Disciplined Execution Drives Approach Resources Third Quarter 2018 Results

Approach Resources Inc. (NASDAQ: AREX) today reported third
quarter 2018 financial and operational results.

Financial and operational highlights for third quarter 2018

• Drilled six wells and completed two horizontal Wolfcamp wells
• Production of 1,043 MBoe or 11.3 MBoe/day
• Revenues of $32.6 million, a 27% increase over prior year quarter
• Generated $4.5 million of operating income
• Net loss was $4.3 million or $0.05 per diluted share, and adjusted net
  loss (non-GAAP) was $4.2 million or $0.04 per diluted share
• Generated $16.5 million of EBITDAX (non-GAAP), a 19% increase over
  prior year quarter
• Improved unhedged cash margin per Boe (non-GAAP) to $18.88 per Boe,
  40% over the prior year quarter

Adjusted net loss, EBITDAX and unhedged cash margin are non-GAAP
measures. See “Supplemental Non-GAAP Financial and Other Measures” below
for our definitions and reconciliations of adjusted net loss, EBITDAX to
net loss and unhedged cash margin.

Management Comment

Ross Craft, Approach’s Chairman and CEO, commented, “I am pleased with
our execution during the first nine months of the year relative to
commodity prices and basin dynamics. This quarter we delivered revenue,
earnings and EBITDAX growth. The strengthened price in oil and NGLs and
expiration of legacy hedges, combined with a disciplined focus on
controlling costs, drove $4.5 million of operating income. We drilled
six horizontal wells, fulfilling our 2018 drilling program ahead of
schedule. In addition, we completed two wells in the second half of the
quarter and maintained our industry leading drilling and completion cost
average of $4.6 million per well.

“Despite improved oil and NGL prices, the extreme WAHA natural gas price
discount in the Permian Basin has persisted. In light of this, we
elected to defer several third quarter completions and reschedule
planned fourth quarter completions. We understand that the market often
demands production growth under any circumstances, but we believe growth
for the sake of growth is shortsighted. We have a healthy inventory of
drilled but uncompleted wells, positioning us to accelerate activity in
2019, when we expect the basin gas differentials to improve. In the
meantime, we will stay focused on delivering a strengthened balance
sheet and on disciplined and profitable execution.”

Third Quarter 2018 Results

Production for third quarter 2018 totaled 1,043 Mboe, or 11.3 MBoe/d,
made up of 26% oil, 36% NGLs and 38% natural gas. Average realized
commodity prices for third quarter 2018, before the effect of commodity
derivatives, were $67.28 per Bbl of oil, $28.38 per Bbl of NGLs and
$1.59 per Mcf of natural gas. Our average realized price, including the
effect of commodity derivatives, was $28.17 per Boe for third quarter
2018.

Net loss for third quarter 2018 was $4.3 million, or $0.05 per diluted
share, on revenues of $32.6 million. Excluding the decrease in the fair
value of our commodity derivatives of $0.1 million, adjusted net loss
(non-GAAP) for third quarter 2018 was $4.2 million, or $0.04 per diluted
share. EBITDAX (non-GAAP) for third quarter 2018 was $16.5 million. See
“Supplemental Non-GAAP Financial and Other Measures” below for our
reconciliation of adjusted net loss and EBITDAX to net loss.

Lease operating expense ("LOE") averaged $5.57 per Boe. LOE in the third
quarter included strategic spending on certain workovers and maintenance
and we expect LOE to decrease in the fourth quarter. Production and ad
valorem taxes averaged $2.03 per Boe, or 6.5% of oil, NGL and gas sales.
Total general and administrative (“G&A”) costs averaged $5.35 per Boe,
including cash G&A costs of $4.73 per Boe. Depletion, depreciation and
amortization expense averaged $13.90 per Boe. Interest expense totaled
$6.5 million.

Operations Update

In the third quarter we drilled six horizontal Wolfcamp wells: four in
the A bench, one in the B bench and one in the C bench. During the
second half of the third quarter we completed two horizontal Wolfcamp
wells, both in Project Pangea. Of the completed wells, one well was in
the B bench and one well was in the C bench. At September 30, 2018, we
had seven horizontal wells waiting on completion.

As noted above, in light of the extreme WAHA gas discount in the basin,
we deferred third quarter completions and rescheduled fourth quarter
completions to preserve capital until basin gas differentials show signs
of improvement. We now expect full year capital expenses to be $47
million, or 21% below the mid-point of prior guidance, and full year
production to be approximately 4,100 MBoe, or 6% below the mid-point of
prior guidance.

Capital expenditures incurred during third quarter 2018 totaled $19.3
million, consisting of $17 million for drilling and completion
activities, $2.2 million for infrastructure projects and equipment and
$0.1 million for lease acquisitions and extensions. For the nine months
ended September 30, 2018, our capital expenditures totaled $46.5
million, consisting of $40.6 million for drilling and completion
activities, $5.5 million for infrastructure projects and equipment and
$0.4 million for lease acquisitions.

Liquidity Update

At September 30, 2018, we had a $1 billion revolving credit facility in
place, with a borrowing base and lender commitment amount of $325
million, and liquidity of $29.2 million. See “Supplemental Non-GAAP
Financial and Other Measures” below for our definition and calculation
of liquidity.

Commodity Derivatives Update

We enter into commodity derivatives positions to reduce the risk of
commodity price fluctuations. The table below is a summary of our
current derivatives positions.

Conference Call Information and Summary Presentation

The Company will host a conference call on November 9, 2018, at 10:00 AM
CT (11:00 AM ET) to discuss third quarter 2018 financial and operating
results.

Those wishing to listen to the conference call, may do so by visiting
the Events and Presentations page under the Investor Relations section
of the Company’s website, www.approachresources.com,
or by phone:

In addition, a third quarter 2018 summary presentation, including
updated guidance, will be available on the Company’s website.

About Approach Resources

Approach Resources Inc. is an independent energy company focused
on the exploration, development, production and acquisition of
unconventional oil and natural gas reserves in the Midland Basin of the
greater Permian Basin in West Texas. 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.

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 expectations of anticipated financial and operating
results. 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 at www.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.

(1) Long-term debt at September 30, 2018, is comprised of $85.2 million
in 7% senior notes due 2021 and $295.5 million in outstanding borrowings
under our revolving credit facility, net of issuance costs of $0.8
million and $1.2 million, respectively. Long-term debt at December 31,
2017, is comprised of $85.2 million in 7% senior notes due 2021 and $291
million in outstanding borrowings under our revolving credit facility,
net of issuance costs of $1.1 million and $1.7 million, respectively.

Supplemental Non-GAAP Financial and Other Measures

This release contains certain financial measures that are non-GAAP
measures. We have provided reconciliations below of the non-GAAP
financial measures to the most directly comparable GAAP financial
measures and on the Non-GAAP Financial Information page in the Investor
Relations section of our website at www.approachresources.com.

Adjusted Net Loss

This release contains the non-GAAP financial measures adjusted net loss
and adjusted net loss per diluted share, which exclude (1) non-cash fair
value loss (gain) on derivatives, (2) gain on debt extinguishment, (3)
write-off of deferred tax assets, (4) tax effect and other discrete tax
items. The amounts included in the calculation of adjusted net loss and
adjusted net loss per diluted share below were computed in accordance
with GAAP. We believe adjusted net loss and adjusted net loss per
diluted share are useful to investors because they provide readers with
a meaningful measure of our profitability before recording certain items
whose timing or amount cannot be reasonably determined. However, these
measures are provided in addition to, and not as an alternative for, and
should be read in conjunction with, the information contained in our
financial statements prepared in accordance with GAAP (including the
notes), included in our SEC filings and posted on our website.

The table below provides a reconciliation of adjusted net loss to net
loss for the three and nine months ended September 30, 2018 and 2017 (in
thousands, except per-share amounts).

(1) The estimated income tax impacts on adjustments to net loss are
computed based upon a statutory rate of 21% and 35%, for the three and
nine months ended September 30, 2018, and three and nine months ended
September 30, 2017, respectively. Additionally, this includes the tax
impact of a tax shortfall related to share-based compensation of $8,000,
$0.3 million, and $70,000, for the three months ended September 30,
2017, nine months ended September 30, 2017, and nine months ended
September 30, 2018, respectively.

EBITDAX

We define EBITDAX as net loss, plus (1) exploration expense, (2)
depletion, depreciation and amortization expense, (3) share-based
compensation expense, (4) non-cash fair value loss (gain) on
derivatives, (5) gain on debt extinguishment, (6) interest expense, net,
and (7) income tax (benefit) provision. EBITDAX is not a measure of net
income or cash flow as determined by GAAP. The amounts included in the
calculation of EBITDAX were computed in accordance with GAAP. EBITDAX is
presented herein and reconciled to the GAAP measure of net loss because
of its wide acceptance by the investment community as a financial
indicator of a company's ability to internally fund development and
exploration activities. This measure is provided in addition to, and not
as an alternative for, and should be read in conjunction with, the
information contained in our financial statements prepared in accordance
with GAAP (including the notes), included in our SEC filings and posted
on our website.

The table below provides a reconciliation of EBITDAX to net loss for the
three and nine months ended September 30, 2018 and 2017 (in thousands).

Unhedged Cash Margin and Cash Operating Expenses

We define unhedged cash margin as revenue, less cash operating expenses.
We define cash operating expenses as operating expenses, excluding (1)
exploration expense, (2) depletion, depreciation and amortization
expense, and (3) share-based compensation expense. Unhedged cash margin
and cash operating expenses are not measures of operating income or cash
flows as determined by GAAP. The amounts included in the calculations of
unhedged cash margin and cash operating expenses were computed in
accordance with GAAP. Unhedged cash margin and cash operating expenses
are presented herein and reconciled to the GAAP measures of revenue and
operating expenses. We use unhedged cash margin and cash operating
expenses as an indicator of the Company’s profitability and ability to
manage its operating income and cash flows. This measure is provided in
addition to, and not as an alternative for, and should be read in
conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our
SEC filings and posted on our website.

The table below provides a reconciliation of unhedged cash margin and
cash operating expenses to revenues and operating expenses for the three
and nine months ended September 30, 2018 and 2017 (in thousands, except
per-Boe amounts).

Liquidity

Liquidity is calculated by adding the net funds available under our
revolving credit facility and cash and cash equivalents. We use
liquidity as an indicator of the Company’s ability to fund development
and exploration activities. However, this measurement has limitations.
This measurement can vary from year-to-year for the Company and can vary
among companies based on what is or is not included in the measurement
on a company’s financial statements and may further be subject to
covenants in a company’s loan agreements. This measurement is provided
in addition to, and not as an alternative for, and should be read in
conjunction with, the information contained in our financial statements
prepared in accordance with GAAP (including the notes), included in our
SEC filings and posted on our website.

The table below summarizes our liquidity at September 30, 2018 (in
thousands).

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