Approach Resources Inc. Reports Full Year and Fourth Quarter 2012 Results, Announces 2012 Proved Res

Approach Resources Inc. Reports Full Year and Fourth Quarter 2012 Results, Announces 2012 Proved Reserves and Increases Horizontal Wolfcamp Shale Drilling Inventory and Resource Potential

FORT WORTH, Texas--(BUSINESS WIRE)-- Approach Resources Inc. today reported results for full year and fourth quarter 2012 and announced estimated 2012 proved reserves. Highlights for 2012, compared to 2011, include:

• Production up 24% to 7.9 MBoe/d, and oil production up 101% to 969 MBbls

• Total proved reserves increased 24% to 95.5 MMBoe, and oil proved reserves increased 106% to 37.3 MMBbls

• PV-10 (non-GAAP) increased 22% to $830.9 million

• Reserve replacement ratio of 1,346% at a competitive drill-bit finding and development ("F&D") cost of $7.45 per Boe

• Over 2,000 identified horizontal locations targeting the Wolfcamp oil shale in the Midland Basin

• Increases gross resource potential to over 1 billion Boe

PV-10, reserve replacement ratio and drill-bit F&D cost are non-GAAP measures. See "Supplemental Non-GAAP Measures" below for our definition and reconciliation of PV-10 to the Standardized Measure (GAAP) and our definition and calculation of drill-bit F&D cost and reserve replacement ratio.

J. Ross Craft, Approach's President and Chief Executive Officer, commented, "Growing our proved reserves by 24% in 2012 and doubling our oil reserves highlights the tremendous opportunity we have in the Wolfcamp oil shale resource play. Our reserve replacement of 1,346% was achieved at a competitive drill-bit finding and development cost of $7.45 per Boe. Through our strong horizontal well results and vertical development, we have de-risked approximately 107,000 gross acres in Project Pangea. As a result, we have expanded our count of horizontal Wolfcamp drilling locations 300%, from 500 in 2011 to more than 2,000 currently. Combined, our extensive inventory of horizontal, vertical and recompletion locations represent more than 1 billion Boe of gross, unrisked resource potential, which is more than ten times our current proved reserves and represents multiple decades of drilling inventory. In addition, we have made progress in reaching our target horizontal well cost of $5.5 million. Horizontal well costs during the second half of 2012 averaged approximately $6.4 million per well, and we expect to achieve our target well cost after we complete our infrastructure projects in Block 45 of Project Pangea. We anticipate completing these projects by the end of first quarter 2013. Our inventory of low-risk, high-margin oil reserves is expected to drive the continued success of our company for many years."

2012 Financial Results

Production for 2012 totaled 2,888 MBoe (7.9 MBoe/d), up 24% from 2011. Oil production of 969 MBbls for 2012 increased 101% compared to 2011. Our strong growth in oil production in 2012 was primarily driven by our horizontal drilling and completion activity in the Wolfcamp shale play. Production for 2012 was 34% oil, 31% NGLs and 35% natural gas, compared to 21% oil, 34% NGLs and 45% natural gas in 2011.

Net income for 2012 was $6.4 million, or $0.18 per diluted share, on revenues of $128.9 million. This compares to net income for 2011 of $7.2 million, or $0.25 per diluted share, on revenues of $108.4 million. Full year 2012 revenues increased $20.5 million due to an increase in production volumes ($44.2 million), partially offset by a decrease in oil, NGL and gas prices ($23.7 million). Net income for 2012 included an unrealized gain on commodity derivatives of $3.9 million and a realized loss on commodity derivatives of $108,000. The decline in net income was driven by higher expenses and a realized loss on commodity derivatives, which were partially offset by higher revenues and an unrealized gain on commodity derivatives for 2012.

Excluding the unrealized gain on commodity derivatives and related income tax effect, adjusted net income (non-GAAP) for 2012 was $3.8 million, or $0.11 per diluted share, compared to $19.5 million, or $0.67 per diluted share, for 2011. See "Supplemental Non-GAAP Financial and Other Measures" below for our reconciliation of adjusted net income to net income.

EBITDAX (non-GAAP) for 2012 was $83.0 million, or $2.37 per diluted share, compared to $79.4 million, or $2.72 per diluted share, for 2011. See "Supplemental Non-GAAP Financial and Other Measures" below for our reconciliation of EBITDAX to net income.

Average realized commodity prices for 2012, before the effect of commodity derivatives, were $84.70 per Bbl of oil, $34.09 per Bbl of NGLs and $2.63 per Mcf of natural gas, compared to $88.18 per Bbl of oil, $51.39 per Bbl of NGLs and $3.92 per Mcf of natural gas for 2011. Our average realized price, including the effect of commodity derivatives, was $44.60 per Boe for 2012, down 7% compared to $47.81 per Boe for 2011.

Lease operating expenses increased in 2012 compared to 2011 primarily due to higher workover, compression, water hauling, well repair and maintenance expenses. Production and ad valorem taxes increased due to our increase in oil, NGL and gas sales. General and administrative expenses increased primarily due to higher share-based compensation as well as salaries and benefits, a result of increased staffing. Depletion, depreciation and amortization expense increased primarily due to higher production and oil and gas property carrying costs, relative to estimated proved developed reserves. Higher oil and gas property carrying costs primarily reflect our development of our oil-focused Wolfcamp shale play.

Fourth Quarter 2012 Financial Results

Fourth quarter 2012 production totaled 784 MBoe (8.5 MBoe/d), up 21% from the same period in 2011 and 5% from the prior quarter. Oil production for fourth quarter 2012 increased 75% compared to fourth quarter 2011 and 20% from the prior quarter. Production for fourth quarter 2012 was 38% oil, 30% NGLs and 32% natural gas, compared to 26% oil, 35% NGLs and 39% natural gas in fourth quarter 2011.

Net loss for fourth quarter 2012 was $837,000, or $0.02 per diluted share, on revenues of $35.3 million. This compares to net loss for fourth quarter 2011 of $9.3 million, or $0.30 per diluted share, on revenues of $31.1 million. Fourth quarter 2012 revenues increased $4.2 million due to an increase in production volumes ($10.2 million), partially offset by a decrease in oil, NGL and gas prices ($6.0 million). Net loss for fourth quarter 2012 included an unrealized gain on commodity derivatives of $1.3 million and a realized loss on commodity derivatives of $408,000.

Excluding the unrealized loss on commodity derivatives and related income tax effect, adjusted net loss (non-GAAP) for fourth quarter 2012 was $1.7 million, or $0.04 per diluted share, compared to adjusted net income of $5.8 million, or $0.19 per diluted share, for fourth quarter 2011. See "Supplemental Non-GAAP Financial and Other Measures" below for our reconciliation of adjusted net income to net (loss) income.

EBITDAX (non-GAAP) for fourth quarter 2012 was $20.6 million, or $0.53 per diluted share, compared to $22.8 million, or $0.74 per diluted share, for fourth quarter 2011. See "Supplemental Non-GAAP Financial and Other Measures" below for our reconciliation of EBITDAX to net (loss) income.

Average realized commodity prices for fourth quarter 2012, before the effect of commodity derivatives, were $78.27 per Bbl of oil, $30.27 per Bbl of NGLs and $3.22 per Mcf of natural gas, compared to $85.56 per Bbl of oil, $51.71 per Bbl of NGLs and $3.19 per Mcf of natural gas for fourth quarter 2011. Our average realized price, including the effect of commodity derivatives, was $44.50 per Boe for fourth quarter 2012, down 12% compared to $50.63 per Boe for fourth quarter 2011.

Lease operating expenses increased in fourth quarter 2012 compared to fourth quarter 2011 primarily due to higher workover, compression, water hauling, well repair and maintenance expenses. We expect lease operating expense per Boe to decrease in 2013 due to cost savings from our new infrastructure projects and higher production. Production and ad valorem taxes increased due to our increase in oil, NGL and gas sales. General and administrative expenses increased primarily due to higher share-based compensation as well as salaries and benefits, a result of increased staffing. Depletion, depreciation and amortization expense increased primarily due to higher production and oil and gas property carrying costs, relative to estimated proved developed reserves. Higher oil and gas property carrying costs primarily reflect our development of our oil-focused Wolfcamp shale play.

2012 Estimated Proved Reserves

Year-end 2012 proved reserves totaled 95.5 MMBoe, up 24% from year-end 2011 proved reserves of 77.0 MMBoe. The Company's proved oil reserves increased 106% to 37.3 MMBbls, compared to year-end 2011 proved oil reserves of 18.1 MMBbls. Year-end 2012 proved reserves were 39% oil, 30% NGLs and 31% natural gas and 34% proved developed, compared to 23% oil, 38% NGLs and 39% natural gas and 44% proved developed at year end 2011. At December 31, 2012, 99.9% of our proved reserves were located in our core operating area in the Permian Basin.

The increase in year-end 2012 estimated proved reserves is primarily a result of our horizontal development project in the Wolfcamp oil shale resource play. Year-end 2012 estimated proved reserves included 60.1 MMBoe attributable to the Wolfcamp shale play, compared to 24.2 MMBoe at year-end 2011, representing a 149% increase.

The increase in proved reserves was partially offset by the reclassification of 8.9 MMBoe of proved undeveloped reserves to probable undeveloped. These reserves are attributable to vertical Canyon locations in southeast Project Pangea. Due to our horizontal Wolfcamp development project, including pad drilling, postponement of these deeper locations beyond five years from initial booking is necessary to integrate their development with the shallower Wolfcamp and Wolffork zones. As a result of lower natural gas and NGL prices during 2012, we also recorded 2.4 MMBoe of price revisions.

The following table summarizes the changes in our estimated proved reserves during 2012.

Our preliminary, unaudited estimate of the standardized after-tax measure of discounted future net cash flows ("Standardized Measure") for our proved reserves at December 31, 2012, was $494.2 million. Estimated PV-10, or pre-tax present value of our proved reserves discounted at 10%, was $830.9 million. The independent engineering firm DeGolyer and MacNaughton prepared our estimates of year-end 2012 proved reserves and PV-10. PV-10 is a non-GAAP measure. See "Supplemental Non-GAAP Measures" below for our definition of PV-10 and a reconciliation to the Standardized Measure (GAAP). Estimates of proved reserves and PV-10 were prepared using $94.71 per Bbl of oil, $37.88 per Bbl of NGLs and $2.74 per MMBtu of natural gas.

Costs Incurred and Equity Investment

Preliminary, unaudited costs incurred during 2012 totaled $297.3 million, consisting of $240.8 million for horizontal and vertical drilling and completion activities and recompletions, $44.3 million for pipeline and infrastructure projects, $9.0 million for acreage acquisitions, and $3.2 million for 3-D seismic data acquisition. Also, as previously disclosed, in September 2012, we entered into a joint venture to build an oil pipeline in Crockett and Reagan Counties, Texas, which will be used to transport our oil to market. In October 2012, we made an initial capital contribution of $10 million to the joint venture for pipeline and facilities construction. Future capital contributions to the venture are discretionary.

Drilling Locations and Resource Potential

The Company made significant progress in the horizontal Wolfcamp shale play during 2012. Based on the Company's results in the horizontal Wolfcamp play, the delineation of the Wolfcamp across approximately 107,000 gross acres, hundreds of vertical well control points and information from 3-D seismic, micro-seismic, core and log data, we have identified 2,096 horizontal locations, including 130 horizontal PUD locations. The Company's horizontal drilling inventory is based on 120-acre spacing and multi-bench development. In the horizontal Wolfcamp shale play, estimated gross, unrisked resource potential increased over 300% to approximately 943 MMBoe gross (707.4 MMBoe net).

The following table summarizes the Company's identified horizontal drilling locations as of December 31, 2012.

Approach also has identified 727 vertical locations, made up of 329 locations targeting the Wolffork and 398 locations targeting the Canyon Wolffork, as well as 160 vertical Wolffork recompletions. Our horizontal and vertical drilling inventory does not include any locations in south Project Pangea.

Liquidity and Commodity Derivatives Update

At December 31, 2012, we had a $300.0 million revolving credit agreement with a $280.0 million borrowing base and $106.0 million outstanding. At December 31, 2012, our liquidity and long-term debt-to-capital ratio were $174.4 million and 14.3%, respectively. See "Supplemental Non-GAAP Financial and Other Measures" below for our calculation of "liquidity" and "long-term debt-to-capital ratio."

We enter into commodity derivatives positions to reduce the risk of commodity price fluctuations. We have added to our 2013 commodity derivatives positions with a Midland/Cushing basis differential swap covering 2,300 Bbls/d at a price of $1.10/Bbl from March 2013 through December 2013. We expect this swap will limit our exposure to the Midland/Cushing differential, which has been volatile during fourth quarter 2012 and first quarter 2013. Please refer to the "Unaudited Commodity Derivatives Information" table below for a detailed summary of the Company's current derivatives positions.

Fourth Quarter 2012 Conference Call

Approach will host a conference call on Friday, February 22, 2013, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss full year and fourth quarter 2012 financial and operating results. To participate in the conference call, domestic participants should dial (866) 362-5158 and international participants should dial (617) 597-5397 approximately 15 minutes before the scheduled conference time. To access the simultaneous webcast of the conference call, please visit the Calendar of Events page under the Investor Relations section of the Company's website, www.approachresources.com,15 minutes before the scheduled conference time to register for the webcast and install any necessary software. The webcast will be archived for replay on the Company's website until May 23, 2013. In addition, the Company will host a telephone replay of the call, which will be available for one week. U.S. callers may access the telephone replay by dialing (888) 286-8010 and international callers may dial (617) 801-6888. The passcode is 51273543.

Participation in Upcoming Conference

The Company will participate in the Wells Fargo Securities Exploration & Production Forum in Boston, MA, on Thursday, March 7, 2013. The presentation for the event will be available on the Investor Relations section of the Company's website, www.approachresources.com.

Approach Resources Inc. is an independent oil and gas company with core operations, production and reserves located in the Permian Basin in West Texas. The Company targets multiple oil and liquids-rich formations in the Permian Basin, where the Company operates approximately 148,000 net acres. The Company's estimated proved reserves as of December 31, 2012, total 95.5 million Boe, comprised of 39% oil, 30% NGLs and 31% natural gas. For more information about the Company, please visit www.approachresources.com. Please note that the Company routinely posts important information about the Company under the Investor Relations section of its website.

Forward-Looking and Cautionary 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 estimated proved reserves, expected drilling locations and resource potential, as well as anticipated financial results of the Company. These statements are based on certain assumptions made by the Company based on management's experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words "will," "potential," "believe," "estimate," "intend," "expect," "may," "should," "anticipate," "could," "plan," "predict," "project," "profile," "model" or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. 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. Further information on such assumptions, risks and uncertainties is available in the Company's Securities and Exchange Commission ("SEC") filings.The Company's SEC filings are available on the Company's website atwww.approachresources.com.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.

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves.The Company uses the terms "estimated ultimate recovery," "EUR," reserve or resource"potential," "upside" or other descriptions of volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC's rules may prohibit the Company from including in filings with the SEC.These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized by the Company.

Potential drilling locations and resource potential estimates have not been risked by the Company.Actual locations drilled and quantities that may be ultimately recovered from the Company's interest may differ substantially from the Company's estimates.There is no commitment by the Company to drill all of the drilling locations that have been attributed to these quantities.Factors affecting ultimate recovery include the scope of the Company's ongoing drilling program, which will be directly affected by the availability of capital, drilling and production costs, availability of drilling and completion services and equipment, drilling results, lease expirations, regulatory approval and actual drilling results, as well as geological and mechanical factors.Estimates of unproved reserves, type/decline curves, per well EUR and resource potential may change significantly as development of the Company's oil and gas assets provides additional data.

Information in this release regarding the Standardized Measure and costs incurred is preliminary and unaudited.Final and audited results will be provided in our annual report on Form 10-K for the year ended December 31, 2012, to be filed on or before March 1, 2013.

For a glossary of oil and gas terms and abbreviations used in this release, please see our Annual Report on Form 10-K filed with the SEC on March 12, 2012.