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Rosehill Resources Inc. Reports Fourth Quarter and Full Year 2019 Results

HOUSTON, April 14, 2020 /Globe Newswire/ -- Rosehill Resources Inc. (“Rosehill” or the “Company”) (NASDAQ: ROSE, ROSEW, ROSEU) today reported financial and operational results for the fourth quarter and year ended December 31, 2019.

Fourth Quarter 2019 and Current Highlights:

Average net production of 22,157 barrels of oil equivalent per day (“BOEPD”) (72% oil and 86% total liquids)

Reported a net loss attributable to Rosehill of $17.5 million, or $1.15 per diluted share, for the fourth quarter of 2019, which includes a $22.7 million non-cash, pre-tax loss on commodity derivative instruments

Delivered Adjusted EBITDAX (a non-GAAP measure defined and reconciled below) of $57.2 million

Reduced combined lease operating and general and administrative expenses (“LOE” and “G&A,” respectively), excluding stock-based compensation, per barrel of oil equivalent (“BOE”) by $2.07, or 21%, compared to third quarter of 2019

Reduced capital expenditures to $37 million in the fourth quarter of 2019 compared to $57 million in the third quarter of 2019

In early February, placed a three-well pad online on the Kyle 26 lease that achieved a combined IP30 of 1,067 BOEPD per well, or 241 BOEPD per 1,000 feet, and 79% oil

In March, placed a five-well pad online on the Z&T 32 lease in Northern Delaware targeting the 2nd Bone Spring Sand interval

Commodity derivative portfolio projected settlement value of approximately $153 million and mark-to-market value of approximately $137 million, both as of April 9, 2020

In March, halted all drilling and completion activity in light of recent deteriorating global markets and commodity prices

The Company is exploring strategic alternatives in support of its objectives to maximize value, position the Company for long-term growth and deleverage its balance sheet, including among other things, a financial restructuring or other deleveraging transaction

Full Year 2019 Highlights

Average net production to 20,786 BOEPD (71% oil and 86% total liquids), an increase of 13% compared to 2018

Reported a net loss attributable to Rosehill of $23.3 million, or $1.61 per diluted share, which included a $50.7 million non-cash, pre-tax loss on commodity derivative instruments

Delivered Adjusted EBITDAX (a non-GAAP measure defined and reconciled below) of $196.7 million

Decreased capital expenditures to $238 million, a reduction of $135 million, compared to 2018











Management Comments

David French, Rosehill’s President and Chief Executive Officer, commented, “We continue to be responsive to developments in the current difficult commodity price environment as demonstrated by our recent decision to halt all drilling and completion activities and recent significant staff reduction. This staffing reduction represents approximately $11 million of direct cash general and administrative costs on an annual basis relative to 2019 levels.  Although 2019 cash operating cost levels were held to just over $10 per BOE and operating margins were nearly $30 per BOE, we have elected to withdraw 2020 guidance that we issued in December 2019 until recent market conditions stabilize.  Our focus will be pursing all avenues to manage field costs and dispatching the most economic barrels throughout 2020. 

Operational Results

For the fourth quarter of 2019, the Company’s net production averaged 22,157 BOEPD, comprised of 15,843 barrels of oil per day, 3,187 barrels of natural gas liquids (“NGLs”) per day and 18.8 million cubic feet of gas (“MMCF”) per day. Rosehill drilled seven horizontal wells and completed three wells, ending the quarter with five drilled uncompleted wells.

For the full year 2019, the Company’s net production averaged 20,786 BOEPD, comprised of 14,825 barrels of oil per day, 3,060 barrels of NGLs per day and 17.4 MMCF per day. Rosehill drilled 27 horizontal wells and completed 30 wells. On March 19, 2020, the Company announced that it halted future drilling and completion activity for 2020 and had drilled eight wells and completed eight wells to date in 2020.

Northern Delaware - In the Northern Delaware area, the Company drilled six wells and completed two wells in the fourth quarter, bringing the total completed well count for the full year 2019 to 17 wells. The results for certain recently connected wells, along with additional results for wells previously reported, are presented in the table below.
 
BOEPD per
 
Well
Formation
Period
BOEPD
1,000’ LL
Oil %
Kyle 26 B011, B015, A006
2nd Bone Spring - Sand
IP30 (average)
1,067
241
79%
Kyle 26 B007, A001, B001
Lower Wolfcamp A
IP180 (average)
1,089
237
75%
Z&T 32 A005, B006, C006
2nd Bone Spring - Sand
IP180 (average)
682
158
73%

Southern Delaware - In the Southern Delaware, the Company drilled and completed one well in the fourth quarter, bringing the total completed well count for the full year 2019 to 13 wells. The results for certain wells are presented in the table below.
 
BOEPD per
 
Well
Formation
Period
BOEPD
1,000’ LL
Oil %
State Neal Lethco 1210 H001
Wolfcamp A
IP60
516
54
92%
Neal Lethco 41 H5
2nd Bone Spring
IP180
567
132
67%

Financial Results

For the fourth quarter of 2019, the Company reported a net loss attributable to Rosehill of $17.5 million, or $1.15 per diluted share, as compared to net income of $50.2 million, or $2.35 per diluted share, in the fourth quarter of 2018. The fourth quarter of 2019 included a $22.7 million non-cash, pre-tax loss on commodity derivative instruments compared to a $199.4 million non-cash, pre-tax gain on commodity derivative instruments in the fourth quarter of 2018.

For the full year 2019, the Company reported a net loss attributable to Rosehill of $23.3 million, or $1.61 per diluted share, as compared to net income of $26.7 million, or $1.76 per diluted share, in the same period in 2018. The full year 2019 included a $50.7 million non-cash, pre-tax loss on commodity derivative instruments and an $11.1 million pre-tax gain on sale of assets. The full year 2018 included a $108.1 million non-cash, pre-tax gain on commodity derivative instruments.

Adjusted EBITDAX totaled $57.2 million for the fourth quarter of 2019, as compared to $63.6 million in the fourth quarter of 2018. This decrease of 10% was driven primarily by lower production and lower commodity pricing for natural gas and natural gas liquids. Adjusted EBITDAX for full year 2019 was $196.7 million, down from $204.4 million for the same period in 2018. This decrease of 4% was driven primarily by lower commodity pricing for oil, natural gas, and natural gas liquids.




For the fourth quarter of 2019, average realized prices (all prices excluding the effects of derivatives) were $55.07 per barrel of oil, $0.74 per Mcf of natural gas and $11.04 per barrel of NGLs, resulting in a total equivalent price of $41.59 per BOE, up 5% from the fourth quarter of 2018.

Rosehill’s cash operating costs for the fourth quarter of 2019 were $10.67 per BOE, which includes LOE, gathering and transportation, production taxes and G&A and excludes costs associated with stock-based compensation. Fourth quarter cash operating costs per BOE increased 5% as compared to fourth quarter of 2018, primarily attributable to increased G&A. Cash operating costs for the full year 2019 were $11.86 per BOE, a decrease of 4% for the same period in 2018, driven primarily by lower LOE.

Capital Expenditures and Liquidity

During the full year 2019 and the fourth quarter of 2019, Rosehill incurred capital costs, excluding asset retirement costs, of $238.0 million and $36.7 million, respectively. The portion of capital costs related to facilities during the full year 2019 and the fourth quarter of 2019 was $30.1 million and $0.2 million, respectively.

As of December 31, 2019, Rosehill had $3.0 million in cash on hand and $355.5 million in long-term debt, net of discounts. Liquidity comprised of cash on hand and availability under its revolving credit facility was approximately $83.0 million at December 31, 2019. As previously announced, on March 19, 2020 Rosehill fully drew the amount available under its revolving credit facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets and commodity prices. After this draw, Rosehill’s total debt under its credit facility increased to $340 million with total cash on hand of $73 million as of March 19, 2020.




Commodity Hedging

Included below is a summary of the Company’s commodity derivative contracts as of December 31, 2019.
 
 
2020
 
2021
 
2022
Commodity derivative swaps
Oil:
 
 
 
 
 
 
Notional volume (Bbls) (1)(2)
1,000,000

 

 

 
Weighted average fixed price ($/Bbl)
$
67.69

 
$

 
$

Natural gas:
 
 
 
 
 
 
Notional volume (MMBtu)
1,970,368

 
1,615,792

 
1,276,142

 
Weighted average fixed price ($/MMbtu)
$
2.75

 
$
2.79

 
$
2.85

 
 
 
 
 
 
 
Commodity derivative three-way collars
Oil:
 
 
 
 
 
 
Notional volume (Bbls)
3,294,000

 
4,200,000

 
2,000,000

 
Weighted average ceiling price ($/Bbl)
$
70.29

 
$
60.40

 
$
61.45

 
Weighted average floor price ($/Bbl)
$
57.50

 
$
54.49

 
$
55.00

 
Weighted average sold put option price ($/Bbl)
$
47.50

 
$
45.51

 
$
45.00

 
 
 
 
 
 
 
Crude oil basis swaps
Midland / Cushing:
 
 
 
 
 
 
Notional volume (Bbls)
5,254,000

 
4,200,000

 
2,100,000

 
Weighted average fixed price ($/Bbl)
$
(0.83
)
 
$
0.49

 
$
0.54

 
 
 
 
 
 
 
Argus WTI roll:
 
 
 
 
 
 
Notional volume (Bbls)
665,650

 

 

 
Weighted average fixed price ($/Bbl)
$
0.40

 
$

 
$

 
 
 
 
 
 
 
NYMEX WTI roll:
 
 
 
 
 
 
Notional volume (Bbls)
2,791,102

 

 

 
Weighted average fixed price ($/Bbl)
$
0.42

 
$

 
$

 
 
 
 
 
 
 
Natural gas basis swaps
EP Permian:
 
 
 
 
 
 
Notional volume (MMBtu)
2,096,160

 

 

 
Weighted average fixed price ($/MMBtu)
$
(1.03
)
 
$

 
$

(1)
During the second quarter of 2019, the Company entered into commodity derivative swaps where it bought 2,160,000 barrels of crude oil at a weighted average fixed price of $50.48 per barrel to offset commodity derivative swaps for the year ended December 31, 2021, it previously sold 2,160,000 barrels of crude oil at a weighted average fixed price of $61.21 per barrel.
(2)
During the second quarter of 2019, the Company entered into commodity derivative swaps where it bought 1,100,000 barrels of crude oil at a weighted average fixed price of $50.55 per barrel to offset commodity derivative swaps for the year ended December 31, 2022, it previously sold 1,100,000 barrels of crude oil at a weighted average fixed price of $58.42 per barrel.

The Company does not plan to hold a conference call to discuss its fourth quarter financial and operating results.

About Rosehill Resources Inc.

Rosehill Resources Inc. is an independent oil and gas exploration company with assets positioned in the Delaware Basin portion of the Permian Basin.




ROSEHILL RESOURCES INC.
OPERATIONAL HIGHLIGHTS
 
 
Three Months
 
Twelve Months
 
 
Ended December 31,
 
Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 

 
 
 
 

 
 

Oil sales
 
$
80,270

 
$
74,125

 
$
286,710

 
$
271,539

Natural gas sales
 
1,274

 
2,706

 
2,489

 
9,392

Natural gas liquids sales
 
3,237

 
6,174

 
13,084

 
20,944

Total revenues
 
$
84,781

 
$
83,005

 
$
302,283

 
$
301,875

Average sales price (1):
 
 
 
 
 
 
 
 
Oil (per Bbl)
 
$
55.07

 
$
48.51

 
$
52.99

 
$
55.27

Natural gas (per Mcf)
 
0.74

 
1.64

 
0.39

 
1.80

NGLs (per Bbl)
 
11.04

 
21.14

 
11.71

 
23.07

Total (per Boe)
 
$
41.59

 
$
39.60

 
$
39.84

 
$
45.10

Total, including effects of gain (loss) on settled
 
 
 
 
 
 
 
 
  commodity derivatives, net (per Boe)
 
$
38.73

 
$
40.42

 
$
37.91

 
$
42.79

 
 
 
 
 
 
 
 
 
Net production:
 
 
 
 
 
 
 
 
Oil (MBbls)
 
1,458

 
1,528

 
5,411

 
4,913

Natural gas (MMcf)
 
1,727

 
1,654

 
6,352

 
5,231

NGLs (MBbls)
 
293

 
292

 
1,117

 
908

Total (MBoe)
 
2,038

 
2,096

 
7,587

 
6,693

Average daily net production volume:
 
 
 
 
 
 
 
 
Oil (Bbls/d)
 
15,843

 
16,604

 
14,825

 
13,460

Natural gas (Mcf/d)
 
18,768

 
17,981

 
17,403

 
14,332

NGLs (Bbls/d)
 
3,187

 
3,178

 
3,060

 
2,488

Total (Boe/d)
 
22,157

 
22,779

 
20,786

 
18,337

Average costs (per BOE):
 
 
 
 
 
 
 
 
Lease operating expenses
 
$
4.38

 
$
4.63

 
$
4.92

 
$
5.66

Production taxes
 
2.37

 
1.90

 
2.30

 
2.34

Gathering and transportation
 
0.59

 
0.81

 
0.76

 
0.74

Depreciation, depletion, amortization and accretion
 
17.07

 
17.67

 
18.18

 
21.19

Exploration costs
 
6.26

 
0.34

 
2.10

 
0.65

General and administrative, excluding stock-based compensation
 
3.33

 
2.83

 
3.88

 
3.58

Stock-based compensation
 
0.82

 
0.55

 
0.83

 
0.97

(Gain) loss on disposition of property and equipment
 
(0.01
)
 
0.08

 
(1.47
)
 
0.07

Total (per Boe)
 
$
34.81

 
$
28.81

 
$
31.50

 
$
35.20


(1) Excluding the effects of realized and unrealized commodity derivative transactions unless noted otherwise



ROSEHILL RESOURCES INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
 
Three Months
 
Twelve Months
 
 
Ended December 31,
 
Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 

 
 
 
 

 
 

Oil sales
 
$
80,270

 
$
74,125

 
$
286,710

 
$
271,539

Natural gas sales
 
1,274

 
2,706

 
2,489

 
9,392

Natural gas liquids sales
 
3,237

 
6,174

 
13,084

 
20,944

Total revenues
 
84,781

 
83,005

 
302,283

 
301,875

Operating expenses:
 
 
 
 
 
 

 
 

Lease operating expenses
 
8,929

 
9,695

 
37,348

 
37,881

Production and ad valorem taxes
 
4,828

 
3,991

 
17,432

 
15,635

Gathering and transportation
 
1,194

 
1,693

 
5,756

 
4,939

Depreciation, depletion, amortization and accretion
 
34,779

 
37,031

 
137,937

 
141,815

Exploration costs
 
12,761

 
715

 
15,917

 
4,374

General and administrative
 
8,463

 
7,100

 
35,729

 
30,469

(Gain) loss on disposition of property and equipment
 
(11
)
 
174

 
(11,117
)
 
499

Total operating expenses
 
70,943

 
60,399

 
239,002

 
235,612

Operating income
 
13,838

 
22,606

 
63,281

 
66,263

Other income (expense):
 
 
 
 
 
 

 
 

Interest expense, net
 
(5,668
)
 
(5,597
)
 
(25,228
)
 
(19,489
)
Gain (loss) on commodity derivative instruments, net
 
(28,512
)
 
201,157

 
(65,338
)
 
92,604

Other income (expense), net
 
11

 
(3,583
)
 
(660
)
 
(3,254
)
Total other income (expense), net
 
(34,169
)
 
191,977

 
(91,226
)
 
69,861

Income (loss) before income taxes
 
(20,331
)
 
214,583

 
(27,945
)
 
136,124

Income tax (benefit) expense
 
6,315

 
12,639

 
2,143

 
18,162

Net income (loss)
 
(26,646
)
 
201,944

 
(30,088
)
 
117,962

Net income (loss) attributable to noncontrolling interest
 
(17,223
)
 
143,799

 
(38,503
)
 
59,926

Net income attributable to Rosehill Resources Inc. before preferred stock dividends
 
(9,423
)
 
58,145

 
8,415

 
58,036

Series A Preferred Stock dividends and deemed dividends
 
2,093

 
2,031

 
8,174

 
7,938

Series B Preferred Stock dividends, deemed dividends, and return
 
5,964

 
5,943

 
23,590

 
23,437

Net income (loss) attributable to Rosehill Resources Inc. common stockholders
 
$
(17,480
)
 
$
50,171

 
$
(23,349
)
 
$
26,661

Earnings (loss) per common share:
 
 
 
 
 
 

 
 

Basic
 
$
(1.15
)
 
$
3.72

 
$
(1.61
)
 
$
3.25

Diluted
 
$
(1.15
)
 
$
2.35

 
$
(1.61
)
 
$
1.76

Weighted average common shares outstanding:
 
 
 
 
 
 

 
 

Basic
 
15,220

 
13,477

 
14,475

 
8,196

Diluted
 
15,220

 
22,229

 
14,475

 
46,499






ROSEHILL RESOURCES INC. 
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amount)
 
 
December 31, 2019
 
December 31, 2018
ASSETS
 
 
 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
2,991

 
$
20,157

Accounts receivable
 
34,910

 
32,338

Derivative assets
 
10,340

 
30,819

Prepaid and other current assets
 
2,393

 
1,371

Total current assets
 
50,634

 
84,685

Property and equipment:
 
 

 
 

Oil and natural gas properties (successful efforts), net
 
744,597

 
666,797

Other property and equipment, net
 
2,984

 
2,592

Total property and equipment, net
 
747,581

 
669,389

Other assets, net
 
3,466

 
4,678

Derivative assets
 
33,105

 
58,314

Deferred tax assets
 
37,726

 

Total assets
 
$
872,512

 
$
817,066

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 
 
 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
15,922

 
$
21,013

Accounts payable, related parties
 
209

 
287

Derivative liabilities
 
4,016

 

Accrued liabilities and other
 
26,513

 
27,335

Accrued capital expenditures
 
23,031

 
30,529

Total current liabilities
 
69,691

 
79,164

Long-term liabilities:
 
 
 
 
Long-term debt, net
 
355,511

 
288,298

Asset retirement obligations
 
14,431

 
13,524

Deferred tax liabilities
 
1,196

 
9,278

Derivative liabilities
 
1,300

 
696

Liability related to tax receivable agreement
 
53,809

 
3,518

Other liabilities
 
432

 
140

Total long-term liabilities
 
426,679

 
315,454

Total liabilities
 
496,370

 
394,618

 
 
 
 
 
Mezzanine equity
 
 
 
 
Series B Preferred Stock; $0.0001 par value, 10.0% Redeemable, $1,000 per share liquidation preference; of the 1,000,000 shares of Preferred Stock authorized, 210,000 shares designated, 156,746 shares issued and outstanding as of December 31, 2019 and 2018
 
163,026

 
155,111

Stockholders’ equity
 
 

 
 

Series A Preferred Stock; $0.0001 par value, 8.0% Cumulative Perpetual Convertible, $1,000 per share liquidation preference; of the 1,000,000 shares of Preferred Stock authorized, 150,000 shares designated, 105,589 and 101,699 shares issued and outstanding as of December 31, 2019 and 2018, respectively
 
88,551

 
84,631

Class A Common Stock; $0.0001 par value, 250,000,000 shares authorized and 28,554,526 and 13,760,136 shares issued and outstanding as of December 31, 2019 and 2018, respectively
 
3

 
1

Class B Common Stock; $0.0001 par value, 30,000,000 shares authorized, 15,707,692 and 29,807,692 shares issued and outstanding as of and December 31, 2019 and 2018, respectively
 
2

 
3

Additional paid-in capital
 
72,859

 
42,271

Retained earnings
 
11,126

 
26,661

Total common stockholders’ equity
 
83,990

 
68,936

Noncontrolling interest
 
40,575

 
113,770

Total stockholders’ equity
 
213,116

 
267,337

Total liabilities, mezzanine equity and stockholders’ equity
 
$
872,512

 
$
817,066





ROSEHILL RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Year Ended December 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 

Net income (loss)
 
(30,088
)
 
117,962

Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 

Depreciation, depletion, amortization, accretion and impairment of oil and gas properties
 
137,937

 
141,815

Deferred income taxes (benefit)
 
2,143

 
18,157

Stock-based compensation
 
6,301

 
6,522

(Gain) loss on disposition of property and equipment
 
(11,117
)
 
499

(Gain) loss on derivative instruments
 
65,602

 
(92,534
)
Net cash (paid) received in settlement of derivative instruments
 
(15,294
)
 
(14,683
)
Amortization of debt issuance costs
 
1,943

 
2,139

Write-off of undeveloped and exploratory costs
 
12,377

 

Settlement of asset retirement obligations
 
(7
)
 
(801
)
(Gain) loss from revaluation of tax receivable agreement liability
 
170

 
3,518

Changes in operating assets and liabilities:
 
 
 
 
Increase in accounts receivable and accounts receivable, related parties
 
(2,563
)
 
(14,816
)
Decrease (increase) in prepaid and other assets
 
259

 
(59
)
Increase (decrease) in accounts payable and accrued liabilities and other
 
(180
)
 
8,526

Increase (decrease) in accounts payable, related parties
 
(74
)
 
64

Net cash provided by operating activities
 
167,409

 
176,309

Cash flows from investing activities:
 
 

 
 

Additions to oil and natural gas properties
 
(249,864
)
 
(377,897
)
Acquisition of White Wolf
 

 
(4,005
)
Acquisition of land and leasehold, royalty and mineral interest
 
(1,262
)
 
(15,281
)
Proceeds received from disposition of oil and natural gas properties
 
21,770

 

Additions to other property and equipment
 
(1,039
)
 
(2,160
)
Net cash used in investing activities
 
(230,395
)
 
(399,343
)
Cash flows from financing activities:
 
 

 
 

Proceeds from revolving credit facility
 
128,000

 
274,000

Repayment on revolving credit facility
 
(62,000
)
 
(80,000
)
Proceeds from Class A Common Stock offering
 

 
40,511

Class A Common Stock offering issuance costs
 

 
(1,155
)
Series B Preferred Stock upfront fees and transaction costs
 

 
(20
)
Debt issuance costs
 
(799
)
 
(3,330
)
Dividends paid on preferred stock
 
(19,120
)
 
(10,716
)
Restricted stock used for tax withholdings
 
(246
)
 
(749
)
Payment on capital lease obligation
 
(15
)
 
(32
)
Net cash provided by financing activities
 
45,820

 
218,509

Net increase (decrease) in cash, cash equivalents, and restricted cash
 
(17,166
)
 
(4,525
)
Cash, cash equivalents and restricted cash beginning of period
 
20,157

 
24,682

Cash, cash equivalents and restricted cash end of period
 
$
2,991

 
$
20,157















ROSEHILL RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)

Supplemental cash flow information and noncash activity:
 
 
Year Ended December 31,
 
 
2019
 
2018
Supplemental disclosures:
 
 
 
 
Cash paid for interest
 
$
23,305

 
$
17,065

 
 
 
 
 
Supplemental noncash activity:
 
 
 
 
Asset retirement obligations incurred, net of revision of estimates
 
$
(308
)
 
$
4,697

Changes in accrued capital expenditures
 
7,498

 
14,516

Changes in accounts payable for capital expenditures
 
6,712

 
7,456

Series A Preferred Stock dividends paid-in-kind
 
4,141

 
3,971

Series A Preferred Stock cash dividends declared and payable
 

 
1,015

Series B Preferred Stock dividends paid-in-kind
 

 
6,120

Series B Preferred Stock cash dividends declared and payable
 
3,950

 
2,347

Series B Preferred Stock return
 
6,386

 
6,798

Series B Preferred Stock deemed dividend
 
1,529

 
1,345





Non-GAAP Measures

Adjusted EBITDAX

Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by Rosehill’s management and external users of Rosehill’s 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, amortization, and accretion, (gains) losses on commodity derivatives excluding net cash receipts (payments) on settled commodity derivatives, stock settled stock-based compensation, exploration costs, gains and losses from the sale of assets 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 Rosehill’s operating performance and results of operations from period to period without regard to the Company’s 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 the Company’s 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 presentation of Adjusted EBITDAX should not be construed as an inference that its results will be unaffected by unusual or non-recurring items. 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 (loss), the most directly comparable U.S. GAAP financial measure.

 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Net income (loss)
$
(26,646
)
 
$
201,944

 
$
(30,088
)
 
$
117,962

Interest expense, net
5,668

 
5,597

 
25,228

 
19,489

Income tax expense (benefit)
6,315

 
12,639

 
2,143

 
18,162

Depreciation, depletion, amortization and accretion
34,779

 
37,031

 
137,937

 
141,815

Unrealized (gain) loss on commodity derivatives, net
22,691

 
(199,446
)
 
50,664

 
(108,086
)
Stock settled stock-based compensation
1,675

 
1,203

 
6,124

 
6,477

Exploration costs
12,761

 
715

 
15,917

 
4,374

(Gain) loss on disposition of property and equipment
(11
)
 
174

 
(11,117
)
 
499

Other non-cash (income) expense, net
17

 
3,719

 
(109
)
 
3,667

Adjusted EBITDAX
$
57,249

 
$
63,576

 
$
196,699

 
$
204,359






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 Rosehill’s opportunities in the Delaware Basin, strategy, future operations, expected drilling and completions activity, financial position and liquidity, 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,” “continue” 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, the Company’s future drilling plans, uncertainty in the global markets, impact of the COVID-19 pandemic, commodity price declines and 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 ability to realize the projected value of the derivatives portfolio, the ability of the Company to comply with its debt agreements and preferred equity, the ability of the Company to continue as a going concern, and other risks and uncertainties discussed under the section titled “Risk Factors” in the Company’s Form 10-K, and in other public filings with the Securities and Exchange Commission (the “SEC”) by the Company. Many risks are beyond the Company’s control or unpredictable at this time. For example, as noted in the Company’s Form 10-K for the year ended December 31, 2019, pursuant to accounting principles generally accepted in the United States, certain conditions raise substantial doubt about our ability to continue as a going concern within the next year and one day post issuance of the consolidated financial statements for the year ended December 31, 2019. For more information, please read the Company's Form 10-K filed on April 14, 2020. 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.
Contact Information:

David L. French
Craig Owen
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
281-675-3400
281-675-3400