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Jones Energy, Inc. Announces 2017 Third Quarter Financial and Operating Results, and Updated 2017 Guidance

AUSTIN, Texas, Nov 07, 2017 (GLOBE NEWSWIRE via COMTEX) --

Jones Energy, Inc. (NYSE:JONE) ("Jones Energy" or "the Company") today announced financial and operating results for the third quarter ended September 30, 2017 and updated guidance for 2017, including initial fourth quarter 2017 guidance.

Highlights:

-- Strong initial rates seen from six recently completed wells in the Merge, with rates still increasing.

-- First pair of long lateral Merge wells drilled at Company-record pace, currently undergoing completions.

-- Suspended drilling activity in Western Anadarko, released last remaining rig in October.

-- Average daily net production for third quarter 2017 of 21.4 Mboe/d.

-- Working with lenders to increase financial flexibility to enable increased Merge activity in 2018.

-- Net loss for the third quarter of 2017 of $83.0 million, non-GAAP adjusted net loss of $10.9 million, or a loss of $0.13 per share, and EBITDAX of $47.1 million.

Jonny Jones, the Company's Founder, Chairman, and CEO, commented, "During the third quarter our Merge activity continued to ramp with our second rig deploying in July. In the Merge today, we have 13 wells online and the asset is beginning to make significant contributions to production, achieving an average of 3,576 Boe/d for the quarter. Our prolific Bomhoff wells continue to show strong performance and we are encouraged by early results from the offsetting Rosewood pad, which is still inclining. I look forward to providing you with updated peak results as they are achieved."

Financial Results

Total operating revenues for the three months ended September 30, 2017 were $44.2 million as compared to $33.4 million for the three months ended September 30, 2016. Total revenues including current period settlements of matured derivative contracts were $66.1 million for the three months ended September 30, 2017 as compared to $60.9 million for the three months ended September 30, 2016.

____________________________________

Adjusted net income, adjusted net income 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.

Total operating expenses for the three months ended September 30, 2017 were $68.6 million as compared to $53.9 million for the three months ended September 30, 2016. LOE continues to track the low end of full year 2017 guidance, at $9.5 million, or $4.80 per Boe for the three months ended September 30, 2017.

For the three months ended September 30, 2017, the Company reported a net loss of $83.0 million, of which a net loss of $66.8 million, or $0.91 per share, is attributable to common shareholders. This compares to a net loss of $22.4 million, of which a net loss of $10.6 million, or $0.24 per share, was attributable to common shareholders for the three months ended September 30, 2016. Excluding hedge losses and certain other items that the Company does not view as indicative of its ongoing financial performance, the Company had adjusted net loss for the third quarter 2017 of $10.9 million, or adjusted net loss of $0.13 per share attributable to common shareholders, as compared to adjusted net loss of $1.0 million, or a loss of $0.02 per share attributable to common shareholders for the three months ended September 30, 2016.

Earnings before interest, income taxes, depreciation, amortization, and exploration expense ("EBITDAX") for the third quarter of 2017 was $47.1 million. This compares to third quarter 2016 EBITDAX of $46.8 million.

Operating Results

During the third quarter of 2017 Jones Energy produced 1,970 MBoe, or 21,413 Boe/d, which was slightly above the high end of guidance, supported by natural gas outperformance. Merge production continued to increase rapidly, representing approximately 17% of total Company production for the third quarter of 2017 as compared to approximately 9% of total Company production for the second quarter of 2017, in each case excluding volumes related to the Arkoma divestiture. Total Merge volumes nearly doubled in the third quarter over second quarter, from 170 MBoe produced in the second quarter to 329 MBoe produced in the third quarter.

Production from the Arkoma properties was included for the first month of the third quarter, until the closing of the asset sale on August 1, 2017. A breakout of third quarter production is shown in the table below.

          Three months ended September 30, 2017:
          Oil        Natural Gas  NGLs     Total
          (MBbls)    (MMcf)       (MBbls)  (MBoe)
Cleveland 367        3,369        431      1,360
Merge     105        772          95       329
Arkoma *  (2   )     (22   )      24       18
Other     11         1,052        77       263
Total     481        5,171        627      1,970
* Arkoma asset sale closed August 1, 2017

Eastern Anadarko (Merge)

During the third quarter, the Company spud 11 wells and completed three wells in the Merge. Following the end of the quarter, completion operations which began during the quarter on the Hardesty and Rosewood pads, were completed and the wells placed on production in mid-October. As of today, Jones Energy has spud a total of 21 wells, drilled 18 wells to TD, and placed 13 wells on production in the Merge. Third quarter Merge production averaged 3,576 Boe/d, of which 60.8% was liquids.

Jones Energy is currently running two rigs in the Merge and plans to add a third rig entering 2018. Jones Energy recently drilled its first pair of long lateral wells (approximately 10,000 ft) from the Stejskal pad, which included one Meramec and one Woodford target. The Stejskal-1HX was drilled at a Company-best rate of 14.4 days spud to TD, and is currently undergoing completions.

The Company continues to see strong production from its initial Meramec wells, with the Bomhoff 2H achieving a peak IP90 rate of 1,218 Boe/d consisting of 463 Bbls/d of oil and 4,534 Mcf/d of natural gas. Peak IP90 oil rates for the Bomhoff 2H are 34% above type curve expectations. The Bomhoff 2H had previously achieved a peak IP30 rate of 1,345 Boe/d, consisting of 548 Bbls/d of oil and 4,777 Mcf/d of natural gas. The Company's second Meramec well, the Garrett 1H achieved a peak IP90 rate of 850 Boe/d, consisting of 496 Bbls/d of oil and 2,122 Mcf/d of natural gas. Peak IP90 oil rates for the Garrett 1H are 25% above type curve expectations. The recently completed batch of six wells, which include four Meramec and two Woodford wells, have not yet reached peak IP30 rates, but are showing strong initial performance.

Western Anadarko (Cleveland)

During the third quarter, Jones Energy spud 10 wells, including two long laterals, in the Western Anadarko and initiated a large completion campaign beginning in mid-August which continued through the end of October. The Company completed a total of 18 wells in the third quarter. Wells completed were put online beginning in late August through the end of the quarter, which resulted in a small impact on third quarter production. Average daily net production in the Cleveland was 14.8 MBoe/d in the third quarter of 2017.

Jones Energy dropped one core Cleveland rig in August, a second rig in September and released its remaining rig in October. As a result of the updated rig schedule, the Company does not expect to drill any Cleveland wells for the remainder of 2017, but expects completion crews to place six previously drilled wells on production during the fourth quarter.

Capital Expenditures

During the third quarter of 2017, the Company spent $66.7 million on capital expenditures, of which $57.9 million was drilling and completion capital and the remainder was related to leasing, maintenance capital and spending on non-operated wells. Capital expenditures for the first nine months of 2017 totaled $184.7 million.

The Company now anticipates Capex to be approximately $10 million less than the revised mid-year budget of $250 million based on changes to the rig program, for a new total of $240 million.

Updated 2017 Guidance

The Company now projects average daily production of 20,800 to 21,200 Boe/d for full year 2017. Initial fourth quarter 2017 guidance of 19,000 to 20,800 Boe/d has also been announced. A table has been provided below with updated full year and fourth quarter 2017 guidance by category.

2017 Guidance                              Previous          Updated
                                           2017E             2017E             4Q17E
Total Production (MMBoe)                   7.6 - 8.0         7.6 - 7.7         1.8 - 1.9
Average Daily Production (MBoe/d)          20.7 - 22.0       20.8 - 21.2       19.0 - 20.8
Crude Oil (MBbl/d)                         5.5 - 5.9         5.2 - 5.3         5.5 - 6.0
Natural Gas (MMcf/d)                       52.0 - 55.3       54.2 - 55.4       44.6 - 49.5
NGLs (MBbl/d)                              6.5 - 6.9         6.6 - 6.7         6.1 - 6.5
Lease Operating Expense ($mm)              $40.0 - $45.0     $40.0 - $45.0
Production Taxes (% of Unhedged Revenue) * 4.5% - 5.5%       4.5% - 5.5%
Ad Valorem Taxes ($mm) *                   $2.7 - $3.0       $2.7 - $3.0
Cash G&A Expense ($mm)                     $23 - $25         $23 - $25
* Production and ad valorem taxes are included as one line item on the Company's income statement

Liquidity and Hedging

As of September 30, 2017, the Company had $151 million of outstanding borrowings under its revolving credit facility, resulting in approximately $224 million of total unborrowed capacity, and approximately $6 million in cash. The Company is working with its lenders to increase its financial flexibility, including modifying its financial covenants under the Revolver. The Company believes that it will be successful in its negotiations with its lenders, and expects such negotiations to be finalized in the coming weeks.

During the third quarter of 2017, Jones Energy unwound its remaining $15 million of 2018 crystalized hedges. Net proceeds from the unwind have the effect of reducing debt and increasing EBITDAX by approximately $15 million. The following table summarizes the Company's net commodity derivative contracts outstanding as of November 7, 2017:

                        4Q 2017      2018     2019     2020
Oil Hedges
Swaps Sold (MBbl)           489      2,364    1,020    660
Price ($/Bbl)           $   63.16  $ 51.08  $ 50.04  $ 50.00
Collars (MBbl)              -        -        810      -
Floor ($/Bbl)               -        -      $ 48.52    -
Ceiling ($/Bbl)             -        -      $ 59.64    -
Gas Hedges
Swaps Sold (MMcf)           5,046    22,310   9,820    8,400
Price ($/Mcf)           $   3.70   $ 2.96   $ 2.83   $ 2.79
Collars (MMcf)              -        -        11,890   -
Floor ($/Mcf)               -        -      $ 2.55     -
Ceiling ($/Mcf)             -        -      $ 3.19     -
NGL Swaps (MBbl)
Ethane                      -        -        -        -
Propane                     227      850      -        -
Iso Butane                  24       120      -        -
Butane                      81       335      -        -
Natural Gasoline            93       360      -        -
Total NGLs                  425      1,665    -        -
NGL Swap Prices ($/Gal)
Ethane                      -        -        -        -
Propane                 $   0.47   $ 0.57     -        -
Iso Butane                  0.57     0.72     -        -
Butane                      0.61     0.69     -        -
Natural Gasoline            1.04     1.05     -        -

Conference Call Details

Jones Energy will host a conference call for investors and analysts to discuss its results on Wednesday, November 8, 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 (833) 231-8272 (for domestic U.S.) or (647) 689-4117 (International) and entering conference code 6587688. 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 basin of Texas and Oklahoma. Additional information about Jones Energy may be found on the Company's website at: www.jonesenergy.com.

Investor Contact:

Page Portas, 512-493-4834

Investor Relations Associate

Or

Robert Brooks, 512-328-2953

Executive Vice President & CFO

ir@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, updated guidance regarding the number of rigs that will be running in 2017, our ability to amend our revolving credit facility to modify certain financial covenants, the timing and location of the development of the new Merge acreage, well performance (including in comparison to type curves), the cost to drill and complete wells and the resultant impact on the 2017 capital budget, and projections regarding total production, average daily production, percentage liquids, operating expenses, production and ad valorem taxes as a percentage of revenue, cash G&A expenses and capital expenditure levels for the full year and third quarter of 2017. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current economic and market 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, actual well performance, weather and environmental conditions, our ability to comply with the covenants in our debt agreements, the timing and amount of planned capital expenditures, availability of funding for planned capital expenditures, availability and method of funding of acquisitions and divestitures, or the ability to integrate any acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as the Company's ability to access them, the proximity to and capacity of transportation facilities, 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 Statement of Operations (Unaudited)

                                                                Three months ended September 30,      Nine months ended September 30,
(in thousands of dollars except per share data)                 2017               2016               2017                2016
Operating revenues
Oil and gas sales                                               $    43,636        $    32,582        $    132,427        $    86,060
Other revenues                                                       566                771                1,634               2,295
Total operating revenues                                             44,202             33,353             134,061             88,355
Operating costs and expenses
Lease operating                                                      9,458              7,865              27,689              24,027
Production and ad valorem taxes                                      2,757              1,733              4,641               5,061
Exploration                                                          1,969              998                11,638              1,237
Depletion, depreciation and amortization                             46,353             36,550             127,343             116,449
Impairment of oil and gas properties                                 --                 --                 148,016             --
Accretion of ARO liability                                           253                323                720                 913
General and administrative                                           7,819              6,448              24,493              22,078
Total operating expenses                                             68,609             53,917             344,540             169,765
Operating income (loss)                                              (24,407 )          (20,564 )          (210,479 )          (81,410 )
Other income (expense)
Interest expense                                                     (12,817 )          (12,792 )          (38,381  )          (40,397 )
Gain on debt extinguishment                                          --                 --                 --                  99,530
Net gain (loss) on commodity derivatives                             (32,539 )          4,014              11,308              (18,769 )
Other income (expense)                                               (13,692 )          364                14,389              251
Other income (expense), net                                          (59,048 )          (8,414  )          (12,684  )          40,615
Income (loss) before income tax                                      (83,455 )          (28,978 )          (223,163 )          (40,795 )
Income tax provision (benefit)                                       (492    )          (6,549  )          (2,707   )          (8,234  )
Net income (loss)                                                    (82,963 )          (22,429 )          (220,456 )          (32,561 )
Net income (loss) attributable to non-controlling interests          (18,157 )          (12,576 )          (72,047  )          (18,374 )
Net income (loss) attributable to controlling interests         $    (64,806 )     $    (9,853  )     $    (148,409 )     $    (14,187 )
Dividends and accretion on preferred stock                           (1,966  )          (765    )          (5,959   )          (765    )
Net income (loss) attributable to common shareholders           $    (66,772 )     $    (10,618 )     $    (154,368 )     $    (14,952 )
Earnings (loss) per share:
Basic - Net income (loss) attributable to common shareholders   $    (0.91   )     $    (0.24   )     $    (2.30    )     $    (0.40   )
Diluted - Net income (loss) attributable to common shareholders $    (0.91   )     $    (0.24   )     $    (2.30    )     $    (0.40   )
Weighted average Class A shares outstanding:
Basic                                                                73,089             44,993             67,029              37,299
Diluted                                                              73,089             44,993             67,029              37,299

Jones Energy, Inc.

Consolidated Balance Sheet (Unaudited)

                                                                                       September 30         December 31,
(in thousands of dollars)                                                              2017                 2016
Assets
Current assets
Cash                                                                                   $    5,478           $    34,642
Accounts receivable, net
Oil and gas sales                                                                           29,136               26,568
Joint interest owners                                                                       17,533               5,267
Other                                                                                       3,870                6,061
Commodity derivative assets                                                                 7,590                24,100
Other current assets                                                                        10,391               2,684
Total current assets                                                                        73,998               99,322
Oil and gas properties, net, at cost under the successful efforts method                    1,578,739            1,743,588
Other property, plant and equipment, net                                                    2,565                2,996
Commodity derivative assets                                                                 1,608                34,744
Other assets                                                                                4,668                6,050
Total assets                                                                           $    1,661,578       $    1,886,700
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable                                                                 $    67,550          $    36,527
Oil and gas sales payable                                                                   21,510               28,339
Accrued liabilities                                                                         24,472               25,707
Commodity derivative liabilities                                                            15,696               14,650
Other current liabilities                                                                   3,224                2,584
Total current liabilities                                                                   132,452              107,807
Long-term debt                                                                              698,740              724,009
Deferred revenue                                                                            5,632                7,049
Commodity derivative liabilities                                                            5,355                1,209
Asset retirement obligations                                                                19,239               19,458
Liability under tax receivable agreement                                                    55,096               43,045
Other liabilities                                                                           1,010                792
Deferred tax liabilities                                                                    2,732                2,905
Total liabilities                                                                           920,256              906,274
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,839,995 shares issued and outstanding at      89,413               88,975
September 30, 2017 and 1,840,000 shares issued and outstanding at
December 31, 2016
Stockholders' equity
Class A common stock, $0.001 par value; 74,376,391 shares issued and 74,353,789             74                   57
shares outstanding at September 30, 2017 and 57,048,076 shares issued and
57,025,474 shares outstanding at December 31, 2016
Class B common stock, $0.001 par value; 23,718,779 shares issued and outstanding at         24                   30
September 30, 2017 and 29,832,098 shares issued and outstanding at
December 31, 2016
Treasury stock, at cost: 22,602 shares at September 30, 2017 and December 31, 2016          (358      )          (358      )
Additional paid-in-capital                                                                  534,499              447,137
Retained (deficit) / earnings                                                               (181,226  )          (8,652    )
Stockholders' equity                                                                        353,013              438,214
Non-controlling interest                                                                    298,896              453,237
Total stockholders' equity                                                                  651,909              891,451
Total liabilities and stockholders' equity                                             $    1,661,578       $    1,886,700

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:

(in thousands of dollars except for production, sales price and average cost data) Three Months Ended September 30,
                                                                                   2017        2016        Change
Revenues:
Oil and gas sales                                                                      43,636      32,582      11,054
Other revenues                                                                         566         771         (205   )
Current period settlements of matured derivative contracts                             21,892      27,538      (5,646 )
Total operating revenues                                                               66,094      60,891      5,203
Net production volumes:
Oil (MBbls)                                                                            481         396         85
Natural gas (MMcf)                                                                     5,171       4,602       569
NGLs (MBbls)                                                                           627         549         78
Total (MBoe)                                                                           1,970       1,712       258
Average net (Boe/d)                                                                    21,413      18,609      2,804
Average sales price, unhedged:
Oil (per Bbl), unhedged                                                            $   44.84   $   39.94   $   4.90
Natural gas (per Mcf), unhedged                                                        1.82        2.08        (0.26  )
NGLs (per Bbl), unhedged                                                               20.17       13.09       7.08
Combined (per Boe), unhedged                                                           22.15       19.03       3.12
Average sales price, hedged:
Oil (per Bbl), hedged                                                              $   79.50   $   87.34   $   (7.84  )
Natural gas (per Mcf), hedged                                                          3.62        3.46        0.16
NGLs (per Bbl), hedged                                                                 13.63       17.54       (3.91  )
Combined (per Boe), hedged                                                             33.26       35.12       (1.86  )
Average costs (per BOE):
Lease operating                                                                    $   4.80    $   4.59    $   0.21
Production and ad valorem taxes                                                        1.40        1.01        0.39
Depletion, depreciation and amortization                                               23.53       21.35       2.18
General and administrative                                                             3.97        3.77        0.20

Jones Energy, Inc.

Consolidated Statement of Cash Flow Data (Unaudited)

                                                                     Nine months ended September 30,
(in thousands of dollars)                                            2017                2016
Cash flows from operating activities
Net income (loss)                                                    $    (220,456 )     $    (32,561  )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depletion, depreciation, and amortization                                 127,343             116,449
Exploration (dry hole and lease abandonment)                              8,680               945
Impairment of oil and gas properties                                      148,016             --
Accretion of ARO liability                                                720                 913
Amortization of debt issuance costs                                       2,930               3,083
Stock compensation expense                                                5,702               5,269
Deferred and other non-cash compensation expense                          335                 614
Amortization of deferred revenue                                          (1,417   )          (1,828   )
(Gain) loss on commodity derivatives                                      (11,308  )          18,769
(Gain) loss on sales of assets                                            131                 (68      )
(Gain) on debt extinguishment                                             --                  (99,530  )
Deferred income tax provision                                             80                  (11,824  )
Change in liability under tax receivable agreement                        (15,831  )          (422     )
Other - net                                                               1,892               1,227
Changes in operating assets and liabilities
Accounts receivable                                                       (15,070  )          8,964
Other assets                                                              (8,238   )          (466     )
Accrued interest expense                                                  2,028               (1,050   )
Accounts payable and accrued liabilities                                  15,888              6,425
Net cash provided by operations                                           41,425              14,909
Cash flows from investing activities
Additions to oil and gas properties                                       (179,152 )          (212,419 )
Net adjustments to purchase price of properties acquired                  2,391               --
Proceeds from sales of assets                                             60,422              1,615
Acquisition of other property, plant and equipment                        (603     )          (194     )
Current period settlements of matured derivative contracts                69,412              106,151
Net cash (used in) investing                                              (47,530  )          (104,847 )
Cash flows from financing activities
Proceeds from issuance of long-term debt                                  102,000             75,000
Repayment of long-term debt                                               (129,000 )          (42,000  )
Purchase of senior notes                                                  --                  (84,589  )
Payment of cash dividends on preferred stock                              (3,367   )          --
Net distributions paid to JEH unitholders                                 (562     )          (10,109  )
Net payments for share based compensation                                 (462     )          --
Proceeds from sale of common stock                                        8,332               65,548
Proceeds from sale of preferred stock                                     --                  88,236
Net cash (used in) / provided by financing                                (23,059  )          92,086
Net increase (decrease) in cash                                           (29,164  )          2,148
Cash
Beginning of period                                                       34,642              21,893
End of period                                                        $    5,478          $    24,041
Supplemental disclosure of cash flow information
Cash paid for interest                                               $    33,736         $    38,380
Change in accrued additions to oil and gas properties                     7,982               9,031
Asset retirement obligations incurred, including changes in estimate      437                 6,785

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 our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.

We define 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 our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at EBITDAX because these amounts can vary substantially from company to company within our 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 our 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. Our presentation of EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items and should not be viewed as a substitute for GAAP. Our 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            Nine Months Ended
                                                           September 30,                 September 30,
(in thousands of dollars)                                  2017           2016           2017            2016
Reconciliation of net income to EBITDAX
Net income (loss)                                          $  (82,963 )   $  (22,429 )   $  (220,456 )   $  (32,561 )
Interest expense                                              12,817         12,792         38,381          40,397
Exploration expense                                           1,969          998            11,638          1,237
Income taxes                                                  (492    )      (6,549  )      (2,707   )      (8,234  )
Depreciation and depletion                                    46,353         36,550         127,343         116,449
Impairment of oil and natural gas properties                  --             --             148,016         --
Accretion of ARO liability                                    253            323            720             913
Change in TRA liability                                       12,435         (260    )      (15,831  )      (422    )
Other non-cash charges                                        585            116            1,892           1,227
Stock compensation expense                                    1,966          2,185          5,702           5,269
Deferred and other non-cash compensation expense              155            213            335             614
Net (gain) loss on derivative contracts                       32,539         (4,014  )      (11,308  )      18,769
Current period settlements of matured derivative contracts    21,892         27,538         66,145          101,619
Amortization of deferred revenue                              (475    )      (587    )      (1,417   )      (1,828  )
(Gain) loss on sale of assets                                 12             (69     )      131             (68     )
(Gain) on debt extinguishment                                 --             --             --              (99,530 )
Financing expenses and other loan fees                        24             25             72              298
EBITDAX                                                    $  47,070      $  46,832      $  148,656      $  144,149

Jones Energy, Inc.

Non-GAAP Financial Measures and Reconciliations

Adjusted Net Income is a supplemental non-GAAP financial measure that is used by management and external users of the Company's consolidated financial statements. We define Adjusted Net Income as net income 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. We believe adjusted net income and adjusted earnings per share are useful to investors because they provide readers with a more meaningful measure of our 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 our 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 September 30,
(in thousands except per share data)                                 2017               2016
Net income (loss)                                                    $    (82,963 )     $    (22,429 )
Net (gain) loss on derivative contracts                                   32,539             (4,014  )
Current period settlements of matured derivative contracts                21,892             27,538
Impairment of oil and gas properties                                      --                 --
Exploration                                                               1,969              998
Non-cash stock compensation expense                                       1,966              2,185
Deferred and other non-cash compensation expense                          155                213
(Gain) on debt extinguishment                                             --                 --
Financing expenses                                                        --                 --
Tax impact of adjusting items                                             (15,543 )          (5,374  )
Change in TRA liability                                                   12,435             (260    )
Change in valuation allowance                                             16,616             106
Adjusted net income (loss)                                                (10,934 )          (1,037  )
Adjusted net income (loss) attributable to non-controlling interests      (3,665  )          (1,074  )
Adjusted net income (loss) attributable to controlling interests          (7,269  )          37
Dividends and accretion on preferred stock                                (1,966  )          (765    )
Adjusted net income (loss) attributable to common shareholders       $    (9,235  )     $    (728    )
Weighted average Class A shares outstanding:
Basic                                                                     73,089             44,993
Diluted                                                                   73,089             44,993
Adjusted earnings per share (basic and diluted)                      $    (0.13   )     $    (0.02   )

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. We define 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. We believe adjusted earnings per share is useful to investors because it provides readers with a more meaningful measure of our 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 our 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 September 30,
(in thousands except per share data)                                          2017                  2016
Earnings per share (basic and diluted):                                       $    (0.91  )         $    (0.24  )
Net (gain) loss on derivative contracts                                            0.33                  (0.05  )
Current period settlements of matured derivative contracts                         0.23                  0.35
Impairment of oil and gas properties                                               --                    --
Exploration                                                                        0.02                  0.01
Non-cash stock compensation expense                                                0.02                  0.03
Deferred and other non-cash compensation expense                                   --                    --
(Gain) on debt extinguishment                                                      --                    --
Financing expenses                                                                 --                    --
Tax impact of adjusting items                                                      (0.21  )              (0.12  )
Change in TRA liability                                                            0.17                  --
Change in valuation allowance                                                      0.22                  --
Adjusted earnings per share (basic and diluted)                               $    (0.13  )         $    (0.02  )
EPS attributed to 3Q 2017 hedge unwinds (gain)                                     (0.10  )              --
Adjusted earnings per share (basic and diluted), adjusted for hedge unwinds   $    (0.23  )         $    --
Weighted average Class A shares outstanding:
Basic                                                                              73,089                44,993
Diluted                                                                            73,089                44,993
Effective tax rate on net income (loss) attributable to controlling interests      38.9        %         35.5        %

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