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Earthstone Energy, Inc. Reports 2021 Fourth Quarter and Full Year Results

03/09/2022

THE WOODLANDS, Texas, March 9, 2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we" or "us"), today announced financial and operating results for the quarter and year ended December 31, 2021.

Fourth Quarter 2021 Highlights

  • Executed the Chisholm Acquisition PSA on December 15, 2021 which closed subsequent to year-end on February 15, 2022
  • Closed the Foreland Acquisition on November 2, 2021
  • Net income attributable to Earthstone Energy, Inc. of $39.8 million, or $0.72 per Diluted Share
  • Net income of $69.1 million or $0.77 per Adjusted Diluted Share(1)
  • Adjusted net income(1) of $41.0 million or $0.46 per Adjusted Diluted Share(1)
  • Adjusted EBITDAX(3) of $85.3 million, up 186% compared to Q4 2020
  • Net cash provided by operating activities of $83.6 million
  • Free Cash Flow(1) of $28.5 million, up 238% compared to Q4 2020
  • Average daily production of 30,244 Boepd(2), up 104% compared to Q4 2020

Full Year 2021 Highlights

  • Closed the IRM Acquisition(3), Tracker Acquisition(4), Eagle Ford working interest acquisitions(5) and Foreland Acquisition(6)
  • $2.0 billion PV-10(1) value of estimated total proved reserves of 147.6 MMBoe at December 31, 2021 based on SEC pricing
  • $1.4 billion PV-10(1) value of estimated proved developed reserves of 93.6 MMBoe included in total proved reserve estimates above
  • Net income attributable to Earthstone Energy, Inc. of $35.5 million, or $0.71 per Diluted Share
  • Net income of $61.5 million or $0.73 per Adjusted Diluted Share(1)
  • Adjusted net income(1) of $105.4 million or $1.25 per Adjusted Diluted Share(1)
  • Adjusted EBITDAX(1) of $247.9 million, up 72% year over year
  • Net cash provided by operating activities of $230.9 million
  • Free Cash Flow(1) of $106.6 million, up 48% year over year
  • Average daily production of 24,809 Boepd(2), up 62% year over year

 

(1)

See "Non-GAAP Financial Measures" section below.

(2)

Represents reported sales volumes.

(3)

On January 7, 2021, we closed our acquisition (the "IRM Acquisition") of Independence Resources Management, LLC and certain of its affiliates ("IRM").

(4)

On July 20, 2021, we consummated the transactions contemplated in two purchase and sale agreements (the "Tracker Acquisition"). A significant shareholder of Earthstone owned 49% of Tracker.

(5)

We acquired additional working interests in certain of our Eagle Ford Trend properties in May and June 2021 for $48.0 million.

(6)

On November 2, 2021, we consummated the transactions contemplated in two purchase and sale agreements (the "Foreland Acquisition").

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our outstanding fourth quarter results reflect both our employees' dedication and our transformation into a larger, low-cost producer in the Permian Basin. We completed four acquisitions during 2021, enabling us to more than double our average daily production in the fourth quarter compared to 2020 and to expand our operating footprint. Driven by our high-margin drilling program and successful acquisition strategy, we were able to increase Free Cash Flow and Adjusted EBITDAX by approximately 48% and 72%, respectively, when compared to 2020.

"So far in 2022, we have closed the Chisholm Acquisition and announced the Bighorn Acquisition, which when combined with our existing asset base, should more than double our average daily production yet again in the second half of the year compared to the beginning of 2022. Based on the mid-point of our guidance, we anticipate that we will generate significant Free Cash Flow in 2022 while only reinvesting a little more than half of our Adjusted EBITDAX. We have intentionally structured these accretive acquisitions of well-located assets in such a way that it maintains the strength of our balance sheet, and we expect to be below our target leverage of 1.0x Debt to Adjusted EBITDAX by year-end 2022.

"While we remain open to potential acquisitions that fit our criteria, we intend to make efficient integration our near-term priority. We are better positioned today to optimize our operations and generate substantial Free Cash Flow, and we are confident that our strategy and execution will drive meaningful shareholder value. We enter 2022 as a transformed company compared to who we were a year ago and we are excited to be moving forward as a larger and stronger company."

Current Operations

We continue to operate four drilling rigs with two in each of the Midland Basin and the northern Delaware Basin.  Thus far in 2022, we have brought online five gross (5.0 net) wells in the Midland Basin. Prior to the closing of the Chisholm Acquisition on February 15, 2022, five gross (3.2 net) wells were brought online in the northern Delaware Basin. Currently, we are completing six gross (6.0 net) wells in Upton County, Texas with a single frac crew. Additionally, six gross (4.8 net) wells are waiting on completion across our Midland Basin operated assets and four gross (2.7 net) wells are waiting on completion across our Delaware Basin operated assets. We expect to maintain this development pace throughout 2022, as disclosed in our recently released guidance.

 

Selected Financial Data (unaudited)


($000s except where noted)

Three Months Ended


Years Ended


December 31,


December 31,


2021


2020


2021


2020

Total revenues

$       144,016


$         36,675


$       419,643


$       144,523









Lease operating expense

13,742


7,160


49,321


29,131









General and administrative expense (excluding stock-based compensation)

6,329


6,229


20,908


18,179

Stock-based compensation

10,393


2,389


21,014


10,054

General and administrative expense

$         16,722


$           8,618


$         41,922


$         28,233









Net income (loss)

$         69,055


$        (18,381)


$         61,506


$        (29,434)

Less: Net income (loss) attributable to noncontrolling interest

29,285


(9,910)


26,022


(15,887)

Net income (loss) attributable to Earthstone Energy, Inc.

39,770


(8,471)


35,484


(13,547)

Net income (loss) per common share(1)








Basic

0.76


(0.28)


0.75


(0.45)

Diluted

0.72


(0.28)


0.71


(0.45)

Adjusted EBITDAX(2)

$         85,327


$         29,798


$       247,880


$       144,246









Production(3):








Oil (MBbls)

1,187


660


4,381


3,180

Gas (MMcf)

5,015


2,251


14,505


7,282

NGL (MBbls)

760


327


2,257


1,198

  Total (MBoe)(4)

2,782


1,362


9,055


5,591

Average Daily Production (Boepd)

30,244


14,809


24,809


15,276

Average Prices:








Oil ($/Bbl)

77.02


41.43


67.83


37.85

Gas ($/Mcf)

4.77


1.65


3.50


1.18

NGL ($/Bbl)

37.80


17.18


31.76


13.03

Total ($/Boe)

51.76


26.92


46.34


25.85

Adj. for Realized Derivatives Settlements:








Oil ($/Bbl)

55.85


54.21


52.32


37.85

Gas ($/Mcf)

3.66


1.67


2.89


1.18

NGL ($/Bbl)

37.80


17.18


31.76


13.03

Total ($/Boe)

40.73


33.15


37.86


35.89

Operating Margin per Boe








Average realized price

$           51.76


$           26.92


$           46.34


$           25.85

Lease operating expense

4.94


5.26


5.45


5.21

Production and ad valorem taxes

3.23


1.62


2.92


1.68

Operating margin per Boe(2)

43.59


20.04


37.97


18.96

Realized hedge settlements

(11.03)


6.23


(8.48)


10.04

Operating margin per Boe (including realized hedge settlements)

$           32.56


$           26.27


$           29.49


$           29.00



(1)

Net income (loss) per common share attributable to Earthstone Energy, Inc.

(2)

See "Non-GAAP Financial Measures" section below.

(3)

Represents reported sales volumes.

(4)

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).

Liquidity Update

As of December 31, 2021, we had $4.0 million in cash and $320.0 million of long-term debt outstanding under our Credit Facility with a borrowing base of $650.0 million. With the $330.0 million of undrawn borrowing base capacity and $4.0 million in cash, we had total liquidity of approximately $334.0 million.

As of March 1, 2022, we had approximately $1 million in cash and $652 million of long-term debt outstanding under our Credit Facility, with a borrowing base of $825 million. With the $173 million of undrawn borrowing base capacity and $1 million in cash, we had total liquidity of approximately $174 million. Furthermore, lenders under the Credit Facility have committed to increasing the borrowing base and elected commitments by an incremental $500 million to $1,325 million conditioned upon the closing of the Bighorn Acquisition, which is anticipated to occur in mid-April.

Capital Expenditures

During 2021, we incurred capital expenditures of approximately $130.5 million, on an accrual basis, primarily consisting of drilling and completion costs. The Company's 2022 capital budget of $410-440 million assumes a four-rig program consisting of two rigs operating in the Midland Basin and two rigs operating in the Delaware Basin. This program is expected to result in the spudding of 60 gross / 47.6 net operated wells and bringing 58 gross / 48.3 net operated wells online and spudding 20 gross / 4.1 net non-operated wells and bringing 19 gross / 4.2 net non-operated wells online in 2022.

Hedge Position

Hedging Activities

The following table sets forth our outstanding derivative contracts at December 31, 2021. When aggregating multiple contracts, the weighted average contract price is disclosed.

Period


Commodity


Volume

(Bbls / MMBtu)


Price

($/Bbl / $/MMBtu)

2022


Crude Oil Swap


2,768,250


$57.69

2022


Crude Oil Basis Swap(1)


3,832,500


$0.51

2022


Natural Gas Swap


5,900,000


$3.20

2022


Natural Gas Basis Swap(2)


9,100,000


$(0.26)

2023


Natural Gas Swap


1,375,000


$3.27



(1)

The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2)

The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.

 



Costless Collars



Period


Commodity


Volume

(Bbls / MMBtu)


Bought Floor

($/Bbl / $/MMBtu)


Sold Ceiling

($/Bbl / $/MMBtu)

2022


Crude Oil Costless Collar


730,000


$                        60.00


$                        73.73

2023


Crude Oil Costless Collar


365,000


$                        55.00


$                        71.75

2022


Natural Gas Costless Collar


4,037,500


$                           3.43


$                           5.10

2023


Natural Gas Costless Collar


888,000


$                           3.25


$                           5.13

Hedging Update

The following table sets forth our outstanding derivative contracts at March 1, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.

Period


Commodity


Volume

(Bbls / MMBtu)


Price

($/Bbl / $/MMBtu)

2022


Crude Oil Swap


3,930,750


$64.33

2022


Crude Oil Basis Swap(1)


4,322,500


$0.51

2023


Crude Oil Swap


1,277,500


$76.20

2023


Crude Oil Basis Swap(1)


730,000


$0.49

2022


Natural Gas Swap


8,782,000


$3.49

2022


Natural Gas Basis Swap(2)


9,100,000


$(0.26)

2023


Natural Gas Swap


3,670,000


$3.35

2023


Natural Gas Basis Swap(2)


25,550,000


$(1.28)

2024


Natural Gas Basis Swap(2)


25,620,000


$(1.04)



(1)

The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2)

The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.

 



Costless Collars



Period


Commodity


Volume

(Bbls / MMBtu)


Bought Floor

($/Bbl / $/MMBtu)


Sold Ceiling

($/Bbl / $/MMBtu)

2022


Crude Oil Costless Collar


1,740,000


$                        68.45


$                        82.57

2023


Crude Oil Costless Collar


1,715,500


$                        62.98


$                        80.34

2022


Natural Gas Costless Collar


14,987,500


$                           3.67


$                           5.47

2023


Natural Gas Costless Collar


13,188,000


$                           3.28


$                           4.84

Conference Call Details

Earthstone is hosting a conference call on Thursday, March 10, 2022 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 2021 and its outlook for 2022. Prepared remarks by Robert J. Anderson, President and Chief Executive Officer, Mark Lumpkin, Jr., Executive Vice President and Chief Financial Officer and Steven C. Collins, Executive Vice President and Chief Operating 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), Thursday, March 24, 2022. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13727616.

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 primary assets are located in the Midland Basin of West Texas, the Eagle Ford Trend in South Texas and the Delaware Basin in New Mexico. Earthstone is traded 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, 2021 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.

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

 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)



December 31,

ASSETS

2021


2020

Current assets:




Cash

$                4,013


$                1,494

Accounts receivable:




Oil, natural gas, and natural gas liquids revenues

50,575


16,255

Joint interest billings and other, net of allowance of $19 and $19 at December 31, 2021 and 2020, respectively

2,930


7,966

Derivative asset

1,348


7,509

Prepaid expenses and other current assets

2,549


1,509

Total current assets

61,415


34,733





Oil and gas properties, successful efforts method:




Proved properties

1,625,367


1,017,496

Unproved properties

222,025


233,767

Land

5,382


5,382

Total oil and gas properties

1,852,774


1,256,645





Accumulated depreciation, depletion and amortization

(395,625)


(291,213)

Net oil and gas properties

1,457,149


965,432





Other noncurrent assets:




Goodwill


Office and other equipment, net of accumulated depreciation of $4,547 and $3,675 at December 31, 2021 and 2020, respectively

1,986


931

Derivative asset

157


396

Operating lease right-of-use assets

1,795


2,450

Other noncurrent assets

33,865


1,315

TOTAL ASSETS

$         1,556,367


$         1,005,257

LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$              31,397


$                6,232

Revenues and royalties payable

36,189


27,492

Accrued expenses

31,704


16,504

Asset retirement obligation

395


447

Derivative liability

45,310


1,135

Advances

4,088


2,277

Operating lease liability

681


773

Finance lease liability


69

Other current liability

851


565

Total current liabilities

150,615


55,494





Noncurrent liabilities:




Long-term debt

320,000


115,000

Asset retirement obligation

15,471


2,580

Derivative liability

571


173

Deferred tax liability

15,731


14,497

Operating lease liability

1,276


1,840

Finance lease liability


5

Other noncurrent liabilities

6,442


132

Total noncurrent liabilities

359,491


134,227





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; 53,467,307 and 30,343,421 issued and outstanding at December 31, 2021 and 2020, respectively

53


30

Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,344,532 and 35,009,371 issued and outstanding at December 31, 2021 and 2020, respectively

34


35

Additional paid-in capital

718,181


540,074

Accumulated deficit

(159,774)


(195,258)

Total Earthstone Energy, Inc. equity

558,494


344,881

Noncontrolling interest

487,767


470,655

Total equity

1,046,261


815,536





TOTAL LIABILITIES AND EQUITY

$         1,556,367


$         1,005,257

 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)



Three Months Ended


Years Ended


December 31,


December 31,


2021


2020


2021


2020

REVENUES








Oil

$         91,389


$         27,338


$       297,177


$       120,355

Natural gas

23,899


3,712


50,809


8,567

Natural gas liquids

28,728


5,625


71,657


15,601

Total revenues

144,016


36,675


419,643


144,523









OPERATING COSTS AND EXPENSES








Lease operating expense

13,742


7,160


49,321


29,131

Production and ad valorem taxes

8,981


2,213


26,409


9,411

Rig idle and termination expense




426

Impairment expense


1,950



64,498

Depreciation, depletion and amortization

28,874


20,318


106,367


96,414

General and administrative expense

16,722


8,618


41,922


28,233

Transaction costs

1,969


946


4,875


622

Accretion of asset retirement obligation

149


170


1,065


307

Exploration expense

15



341


298

Total operating costs and expenses

70,452


41,375


230,300


229,340









(Loss) gain on sale of oil and gas properties, net

(2)


6


738


204









Income (loss) from operations

73,562


(4,694)


190,081


(84,613)









OTHER INCOME (EXPENSE)








Interest expense, net

(3,128)


(1,025)


(10,796)


(5,232)

Write-off of deferred financing costs




Gain (loss) on derivative contracts, net

805


(13,166)


(116,761)


59,899

Other income, net

18


280


841


400

Total other (expense) income

(2,305)


(13,911)


(126,716)


55,067









Income (loss) before income taxes

71,257


(18,605)


63,365


(29,546)

Income tax (expense) benefit

(2,202)


224


(1,859)


112

Net income (loss)

69,055


(18,381)


61,506


(29,434)









Less: Net income (loss) attributable to noncontrolling interest

29,285


(9,910)


26,022


(15,887)









Net income (loss) attributable to Earthstone Energy, Inc.

$         39,770


$         (8,471)


$         35,484


$       (13,547)









Net income (loss) per common share attributable to Earthstone Energy, Inc.:








Basic

$             0.76


$           (0.28)


$             0.75


$           (0.45)

Diluted

$             0.72


$           (0.28)


$             0.71


$           (0.45)









Weighted average common shares outstanding:








Basic

52,401,448


30,212,191


47,169,948


29,911,625

Diluted

55,365,519


30,212,191


49,952,093


29,911,625

 

EARTHSTONE ENERGY, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)



For the Years Ended December 31,


2021


2020


2019

Cash flows from operating activities:




Net income (loss)

$           61,506


$          (29,434)


$             1,580

Adjustments to reconcile net income (loss) to net cash provided by operating activities:






Impairment of proved and unproved oil and gas properties


46,878


Depreciation, depletion and amortization

106,367


96,414


69,243

Accretion of asset retirement obligations

1,065


307


214

Impairment of goodwill


17,620


Gain on sale of oil and gas properties, net

(738)


(204)


(3,222)

Gain on sale of office and other equipment

(140)



Settlement of asset retirement obligations

(185)


(195)


(374)

Total loss (gain) on derivative contracts, net

116,761


(59,899)


43,983

Operating portion of net cash received in settlement of derivative contracts

(75,966)


56,044


15,866

Stock-based compensation

21,014


10,054


8,648

Deferred income taxes

1,859


(657)


1,665

Write-off of deferred financing costs



1,242

Amortization of deferred financing costs

856


322


412

Changes in assets and liabilities:






(Increase) decrease in accounts receivable

(19,061)


11,914


(18,035)

(Increase) decrease in prepaid expenses and other current assets

58


(203)


66

Increase (decrease) in accounts payable and accrued expenses

9,293


481


(10,438)

Increase (decrease) in revenues and royalties payable

5,985


(8,323)


7,067

Increase (decrease) in advances

2,200


(9,617)


8,331

Net cash provided by operating activities

230,874


131,502


126,248

Cash flows from investing activities:






Acquisition of oil and gas properties

(311,324)



Additions to oil and gas properties

(114,521)


(88,097)


(204,268)

Additions to office and other equipment

(1,365)


(114)


(527)

Proceeds from sales of oil and gas properties

975


414


4,184

Net cash used in investing activities

(426,235)


(87,797)


(200,611)

Cash flows from financing activities:






Proceeds from borrowings

744,132


136,056


234,680

Repayments of borrowings

(539,132)


(191,056)


(143,508)

Cash paid related to the exchange and cancellation of Class A Common Stock

(4,144)


(836)


(1,135)

Cash paid for finance leases

(70)


(130)


(392)

Deferred financing costs

(2,906)


(67)


(1,836)

Net cash (used in)  provided by financing activities

197,880


(56,033)


87,809

Net increase (decrease) in cash

2,519


(12,328)


13,446

Cash at beginning of period

1,494


13,822


376

Cash at end of period

$             4,013


$             1,494


$           13,822

Supplemental disclosure of cash flow information






Cash paid for:






Interest

$             9,648


$             4,588


$             6,405

Income Taxes

$                325


$                  —


$                  —

Non-cash investing and financing activities:






Class A Common stock issued in IRM Acquisition

$           76,572


$                  —


$                  —

Class A Common stock issued in Tracker/Sequel Acquisitions

$           61,814


$                  —


$                  —

Class A Common stock issued in Foreland Acquisitions

$           28,121


$                  —


$                  —

Accrued capital expenditures

$           23,558


$             7,328


$           28,356

Lease asset additions - ASC 842

$                  —


$                  —


$             3,722

Asset retirement obligations

$             2,178


$                762


$                105

 

Earthstone Energy, Inc.
Non-GAAP Financial Measures
Unaudited

The non-GAAP financial measures of Adjusted Diluted Shares, Adjusted EBITDAX, Adjusted Net Income, All-In Cash Costs, Free Cash Flow and Operating Margin per Boe, as defined and presented below, are 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, these non-GAAP measures 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 and Adjusted Net Income are 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.

I. Adjusted Diluted Shares

We define "Adjusted Diluted Shares" as the weighted average shares of Class A Common Stock - Diluted outstanding plus the weighted average shares of Class B Common Stock outstanding.

Our Adjusted Diluted Shares measure provides a comparable per share measurement when presenting results such as Adjusted EBITDAX and Adjusted Net Income that include the interests of both Earthstone and the noncontrolling interest. Adjusted Diluted Shares is used in calculating several metrics that we use as supplemental financial measurements in the evaluation of our business, none of which should be considered as an alternative to, or more meaningful than, net income (loss) as an indicator of operating performance.

Adjusted Diluted Shares for the periods indicated:


Three Months Ended


Years Ended


December 31,


December 31,


2021


2020


2021


2020

Class A Common Stock - Diluted

55,365,519


30,212,191


49,952,093


29,911,625

Class B Common Stock

34,349,183


35,009,371


34,407,211


35,077,711

Adjusted Diluted Shares

89,714,702


65,221,562


84,359,304


64,989,336

II. 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 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; loss (gain) on sale of oil and gas properties, net; exploration expense; unrealized (gain) loss on derivative contracts; stock-based compensation (non-cash and expected to settle in cash); and income tax expense.

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


Years Ended


December 31,


December 31,


2021


2020


2021


2020

Net income (loss)

$             69,055


$            (18,381)


$             61,506


$            (29,434)

Accretion of asset retirement obligations

149


170


1,065


307

Impairment expense


1,950



64,498

Depletion, depreciation and amortization

28,874


20,318


106,367


96,414

Interest expense, net

3,128


1,025


10,796


5,232

Transaction costs

1,969


946


4,875


622

Loss (gain) on sale of oil and gas properties, net

2


(6)


(738)


(204)

Rig idle and termination expense




426

Exploration expense

15



341


298

Unrealized (gain) loss on derivative contracts

(30,460)


21,611


40,795


(3,855)

Stock-based compensation(1)

10,393


2,389


21,014


10,054

Income tax expense (benefit)

2,202


(224)


1,859


(112)

Adjusted EBITDAX

$             85,327


$             29,798


$           247,880


$           144,246



(1)

Consists of expense for non-cash equity awards and cash-based liability awards that are expected to be settled in cash. No cash-based liability awards were settled in cash during 2021. On February 9, 2022, cash-based liability awards were settled in the amount of $8.1 million. Stock-based compensation is included in General and administrative expense in the Condensed Consolidated Statements of Operations.

III. Adjusted Net Income

We define "Adjusted Net Income" as net income (loss) plus, when applicable, unrealized (gain) loss on derivative contracts; impairment expense; loss (gain) on sale of oil and gas properties; transaction costs; and the associated changes in estimated income tax.

Our Adjusted Net Income measure provides additional information that may be used to further understand our operations. Adjusted Net Income 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 Net Income 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 Net Income, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted Net Income 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 Net Income 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 Net Income for the periods indicated:

($000s, except per share data)

Three Months Ended


Years Ended


December 31,


December 31,


2021


2020


2021


2020

Net income (loss)

$             69,055


$         (18,381)


$         61,506


$        (29,434)

Unrealized (gain) loss on derivative contracts

(30,460)


21,611


40,795


(3,855)

Impairment expense


1,950



64,498

Loss (gain) on sale of oil and gas properties

2


(6)


(738)


(204)

Transaction costs

1,969


946


4,875


622

Income tax effect of the above

473


(298)


(1,015)


(1,611)

Adjusted Net Income

$             41,039


$             5,822


$       105,423


$         30,016

Adjusted Diluted Shares

89,714,702


65,221,562


84,359,304


64,989,336

Adjusted Net Income per Adjusted Diluted Share

$                 0.46


$               0.09


$              1.25


$              0.46

IV. Free Cash Flow

Free cash flow is a measure that we use as an indicator of our ability to fund our development activities. We define free cash flow as Adjusted EBITDAX (defined above), less interest expense, less accrual-based capital expenditures.

($000s)

Three Months Ended


Years Ended


December 31,


December 31,


2021


2020


2021


2020

Adjusted EBITDAX

$           85,327


$           29,798


$         247,880


$         144,246

Interest expense, net

(3,128)


(1,025)


(10,796)


(5,232)

Capital expenditures (accrual basis)

(53,702)


(20,346)


(130,492)


(66,788)

Free Cash Flow

$           28,497


$              8,427


$         106,592


$           72,226

V. Operating Margin per Boe and Operating Margin per Boe (including realized hedge settlements)

Operating Margin per Boe is a non-GAAP financial measure that we use to evaluate our operating performance on a per Boe basis. We define Operating Margin per Boe as average realized price per Boe minus lease operating expense per BOE and production and ad valorem taxes per Boe. Operating Margin per Boe (including realized hedge settlements) is calculated as the sum of Operating Margin per Boe and Realized hedge settlements per Boe.

Our Operating Margin per Boe measure provides additional information that may be used to further understand our operating margins. We use Operating Margin per Boe as a supplemental financial measurement in the evaluation of our operational performance. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our results. Operating Margin per Boe should not be considered as an alternative to, or more meaningful than, net income (loss) as an indicator of operating performance. Operating Margin per Boe, as used by us, may not be comparable to similarly titled measures reported by other companies.

VI. PV-10

The non-GAAP financial measure of PV-10, as defined and presented below, is intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with GAAP.

PV-10 is derived from the standardized measure of discounted future net cash flows ("Standardized Measure"), which is the most directly comparable financial measure under GAAP. PV-10 is a computation of the Standardized Measure on a pre-tax basis. PV-10 is equal to the Standardized Measure at the applicable date, before deducting future income taxes, discounted at 10%. We believe that the presentation of PV-10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to our estimated net proved reserves prior to taking into account future corporate income taxes, and it is a useful measure for evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. We use this measure when assessing the potential return on investment related to our oil and natural gas properties. PV-10, however, is not a substitute for the Standardized Measure. Our PV-10 measure and the Standardized Measure do not purport to present the fair value of our oil and natural gas reserves.

The following table provides a reconciliation of PV-10 of the Company's estimated proved properties to the Standardized Measure as of December 31, 2021 (in thousands):

Present value of estimated future net revenues (PV-10)


$        2,016,686

Future income taxes, discounted at 10%


(198,314)

Standardized measure of discounted future net cash flows


$        1,818,372

 

Cision View original content:https://www.prnewswire.com/news-releases/earthstone-energy-inc-reports-2021-fourth-quarter-and-full-year-results-301499527.html

SOURCE Earthstone Energy, Inc.

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