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Earthstone Energy First Quarter 2020 Results

Share Print Bookmark    |    Wednesday,May 06,2020

Earthstone Energy, Inc. reported its Q1 2020 results.

First Quarter 2020 Highlights

• Average daily production of 15,767 Boepd
• Adjusted EBITDAX of $38.2 million ($26.63 per Boe)
• All-in cash costs of $12.92 per Boe
• Capital expenditures of $41.8 million
• Net income of $36.7 million, or $0.57 per Adjusted Diluted Share
  • Adjusted net income of $8.2 million, or $0.13 per Adjusted Diluted Share

Mr. Robert J. Anderson, President and CEO of Earthstone, commented, "We had a good quarter despite the current economic environment facing our industry by hitting on our internal targets for production, Adjusted EBITDAX and cash costs. Our low-cost business practices continue to serve us well, especially in this environment. Although our industry is facing unprecedented challenges due to both the COVID-19 pandemic and low oil prices, we have executed our adjusted 2020 plan announced in March 2020 with dedication from our employees and service providers alike and we would like to recognize and thank them all for their diligent efforts.

"We are well positioned to endure this current oil price collapse as we maintain a strong hedge position and relatively low leverage, with ample liquidity, all of which affords us the ability to focus on free cash flow generation for the remainder of 2020. Due to the low oil prices expected in May, we are voluntarily reducing our operated production by 70-80% and estimate total Company production curtailed by 55-70% for the month. Based on oil prices in future months, we will determine curtailments as necessary, therefore, we expect to update our guidance for the remainder of 2020 in the near future. We are now focused on maintaining a strong balance sheet throughout the year and expect our leverage to be below 1x net debt to Adjusted EBITDAX at year-end 2020. In order to achieve this, we are targeting a cash-based general and administrative expense reduction of approximately 25% compared to our prior guidance by focusing on cost control. We are looking to the future as a healthy company with consolidation in mind."

Ops Update

We continue to manage and produce our properties, as we wind down drilling and completion activities that were in progress when the current industry conditions began, experiencing no complications arising from the COVID-19 mitigation efforts. The safety of our employees is paramount and we have emphasized the respective guidelines to support such mitigation efforts. Our field personnel are performing their job responsibilities and practicing mitigation guidelines with no issues so far. Non-field personnel have been working remotely, using information technology that is in place as a result of our prior investments and implementation. Thus far, we have been able to manage and conduct both field and non-field functions effectively. We will continue to focus on the health and safety of our employees and support the respective jurisdictional mitigation guidelines.

In the Midland Basin, we entered 2020 with three gross/net operated wells waiting on completion and one drilling rig under contract. We completed these three wells in late March and brought them online in April. Two Wolfcamp B Lower wells on the southeast Reagan County pad have reached peak rates after 27 days and averaged 1,617 Boepd (85% oil) while the Wolfcamp B Upper was still cleaning up when all three wells were shut-in due to low oil prices. We also participated in the completion of 15 gross / 3.1 net non-operated wells in Martin County during the first quarter. The average peak 30-day rate of the Martin County wells was 835 Boepd (85% oil).

With our contracted rig, we finished drilling five wells in our Hamman Upton project and have two wells remaining to be drilled on our six-well Ratliff pad after which the rig will be released. This will conclude our planned drilling and completion program for 2020 after which we will have 11 wells waiting on completion which we will consider completing in late 2020.

Liquidity Update

As of March 31, 2020, we had $5.1 million in cash and $152.0 million of long-term debt outstanding under our senior secured revolving credit facility with a borrowing base of $275 million. With the $123 million of undrawn borrowing base capacity and $5.1 million in cash, we had total liquidity of approximately $128.1 million. Through March 31, 2020, we had incurred $41.8 million of our estimated $50 - $60 million in capital expenditures for 2020. With minimal remaining capital expenditures, coupled with the $92.8 million market value of our consolidated hedge position as of March 31, 2020, we believe we will be able to meet our cash requirements in the near term.

Interest Rate Swap

Effective May 2020, we entered into certain interest rate swaps, exchanging the LIBO Rate for a fixed rate of 0.286% (the "Swap"). The initial notional amount of the Swap is $125 million through May 2022 and decreases to $100 million through May 2023 and $75 million through May 2024.

Commodity Hedging

The following table sets forth our outstanding derivative contracts as of March 31, 2020. When aggregating multiple contracts, the weighted average contract price is disclosed.

As of March 31, 2020:

2020 Guidance Update

In light of reducing our operated production in the near-term, as well as the likelihood of similar actions expected from our non-operated production, and with the potential for involuntary curtailments, we are withdrawing our 2020 production and operating cost guidance that was most recently updated in March 2020. We reaffirm our $50 - 60 million capital expenditure guidance for 2020.

Additionally, we are providing a cash-based general and administrative expense guidance range for 2020 of $15.5 million to $16.5 million. The low end of this range approximates a targeted 25% reduction compared to the midpoint of initial guidance, which we aim to achieve primarily through a reduction in executive compensation, but also through broader cost control initiatives which include each of our professional service providers.

Impairments

As an additional result of the severely depressed commodity prices discussed above, we recognized $60.4 million of noncash asset impairments for the three months ended March 31, 2020 that have negatively impacted our results of operations and equity. Impairment expense for the three months ended March 31, 2020 consisted of $25.3 million reduction to Proved properties, $17.5 million reduction to Unproved properties and $17.6 million reduction to Goodwill, all in the Consolidated Balance Sheet as of March 31, 2020. If crude oil price futures continue to decline, we may incur additional impairments to our oil and natural gas properties.

Sustainability

We believe that it is our responsibility to conduct business in-line with our core values of operating with high ethics, integrity and respect for our employees and contractors, the environment we all share and the communities in which we live and work. We invite you to visit our website to review the Sustainability section to better understand our commitment to maintaining high standards for caring for the environment, the health and safety of our communities and our people, including our focus on proper corporate governance.