Quarterly / Earnings Reports | Third Quarter (3Q) Update

Earthstone Reports Q3 Midland Basin, Eagle Ford Results, Ops

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Earthstone Energy, Inc. reported its Q3 2019 results.

Third Quarter 2019 Highlights

• Average daily production of 12,181 Boepd⁽¹⁾
• Adjusted EBITDAX⁽²⁾ of $29.8 million
• Adjusted EBITDAX⁽²⁾ per Boe of $26.58
• Operating Margin⁽²⁾ of $26.84 per Boe ($30.15 including realized hedge settlements)
• Capital expenditures of $78.6 million representing 38% of guidance with expected 2019 total capital expenditures of $205 million
• Net income of $26.1 million, or $0.41 per Adjusted Diluted Share⁽²⁾
  • Adjusted net income of $11.6 million, or $0.18 per Adjusted Diluted Share⁽²⁾

Year to Date 2019 Highlights

• Average daily production of 12,033 Boepd⁽¹⁾
• Adjusted EBITDAX⁽²⁾ of $95.8 million
• Adjusted EBITDAX⁽²⁾ per Boe of $29.16
• Operating Margin⁽²⁾ of $29.22 per Boe ($33.38 including realized hedge settlements)
• Capital expenditures of $152.4 million representing 74% of guidance with expected 2019 total capital expenditures of $205 million
• Net income of $7.2 million, or $0.12 per Adjusted Diluted Share⁽²⁾
  • Adjusted net income of $40.5 million, or $0.63 per Adjusted Diluted Share

Robert J. Anderson, President of Earthstone Energy, Inc., commented, "We are off to a great start to the 2019 fourth quarter as our third quarter production was almost 12,200 Boepd with minimal contribution from the five operated wells brought online late in the quarter. During the quarter, we benefited from shallower production declines and reduced production downtime. The five operated Mid-States wells brought online in late September have shown promising results thus far, setting the stage for significant production growth in the fourth quarter.

"Our back-end weighted capital program is driving a substantial increase in fourth quarter production with eight gross operated Midland Basin wells already online out of our remaining 14 gross operated Midland Basin completions planned for the second half of 2019, and seven of our 10 gross operated 2019 Eagle Ford wells are online with the remaining three expected to come online during the fourth quarter. We also expect recently completed non-operated wells to have a meaningful impact on our production levels.

"With the contributions of recent and upcoming wells, we expect to be at the high end of our production exit rate of 15,000 Boepd. From an operational standpoint, our drilling and completions activities have remained on schedule, and we continue to focus on both cost and operating efficiencies in our effort to drive stronger well level returns and, ultimately, shareholder value. Based on current commodity prices and a one-rig operated program in 2020, we believe our operating cash flows will exceed our capital expenditures in the second half of 2020."

Operational Update

Midland Basin

We ran two rigs and one frac crew in the Midland Basin during the third quarter. Highlights include:

• Spudded 11 gross (8.7 net) operated wells and completed eight gross (5.3 net) wells
  • Continue to run one rig, currently located in Reagan County, on the WTG prospect (100% working interest)
• Completed and brought online five-well Mid-States project (67% working interest) with 10,000-foot laterals targeting the Wolfcamp A and B intervals which have achieved an average peak 30-day production rate of 1,290 Boepd (88% oil)
• Completed a three-well pad on our TSRH unit (65% working interest) targeting two wells in the Wolfcamp B Upper formation and one well in the Wolfcamp B Lower formation, each with approximately 12,000-foot laterals
  • TSRH wells brought online in October and are cleaning-up as expected
• Expect to bring online an additional six gross (4.4 net) operated wells in Reagan County during the fourth quarter
• Three gross (1.2 net) non-operated wells were brought online in Howard County averaging approximately 10,000-foot laterals
  • Wolfcamp A well (40% working interest) achieved a peak 30-day production rate of 2,381 Boepd (88% oil)
  • Two Wolfcamp D wells (40% and 35% working interest) have achieved average peak 30-day production rate of 969 Boepd (86% oil)

Eagle Ford

We ran one rig and commenced completion activity in the Eagle Ford during the third quarter. Highlights include:

• Completed drilling on four gross (1.8 net) wells on our Pen Ranch project area and spudded an additional three gross (2.0 net) wells on the Davis East project area
• Completed three gross (1.3 net) wells that were drilled but uncompleted as of the end of second quarter and commenced completions on the remaining four gross (1.8 net) wells on the Pen Ranch project area
  • Pen Ranch seven-well project (3.1 net) began producing in October with the wells currently cleaning-up
• We finished drilling and expect to complete and bring online the three gross (2.0 net) wells in the Davis East project near the end of the fourth quarter

Liquidity Update

As of September 30, 2019, we had $9.8 million in cash and $125.0 million of long-term debt outstanding under our credit facility with a borrowing base of $325 million. With the $200 million of undrawn borrowing base capacity and $9.8 million in cash, we had total liquidity of approximately $209.8 million. However, our working capital deficit increased during the third quarter, largely based on timing of our drilling and completion activities and the high level of activity we had in process at quarter end. We expect this working capital deficit to decrease and outstanding borrowings under our credit facility to increase over the remainder of 2019.