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Earthstone Energy Fourth Quarter, Full Year 2021 Results

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   |    Monday,March 14,2022

Earthstone Energy, Inc. announced financial and operating results for the quarter and year ended December 31, 2021.

Fourth Quarter 2021 Highlights:

• Executed the Chisholm Acquisition PSA on December 15, 2021 which closed subsequent to year-end on February 15, 2022
• Closed the Foreland Acquisition on November 2, 2021
• Net income attributable to Earthstone Energy, Inc. of $39.8 million, or $0.72 per Diluted Share
• Net income of $69.1 million or $0.77 per Adjusted Diluted Share⁽¹⁾
• Adjusted net income⁽¹⁾ of $41.0 million or $0.46 per Adjusted Diluted Share⁽¹⁾
• Adjusted EBITDAX⁽³⁾ of $85.3 million, up 186% compared to Q4 2020
• Net cash provided by operating activities of $83.6 million
• Free Cash Flow⁽¹⁾ of $28.5 million, up 238% compared to Q4 2020
• Average daily production of 30,244 Boepd⁽²⁾, up 104% compared to Q4 2020

Full Year 2021 Highlights:

• Closed the IRM Acquisition⁽³⁾, Tracker Acquisition⁽⁴⁾, Eagle Ford working interest acquisitions⁽⁵⁾ and Foreland Acquisition⁽⁶⁾
• $2.0 billion PV-10⁽¹⁾ value of estimated total proved reserves of 147.6 MMBoe at December 31, 2021 based on SEC pricing
• $1.4 billion PV-10⁽¹⁾ value of estimated proved developed reserves of 93.6 MMBoe included in total proved reserve estimates above
• Net income attributable to Earthstone Energy, Inc. of $35.5 million, or $0.71 per Diluted Share
• Net income of $61.5 million or $0.73 per Adjusted Diluted Share⁽¹⁾
• Adjusted net income⁽¹⁾ of $105.4 million or $1.25 per Adjusted Diluted Share⁽¹⁾
• Adjusted EBITDAX⁽¹⁾ of $247.9 million, up 72% year over year
• Net cash provided by operating activities of $230.9 million
• Free Cash Flow⁽¹⁾ of $106.6 million, up 48% year over year
• Average daily production of 24,809 Boepd⁽²⁾, up 62% year over year

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our outstanding fourth quarter results reflect both our employees' dedication and our transformation into a larger, low-cost producer in the Permian Basin. We completed four acquisitions during 2021, enabling us to more than double our average daily production in the fourth quarter compared to 2020 and to expand our operating footprint. Driven by our high-margin drilling program and successful acquisition strategy, we were able to increase Free Cash Flow and Adjusted EBITDAX by approximately 48% and 72%, respectively, when compared to 2020.

"So far in 2022, we have closed the Chisholm Acquisition and announced the Bighorn Acquisition, which when combined with our existing asset base, should more than double our average daily production yet again in the second half of the year compared to the beginning of 2022. Based on the mid-point of our guidance, we anticipate that we will generate significant Free Cash Flow in 2022 while only reinvesting a little more than half of our Adjusted EBITDAX. We have intentionally structured these accretive acquisitions of well-located assets in such a way that it maintains the strength of our balance sheet, and we expect to be below our target leverage of 1.0x Debt to Adjusted EBITDAX by year-end 2022.

"While we remain open to potential acquisitions that fit our criteria, we intend to make efficient integration our near-term priority. We are better positioned today to optimize our operations and generate substantial Free Cash Flow, and we are confident that our strategy and execution will drive meaningful shareholder value. We enter 2022 as a transformed company compared to who we were a year ago and we are excited to be moving forward as a larger and stronger company."

Current Operations

We continue to operate four drilling rigs with two in each of the Midland Basin and the northern Delaware Basin. Thus far in 2022, we have brought online five gross (5.0 net) wells in the Midland Basin. Prior to the closing of the Chisholm Acquisition on February 15, 2022, five gross (3.2 net) wells were brought online in the northern Delaware Basin. Currently, we are completing six gross (6.0 net) wells in Upton County, Texas with a single frac crew. Additionally, six gross (4.8 net) wells are waiting on completion across our Midland Basin operated assets and four gross (2.7 net) wells are waiting on completion across our Delaware Basin operated assets. We expect to maintain this development pace throughout 2022, as disclosed in our recently released guidance.

Liquidity Update

As of December 31, 2021, we had $4.0 million in cash and $320.0 million of long-term debt outstanding under our Credit Facility with a borrowing base of $650.0 million. With the $330.0 million of undrawn borrowing base capacity and $4.0 million in cash, we had total liquidity of approximately $334.0 million.

As of March 1, 2022, we had approximately $1 million in cash and $652 million of long-term debt outstanding under our Credit Facility, with a borrowing base of $825 million. With the $173 million of undrawn borrowing base capacity and $1 million in cash, we had total liquidity of approximately $174 million. Furthermore, lenders under the Credit Facility have committed to increasing the borrowing base and elected commitments by an incremental $500 million to $1,325 million conditioned upon the closing of the Bighorn Acquisition, which is anticipated to occur in mid-April.

Capital Expenditures

During 2021, we incurred capital expenditures of approximately $130.5 million, on an accrual basis, primarily consisting of drilling and completion costs. The Company's 2022 capital budget of $410-440 million assumes a four-rig program consisting of two rigs operating in the Midland Basin and two rigs operating in the Delaware Basin. This program is expected to result in the spudding of 60 gross / 47.6 net operated wells and bringing 58 gross / 48.3 net operated wells online and spudding 20 gross / 4.1 net non-operated wells and bringing 19 gross / 4.2 net non-operated wells online in 2022.