Press Releases Details

View news

Earthstone Energy, Inc. Reports Fourth Quarter and Full Year 2018 Results

03/12/2019

THE WOODLANDS, Texas--(BUSINESS WIRE)--Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the “Company”, “we” or “us”), today announced financial and operating results for the fourth quarter and year ended December 31, 2018.

Fourth Quarter 2018 Highlights

  • Revenues of $41.2 million
    • Increased 16% over fourth quarter 2017
  • Average daily production of 10,454 Boepd(1)
    • Increased 15% over fourth quarter 2017 while the oil component increased 27% over fourth quarter 2017
  • Net income of $81.0 million
    • Compared to $5.5 million in fourth quarter 2017
  • Net income attributable to Earthstone Energy, Inc. of $36.1 million, or $1.26 per diluted share
    • Compared to $2.3 million, or $0.09 per diluted share in fourth quarter 2017
  • Adjusted EBITDAX(2) of $23.9 million
    • Increased 8% over fourth quarter 2017

Full Year 2018 Highlights

  • Revenues of $165.4 million
    • Increased by 53% over 2017
  • Average daily production of 9,937 Boepd(1)
    • Increased by 26% over 2017 while the oil component increased 30% over 2017
  • Net income of $95.2 million
    • Compared to a net loss of $44.7 million in 2017
  • Net income attributable to Earthstone Energy, Inc. of $42.3 million, or $1.50 per diluted share
    • Compared to a net loss of $12.5 million, or a $0.53 loss per share in 2017
  • Adjusted EBITDAX(2)(3) of $96.2 million
    • Increased by 59% over 2017
(1)   Represents reported sales volumes.
(2) Adjusted EBITDAX is a non-GAAP financial measure. See “Non-GAAP Financial Measures” section below.
(3) Includes a $4.7 million charge to expense representing a lawsuit settlement. Adjusted EBITDAX has not been increased to adjust for this charge in the period presented (see “Non-GAAP Financial Measures” below).

Management Comments

Robert J. Anderson, President of Earthstone, stated, “2018 was a very successful year for Earthstone as we keenly focused on operating efficiencies and thereby generated low-cost reserve additions and strong cash margins. We realized significant improvement in every metric including production, revenues and operating expenses, thus driving a 59% increase in Adjusted EBITDAX to $96.2 million for the year. We also increased our proved reserves by 24% with a finding and development cost of only $9.49 per Boe for extensions and discoveries. Considering that we have only been operating in the Midland Basin for less than two years, we are pleased with our accomplishments and the contributions of all of our employees.

“For 2019, we have set high expectations for Earthstone as we build on these successes. Our strong balance sheet, substantial hedge position averaging over $65 per barrel of oil and positive operating margins give us the confidence to increase our capital budget by approximately 25%, allowing us the flexibility to continue to demonstrate the quality of our acreage position through the drill bit. Also, we intend to evaluate and pursue external growth opportunities as we have in the past, to enhance our asset base and grow our scale through acreage trades and acquisitions at attractive valuations, while maintaining low leverage.

“We are executing a successful one-rig development program in the Midland Basin and expect to continue our multi-year growth in production, although our 2019 production profile is projected to remain lumpy with a majority of the completions scheduled in the second half of the year. We presently estimate that we will achieve free cash flow in 2020 assuming we maintain our existing pace of development and current commodity prices continue through such time.”

Selected Financial Data (unaudited)

($000s except where noted)  

Three Months Ended
December 31,

   

Years Ended
December 31,

2018     2017 2018     2017
Total revenues 41,235     35,676 165,356     108,078
 
Lease operating expense 6,013 4,669 20,522 19,658
 
General and administrative expense (excluding stock-based compensation)(1) 7,814 5,628 21,088 20,466
Stock-based compensation (non-cash) 1,536   1,956 7,071   6,601
Total general and administrative expense 9,350 7,584 28,159 27,067
 
Net income (loss) 80,986 5,497 95,213 (44,733 )
Less: Net income (loss) attributable to noncontrolling interest 44,856 3,173 52,888 (32,219 )
Net income (loss) attributable to Earthstone Energy, Inc. 36,130 2,324 42,325 (12,514 )
Net income (loss) per common share(2)
Basic 1.26 0.09 1.50 (0.53 )
Diluted 1.26 0.09 1.50 (0.53 )
Adjusted EBITDAX(3) 23,928 22,102 96,167 60,640
 
Production(4):
Oil (MBbls) 674 529 2,370 1,828
Gas (MMcf) 728 933 3,610 3,260
NGL (MBbls) 167 150 655 500
Total (MBoe)(5) 962 834 3,627 2,872
Average Daily Production (Boepd) 10,454 9,071 9,937 7,869
Average Prices:
Oil ($/Bbl) 52.92 54.34 59.40 48.43
Gas ($/Mcf) 1.57 2.62 2.05 2.69
NGL ($/Bbl) 26.60 30.01 26.23 21.51
Total ($/Boe) 42.87 42.75 45.59 37.63
Adj. for Realized Derivatives Settlements:
Oil ($/Bbl) 51.40 52.28 53.13 48.00
Gas ($/Mcf) 0.98 2.78 1.98 2.71
NGL ($/Bbl) 26.60 30.01 26.23 21.51
Total ($/Boe) 41.37 41.63 41.43 37.38
(1)   Includes bonuses accrued of $2.4 million for 2018 but not paid until February 2019.
(2) Net Income (loss) per common share attributable to Earthstone Energy, Inc.
(3) See “Non-GAAP Financial Measures” section below.
(4) Represents reported sales volumes.
(5) 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).
 

Financial Position

In November 2018, the Company had its borrowing base increased to $275.0 million under its senior secured revolving credit facility (“Credit Facility”). At December 31, 2018, the Company had outstanding borrowings under its Credit Facility of $78.8 million and a cash balance of approximately $0.4 million.

Capital Expenditures

During 2018, in addition to completing a strategic acreage trade in October 2018 for $27.8 million, we incurred capital expenditures of approximately $153.2 million, on an accrual basis, primarily consisting of drilling and completion costs, of which $41.4 million was incurred during the fourth quarter of 2018.

As previously reported, the Company has currently established a 2019 capital expenditure budget of $190 million.

Hedging Update

Subsequent to December 31, 2018, we unwound 730 MBbls of Crude Oil Swaps at a weighted average contract price of $54.97/Bbl and 92,000 MMBtu of Natural Gas Swaps at a weighted average contract price of $2.87/MMBtu for 2019. Additionally, we unwound 668 MBbls of WTI Midland Argus Crude Basis Swaps at a weighted average contract price of $(7.19) and 92,000 MMBtu of Natural Gas WAHA Basis Swaps at a weighted average contract price of $(1.07)/MMBtu for 2019. Accordingly, as of March 1, 2019, our average crude oil swap prices for 2019 and 2020 are $65.67 and $65.87, respectively.

The following tables set forth our outstanding derivative contracts as of March 1, 2019 and December 31, 2018. When aggregating multiple contracts, the weighted average contract price is disclosed.

As of March 1, 2019:

Period   Commodity   Volume

(Bbls / MMBtu)

  Price

($/Bbl / $/MMBtu)

2019 Crude Oil Swap 2,292,100 $65.67
2019 Crude Oil Basis Swap (1) 365,000 $4.50
2019 Crude Oil Basis Swap (2) 2,007,500 $(5.36)
2019 Natural Gas Swap 3,740,500 $2.86
2019 Natural Gas Basis Swap (3) 3,740,500 $(1.14)
2020 Crude Oil Swap 1,464,000 $65.87
2020 Crude Oil Basis Swap (2) 1,464,000 $(2.74)
2020 Natural Gas Swap 2,562,000 $2.85
2020 Natural Gas Basis Swap (3) 2,562,000 $(1.07)
(1)   The basis differential price is between LLS Argus Crude and the WTI NYMEX.
(2) The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.
(3) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
 

As of December 31, 2018:

Period   Commodity   Volume

(Bbls / MMBtu)

  Price

($/Bbl / $/MMBtu)

2019 Crude Oil Swap 3,022,100 $63.09
2019 Crude Oil Basis Swap (1) 365,000 $4.50
2019 Crude Oil Basis Swap (2) 2,675,500 $(5.81)
2019 Natural Gas Swap 3,832,500 $2.86
2019 Natural Gas Basis Swap (3) 3,832,500 $(1.14)
2020 Crude Oil Swap 1,464,000 $65.87
2020 Crude Oil Basis Swap (2) 1,464,000 $(2.74)
2020 Natural Gas Swap 2,562,000 $2.85
2020 Natural Gas Basis Swap (3) 2,562,000 $(1.07)
(1)   The basis differential price is between LLS Argus Crude and the WTI NYMEX.
(2) The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.
(3) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
 

Conference Call Details

Earthstone is hosting a conference call on Wednesday, March 13, 2019 at 11:00 a.m. Eastern (10:00 a.m. Central) to discuss the Company’s operations and financial results for the fourth quarter and full year 2018 and its outlook for 2019. Prepared remarks by Frank A. Lodzinski, Chief Executive Officer, Robert J. Anderson, President, and Mark Lumpkin, Jr., Executive Vice President and Chief Financial Officer will be followed by a question and answer session.

Investors and analysts are invited to participate in the call by dialing 877-407-6184 for domestic calls or 201-389-0877 for international calls, in both cases asking for the Earthstone conference call. A webcast will also be available through the Company's website (www.earthstoneenergy.com). Please select "Events & Presentations" under the "Investors" section of the Company's website and log on at least 10 minutes in advance to register.

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), Wednesday, March 27, 2019. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13688462.

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in developing and operating oil and gas properties. The Company’s assets are located in the Midland Basin of west Texas and the Eagle Ford trend of south Texas. Earthstone is listed on the NYSE 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,” “guidance,” “target,” “potential,” “possible,” or “probable” or statements that certain actions, events or results “may,” “will,” “should,” or “could” be taken, occur or be achieved. 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 that involve various risks and uncertainties that could cause actual results to differ materially from those reflected in the statements. These risks include, but are not limited to, those set forth in Earthstone’s annual report on Form 10-K for the year ended December 31, 2018 and other Securities and Exchange Commission filings. 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 and per share amounts)
 
December 31, December 31,
ASSETS 2018 2017
Current assets:
Cash $ 376 $ 22,955
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues 13,683 14,978
Joint interest billings and other, net of allowance of $134 and $138 at December 31, 2018 and 2017, respectively 4,166 7,778
Derivative asset 43,888 184
Prepaid expenses and other current assets 1,443   1,178  
Total current assets 63,556   47,073  
 
Oil and gas properties, successful efforts method:
Proved properties 755,443 605,039
Unproved properties 266,140 275,025
Land 5,382   5,534  
Total oil and gas properties 1,026,965   885,598  
 
Accumulated depreciation, depletion and amortization (127,256 ) (118,028 )
Net oil and gas properties 899,709 767,570
 
Other noncurrent assets:
Goodwill 17,620 17,620
Office and other equipment, net of accumulated depreciation of $2,490 and $2,093 at December 31, 2018 and 2017, respectively 662 947
Derivative asset 21,121
Other noncurrent assets 1,640   1,207  
TOTAL ASSETS $ 1,004,308   $ 834,417  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 26,452 $ 33,472
Revenues and royalties payable 28,748 10,288
Accrued expenses 22,406 8,707
Advances 3,174 4,587
Asset retirement obligation 557
Derivative liability 528   11,805  

Total current liabilities

81,865 68,859
 
Noncurrent liabilities:
Long-term debt 78,828 25,000
Deferred tax liability 13,489 10,515
Asset retirement obligation 1,672 2,354
Derivative liability 1,891 1,826
Other noncurrent liabilities 71   131  
Total noncurrent liabilities 95,951   39,826  
 
Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding
Class A Common Stock, $0.001 par value, 200,000,000 shares authorized; 28,696,321 and 27,584,638 issued and outstanding at December 31, 2018 and 2017, respectively 29 28
Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 35,452,178 and 36,052,169 issued and outstanding at December 31, 2018 and 2017, respectively 35 36
Additional paid-in capital 517,073 503,932
Accumulated deficit (182,497 ) (224,822 )
Total Earthstone Energy, Inc. equity 334,640 279,174
Noncontrolling interest 491,852   446,558  
Total equity 826,492   725,732  
 
TOTAL LIABILITIES AND EQUITY $ 1,004,308   $ 834,417  
 
   
EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
 

Three Months
Ended December 31,

Years Ended
December 31,

2018   2017 2018   2017
REVENUES
Oil $ 35,664 $ 28,721 $ 140,775 $ 88,536
Natural gas 1,139 2,439 7,396 8,777
Natural gas liquids 4,432   4,516   17,185   10,765  
Total revenues 41,235   35,676   165,356   108,078  
 
OPERATING COSTS AND EXPENSES
Lease operating expense 6,013 4,669 20,522 19,658
Severance taxes 1,945 2,355 8,060 6,060
Impairment expense 3,748 5,451 4,581 72,191
Depreciation, depletion and amortization 14,206 8,657 47,568 36,915
General and administrative expense 9,350 7,584 28,159 27,067
Transaction costs 12,632 56 13,524 4,732
Accretion of asset retirement obligation 41 56 169 434
Exploration expense 630     630   1  
Total operating costs and expenses 48,565   28,828   123,213   167,058  
 
(Loss) gain on sale of oil and gas properties, net (2,689 ) 5,257 1,919 9,105
 
(Loss) income from operations (10,019 ) 12,105 44,062 (49,875 )
 
OTHER INCOME (EXPENSE)
Interest expense, net (1,110 ) (826 ) (2,898 ) (2,699 )
Write-off of deferred financing costs (526 )
Gain (loss) on derivative contracts, net 94,553 (12,123 ) 60,947 (7,986 )
Litigation settlement 100 (4,675 )
Other (expense) income, net (187 ) 14   247   (20 )
Total other income (expense) 93,356   (12,935 ) 53,621   (11,231 )
 
Income (loss) before income taxes 83,337 (830 ) 97,683 (61,106 )
Income tax (expense) benefit (2,351 ) 6,327   (2,470 ) 16,373  
Net income (loss) 80,986 5,497 95,213 (44,733 )
 
Less: Net income (loss) attributable to noncontrolling interest 44,856   3,173   52,888   (32,219 )
 
Net income (loss) attributable to Earthstone Energy, Inc. $ 36,130   $ 2,324   $ 42,325   $ (12,514 )
 
Net income (loss) per common share attributable to Earthstone Energy, Inc.:
Basic $ 1.26 $ 0.09 $ 1.50 $ (0.53 )
Diluted $ 1.26 $ 0.09 $ 1.50 $ (0.53 )
 
Weighted average common shares outstanding:
Basic 28,576,995 26,425,780 28,153,885 23,589,973
Diluted 28,576,995 26,425,780 28,217,774 23,589,973
 
 
EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
For the Years Ended December 31,
2018   2017
Cash flows from operating activities:
Net income (loss) $ 95,213 $ (44,733 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment of proved and unproved oil and gas properties 4,581 72,191
Depreciation, depletion and amortization 47,568 36,915
Accretion of asset retirement obligations 169 434
Settlement of asset retirement obligations (79 ) (9 )
Gain on sale of oil and gas properties, net (1,919 ) (9,105 )
Total (gain) loss on derivative contracts, net (60,947 ) 7,986
Operating portion of net cash paid in settlement of derivative contracts (15,090 ) (708 )
Stock-based compensation 7,071 6,601
Deferred income taxes 2,470 (16,388 )
Write-off of deferred financing costs 526
Amortization of deferred financing costs 325 257
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (8,195 ) 444
(Increase) decrease in prepaid expenses and other current assets (376 ) (335 )
Increase (decrease) in accounts payable and accrued expenses 1,132 (282 )
Increase (decrease) in revenues and royalties payable 31,869 (2,888 )
Increase (decrease) in advances (1,413 ) 45  
Net cash provided by operating activities 102,379   50,951  
Cash flows from investing activities:
Acquisition of oil and gas properties (32,551 ) (55,609 )
Additions to oil and gas properties (149,999 ) (65,262 )
Additions to office and other equipment (170 ) (167 )
Proceeds from sales of oil and gas properties 5,965   34,735  
Net cash used in investing activities (176,755 ) (86,303 )
Cash flows from financing activities:
Proceeds from borrowings 156,830 85,000
Repayments of borrowings (103,002 ) (74,298 )
Cash paid related to the exchange and cancellation of Class A Common Stock (1,524 ) (675 )
Issuance of Class A Common Stock, net of offering costs of $2.2 million 39,438
Deferred financing costs (507 ) (1,358 )
Net cash provided by financing activities 51,797   48,107  
Net increase (decrease) in cash and cash equivalents (22,579 ) 12,755
Cash at beginning of period 22,955   10,200  
Cash at end of period $ 376   $ 22,955  

Supplemental disclosure of cash flow information

Cash paid for:
Interest $ 2,290 $ 2,495
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
Accrued capital expenditures $ 22,801 $ 19,883
Asset retirement obligations $ 252 $ (42 )
 

Earthstone Energy, Inc.
Non-GAAP Financial Measures
Unaudited

I. Adjusted EBITDAX

The non-GAAP financial measure of Adjusted EBITDAX (as defined below), as calculated by us below, is intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). 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. Adjusted EBITDAX is presented herein and reconciled from the GAAP measure of net income (loss) because of its wide acceptance by the investment community as a financial indicator.

We define “Adjusted EBITDAX” as net income (loss) plus, when applicable, accretion of asset retirement obligations; impairment expense; depletion, depreciation and amortization; interest expense, net; transaction costs; (gain) on sale of oil and gas properties, net; exploration expense; unrealized loss (gain) on derivative contracts; stock-based compensation; and income tax expense (benefit).

Our Adjusted EBITDAX measure provides additional information that may be used to better understand our operations. Adjusted EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net income (loss) as an indicator of operating performance. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, Adjusted EBITDAX can be used to assess our operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure and to assess the financial performance of our assets and our company without regard to capital structure or historical cost basis.

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

($000s)   Three Months Ended December 31,   Years Ended December 31,
2018   2017 2018   2017
Net income (loss) (1) 80,986 5,497 95,213 (44,733 )
Accretion of asset retirement obligations 41 56 169 434
Impairment expense 3,748 5,451 4,581 72,191
Depletion, depreciation and amortization 14,206 8,657 47,568 36,915
Interest expense, net 1,110 826 2,898 2,699
Transaction costs 12,632 56 13,524 4,732
Loss (gain) on sale of oil and gas properties 2,689 (5,257 ) (1,919 ) (9,105 )
Exploration expense 630 630 1
Unrealized loss (gain) on derivative contracts (96,001 ) 11,187 (76,038 ) 7,278
Stock based compensation (non-cash)(2) 1,536 1,956 7,071 6,601
Income tax expense (benefit) 2,351   (6,327 ) 2,470   (16,373 )
Adjusted EBITDAX 23,928   22,102   96,167   60,640  
(1)   Includes a $4.7 million charge to expense in the third quarter representing a lawsuit settlement. Adjusted EBITDAX has not been increased to adjust for this charge in the period presented.
(2) Included in General and administrative expense in the Condensed Consolidated Statements of Operations.

II. F&D Costs per Unit

Proved F&D costs per unit is a non-GAAP metric commonly used in the oil and gas exploration and production industry by companies, investors and analysts in order to measure a company’s ability of adding and developing reserves at a reasonable cost. F&D costs per unit is a statistical indicator that has limitations, including its predictive and comparative value. In addition, because F&D costs per unit do not consider the costs or timing of future production of new reserves, such measures may not be adequate measures of value creation. This reserve metric may not be comparable to similarly titled measurements used by other companies.

The calculation for F&D costs per unit is based on estimated costs incurred in 2018. The calculation for F&D costs per unit does not include future development costs required for the development of proved undeveloped reserves.

The following table provides a calculation of the F&D costs per unit for Extensions and Discoveries only as well as for All-Sources.

Costs Incurred ($ in thousands)   2018
Acquisition costs:  
Proved $ 41,569
Unproved 31,268
Exploration costs 630
Development costs   153,161
Total additions   $ 226,628
 
 
Reserve Additions (MBoe)   2018
Extensions and Discoveries 16,209
Purchases 6,810
Revisions   6,075
Total Reserves Added   29,094
 
 
Finding F&D Costs as typically calculated by analysts   $/Boe
Extensions and Discoveries $ 9.49
All-Sources, excluding Sales of minerals in place & Production $ 7.79

Contact:

Mark Lumpkin, Jr.
Executive Vice President – Chief Financial Officer
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, TX 77380
281-298-4246
mark.lumpkin@earthstoneenergy.com

Scott Thelander
Vice President of Finance
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, TX 77380
281-298-4246
scott@earthstoneenergy.com

Multimedia Files:

View news