Earthstone Energy, Inc. Reports Second Quarter 2017 Results

Earthstone Energy, Inc. Reports Second Quarter 2017 Results

Category:

Dateline:

THE WOODLANDS, Texas

Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we" or "us"), today announced financial and operating results for the three and six month periods ended June 30, 2017.

Second Quarter 2017 Highlights

  • Closed Bold Transaction on May 9, 2017
  • Average daily production of 7,932 Boepd
  • Total revenue of $25.8 million
  • Adjusted EBITDAX(1) of $15.0 million
  • See "Reconciliation of Non-GAAP Financial Measure" section below.

Selected Financial Data (unaudited)

($000s except where noted)   Three Months Ended

June 30,

  Six Months Ended

June 30,

2017 (3)   2016 (4) 2017 (3)   2016 (4)
Total Revenue   25,777   9,777   41,120   16,587
Net Loss (54,967 ) (11,172 ) (54,238 ) (17,593 )
Net Loss Per Share (Basic and Diluted)(1) (0.75 ) (0.69 ) (0.73 ) (1.17 )
Adjusted EBITDAX(2) 14,984 4,782 21,121 7,230
Production:
Oil (MBbls) 480 201 737 406
Gas (MMcf) 729 545 1361 1030
NGL (MBbls) 120 50 184 90
Total (MBoe) 721 343 1148 668
Average Daily Production (Boepd) 7,932 3,759 7,602 3,688
Average Prices:
Oil ($/Bbl) 44.88 40.28 46.23 33.60
Gas ($/Mcf) 2.92 1.87 2.81 1.90
NGL ($/Bbl) 17.39 13.18 17.47 11.01
Total ($/Boe) 35.71 28.58 35.82 24.85
Adj. for Realized Derivatives Settlements:
Oil ($/Bbl) 45.67 43.65 46.32 39.98
Gas ($/Mcf) 2.84 2.10 2.96 2.11
NGL ($/Bbl) 17.39 13.18 17.47 11.01
Total ($/Boe) 36.15 30.94 35.59 29.04
(1) Net loss per common share attributable to Earthstone Energy, Inc. common stockholders.
(2) See "Reconciliation of Non-GAAP Financial Measure" section below.
(3) Includes the transaction with Bold Energy III, LLC on May 9, 2017.
(4) Includes the acquisition of Lynden Energy Corp. on May 18, 2016.

Impairments to Oil and Natural Gas Properties

For the three and six months ended June 30, 2017, the Company recorded non-cash impairment charges of $63.0 million to its proved oil and natural gas properties and $3.6 million to its unproved oil and natural gas properties. This was a direct result of significant downward strip price changes at June 30, 2017 compared to December 31, 2016.

Financial Position

As of June 30, 2017, the Company had $16.7 million in cash and $70 million outstanding under its credit facility with borrowing base of $150 million.

Management Comments

Frank A. Lodzinski, President and Chief Executive Officer of Earthstone Energy, Inc., commented, "As previously announced, we successfully closed our business combination with Bold Energy III LLC on May 9th and our integration of the companies is complete. Our production for the second quarter was over 7,900 Boepd and on a combined pro forma basis was approximately 10,600 Boepd. In April, we initiated drilling and completion operations on our operated Midland Basin and Eagle Ford acreage. We intend to begin our Midland completion program later this month. Our Midland Basin position now totals approximately 27,000 net acres and we are excited about the production results we are seeing in our newer wells, which are meeting or exceeding our targeted type curves. We will continue to focus our efforts on the development of our acreage in the Midland Basin and will continue to pursue additional opportunities to further expand our position."

Conference Call Details

Earthstone is hosting a conference call on Thursday, August 10, 2017 at 11:00 a.m. Eastern (10:00 a.m. Central) to discuss its second quarter 2017 results and current operations. Investors and analysts are invited to participate in the call by dialing 877-407-8035 for domestic calls or 201-689-8035 for international calls, in both cases asking for the Earthstone conference call.

A replay of the call will be available on the Company's website and by telephone until 11:00 a.m. Eastern (10:00 a.m. Central), Thursday, August 24, 2017. The number for the replay is 877-481-4010 for domestic calls or 919-882-2331 for international calls, using Replay ID: 19392.

About Earthstone

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in developing and operating oil and gas properties. The Company's primary assets are located in the Midland Basin of west Texas, the Eagle Ford trend of south Texas, and the Williston Basin of North Dakota. Earthstone is listed on the New York Stock Exchange under the symbol "ESTE." For more information, visit the Company's website at www.earthstoneenergy.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as "expects," "believes," "intends," "anticipates," "plans," "estimates," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. The forward-looking statements include statements about the expected benefits of the recently completed business combination with Bold Energy III LLC (the "Transaction") to Earthstone and its stockholders, the expected future reserves, production, financial position, business strategy, revenues, earnings, costs, capital expenditures and debt levels of the combined company, and plans and objectives of management for future operations. Forward-looking statements are based on current expectations and assumptions and analyses made by Earthstone and its management in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform to expectations is subject to a number of material risks and uncertainties, including but not limited to: Earthstone's ability to integrate its combined operations of the Transaction successfully and achieve anticipated benefits from it; risks relating to any unforeseen liabilities of the combined company; declines in oil, natural gas liquids or natural gas prices; the level of success in exploration, development and production activities; adverse weather conditions that may negatively impact development or production activities; the timing of exploration and development expenditures; inaccuracies of reserve estimates or assumptions underlying them; revisions to reserve estimates as a result of changes in commodity prices; impacts to financial statements as a result of further impairment write-downs; risks related to the level of indebtedness and periodic redeterminations of the borrowing base under Earthstone's credit agreement; Earthstone's ability to generate sufficient cash flows from operations to meet the internally funded portion of its capital expenditures budget; Earthstone's ability to obtain external capital to finance exploration and development operations and acquisitions; the ability to successfully complete any potential asset dispositions and the risks related thereto; the impacts of hedging on results of operations; uninsured or underinsured losses resulting from oil and natural gas operations; Earthstone's ability to replace oil and natural gas reserves; and any loss of senior management or technical personnel. Earthstone's annual report on Form 10-K for the year ended December 31, 2016, quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors identified that may affect Earthstone's business, results of operations, and financial condition. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share amounts)

 

June 30,

  December 31,
ASSETS 2017 2016
Current assets:
Cash $ 16,671 $ 10,200
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues 16,078 13,998
Joint interest billings and other, net of allowance of $163 at both June 30, 2017 and December 31, 2016 9,681 2,698
Derivative asset 1,870 -
Prepaid expenses and other current assets   1,366   446
Total current assets   45,666   27,342
 
Oil and gas properties, successful efforts method:
Proved properties 626,481 363,072
Unproved properties 290,290 51,723
Land   4,547   -
Total oil and gas properties   921,318   414,795
 
Accumulated depreciation, depletion and amortization   (163,043 )   (145,393 )
Net oil and gas properties 758,275 269,402
 
Other noncurrent assets:
Goodwill 17,620 17,620
Office and other equipment, net of accumulated depreciation of $2,340 and $1,600 at June 30, 2017 and December 31 2016, respectively 1,321 1,479
Derivative asset 190 -
Other noncurrent assets   1,039   669
TOTAL ASSETS $ 824,111 $ 316,512
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 23,837 $ 11,927
Revenues and royalties payable 11,343 10,769
Accrued expenses 13,940 5,392
Derivative liability 150 4,595
Advances 4,007 4,542
Current portion of long-term debt   1,665   1,604
Total current liabilities 54,942 38,829
 
Noncurrent liabilities:
Long-term debt 71,840 12,693
Asset retirement obligation 6,692 6,013
Derivative liability 12 1,575
Deferred tax liability 16,311 15,776
Other noncurrent liabilities   156   169
Total noncurrent liabilities   95,011   36,226
 
Commitments and Contingencies (Note 13)
 
Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding - -
Common stock, $0.001 par value, no shares authorized; none issued or outstanding at June 30, 2017 and 100,000,000 shares authorized; 22,289,177 issued and 22,273,820 outstanding at December 31, 2016 - 23
Class A Common stock, $0.001 par value, 200,000,000 shares authorized; 22,906,806 issued and 22,891,449 outstanding at June 30, 2017 and none issue or outstanding at December 31, 2016 23 -
Class B Common Stock, $0.0001 par value, 50,000,000 shares authorized; 36,070,828 shares issued and outstanding at June 30, 2017; none issued or outstanding at December 31, 2016 36 -
Additional paid-in capital 462,098 454,202
Accumulated deficit (228,702 ) (212,308 )
Treasury stock, 15,357 shares at both June 30, 2017 and December 31, 2016   (460 )   (460 )
Total Earthstone Energy, Inc. equity 232,995 241,457
Noncontrolling interest   441,163   -
Total equity   674,158   241,457
 
TOTAL LIABILITIES AND EQUITY $ 824,111 $ 316,512

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except share and per share amounts)

  Three Months Ended

June 30,

  Six Months Ended

June 30,

2017   2016 2017   2016
REVENUES
Oil $ 21,563 $ 8,097 $ 34,082 $ 13,636
Natural gas 2,131 1,016 3,825 1,959
Natural gas liquids   2,083   664   3,213   992
Total revenues   25,777   9,777   41,120   16,587
 
OPERATING COSTS AND EXPENSES
Lease operating expense 5,243 3,341 9,582 6,500
Severance taxes 1,327 514 2,117 896
Rig idle and termination expense - 3,790 - 5,059
Impairment expense 66,648 - 66,648 -
Depreciation, depletion and amortization 10,039 5,598 17,928 11,103
General and administrative expense 5,738 1,990 9,230 4,676
Stock-based compensation 1,647 561 2,958 561
Transaction costs 3,764 283 4,567 795
Accretion of asset retirement obligation 154 133 306 261
Exploration expense   1   -   1   5
Total operating costs and expenses   94,561   16,210   113,337   29,856
 
Gain on sale of oil and gas properties 1,691 - 1,691 -
 
Loss from operations (67,093 ) (6,433 ) (70,526 ) (13,269 )
 
OTHER INCOME (EXPENSE)
Interest expense, net (633 ) (370 ) (970 ) (593 )
Write-off of deferred financing costs (526 ) - (526 ) -
Gain (loss) on derivative contracts, net 3,340 (4,228 ) 7,800 (3,463 )
Other income (expense), net   31   45   32   (82 )
Total other income (expense)   2,212   (4,553 )   6,336   (4,138 )
 
Loss before income taxes (64,881 ) (10,986 ) (64,190 ) (17,407 )
Income tax benefit (expense)   9,914   (186 )   9,952   (186 )
Net loss (54,967 ) (11,172 ) (54,238 ) (17,593 )
 
Less: Net loss attributable to noncontrolling interest   (37,844 )   -   (37,844 )   -
 
Net loss attributable to Earthstone Energy, Inc. $ (17,123 ) $ (11,172 ) $ (16,394 ) $ (17,593 )
 
Net loss per common share attributable to Earthstone Energy, Inc.:
Basic and diluted $ (0.75 ) $ (0.69 ) $ (0.73 ) $ (1.17 )
 
Weighted average common shares outstanding:
Basic and diluted 22,728,011 16,121,568 22,503,750 14,978,348

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

  For the Six Months Ended

June 30,

2017   2016
Cash flows from operating activities:
Net loss $ (54,238 ) $ (17,593 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Impairment of proved and unproved oil and gas properties 66,648 -
Depreciation, depletion and amortization 17,928 11,103
Accretion of asset retirement obligations 306 261
Gain on sale of oil and gas properties (1,691 ) -
Rig idle and termination expense - 5,059
Total (gain) loss on derivative contracts, net (7,800 ) 3,463
Operating portion of net cash (paid) received in settlement of derivative contracts (267 ) 2,797
Stock-based compensation 2,958 561
Deferred income taxes (9,952 ) -
Write-off of deferred financing costs 526 -
Amortization of deferred financing costs 137 142
Changes in assets and liabilities:
Decrease in accounts receivable 3,233 4,414
Increase in prepaid expenses and other current assets (522 ) (132 )
Decrease in accounts payable and accrued expenses (3,148 ) (6,634 )
Decrease in revenues and royalties payable (1,905 ) (780 )
Decrease in advances   (535 )   (14,792 )
Net cash provided by (used in) operating activities   11,678   (12,131 )
Cash flows from investing activities:
Bold Contribution Agreement, net of cash acquired (55,609 ) -
Lynden Arrangement, net of cash acquired - (31,334 )
Additions to oil and gas properties (10,048 ) (6,749 )
Additions to office and other equipment (103 ) (44 )
Proceeds from sales of oil and gas properties   2,416   -
Net cash used in investing activities   (63,344 )   (38,127 )
Cash flows from financing activities:
Proceeds from borrowings 70,000 36,597
Repayments of borrowings (10,792 ) (37,788 )
Issuance of common stock, net of offering costs of $2.7 million - 47,125
Deferred financing costs   (1,071 )   (70 )
Net cash provided by financing activities   58,137   45,864
Net increase (decrease) in cash and cash equivalents 6,471 (4,394 )
Cash at beginning of period   10,200   23,264
Cash at end of period $ 16,671 $ 18,870
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 740 $ 416
Non-cash investing and financing activities:
Class B Common stock issued in Bold Contribution Agreement $ 489,842 $ -
Class A Common stock issued in Bold Contribution Agreement $ 2,037 $ -
Common stock issued in Lynden Arrangement $ - $ 45,699
Accrued capital expenditures $ 27,054 $ 5,111
Asset retirement obligations $ 21 $ 94
Promissory Note $ - $ 5,059

Earthstone Energy, Inc.

Reconciliation of Non-GAAP Financial Measure

Unaudited

Non-GAAP Financial Measure

The non-GAAP financial measure of Adjusted EBITDAX, as calculated by us below, is intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with GAAP (Accounting Principles Generally Accepted in the U.S.). This disclosure may not be comparable to similarly titled measures used by other companies. Further, this non-GAAP measure should only be considered in conjunction with financial statements and disclosures prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss, or any other GAAP measure of financial position or results of operations.

I. Adjusted EBITDAX

Adjusted EBITDAX is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance compared to that of other companies in our industry, without regard to financing methods, capital structure or historical costs basis. We define "Adjusted EBITDAX" as net income (loss) plus, when applicable, (gain) loss on sale of assets; accretion; impairment expense; depletion, depreciation and amortization; interest expense; interest income; transaction costs; exploration expense; rig idle expense; unrealized (gain) loss on derivatives; stock based compensation; and income tax (benefit) expense.

Our Adjusted EBITDAX should not be considered an alternative to net income (loss), operating income (loss), cash flow provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDAX may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDAX in the same manner.

The following table provides a reconciliation of net income (loss) to Adjusted EBITDAX for the periods indicated:

($000s)   Three Months Ended

June 30,

  Six Months Ended

June 30,

2017   2016 2017   2016
Net loss   (54,967 )   (11,172 )   (54,238 )   (17,593 )
Accretion 154 133 306 261
Impairment expense 66,648 - 66,648 -
Depletion, depreciation and amortization 10,039 5,598 17,928 11,103
Interest expense, net 633 370 970 593
Transaction costs 3,764 283 4,567 795
Rig idle and termination expense - 3,790 - 5,059
Exploration 1 - 1 5
Unrealized (gain) loss on derivative contracts (3,021 ) 5,033 (8,067 ) 6,260
Non-cash stock based compensation 1,647 561 2,958 561
Income tax (benefit) expense   (9,914 )   186   (9,952 )   186
Adjusted EBITDAX   14,984   4,782   21,121   7,230

Contact:

Scott Thelander
Director of Finance
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, TX 77380
281-298-4246