246 ) $ (34,402 )
 
Net loss per share attributable to Erin Energy Corporation - basic and diluted $ (0.46 ) $ (0.11 ) $ (0.59 ) $ (0.26 )
Add: Impact of adjustments $ 0.43   $ 0.07   $ 0.55   $ 0.10  
Adjusted net loss per common share attributable to Erin Energy Corporation - Basic and diluted $ (0.03 ) $ (0.04 ) $ (0.04 ) $ (0.16 )
 
Weighted-average common shares outstanding:
Basic 213,297 212,290 213,070 212,067
Diluted 213,297 212,290 213,070 212,067

Source: Erin Energy Corporation

Erin Energy Corporation

Lionel McBee, 1 713-797-2960

Director, Investor Relations and Corporate Communications

lionel.mcbee@erinenergy.com

Prospective and Contingent Resource Disclaimer

This Competent Person’s Report contains estimates of "prospective resources" and "contingent resources." The Securities and Exchange Commission ("SEC") permits oil and gas companies, in their filings with the SEC, to disclose only “reserves,” as that term is defined under SEC rules.

Prospective resources are those quantities of petroleum estimated, as at a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Contingent resources are those quantities of petroleum estimated, at a given date, to be potentially recoverable from known accumulations, but the applied projects are not yet considered mature enough for commercial development due to one or more contingencies.

Prospective resources have both an associated chance of discovery and a chance of development, while contingent resources have an associated chance of development. Investors should not assume there will be any discovery associated with prospective resources, or that any discovery or any contingent resources will be economically drillable or ever be upgraded into reserves.

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