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Earthstone Energy First Quarter 2022 Results

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   |    Thursday,May 05,2022

Earthstone Energy, Inc. announced financial and operating results for the three months ended March 31, 2022.

First Quarter 2022 Highlights:

• Executed the Bighorn Acquisition PSA⁽¹⁾ on January 30, 2022, which closed subsequent to quarter-end on April 14, 2022
• In connection with the closing of the Bighorn Acquisition, we also closed a $550 million Notes Offering comprised of 8.0% senior unsecured notes on April 12, 2022
• Executed a Securities Purchase Agreement⁽²⁾ on January 30, 2022 for $280 million of Preferred Stock in a private placement, which closed subsequent to quarter-end on April 14, 2022
• Closed the Chisholm Acquisition⁽³⁾ on February 15,2022
• Net loss attributable to Earthstone Energy, Inc. of $33.5 million, or $(0.53) per Diluted Share
• Net loss of $51.9 million, or $(0.53) per Adjusted Diluted Share⁽⁴⁾
• Adjusted net income⁽⁴⁾ of $76.2 million, or $0.78 per Adjusted Diluted Share⁽⁴⁾
• Adjusted EBITDAX⁽⁴⁾ of $123.1 million, up 44% compared to 4Q 2021
• Net cash provided by operating activities of $83.0 million
• Free Cash Flow⁽⁴⁾ of $35.7 million, up 25% compared to 4Q 2021
• Average daily production of 35,509 Boepd⁽⁵⁾, up 17% compared to 4Q 2021
• Capital expenditures of $82.1 million, 16% below the midpoint of 1Q 2022 guidance

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our strong first quarter results reflect our ongoing transformation and the success of our consolidation strategy to acquire and effectively develop accretive assets. Adjusted EBITDAX for the quarter increased approximately 44% sequentially to $123 million, driven by a 15% increase in production and higher commodity prices, as well as our ability to control operating costs and general and administrative expense which has allowed us to maintain high cash margins. This accomplishment is with only having our Delaware Basin assets acquired in the Chisholm Acquisition for 45 days during the first quarter.

"With the significant accomplishments of closing two acquisitions approaching $1.5 billion in purchase price and issuing $550 million of senior unsecured notes this year now behind us, we are focused on executing efficiently with our much larger asset base," added Mr. Anderson. "The early results of the first wells completed on our newly acquired Delaware assets have been encouraging, and we are eager to continue to see results from our Delaware Basin development program. We are optimistic that we can continue to demonstrate the operational excellence for which we are known, successfully execute on our drilling program, and further increase free cash flow generation. Our robust and growing free cash flow positions us to repay significant amounts of debt for the remainder of the year and we expect to end the year comfortably under our targeted leverage of less than 1.0x debt to Adjusted EBITDAX under current commodity prices.

"Over the last year and a half, we have acquired quality assets that have significantly increased our production levels and cash flows while providing substantial, high quality drilling opportunities. We are pleased with the results of our acquisitions, and we look forward to reporting on the results of our larger asset base and drilling and completion program in the coming quarters. We will remain focused on integrating these new assets, executing our operational plan and generating record levels of free cash flow, which we believe will drive meaningful shareholder value," concluded Mr. Anderson.

Operations Update

During the first quarter of 2022, we completed and turned to sales five gross (5.0 net) operated wells and commenced drilling ten gross (8.3 net) operated wells in the Midland Basin. In April we completed six gross (6.0 net) wells in Upton County on our Benedum pad. These wells are producing from the Wolfcamp A, B and C targets with initial average results of approximately 900 Boepd (88% oil). These wells averaged approximately 7,600 feet of completed lateral with drilling and completion costs of approximately $800 per foot.

After acquiring the Delaware Basin assets on February 15, 2022, we commenced drilling three gross (1.9 net) operated wells in the Delaware Basin in the first quarter of 2022. We brought online the two-well Minis pad, our first Earthstone completed wells, in April. These two wells, which targeted the Third Bone Spring Harkey Sand formation and are approximately 7,500-foot laterals, have averaged approximately 1,600 Boepd (87% oil) in the first 24 days online.

We continue to operate a four-rig drilling program, with two drilling rigs in the Midland Basin and two drilling rigs in the Delaware Basin. Currently, in the Midland Basin, one rig is drilling a five-well pad in our Barnhart project area in Irion County (100% W.I., 9,900-foot average lateral length). The other rig is drilling a four-well project in our TSRH area in Reagan County (65% W.I., 14,300-foot average lateral length). With two rigs operating in the Midland Basin, we anticipate spudding 40 gross (35.8 net) operated wells and bringing 40 gross (36.7 net) operated wells online in 2022. In the Delaware Basin, one rig is drilling in our Ram project area in Lea County (98% W.I., 10,000-foot average lateral length) on a two-well pad. The other rig is drilling a two-well pad in our Cletus project area in Eddy County (89% W.I., 10,000-foot average lateral length). With two rigs operating in the Delaware Basin, we anticipate spudding 20 gross (11.8 net) operated wells and bringing 18 gross (11.6 net) operated wells online in 2022.

Liquidity, Capital Expenditure Update and Equity Capitalization

As of March 31, 2022, we had $0.5 million in cash and $624.2 million of long-term debt outstanding under our senior secured revolving credit facility (the "Credit Facility") with a borrowing base of $825.0 million. With the $200.8 million of undrawn borrowing base capacity and $0.5 million in cash, we had total liquidity of approximately $201.3 million. Subsequent to March 31, 2022, Earthstone closed on its previously announced Bighorn Acquisition, closed the $550 million Notes Offering, closed the $280 million private placement of Preferred Stock and paid the $70 million of deferred cash consideration for the Chisholm Acquisition. When adjusted to include the impact of these activities and a voluntary reduction in the elected commitments under the Credit Facility to $800 million, we had estimated total debt outstanding of $1,013 million, comprised of $550 million of senior unsecured notes and $463 million of debt outstanding under our Credit Facility, leaving $337 million of undrawn availability on the $800 million of total commitments under our Credit Facility.

Through March 31, 2022, we had incurred $82.1 million of capital expenditures, which is approximately 16% below the midpoint of our first quarter 2022 guidance of $95-100 million. Our full year 2022 capital expenditure guidance remains at $410-$440 million. We expect to fund our remaining 2022 capital expenditures with cash flow from operations while any excess cash flow will be used to pay down debt.

As of April 28, 2022, there were approximately 79.1 million shares of Class A common stock and approximately 34.3 million shares of Class B common stock, or approximately 113.4 million shares of combined common stock outstanding. Additionally, there were 280,000 shares of Preferred Stock outstanding that are expected to be converted into approximately 25.2 million shares of Class A common stock. As of April 28, 2022, assuming the conversion of the Preferred Stock into Class A common stock, there would have been a total of approximately 138.6 million shares of common stock outstanding in aggregate.