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Earthstone Energy Second Quarter 2020 Results

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Earthstone Energy Inc. reported its Q2 2020 results.

Second Quarter 2020 Highlights

• Average daily production of 13,555 Boepd
• Adjusted EBITDAX of $39.8 million ($32.30 per Boe)
• All-in cash costs of $10.11 per Boe
• Operating Margin of $11.83 per Boe ($35.64 including realized hedge settlements)
• Free Cash Flow of $35.3 million
• Capital expenditures of $3.2 million
• Net loss of $(35.9) million, or $(0.55) per Adjusted Diluted Share
  • Adjusted net income of $12.8 million, or $0.20 per Adjusted Diluted Share

Year-to-Date 2020 Highlights:

• Average daily production of 14,661 Boepd
• Adjusted EBITDAX of $78.0 million ($29.25 per Boe)
• All-in cash costs of $11.62 per Boe
• Operating Margin of $17.75 per Boe ($32.41 including realized hedge settlements)
• Free Cash Flow of $30.0 million
• Capital expenditures of $45.1 million
• Net income of $0.8 million, or $0.01 per Adjusted Diluted Share
  • Adjusted net income of $21.0 million, or $0.32 per Adjusted Diluted Share

Robert J. Anderson, President and CEO of Earthstone, commented, "We had a good quarter against a difficult backdrop that was unprecedented in our industry with the second quarter of 2020 being hit with low commodity prices, reduced demand due to COVID-19 and threats of forced curtailments. Due to our strong hedge position and continued focus on reducing cash costs, we achieved both significant Adjusted EBITDAX of almost $40 million, and generated $35 million of Free Cash Flow. We expect to continue to generate Free Cash Flow for the remainder of the year which will be used to reduce our borrowings and, additionally, we expect this reduction to assist us in achieving our target of being below 1x net debt to Adjusted EBITDAX at year-end.

"We executed our voluntary shut-in / curtailment program successfully in the second quarter without production complications or additional expense. Our continued focus on operating expense reduction was evident during the quarter as expenses were reduced by 40% compared to the first quarter, which was partially driven by shut-ins during May. All of our wells have been returned to full production and based on our recently announced updated production guidance, we expect to average 13,000 - 14,000 Boepd for the full year and therefore have relatively flat production from 2019 to 2020 with our previously guided capital expenditures of $50-60 million. With the vast majority of our capital program for 2020 completed in the first half of the year, we now have 11 wells drilled but uncompleted. Depending on completion timing, these 11 wells should allow us to maintain production relatively flat in 2021 with net capital expenditures presently estimated at $30 million. For the remainder of 2020 we will continue to focus on cost control and generating Free Cash Flow while considering various consolidation opportunities that are a direct result of the current environment."

2020 Plan Unchanged

Summary of Results

Liquidity Update

As of June 30, 2020, we had $1.8 million in cash and $168.6 million of long-term debt outstanding under our senior secured revolving credit facility (our “Credit Facility”) with a borrowing base of $275 million. With the $106.4 million of undrawn borrowing base capacity and $1.8 million in cash, we had total liquidity of approximately $108.2 million. Through June 30, 2020, we had incurred $45.1 million of our estimated $50 - $60 million in capital expenditures for 2020.

Through July 31, 2020, we have paid down an additional $14.3 million in outstanding borrowings under our Credit Facility as of June 30, 2020 which is in line with our 2020 expectations to generate Free Cash Flow and further reduce our outstanding borrowings absent any extraordinary events. However, it should be noted that we may borrow temporarily as the timing of our cash flows may fluctuate between reporting periods.

Commodity Hedging

The following table sets forth our outstanding derivative contracts as of June 30, 2020. When aggregating multiple contracts, the weighted average contract price is disclosed.