Key Takeaways From Approach Resources Inc. (NASDAQ: AREX)’s 2Q


Approach Resources Inc. (NASDAQ: AREX) shared several details at its 2Q2016 earnings call. There are some details that the management of the company shared that are worth revisiting.

How AREX fared in 2Q

Approach Resources Inc. (NASDAQ: AREX) posted adjusted EPS loss of $0.25 on revenue of $22.4 million in 2Q2016. Revenue dipped from $38.6 million a year ago but rose from $17.6 million in the prior quarter.

AREX managed to report encouraging results in the latest quarter mainly because of its continued cost discipline.

Cost management at Approach Resources Inc. (NASDAQ: AREX)

If there is one area that the management of Approach Resources Inc. (NASDAQ: AREX) is trying to be greatly focused on, it is on cost cutting. You clearly see the picture of what the management is doing in terms of expenses control when you see that lease operating expense (LOE) in the latest quarter averaged $4.56 per barrel of oil equivalent (boe).

That expense did not only decline 8.2% from the comparable quarter last year, but it was the lowest LOE the company has had on recorded since it began Wolfcamp horizontal development.

Besides LOE, AREX is also winning war against costs associated with general and administrative expenses. Those costs came down to just $3.88 per boe compared to $3.91 a year ago. Though the drop in those costs was only a slight improvement of less than 1%, the progress is encouraging.

Exploration costs at AREX did behave differently in 2Q as they rose to $1.41 per boe compared to $0.84 in last year’s same quarter. But what you notice is that an increase in exploration costs doesn’t cause much concern because those costs rise when production increases. As such, they are more of optional costs for AREX.

Still on the issue of costs, AREX reported that its drilling costs fell to $3.7 million per well in 2Q. That was another milestone for the company as it was the lowest drilling cost AREX has enjoyed.

Well completion

Approach Resources Inc. (NASDAQ: AREX) reported that it completed two wells in 2Q and the management is focused on completed three other wells in the current quarter. The lower drilling costs that the company reported in the latest quarter could inspire more drilling in the coming months.


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