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Jones Energy, Inc. Announces 2016 Fourth Quarter and Full Year Financial and Operating Results

AUSTIN, Texas, March 08, 2017 (GLOBE NEWSWIRE) -- Jones Energy, Inc. (NYSE:JONE) (“Jones Energy” or “the Company”) today announced financial and operating results for the quarter and full year ended December 31, 2016.

Highlights

  • Initial operated Merge wells the BENNETT 24-11-6 1WH and HARDY 25-11-6 1WH both successfully completed and on initial flowback. Completion operations on third operated well, the BELYEU 33-9-5 1WH are underway. Drilling on the fourth well has commenced.

  • Added approximately 3,290 net acres in the Merge to date since initial acquisition of Merge acreage in September 2016. The Company’s Merge position is currently approximately 21,300 net acres.

  • Net loss for the fourth quarter 2016 of $52.2 million, or a loss of $0.53 per share. Non-GAAP adjusted net loss of $5.3 million, or a loss of $0.07 per share.

  • Net loss for the full year 2016 of $84.8 million and EBITDAX for the full year 2016 of $188 million1.

  • Production for the full year 2016 of 7.0 MMBoe (19.2 MBoe/d).

  • Proved reserves at year-end 2016 were 105.2 MMBoe based on SEC pricing2; Cleveland proved reserves were 82.1 MMBoe and Merge proved reserves were 2.4 MMBoe.

Jonny Jones, the Company’s Founder, Chairman and CEO commented, “2016 was a transformative year for our Company and I am extremely proud of what our team was able to accomplish in challenging circumstances. We were both creative and deliberate in our approach, capturing the opportunity to enter the Merge and cut costs dramatically across the portfolio. The result has made Jones Energy a formidable pure-play Anadarko Basin Company that remains a low-cost leader.” Mr. Jones went on to say, “2017 will be a transitional year for our Company. As we grow our operatorship in the Merge and build out the rig program, I see enormous potential for this new asset in the next few years. I see opportunity to highgrade the portfolio through additional Merge leasing, attractive M&A opportunities, and optimizing our operations. The Cleveland asset will continue to protect our production base, and be a source of steady execution as it competes for capital in today’s environment. Our task in 2017 is execution, and I am confident we can continue to deliver outstanding operational results across our asset base. I believe that our future is bright, and that we remain committed to building our Merge position and executing our goals.”

Financial Results

Total operating revenues for the three months ended December 31, 2016 were $39.5 million as compared to $38.2 million for the three months ended December 31, 2015. For the full year 2016, operating revenues were $127.8 million as compared to $197.4 million for the full year 2015, primarily a result of lower commodity prices. Total revenues including current period settlements of matured derivative contracts were $251.1 million for the full year 2016 as compared to $347.2 million for the full year 2015.

Total operating expenses for the three months ended December 31, 2016 were $62.3 million as compared to $66.9 million for the three months ended December 31, 2015. For the full year 2016, operating expenses were $232.1 million as compared to $303.9 million for the full year 2015.

For the fourth quarter ended December 31, 2016, the Company reported a net loss of $52.2 million, or a net loss of $0.53 per share, compared to fourth quarter of 2015 net income of $1.6 million, or net income of $0.02 per share. For the full year 2016 the Company reported a net loss of $84.8 million, or a net loss of $1.13 per share compared to full year 2015 net loss of $9.1 million, or a net loss of $0.09 per share.

Excluding, on a tax-adjusted basis, certain items that the Company does not view as indicative of its ongoing financial performance, and adjusting for non-controlling interest, the Company had an adjusted net loss3 for the fourth quarter 2016 of $5.3 million, or an adjusted net loss of $0.07 per share, as compared to adjusted net income of $0.6 million, or $0.03 per share for the three months ended December 31, 2015. Adjusted net loss for the full year 2016 was $15.5 million, or an adjusted net loss of $0.21 per share as compared to adjusted net income of $2.2 million, or $0.04 per share for the full year 2015.

Earnings before interest, income taxes, depreciation, amortization, and exploration expense (“EBITDAX”) for the fourth quarter and full year 2016 was $43.8 million and $188.0 million, respectively4. This compares to fourth quarter and full year 2015 EBITDAX of $65.1 million and $268.4 million, respectively.

Full year 2016 lease operating expense (“LOE”) of $32.6 million was approximately 20.5% below the Company’s full year 2015 LOE of $41.0 million. Fourth quarter LOE of $8.6 million was approximately 6% higher than fourth quarter 2015 LOE of $8.1 million. On a dollar per boe basis, full year 2016 LOE was $4.64 per boe compared to full year 2015 LOE which was $4.47 per boe, prior to the addition of 137 wells purchased and 37 wells completed in the 2016 program.

Capital Expenditures

During the fourth quarter of 2016, the Company spent $52.1 million on non-acquisition capital expenditures, of which $31.2 million was related to drilling and completing operated wells, representing 60% of the total capital expenditures in the quarter. The remaining $20.9 million was primarily related to field maintenance and leasing.

For the full year 2016, the Company spent $105.8 million on capital expenditures, of which $72.2 million was related to drilling and completing operated wells, representing 68% of the total capital expenditures in the year. This compares to revised 2016 capital expenditure guidance of $110 million.

Operational Results and Update

Cleveland

For the full year 2016, the Company spud 44 wells and completed 37 wells in the Cleveland. Approximately seven wells scheduled for 4Q16 were carried into 2017 for completion as a result of previously disclosed weather and mechanical slowdowns. To date in the first quarter of 2017, Jones Energy has completed all of these and anticipates completing a total of 20 wells during the first quarter in its Cleveland operations. Since many of these completions occurred towards the end of the quarter, they are not expected to significantly impact first quarter production. As such, the Company is reiterating its 1Q17 production guidance of 17 – 18 MBoe/d.

Daily net production in the Cleveland was 14.6 MBoe/d in the fourth quarter of 2016 as compared to 17.7 MBoe/d in the fourth quarter of 2015, a decline of approximately 17.5%. Full year 2016 production in the Cleveland was 13.9 MBoe/d, compared 2015 full year production of 18.4 MBoe/d, a decline of approximately 24.5%. Year over year declines are the result of the Company’s decision to suspend the drilling program in October 2015.

Merge

Drilling commenced on the Company’s first 2-well pad in December 2016 following the closing of its initial acquisition in September. To date in the first quarter of 2017, Jones Energy has successfully completed its first two Merge wells, the BENNETT 24-11-6 1WH and the HARDY 25-11-6 1WH, both of which target the Woodford formation, are on initial flowback. Jones Energy has a 90% working interest in the HARDY 25-11-6 1WH, and a 78% working interest in the BENNETT 24-11-6 1WH. Completion operations on the third well, the BELYEU 33-9-5 1WH, which is also a Woodford target, are underway. Drilling on the fourth well has commenced.

Jones Energy is currently running one rig in the Merge, which has moved to the next pad location, where we are drilling two wells including a Woodford target and the Company’s first Sycamore well. As a reminder, the Sycamore is a local name in the Merge area, however the rock is the same as the Meramec, and industry tests have extended the Meramec play to the south. The Company’s 2017 drilling program expects up to one third to be Meramec targets and the remaining to be Woodford targets.

Jones Energy continues to aggressively seek opportunities to enhance its position in the Merge, increasing its leasehold position from the initial acquisition footprint of approximately 18,000 net acres to approximately 21,300 net acres as of March 8, 2017 (an increase of approximately 18%) through leasing efforts.

2017 Capital Budget and Operating Plan

The Company has established an initial capital budget of $275 million for 2017, comprised of $232 million for drilling and completion capital expenditures and the remainder allocated to leasing, workovers and field maintenance projects. Of the total drilling and completion budget, 47% is dedicated to ongoing drilling activity in the Merge. The Company intends to build operational momentum in the Merge throughout the year, adding a second rig in July and likely a third rig to follow by year end. Due to the timing of pad drilling and batch completions, initial production impact from the Merge is weighted towards year end 2017 and 2018, which is accounted for in Company guidance. The Company also plans to maintain a three-rig program in the Cleveland, which supports the current production base.

As previously disclosed, well cost inflation is assumed in the 2017 budget, however, the Company’s year-to-date AFE’s continue to remain below the budgeted drilling and completion inflation factor of 15%. The Company continues to work closely with vendors to monitor service costs and expects that increased activity will most likely result in some service cost inflation in the near term. As such, the Company reiterates its Merge drilling and completion capital of $110 million ($22 million of which is non-operated) and Cleveland drilling and completion capital of $122 million.

2017 Guidance

Jones Energy reiterates its 2017 guidance for the first quarter and full year, and projects average daily production of 20,700 to 23,000 Boe per day. A table has been provided below with full year and first quarter 2017 guidance by category.



2017 Guidance
2017E 1Q17E
Total Production (MMBoe)7.6 – 8.4 1.6 – 1.7
Average Daily Production (MBoe/d)20.7 – 23.0 17.0 – 18.0
Crude Oil (MBbl/d)5.7 – 6.3
Natural Gas (MMcf/d)51 – 57
NGLs (MBbl/d) 6.5 – 7.2
Lease Operating Expense ($mm)$45.0 – $50.0
Production Taxes (% of Unhedged Revenue) *4.5% – 5.5%
Ad Valorem Taxes ($mm) *$2.7 – $3.0
Cash G&A Expense ($mm)$23 – $25
Capital Expenditures ($mm)
Merge Drilling and Completion (D&C)
JONE Operated D&C$88
Non-Operated D&C and Other 22
Total Merge D&C$110
Merge Leasing and Pooling 20
Total Merge Capital Expenditures$130
Cleveland D&C$122
Cleveland Leasing 5
Total Cleveland Capital Expenditures$127
Other$18
Total Capital Expenditures$275

*Production and ad valorem taxes are included as one line item on the Company’s Consolidated Statements of Operations.

Liquidity and Hedging

As of December 31, 2016, the Company had $247 million undrawn on its revolving credit facility (with $178 million in outstanding borrowings) and approximately $35 million in cash.

The estimated mark-to-market value of the Company’s commodity price hedges in 2017 and beyond was $64.7 million incorporating strip pricing as of March 3, 2017. In 2016, the Company entered into offsetting transactions in order to lock in gains associated with hedge volumes above projected production. The following table summarizes the Company’s commodity derivative contracts outstanding:

Fiscal Year Ending December 31,
(As of Friday, March 3, 2017) 1Q172Q173Q174Q17 201720182019
Oil Hedges
Swaps Sold (MBbl) 428 465 525 480 1,898 2,057 219
Price ($/Bbl) $68.44$66.28$62.48$63.43 $65.00$61.83$64.96
Offset Swaps Purchased (MBbl)[1] - - - - - 803 219
Price ($/Bbl) - - - - -$46.83$48.57
Collars (MBbl) - - - - - - 810
Floor ($/Bbl) - - - - - -$48.52
Ceiling ($/Bbl) - - - - - -$59.64
Gas Hedges
Swaps Sold (MMcf) 4,240 4,530 5,070 5,010 18,850 29,840 3,750
Price ($/Mcf) $3.99$3.89$3.72$3.70 $3.66$3.38$3.50
Offset Swaps Purchased (MMcf)[1] - - - - - 9,900 3,750
Price ($/Mcf) - - - - -$2.81$2.86
Collars (MMcf) - - - - - - 11,890
Floor ($/Mcf) - - - - - -$2.55
Ceiling ($/Mcf) - - - - - -$3.19
NGL Swaps (MBbl)
Ethane - - - - - - -
Propane 197 224 231 227 879 - -
Iso Butane 27 27 25 24 103 - -
Butane 66 66 66 66 264 - -
Natural Gasoline 63 83 93 93 332 - -
Total NGLs 353 400 415 410 1,578 - -
NGL Swap Prices ($/Gal)
Ethane - - - - - - -
Propane $0.44$0.46$0.47$0.47 $0.46 - -
Iso Butane 0.66 0.66 0.60 0.57 0.63 - -
Butane 0.63 0.61 0.59 0.59 0.60 - -
Natural Gasoline 1.02 1.05 1.04 1.04 1.04 - -
[1] Swaps purchased to crystalize $45 million gain

Conference Call Details

Jones Energy will host a conference call for investors and analysts to discuss its results on Thursday, March 9, 2017 at 10:30 a.m. ET (9:30 a.m. CT). The conference call can be accessed via webcast through the Investor Relations section of Jones Energy’s website, www.jonesenergy.com, or by dialing (877) 201-0168 (for domestic U.S.) or (647) 788-4901 (International) and entering conference code 61121644. If you are not able to participate in the conference call, the webcast replay and a downloadable audio file will be available shortly following the call through the Investor Relations section of the Company’s website, www.jonesenergy.com.

About Jones Energy

Jones Energy, Inc. is an independent oil and natural gas company engaged in the development and acquisition of oil and natural gas properties in the Anadarko and Arkoma basins of Texas and Oklahoma. Additional information about Jones Energy may be found on the Company’s website at: www.jonesenergy.com.

Forward-Looking Statements

This press 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 facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including guidance regarding the deployment of rigs in the Company’s areas of operation and the anticipated drilling schedule, the initial 2017 capital budget and operating plan, drilling, completion and leasing capital expenditures in the Company’s areas of operation, the anticipated costs of the Company’s service providers, timing of production impacts, and projections regarding total production, average daily production, lease operating expenses, production taxes, cash G&A expenses and capital expenditure levels for 2017. These statements are based on certain assumptions made by the Company based on management’s experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include, but are not limited to, changes in oil and natural gas prices, weather and environmental conditions, the timing and amount of planned capital expenditures, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, covenants in the Company’s debt documents and their potential effect on the ability to engage in certain transactions, the condition of the capital markets generally, as well as the Company’s ability to access them, ability to fund growth opportunities, the proximity to and capacity of transportation facilities, non-performance by third parties of contractual obligations, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting the Company’s business and other important factors that could cause actual results to differ materially from those projected as described in the Company’s reports filed with the SEC.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Jones Energy, Inc.
Consolidated Statements of Operations

Three Months Ended December 31, Twelve Months Ended December 31,
(in thousands of dollars except per share data) 2016
2015
2016
2015
Operating revenues
Oil and gas sales $38,817 $37,600 $124,877 $194,555
Other revenues 675 634 2,970 2,844
Total operating revenues 39,492 38,234 127,847 197,399
Operating costs and expenses
Lease operating 8,613 8,097 32,640 41,027
Production and ad valorem taxes 2,707 2,838 7,768 12,130
Exploration 5,436 367 6,673 6,551
Depletion, depreciation and amortization 37,481 49,347 153,930 205,498
Accretion of ARO liability 350 477 1,263 1,087
General and administrative 7,562 5,816 29,640 33,388
Other operating 199 199 4,188
Total operating expenses 62,348 66,942 232,113 303,869
Operating income (loss) (22,856) (28,708) (104,266) (106,470)
Other income (expense)
Interest expense (12,730) (16,905) (53,127) (64,458)
Gain on debt extinguishment 99,530
Net gain (loss) on commodity derivatives (32,495) 47,039 (51,264) 158,753
Other income (expense) 285 1,948 536 317
Other income (expense), net (44,940) 32,082 (4,325) 94,612
Income (loss) before income tax (67,796) 3,374 (108,591) (11,858)
Income tax provision (benefit)
Total income tax provision (benefit) (15,552) 1,809 (23,786) (2,781)
Net income (loss) (52,244) 1,565 (84,805) (9,077)
Net income (loss) attributable to non-controlling interests (23,879) 929 (42,253) (6,696)
Net income (loss) attributable to controlling interests $(28,365) $636 $(42,552) $(2,381)
Dividends and accretion on preferred stock (1,904) (2,669)
Net income (loss) attributable to common shareholders $(30,269) $636 $(45,221) $(2,381)
Earnings (loss) per share:
Basic $(0.53) $0.02 $(1.13) $(0.09)
Diluted $(0.53) $0.02 $(1.13) $(0.09)
Weighted average shares outstanding:
Basic 57,009 30,452 40,009 26,816
Diluted 57,009 30,452 40,009 26,816

Jones Energy, Inc.
Consolidated Balance Sheets

December 31, December 31,
(in thousands of dollars) 2016 2015
Assets
Current assets
Cash $34,642 $21,893
Accounts receivable, net
Oil and gas sales 26,568 19,292
Joint interest owners 5,267 11,314
Other 6,061 15,170
Commodity derivative assets 24,100 124,207
Other current assets 2,684 2,298
Total current assets 99,322 194,174
Oil and gas properties, net, at cost under the successful efforts method 1,743,588 1,635,766
Other property, plant and equipment, net 2,996 3,873
Commodity derivative assets 34,744 93,302
Other assets 6,050 8,039
Total assets $1,886,700 $1,935,154
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $36,527 $7,467
Oil and gas sales payable 28,339 32,408
Accrued liabilities 25,707 27,011
Commodity derivative liabilities 14,650 11
Other current liabilities 2,584 679
Total current liabilities 107,807 67,576
Long-term debt 724,009 837,654
Deferred revenue 7,049 11,417
Commodity derivative liabilities 1,209
Asset retirement obligations 19,458 20,301
Liability under tax receivable agreement 43,045 38,052
Other liabilities 792 330
Deferred tax liabilities 2,905 22,972
Total liabilities 906,274 998,302
Commitments and contingencies
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at December 31, 2016 and no shares issued and outstanding at December 31, 2015 88,975
Stockholders' equity
Class A common stock, $0.001 par value; 57,048,076 shares issued and 57,025,474 shares outstanding at December 31, 2016 and 30,573,509 shares issued and 30,550,907 shares outstanding at December 31, 2015 57 31
Class B common stock, $0.001 par value; 29,832,098 shares issued and outstanding at December 31, 2016 and 31,273,130 shares issued and outstanding at December 31, 2015 30 31
Treasury stock, at cost: 22,602 shares at December 31, 2016 and December 31, 2015 (358) (358)
Additional paid-in-capital 447,137 363,723
Retained (deficit) / earnings (8,652) 36,569
Stockholders' equity 438,214 399,996
Non-controlling interest 453,237 536,856
Total stockholders’ equity 891,451 936,852
Total liabilities and stockholders' equity $1,886,700 $1,935,154

Jones Energy, Inc.
Consolidated Statements of Cash Flows

(in thousands of dollars) Twelve Months Ended December 31,
2016 2015
Cash flows from operating activities
Net income (loss) $(84,805) $(9,077)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depletion, depreciation, and amortization 153,930 205,498
Exploration (dry hole and lease abandonment) 6,261 5,250
Accretion of ARO liability 1,263 1,087
Amortization of debt issuance costs 4,060 6,043
Stock compensation expense 7,425 7,562
Deferred and other non-cash compensation expense 804 455
Amortization of deferred revenue (2,384) (1,960)
(Gain) loss on commodity derivatives 51,264 (158,753)
(Gain) loss on sales of assets (14) 3
(Gain) on debt extinguishment (99,530)
Deferred income tax provision (27,767) (2,892)
Other - net 418 (961)
Changes in operating assets and liabilities
Accounts receivable 2,276 64,510
Other assets (675) (432)
Accrued interest expense (4,727) 7,050
Accounts payable and accrued liabilities 17,901 (54,534)
Net cash provided by operations 25,700 68,849
Cash flows from investing activities
Additions to oil and gas properties (264,462) (311,305)
Net adjustments to purchase price of properties acquired
Proceeds from sales of assets 1,645 41
Acquisition of other property, plant and equipment (310) (1,101)
Current period settlements of matured derivative contracts 132,265 144,145
Net cash (used in) investing (130,862) (168,220)
Cash flows from financing activities
Proceeds from issuance of long-term debt 130,000 85,000
Repayment under long-term debt (62,000) (335,000)
Proceeds from senior notes 236,475
Purchase of senior notes (84,589)
Payment of debt issuance costs (1,556)
Payment of dividends on preferred stock (1,615)
Net distributions paid to JEH unitholders (17,319)
Proceeds from sale of common stock 65,446 122,779
Proceeds from sale of preferred stock 87,988
Purchases of treasury stock
Net cash provided by financing 117,911 107,698
Net increase (decrease) in cash 12,749 8,327
Cash
Beginning of period 21,893 13,566
End of period $34,642 $21,893
Supplemental disclosure of cash flow information
Cash paid for interest $53,816 $52,796
Cash paid for income taxes (155)
Change in accrued additions to oil and gas properties 9,325 (111,210)
Asset retirement obligations incurred, including changes in estimate (1,276) 6,371

Jones Energy, Inc.
Selected Financial and Operating Statistics

The following table sets forth summary data regarding revenues, production volumes, average prices and average production costs associated with our sale of oil and natural gas for the periods indicated:

Three Months Ended December 31, Twelve Months Ended December 31,
2016 2015 Change 2016 2015 Change
Revenues (in thousands of dollars):
Oil and gas sales 38,817 37,600 1,217 124,877 194,555 (69,678)
Other revenues 675 634 41 2,970 2,844 126
Current period settlements of matured derivative contracts 21,630 41,809 (20,179) 123,249 149,801 (26,552)
Total operating revenues 61,122 80,043 (18,921) 251,096 347,200 (96,104)
Net production volumes:
Oil (MBbls) 414 552 (138) 1,685 2,583 (898)
Natural gas (MMcf) 4,712 5,667 (955) 18,842 23,839 (4,997)
NGLs (MBbls) 571 672 (101) 2,204 2,618 (414)
Total (MBoe) 1,770 2,169 (398) 7,029 9,174 (2,145)
Average net (Boe/d) 19,239 23,576 (4,337) 19,205 25,134 (5,929)
Average sales price, unhedged:
Oil (per Bbl), unhedged $44.68 $37.03 $7.65 $37.83 $44.15 $(6.32)
Natural gas (per Mcf), unhedged 2.16 1.52 0.64 1.67 1.91 (0.24)
NGLs (per Bbl), unhedged 17.73 12.69 5.04 13.48 13.36 0.12
Combined (per Boe), unhedged 21.93 17.34 4.59 17.77 21.21 (3.44)
Average sales price, hedged:
Oil (per Bbl), hedged $79.94 $80.73 $(0.79) $84.71 $76.35 $8.36
Natural gas (per Mcf), hedged 3.26 3.26 3.45 3.35 0.10
NGLs (per Bbl), hedged 16.82 24.35 (7.53) 17.25 25.73 (8.48)
Combined (per Boe), hedged 32.79 36.61 (3.82) 34.96 37.54 (2.58)
Average costs (per BOE):
Lease operating $4.87 $3.73 $1.14 $4.64 $4.47 $0.17
Production and ad valorem taxes 1.53 1.31 0.22 1.11 1.32 (0.21)
Depletion, depreciation and amortization 21.18 22.75 (1.57) 21.90 22.40 (0.50)
General and administrative 4.27 2.68 1.59 4.22 3.64 0.58

Jones Energy, Inc.

Non-GAAP Financial Measures and Reconciliations

EBITDAX is a supplemental non-GAAP financial measure that is 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 EBITDAX as earnings before interest expense, income taxes, depreciation, depletion and amortization, exploration expense, gains and losses from derivatives less the current period settlements of matured derivative contracts, and the other items described below. EBITDAX is not a measure of net income as determined by United States generally accepted accounting principles, or GAAP. Management believes EBITDAX is useful because it allows them to more effectively evaluate the Company’s operating performance and compare the results of its operations from period to period and against its peers without regard to its financing methods or capital structure. The Company excludes the items listed above from net income in arriving at EBITDAX because these amounts can vary substantially from company to company within its industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. EBITDAX has limitations as an analytical tool and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of the Company’s liquidity. Certain items excluded from 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 historical costs of depreciable assets. The Company’s presentation of EBITDAX should not be construed as an inference that its results will be unaffected by unusual or non-recurring items and should not be viewed as a substitute for GAAP. The Company’s computations of EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net income (loss) as determined in accordance with GAAP to EBITDAX for the periods indicated:

Three Months Ended December 31, Twelve Months Ended December 31,
(in thousands of dollars) 2016
2015
2016
2015
Reconciliation of EBITDAX to net income
Net income (loss) $(52,244) $1,565 $(84,805) $(9,077)
Interest expense 12,730 16,905 53,127 64,458
Exploration expense 5,436 367 6,673 6,551
Income taxes (15,552) 1,809 (23,786) (2,781)
Depreciation and depletion 37,481 49,347 153,930 205,498
Impairment of oil and natural gas properties
Accretion of ARO liability 350 477 1,263 1,087
Reduction of TRA liability (362) (1,984) (784) (1,984)
Other non-cash charges (25) (155) 1,202 1,023
Stock compensation expense 2,156 2,275 7,425 7,562
Deferred and other non-cash compensation expense 190 129 804 455
Net (gain) loss on derivative contracts 32,495 (47,039) 51,264 (158,753)
Current period settlements of matured derivative contracts 21,630 41,809 123,249 149,801
Amortization of deferred revenue (556) (439) (2,384) (1,960)
(Gain) loss on sale of assets 54 13 (14) 3
(Gain) on debt extinguishment (99,530)
Stand-by rig costs 4,188
Financing expenses and other loan fees 23 23 321 2,346
EBITDAX $43,806 $65,102 $187,955 $268,417

Jones Energy, Inc.
Non-GAAP Financial Measures and Reconciliations

Adjusted net income (loss) is a supplemental non-GAAP financial measure that is used by management and external users of the Company’s consolidated financial statements. The Company defines Adjusted net income (loss) as net income (loss) excluding the impact of certain non-cash items including gains or losses on commodity derivative instruments not yet settled, impairment of oil and gas properties, non-cash compensation expense, and the other items described below. The Company believes adjusted net income and adjusted earnings per share are useful to investors because they provide readers with a more meaningful measure of its 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 the Company’s financial statements prepared in accordance with GAAP. The following table provides a reconciliation of net income (loss) as determined in accordance with GAAP to adjusted net income for the periods indicated:

Three Months Ended December 31, Twelve Months Ended December 31,
(in thousands except per share data) 2016
2015
2016
2015
Net income (loss) $(52,244) $1,565 $(84,805) $(9,077)
Net (gain) loss on derivative contracts 32,495 (47,039) 51,264 (158,753)
Current period settlements of matured derivative contracts 21,630 41,809 123,249 149,801
Impairment of oil and gas properties
Exploration 5,436 367 6,673 6,551
Non-cash stock compensation expense 2,156 2,275 7,425 7,562
Deferred and other non-cash compensation expense 190 129 804 455
(Gain) on debt extinguishment (99,530)
Stand-by rig costs 4,188
Financing expenses 2,250
Change in TRA liability (362) (1,984) (784) (1,984)
Tax impact of adjusting items (1) (15,069) 1,127 (20,774) (1,106)
Change in valuation allowance 452 2,333 950 2,333
Adjusted net income (loss) (5,316) 582 (15,528) 2,220
Adjusted net income (loss) attributable to non-controlling interests (3,221) (291) (9,861) 1,275
Adjusted net income (loss) attributable to controlling interests (2,095) 873 (5,667) 945
Dividends and accretion on preferred stock (1,904) (2,669)
Adjusted net income (loss) attributable to common shareholders $(3,999) $873 $(8,336) $945
Effective tax rate on net income (loss) attributable to controlling interests 35.2 % 38.9 %

(1) In arriving at adjusted net income, the tax impact of the adjustments to net income is determined by applying the appropriate tax rate to each adjustment and then allocating the tax impact between the controlling and non-controlling interests.

Jones Energy, Inc.
Non-GAAP Financial Measures and Reconciliations

Adjusted Earnings per Share is a supplemental non-GAAP financial measure that is used by management and external users of the Company’s consolidated financial statements. The Company defines Adjusted Earnings per Share as earnings per share plus that portion of the components of adjusted net income allocated to the controlling interests divided by weighted average shares outstanding. The Company believes adjusted earnings per share is useful to investors because it provides readers with a more meaningful measure of its 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 the Company’s financial statements prepared in accordance with GAAP. The following table provides a reconciliation of earnings per share to adjusted earnings per share for the period indicated:

Three Months Ended December 31, Twelve Months Ended December 31,
2016 2015 2016 2015
Earnings per share (basic and diluted) $(0.53) $0.02 $(1.13) $(0.09)
Net (gain) loss on derivative contracts 0.37 (0.77) 0.76 (2.68)
Current period settlements of matured derivative contracts 0.25 0.68 1.67 2.48
Impairment of oil and gas properties
Exploration 0.06 0.01 0.11 0.12
Non-cash stock compensation expense 0.02 0.04 0.10 0.13
Deferred and other non-cash compensation expense 0.01 0.01
(Gain) on debt extinguishment (1.23)
Stand-by rig costs 0.06
Financing expenses 0.03
Change in TRA liability (0.01) (0.07) (0.02) (0.07)
Tax impact of adjusting items (1) (0.24) 0.04 (0.50) (0.04)
Change in valuation allowance 0.01 0.08 0.02 0.09
Adjusted earnings per share (basic and diluted) $(0.07) $0.03 $(0.21) $0.04
Weighted average Class A shares outstanding:
Basic 57,009 30,452 40,009 26,816
Diluted 57,009 30,452 40,009 26,816

(1) In arriving at adjusted net income, the tax impact of the adjustments to net income is determined by applying the appropriate tax rate to each adjustment and then allocating the tax impact between the controlling and non-controlling interests.

1 EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.

2 SEC prices for 2016 year-end proved reserves were $42.75 per barrel for oil and $2.46 per MMBtu for natural gas based on the first-of-the-month prices for 2016.

3 Adjusted net loss, adjusted net loss per share and EBITDAX are supplemental non-GAAP financial measures that are used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. For additional information, including reconciliations to the most comparable GAAP financial measures, please see “Non-GAAP Financial Measures and Reconciliations” below.

4 EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.

Investor Contacts: Page Portas, 512-493-4834 Investor Relations Associate Or Robert Brooks, 512-328-2953 Executive Vice President & CFO

Source:Jones Energy, Inc.