Earthstone Energy, Inc. Reports 2023 Second Quarter and Year-to-Date Financial Results

THE WOODLANDS, Texas, Aug. 02, 2023 (GLOBE NEWSWIRE) -- Earthstone Energy, Inc. (: ESTE) (“Earthstone”, the “Company”, “we”, “our” or “us”), today announced financial and operating results for the three and six months ended June 30, 2023.

Second Quarter 2023 Highlights

• Announced the Novo Acquisition for $1 billion on June 15, 2023, which is expected to close on August 15, 2023
• Achieved record average daily production of 105,493 Boepd⁽¹⁾ (42% oil), which exceeded the mid-point of full-year 2023 production guidance by 5.5%
• Net income⁽²⁾ of $82.4 million, and Adjusted Net Income⁽³⁾ of $75.6 million
• Adjusted EBITDAX⁽³⁾ of $238.8 million
• Net cash provided by operating activities of $218.4 million
• Free Cash Flow⁽³⁾ of $41.9 million
• Capital expenditures of $174.4 million, which comprised 23% of the mid-point of full-year 2023 capital expenditures guidance
• Issued $500 million of senior unsecured notes due 2031

Year to Date 2023 Highlights

• Average daily production of 104,974 Boepd⁽¹⁾ (43% oil), which exceeded the mid-point of full-year 2023 production guidance by 5.0%
• Net income⁽²⁾ of $168.7 million, and Adjusted Net Income⁽³⁾ of $184.7 million
• Adjusted EBITDAX⁽³⁾ of $505.7 million
• Net cash provided by operating activities of $476.8 million
• Free Cash Flow⁽³⁾ of $83.7 million
• Capital expenditures of $376.7 million, which comprised 50% of the mid-point of full-year 2023 capital expenditures guidance

(1) Represents reported sales volumes.
(2) Net income (GAAP) represents the sum of Net Income attributable to Earthstone Energy, Inc., plus the Net income attributable to noncontrolling interest. The related consolidated weighted average shares outstanding of Class A Common Stock and Class B Common Stock were 141.6 million shares and 141.7 million shares, respectively, on an as-converted basis, for the three and six months ended June 30, 2023 (“Adjusted Diluted Shares”, as reconciled in the “Non-GAAP Financial Measures” section below). All shares of our Class B Common Stock issued and outstanding are held by the noncontrolling interest group.
(3) See “Non-GAAP Financial Measures” section below.

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, “Earthstone’s operational excellence continued during the second quarter, with production setting record levels and surpassing our internal forecast and the top end of our full-year guidance. We reported second-quarter production of 105,493 boepd, with the oil component over 44,000 barrels per day. Our low decline, stable production base, and strong new well results drove our production outperformance for the quarter. The execution of our disciplined operating plan and the strength of our operational performance translated directly into strong financial performance for the quarter. Company record daily production led to Adjusted EBITDAX of approximately $239 million and Free Cash Flow of approximately $42 million for the quarter. Year-to-date average daily production of approximately 105,000 Boepd exceeds the midpoint of our pre-Novo full-year guidance by 5,000 Boepd, showcasing the quality and productivity of our inventory and strong operational execution.”

Mr. Anderson continued, “Also during the quarter, we continued to further our consolidation strategy with the announcement of the pending Novo acquisition, which will significantly increase the scale of our northern Delaware Basin footprint. The Novo acquisition, combined with last year's Chisholm and Titus acquisitions, will fundamentally transform Earthstone into a major operator in the northern Delaware Basin, with four of our five rigs expected to be drilling in this oil-rich and highly economic area. We look forward to closing the Novo transaction later this month and incorporating its high-quality inventory into our development plans. We expect Novo will increase our production base to more than 130,000 Boepd in the fourth quarter. We believe the Novo transaction will add significant Free Cash Flow as well as increased value for Earthstone shareholders.”

Operational Overview

We operated a five-rig drilling program during the second quarter of 2023 with three rigs in the Delaware Basin and two in the Midland Basin.

Delaware Basin Highlights

In the Delaware Basin, during the second quarter of 2023, we commenced drilling 12 gross (9.7 net) wells and brought 13 gross (9.5 net) wells online.

We completed the Lonesome Dove Com pad on acreage acquired in the Titus acquisition in the Stateline area in Lea County, New Mexico. The wells targeted the First and Second Bone Spring intervals. The four wells had an average peak IP-30 rate of 1,762 Boepd from laterals averaging approximately 7,700 feet with an average oil percentage of 72%. We hold a 90% working interest in the Lonesome Dove Com pad.

Also, in the Stateline area, we completed the Cattlemen Fed Com Pad, where we hold a 99% working interest. The 2-well pad had an average peak IP-30 of 1,934 Boepd and was approximately 67% oil. The average lateral length of the two wells was about 7,700 feet, and the wells targeted the First and Second Bone Spring. The Cattlemen Fed Com pad is located on acreage also acquired in the Titus acquisition.

Midland Basin Highlights

During the second quarter of 2023 in the Midland Basin, we began drilling nine gross (7.2 net) wells and brought four gross (3.0 net) wells online.

In Irion County, Texas, at the Barnhart pad, we put four wells online in July producing from the Wolfcamp Upper and Lower B zones. These wells were drilled with an average lateral length of approximately 13,340 feet. Although these wells have not been online for a full 30 days, their performance is in line with a prior pad completed by the Company in 2022 and they have average peak IP-20 over 1,030 Boepd with approximately 86% oil. We hold a 100% working interest in the Barnhart pad.

We recently put two wells online at the Mid-States East Unit 37-5 pad, and the wells are producing from the Wolfcamp D zone. This is our initial development of the Wolfcamp D interval in Midland County. The wells had an average lateral length of 9,950 feet with a 67% working interest. The wells are flowing naturally with no artificial lift and results are encouraging, with recent average daily production per well over 800 Boepd and 89% oil.

Selected Financial Data (unaudited)

(1) See the “Non-GAAP Financial Measures” section below.
(2) Represents reported sales volumes.
(3) Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

Updated 2023 Guidance

Earthstone is providing updated guidance for 2023, which assumes the closing of the Novo Acquisition on August 15, 2023. The Company anticipates third quarter production to be 115-120 MBoepd and fourth quarter production to average 130-135 MBoepd. From a capital activity standpoint, the Company plans to maintain its five-rig drilling program for the remainder of the year. Additionally, the Company expects to complete 11 gross Novo-drilled wells which are currently uncompleted. The Company now expects to drill and complete an incremental 3-4 net wells compared to its original capital plan. Despite the incremental activity, the Company is maintaining its full year capital expenditure guidance at $725-775 million.

1) Includes the projected impact of the Novo Acquisition, expected to close on August 15, 2023.
2) Cash G&A is defined as general and administrative expenses excluding stock-based compensation.

Note: Guidance is forward-looking information that is subject to considerable change and numerous risks and uncertainties, many of which are beyond Earthstone’s control. See “Forward-Looking Statements” section below.

Liquidity and Equity Capitalization

As of June 30, 2023, we had $49.5 million of cash on hand and no borrowings outstanding under our senior secured credit facility (“Credit Facility”). As of June 30, 2023, elected commitments under the Credit Facility were $1.4 billion with a borrowing base of $1.65 billion.

Through June 30, 2023, we had incurred $376.7 million of capital expenditures. Our 2023 capital expenditure guidance remains at $725-$775 million. We expect to fund our remaining 2023 capital expenditures and interest expense with cash flow from operations while any excess cash flow is expected to be utilized to repay borrowings under our Credit Facility, if any.

As of June 30, 2023, 106,331,055 shares of Class A Common Stock and 34,257,641 shares of Class B Common Stock were outstanding, resulting in 140,588,696 combined shares of common stock outstanding.

Commodity Hedging

Hedging Activities

The following tables set forth our outstanding derivative contracts as of June 30, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.

(1) The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.