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Earthstone Energy, Inc. Reports 2022 Second Quarter and Year-to-Date Financial Results

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Cision

THE WOODLANDS, Texas, Aug. 4, 2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we", "our" or "us"), today announced financial and operating results for the three and six months ended June 30, 2022.

Second Quarter 2022 Highlights

  • Executed the Titus Acquisition PSAs on June 27, 2022, which are expected to close in mid-August 2022

  • On April 12, 2022, closed a $550 million offering of 8.0% senior unsecured notes due 2027

  • Closed the Bighorn Acquisition on April 14, 2022

  • Issued $280 million of Preferred Stock in a private placement on April 14, 2022, which was converted into 25,225,225 shares of our Class A common stock on July 6, 2022

  • Net income attributable to Earthstone Energy, Inc. of $144.9 million, or $1.46 per Diluted Share

  • Net income of $218.0 million, or $1.60 per Adjusted Diluted Share(1)

  • Adjusted net income(1) of $175.7 million, or $1.29 per Adjusted Diluted Share(1)

  • Adjusted EBITDAX(1) of $300.9 million, up 144% compared to 1Q 2022

  • Net cash provided by operating activities of $254.7 million

  • Free Cash Flow(1) of $164.8 million, up 362% compared to 1Q 2022

  • Average daily net production of 77,125 Boepd(2), up 117% compared to 1Q 2022

  • Capital expenditures of $119.5 million

Year to Date 2022 Highlights

  • Closed the Chisholm Acquisition on February 15, 2022

  • Net income attributable to Earthstone Energy, Inc. of $111.4 million, or $1.37 per Diluted Share

  • Net income of $166.1 million, or $1.40 per Adjusted Diluted Share(1)

  • Adjusted net income(1) of $251.9 million, or $2.12 per Adjusted Diluted Share(1)

  • Adjusted EBITDAX(1) of $424.0 million

  • Net cash provided by operating activities of $337.7 million

  • Free Cash Flow(1) of $200.5 million

  • Average daily net production of 56,432 Boepd(2)

  • Capital expenditures of $201.6 million

(1)

See the "Non-GAAP Financial Measures" section below.

(2)

Represents reported sales volumes.

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our strong second quarter results reflect the continued positive impacts of our consolidation strategy. Over the last year and a half, we have become a larger scale, low-cost producer and have grown production volumes multiple times over while also adding to our robust drilling inventory through accretive, well-priced acquisitions. This ongoing transformation enabled us to substantially increase Free Cash Flow in the second quarter by approximately 362%, sequentially, to $165 million driven by a step change in our daily production and the continued strength of commodity prices."

"We have also been pleased with our ability to optimize our operations, identify synergies within our recent acquisitions, and manage our costs in this challenging inflationary environment," added Anderson. "We continue to drive down our LOE and cash G&A per BOE which was, on a combined basis, 5% lower in the second quarter compared to the first quarter. We are looking forward to closing on the northern Delaware Basin assets from the Titus Acquisition later this month and incorporating this high-quality inventory into our development plans. The Titus Acquisition is expected to increase our total production to near 100,000 Boepd upon close, and we expect the assets will contribute an incremental 30% to our Adjusted EBITDAX. In the near-term, we intend to continue using our significant Free Cash Flow to rapidly pay down debt in pursuit of our target Debt / LQA Adjusted EBITDAX ratio of less than 1.0x by year-end. As always, we will remain focused on executing our growing operational program and generating record levels of free cash flow, which we believe will drive meaningful shareholder value," concluded Anderson.

Updated 2022 Guidance

We are providing updated guidance for 2022, which accounts for the expected closing of the Titus Acquisition in mid-August 2022, increased drilling and completion activity, a recent non-operated asset sale and updated cost expectations. Estimated second half of 2022 capital expenditures are $300-325 million, which implies full year 2022 capital expenditure guidance of $502-527 million. Incremental activity including related infrastructure accounts for a 14% increase at the midpoint of our prior full year 2022 capital guidance while cost inflation on our base drilling program accounts for a 7% increase. The updated capital guidance assumes addition of a fifth rig during the fall which will be focused on the Delaware Basin, bringing the total rig count in the Delaware Basin to three rigs, while maintaining two rigs in the Midland Basin. We expect to complete an additional six gross operated wells on the Titus Acquisition assets and spud an additional four gross operated wells within our expanded capital program. Production guidance for the second half of the year incorporates the expected near-term closing of the Titus Acquisition as well as a recent non-operated asset sale. The Company anticipates third quarter production to be 86-90 MBoepd (~41% oil). Furthermore, we expect production to average 96-100 MBoepd (~44% oil) in the fourth quarter with a full impact from the Titus Acquisition.

Production Guidance


1H22 Actuals


3Q22(1)


4Q22(1)


FY 2022(1)

Production (Boe/d)


56,432


86,000 - 90,000


96,000 - 100,000


73,858 - 75,875

% Oil


39 %


~41%


~44%


~41%

% Liquids


67 %


~68%


~70%


~68%










Expense & Capex Guidance


1H22 Actuals


Remainder of 2022(1)


FY 2022(1)



Total Capital Expenditures ($MM)


$202


$300 - $325


$502 - $527



Lease Operating Expense ($/Boe)


$7.06


$7.50 - $8.00


$7.33 - $7.65



Production & Ad Valorem Taxes (% of Revenue)


7.1 %


7.5% - 8.0%


7.3% - 7.7%



Cash G&A ($MM)(2)


$15


$20 - $22


$35 - $37












(1)

Includes the projected impact of the Titus Acquisition expected to close in mid-August 2022.

(2)

Cash G&A is defined as general and administrative expenses excluding stock-based compensation.




Note: Guidance is forward-looking information that is subject to considerable change and numerous risks and uncertainties, many of
which are beyond Earthstone's control. See "Forward-Looking Statements" section below.

Operations Update

During the second quarter of 2022 for our Company-operated activity, we commenced drilling seven gross (5.6 net) wells and brought six gross (4.8 net) wells online in the Midland Basin. In the Delaware Basin, we commenced drilling eight gross (5.6 net) wells and brought six gross (4.0 net) wells online.

We brought online a two-well pad in Lea County, the Bel-Air 5-8 pad, in late June. This pad is one of our first sets of wells to be drilled and completed by us from start to finish after closing on our initial Delaware Basin acquisition earlier this year. After initially allowing the wells to flow naturally, we recently installed artificial lift and are seeing current average production rates of 1,085 Boepd (92% oil) per well as the wells continue to clean up.

We are currently operating a four-rig drilling program, with two rigs in the Midland Basin and two rigs in the Delaware Basin. We anticipate picking up a fifth rig late in the third quarter of 2022 that will be operated in the Delaware Basin. For full year 2022 and only for our Company-operated activity, we anticipate spudding 38 gross (33.5 net) wells and bringing 34 gross (30.7 net) wells online in the Midland Basin. In the Delaware Basin, we anticipate spudding 28 gross (19.1 net) wells and bringing 27 gross (19.3 net) wells online. This includes spudding four more Delaware Basin wells in 2022 compared to our prior plans as a result of drilling efficiencies and also includes spudding an incremental four gross (3.3 net) wells and bringing an incremental six gross (5.5 net) wells online in the Delaware Basin as a result of the Titus Acquisition and the expected addition of the fifth rig.

Selected Financial Data (unaudited)


($000s except where noted)

Three Months Ended
June 30,


Six Months Ended
June 30,


2022


2021


2022


2021

Total revenues

$ 472,551


$ 89,671


$ 668,701


$ 165,243









Lease operating expense

50,514


11,747


72,145


22,596









General and administrative expense (excluding stock-based compensation)

8,117


4,758


14,593


9,809

Stock-based compensation

5,960


4,412


11,790


7,741

General and administrative expense

$ 14,077


$ 9,170


$ 26,383


$ 17,550









Net income (loss)

$ 218,025


$ (15,831)


$ 166,148


$ (26,387)

Less: Net income (loss) attributable to noncontrolling interest

73,140


(6,960)


54,741


(11,683)

Net income (loss) attributable to Earthstone Energy, Inc.

144,885


(8,871)


111,407


(14,704)

Net income (loss) per common share(1)








Basic

1.85


(0.20)


1.57


(0.34)

Diluted

1.46


(0.20)


1.37


(0.34)

Adjusted EBITDAX(2)

$ 300,875


$ 53,668


$ 423,964


$ 97,511









Production(3):








Oil (MBbls)

2,587


1,083


4,004


2,140

Gas (MMcf)

14,414


2,927


20,053


5,372

NGL (MBbls)

2,029


496


2,869


861

Total (MBoe)(4)

7,018


2,067


10,214


3,896

Average Daily Production (Boepd)

77,125


22,716


56,432


21,525

Average Prices:








Oil ($/Bbl)

110.80


65.47


106.00


61.56

Gas ($/Mcf)

6.67


2.29


5.94


2.33

NGL ($/Bbl)

44.25


24.31


43.66


24.35

Total ($/Boe)

67.33


43.38


65.47


42.41

Adj. for Realized Derivatives Settlements:








Oil ($/Bbl)

87.30


52.39


83.16


50.06

Gas ($/Mcf)

5.40


2.19


4.97


2.20

NGL ($/Bbl)

44.25


24.31


43.66


24.35

Total ($/Boe)

56.06


36.38


54.62


35.91

Operating Margin per Boe








Average realized price

$ 67.33


$ 43.38


$ 65.47


$ 42.41

Lease operating expense

7.20


5.68


7.06


5.80

Production and ad valorem taxes

4.87


2.50


4.65


2.62

Operating margin per Boe(2)

55.26


35.19


53.76


33.99

Realized hedge settlements

(11.27)


(7.00)


(10.85)


(6.50)

Operating margin per Boe (including realized hedge settlements)(2)

$ 43.99


$ 28.19


$ 42.91


$ 27.49









(1)

Net income (loss) per common share attributable to Earthstone Energy, Inc.

(2)

See the "Non-GAAP Financial Measures" section below.

(3)

Represents reported sales volumes.

(4)

Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

Liquidity and Equity Capitalization

As of June 30, 2022, we had $395 million of long-term debt outstanding under our senior secured credit facility ("Credit Facility") with elected commitments of $800 million, resulting in available borrowings of approximately $405 million. As of June 30, 2022, our borrowing base was $1.4 billion.

During the month ended July 31, 2022, we paid down an additional $145 million on our Credit Facility, bringing the drawn amount to $250 million. Additionally, we had approximately $14 million of cash in our bank accounts at July 31, 2022.

Through June 30, 2022, we had incurred $201.6 million of capital expenditures. We expect to fund the estimated $300-325 million of second half of 2022 capital expenditures with cash flow from operations while any excess cash flow will be used to repay borrowings under our Credit Facility.

As of July 31, 2022, 104,442,648 shares of Class A Common Stock and 34,261,641 shares of Class B Common Stock were outstanding.

Commodity Hedging

Hedging Activities

The following table sets forth our outstanding derivative contracts as of June 30, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.

As of June 30, 2022:



Price Swaps

Period


Commodity


Volume

(Bbls / MMBtu)


Weighted Average Price

($/Bbl / $/MMBtu)

Q3 - Q4 2022


Crude Oil


2,162,000


$ 66.70

Q1 - Q4 2023


Crude Oil


1,277,500


$ 76.20

Q3 - Q4 2022


Crude Oil Basis Swap (1)


3,082,000


$ 0.61

Q1 - Q4 2023


Crude Oil Basis Swap (1)


4,743,500


$ 0.59

Q3 - Q4 2022


Natural Gas


5,159,500


$ 3.52

Q1 - Q4 2023


Natural Gas


3,670,000


$ 3.35

Q3 - Q4 2022


Natural Gas Basis Swap (2)


3,680,000


$ (0.33)

Q1 - Q4 2023


Natural Gas Basis Swap (2)


36,500,000


$ (1.47)

Q1 - Q4 2024


Natural Gas Basis Swap (2)


36,600,000


$ (1.05)



(1)

The basis differential price is between WTI Midland Crude and the WTI NYMEX.

(2)

The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.





Costless Collars

Period


Commodity