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Earthstone Energy, Inc. Reports 2022 Second Quarter and Year-to-Date Financial Results

08/04/2022

THE WOODLANDS, Texas, Aug. 4, 2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we", "our" or "us"), today announced financial and operating results for the three and six months ended June 30, 2022.

Second Quarter 2022 Highlights

  • Executed the Titus Acquisition PSAs on June 27, 2022, which are expected to close in mid-August 2022
  • On April 12, 2022, closed a $550 million offering of 8.0% senior unsecured notes due 2027
  • Closed the Bighorn Acquisition on April 14, 2022
  • Issued $280 million of Preferred Stock in a private placement on April 14, 2022, which was converted into 25,225,225 shares of our Class A common stock on July 6, 2022
  • Net income attributable to Earthstone Energy, Inc. of $144.9 million, or $1.46 per Diluted Share
  • Net income of $218.0 million, or $1.60 per Adjusted Diluted Share(1)
  • Adjusted net income(1) of $175.7 million, or $1.29 per Adjusted Diluted Share(1)
  • Adjusted EBITDAX(1) of $300.9 million, up 144% compared to 1Q 2022
  • Net cash provided by operating activities of $254.7 million
  • Free Cash Flow(1) of $164.8 million, up 362% compared to 1Q 2022
  • Average daily net production of 77,125 Boepd(2), up 117% compared to 1Q 2022
  • Capital expenditures of $119.5 million

Year to Date 2022 Highlights

  • Closed the Chisholm Acquisition on February 15, 2022
  • Net income attributable to Earthstone Energy, Inc. of $111.4 million, or $1.37 per Diluted Share
  • Net income of $166.1 million, or $1.40 per Adjusted Diluted Share(1)
  • Adjusted net income(1) of $251.9 million, or $2.12 per Adjusted Diluted Share(1)
  • Adjusted EBITDAX(1) of $424.0 million
  • Net cash provided by operating activities of $337.7 million
  • Free Cash Flow(1) of $200.5 million
  • Average daily net production of 56,432 Boepd(2)
  • Capital expenditures of $201.6 million

 

(1)

See the "Non-GAAP Financial Measures" section below.

(2)

Represents reported sales volumes.

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our strong second quarter results reflect the continued positive impacts of our consolidation strategy. Over the last year and a half, we have become a larger scale, low-cost producer and have grown production volumes multiple times over while also adding to our robust drilling inventory through accretive, well-priced acquisitions. This ongoing transformation enabled us to substantially increase Free Cash Flow in the second quarter by approximately 362%, sequentially, to $165 million driven by a step change in our daily production and the continued strength of commodity prices."

"We have also been pleased with our ability to optimize our operations, identify synergies within our recent acquisitions, and manage our costs in this challenging inflationary environment," added Anderson. "We continue to drive down our LOE and cash G&A per BOE which was, on a combined basis, 5% lower in the second quarter compared to the first quarter. We are looking forward to closing on the northern Delaware Basin assets from the Titus Acquisition later this month and incorporating this high-quality inventory into our development plans. The Titus Acquisition is expected to increase our total production to near 100,000 Boepd upon close, and we expect the assets will contribute an incremental 30% to our Adjusted EBITDAX. In the near-term, we intend to continue using our significant Free Cash Flow to rapidly pay down debt in pursuit of our target Debt / LQA Adjusted EBITDAX ratio of less than 1.0x by year-end. As always, we will remain focused on executing our growing operational program and generating record levels of free cash flow, which we believe will drive meaningful shareholder value," concluded Anderson.

Updated 2022 Guidance

We are providing updated guidance for 2022, which accounts for the expected closing of the Titus Acquisition in mid-August 2022, increased drilling and completion activity, a recent non-operated asset sale and updated cost expectations. Estimated second half of 2022 capital expenditures are $300-325 million, which implies full year 2022 capital expenditure guidance of $502-527 million.  Incremental activity including related infrastructure accounts for a 14% increase at the midpoint of our prior full year 2022 capital guidance while cost inflation on our base drilling program accounts for a 7% increase.  The updated capital guidance assumes addition of a fifth rig during the fall which will be focused on the Delaware Basin, bringing the total rig count in the Delaware Basin to three rigs, while maintaining two rigs in the Midland Basin. We expect to complete an additional six gross operated wells on the Titus Acquisition assets and spud an additional four gross operated wells within our expanded capital program.  Production guidance for the second half of the year incorporates the expected near-term closing of the Titus Acquisition as well as a recent non-operated asset sale. The Company anticipates third quarter production to be 86-90 MBoepd (~41% oil). Furthermore, we expect production to average 96-100 MBoepd (~44% oil) in the fourth quarter with a full impact from the Titus Acquisition.

Production Guidance


 1H22 Actuals


3Q22(1)


4Q22(1)


FY 2022(1)

Production (Boe/d)


56,432


86,000 - 90,000


96,000 - 100,000


73,858 - 75,875

% Oil


39 %


~41%


~44%


~41%

% Liquids


67 %


~68%


~70%


~68%










Expense & Capex Guidance


1H22 Actuals


Remainder of 2022(1)


FY 2022(1)



Total Capital Expenditures ($MM)


$202


$300 - $325


$502 - $527



Lease Operating Expense ($/Boe)


$7.06


$7.50 - $8.00


$7.33 - $7.65



Production & Ad Valorem Taxes (% of Revenue)


7.1 %


7.5% - 8.0%


7.3% - 7.7%



Cash G&A ($MM)(2)


$15


$20 - $22


$35 - $37












(1)

Includes the projected impact of the Titus Acquisition expected to close in mid-August 2022.

(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.

Operations Update

During the second quarter of 2022 for our Company-operated activity, we commenced drilling seven gross (5.6 net) wells and brought six gross (4.8 net) wells online in the Midland Basin.  In the Delaware Basin, we commenced drilling eight gross (5.6 net) wells and brought six gross (4.0 net) wells online. 

We brought online a two-well pad in Lea County, the Bel-Air 5-8 pad, in late June.  This pad is one of our first sets of wells to be drilled and completed by us from start to finish after closing on our initial Delaware Basin acquisition earlier this year.  After initially allowing the wells to flow naturally, we recently installed artificial lift and are seeing current average production rates of 1,085 Boepd (92% oil) per well as the wells continue to clean up.

We are currently operating a four-rig drilling program, with two rigs in the Midland Basin and two rigs in the Delaware Basin. We anticipate picking up a fifth rig late in the third quarter of 2022 that will be operated in the Delaware Basin.  For full year 2022 and only for our Company-operated activity, we anticipate spudding 38 gross (33.5 net) wells and bringing 34 gross (30.7 net) wells online in the Midland Basin. In the Delaware Basin, we anticipate spudding 28 gross (19.1 net) wells and bringing 27 gross (19.3 net) wells online.  This includes spudding four more Delaware Basin wells in 2022 compared to our prior plans as a result of drilling efficiencies and also includes spudding an incremental four gross (3.3 net) wells and bringing an incremental six gross (5.5 net) wells online in the Delaware Basin as a result of the Titus Acquisition and the expected addition of the fifth rig.

Selected Financial Data (unaudited)


($000s except where noted)

Three Months Ended
June 30,


Six Months Ended
June 30,


2022


2021


2022


2021

Total revenues

$  472,551


$    89,671


$  668,701


$  165,243









Lease operating expense

50,514


11,747


72,145


22,596









General and administrative expense (excluding stock-based compensation)

8,117


4,758


14,593


9,809

Stock-based compensation

5,960


4,412


11,790


7,741

General and administrative expense

$    14,077


$      9,170


$    26,383


$    17,550









Net income (loss)

$  218,025


$   (15,831)


$  166,148


$   (26,387)

Less: Net income (loss) attributable to noncontrolling interest

73,140


(6,960)


54,741


(11,683)

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

144,885


(8,871)


111,407


(14,704)

Net income (loss) per common share(1)








Basic

1.85


(0.20)


1.57


(0.34)

Diluted

1.46


(0.20)


1.37


(0.34)

Adjusted EBITDAX(2)

$  300,875


$    53,668


$  423,964


$    97,511









Production(3):








Oil (MBbls)

2,587


1,083


4,004


2,140

Gas (MMcf)

14,414


2,927


20,053


5,372

NGL (MBbls)

2,029


496


2,869


861

  Total (MBoe)(4)

7,018


2,067


10,214


3,896

Average Daily Production (Boepd)

77,125


22,716


56,432


21,525

Average Prices:








Oil ($/Bbl)

110.80


65.47


106.00


61.56

Gas ($/Mcf)

6.67


2.29


5.94


2.33

NGL ($/Bbl)

44.25


24.31


43.66


24.35

Total ($/Boe)

67.33


43.38


65.47


42.41

Adj. for Realized Derivatives Settlements:








Oil ($/Bbl)

87.30


52.39


83.16


50.06

Gas ($/Mcf)

5.40


2.19


4.97


2.20

NGL ($/Bbl)

44.25


24.31


43.66


24.35

Total ($/Boe)

56.06


36.38


54.62


35.91

Operating Margin per Boe








Average realized price

$      67.33


$      43.38


$      65.47


$      42.41

Lease operating expense

7.20


5.68


7.06


5.80

Production and ad valorem taxes

4.87


2.50


4.65


2.62

Operating margin per Boe(2)

55.26


35.19


53.76


33.99

Realized hedge settlements

(11.27)


(7.00)


(10.85)


(6.50)

Operating margin per Boe (including realized hedge settlements)(2)

$      43.99


$      28.19


$      42.91


$      27.49









(1)

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

(2)

See the "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 and Equity Capitalization

As of June 30, 2022, we had $395 million of long-term debt outstanding under our senior secured credit facility ("Credit Facility") with elected commitments of $800 million, resulting in available borrowings of approximately $405 million. As of June 30, 2022, our borrowing base was $1.4 billion.

During the month ended July 31, 2022, we paid down an additional $145 million on our Credit Facility, bringing the drawn amount to $250 million. Additionally, we had approximately $14 million of cash in our bank accounts at July 31, 2022.

Through June 30, 2022, we had incurred $201.6 million of capital expenditures. We expect to fund the estimated $300-325 million of second half of 2022 capital expenditures with cash flow from operations while any excess cash flow will be used to repay borrowings under our Credit Facility.

As of July 31, 2022, 104,442,648 shares of Class A Common Stock and 34,261,641 shares of Class B Common Stock were outstanding.

Commodity Hedging

Hedging Activities

The following table sets forth our outstanding derivative contracts as of June 30, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.

As of June 30, 2022:



Price Swaps

Period


Commodity


Volume

(Bbls / MMBtu)


Weighted Average Price

($/Bbl / $/MMBtu)

Q3 - Q4 2022


Crude Oil


2,162,000


$                              66.70

Q1 - Q4 2023


Crude Oil


1,277,500


$                              76.20

Q3 - Q4 2022


Crude Oil Basis Swap (1)


3,082,000


$                                0.61

Q1 - Q4 2023


Crude Oil Basis Swap (1)


4,743,500


$                                0.59

Q3 - Q4 2022


Natural Gas


5,159,500


$                                3.52

Q1 - Q4 2023


Natural Gas


3,670,000


$                                3.35

Q3 - Q4 2022


Natural Gas Basis Swap (2)


3,680,000


$                              (0.33)

Q1 - Q4 2023


Natural Gas Basis Swap (2)


36,500,000


$                              (1.47)

Q1 - Q4 2024


Natural Gas Basis Swap (2)


36,600,000


$                              (1.05)



(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.





Costless Collars

Period


Commodity


Volume

(Bbls / MMBtu)


Bought Floor

($/Bbl / $/MMBtu)


Sold Ceiling

($/Bbl / $/MMBtu)

Q3 - Q4 2022


Crude Oil Costless Collar


1,357,000


$                         71.86


$                         91.39

Q1 - Q4 2023


Crude Oil Costless Collar


2,828,000


$                         65.74


$                         91.90

Q3 - Q4 2022


Natural Gas Costless Collar


11,400,500


$                           4.08


$                           6.48

Q1 - Q4 2023


Natural Gas Costless Collar


14,133,000


$                           3.46


$                           5.34












Deferred Premium Puts

Period


Commodity


Volume

(Bbls / MMBtu)


$/Bbl (Put Price)


$/Bbl (Net of Premium)

Q3 - Q4 2022


Crude Oil


253,000


$                        80.00


$                        75.79

Q1 - Q4 2023


Crude Oil


638,000


$                        70.00


$                        62.85

 

Environmental Data Highlights

Consistent with Earthstone's commitment to environmental stewardship, Earthstone has updated data on its emissions, flaring and land impact, which is available under the "Sustainability" section of our website.  Key highlights for 2021 include:

  • 36% reduction in Greenhouse Gas Emissions intensity to 7.9 mT CO2e / MBoe compared to 2020, which is 44% below Permian peers (1)
  • 68% reduction in Flaring Intensity of 0.69% (gas flared / gas produced) compared to 2020, which is 66% below Permian peers (1)
  • Zero reportable oil and water spills in 2020 and 2021

 



(1)

Greenhouse Gas Emissions are based on reported gross operated production and metrics are calculated in accordance with the standards of the U.S. Environmental Protection Agency ("EPA").  Flaring Intensity is based on gross reported operated production.  Peers include CDEV, CPE, FANG, LPI, MTDR, PXD and SM.  Data compiled from company published data for most recent available year (2020 or 2021) and from publicly available EPA reports as of June 30, 2022.

 

Conference Call Details

Earthstone is hosting a conference call on Friday, August 5, 2022 at 10:00 a.m. Eastern (9:00 a.m. Central) to discuss the Company's financial results for the second quarter of 2022 and its outlook for the remainder of 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 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 and webcast will be available on the Company's website and by telephone until 10:00 a.m. Eastern (9:00 a.m. Central), Friday, August 19, 2022. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13731790.

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in the acquisition, development and operation of oil and natural gas properties. The Company's primary assets are located in the Midland Basin in West Texas, the Eagle Ford Trend in South Texas and the Delaware Basin in New Mexico. Earthstone is listed on 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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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," "forecast," "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, recent quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other Securities and Exchange Commission ("SEC") filings. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

Contact

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)




June 30,


December 31,

ASSETS


2022


2021

Current assets:





Cash


$                     —


$                4,013

Accounts receivable:





Oil, natural gas, and natural gas liquids revenues


230,449


50,575

Joint interest billings and other, net of allowance of $19 and $19 at June 30, 2022 and
December 31, 2021, respectively


22,004


2,930

Derivative asset


3,327


1,348

Prepaid expenses and other current assets


13,646


2,549

Total current assets


269,426


61,415






Oil and gas properties, successful efforts method:





Proved properties


3,167,140


1,625,367

Unproved properties


282,569


222,025

Land


5,482


5,382

Total oil and gas properties


3,455,191


1,852,774






Accumulated depreciation, depletion and amortization


(495,971)


(395,625)

Net oil and gas properties


2,959,220


1,457,149






Other noncurrent assets:





Office and other equipment, net of accumulated depreciation and amortization of $4,761 and
$4,547 at June 30, 2022 and December 31, 2021, respectively


2,944


1,986

Derivative asset


3,523


157

Operating lease right-of-use assets


2,423


1,795

Other noncurrent assets


53,423


33,865

TOTAL ASSETS


$         3,290,959


$         1,556,367

LIABILITIES AND EQUITY





Current liabilities:





Accounts payable


$              80,386


$              31,397

Revenues and royalties payable


150,087


36,189

Accrued expenses


72,168


31,704

Asset retirement obligation


390


395

Derivative liability


122,067


45,310

Advances


5,774


4,088

Operating lease liabilities


850


681

Other current liabilities


767


851

Total current liabilities


432,489


150,615






Noncurrent liabilities:





Revolving credit facility


395,000


320,000

8.000% Senior Notes due 2027, net


537,753


Deferred tax liability


36,277


15,731

Asset retirement obligation


35,555


15,471

Derivative liability


19,761


571

Operating lease liabilities


1,736


1,276

Other noncurrent liabilities


13,004


6,442

Total noncurrent liabilities


1,039,086


359,491






Equity:





Preferred stock, $0.001 par value, 19,720,000 shares authorized; none issued or outstanding



Series A Convertible Preferred Stock, $0.001 par value, 280,000 shares authorized, issued and
outstanding at June 30, 2022. None authorized, issued or outstanding at December 31 2021



Class A Common Stock, $0.001 par value, 200,000,000 shares authorized; 79,217,423 and
53,467,307 issued and outstanding at June 30, 2022 and December 31, 2021, respectively


79


53

Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,261,641 and
34,344,532 issued and outstanding at June 30, 2022 and December 31, 2021, respectively


34


34

Additional paid-in capital


1,326,293


718,181

Accumulated deficit


(48,367)


(159,774)

Total Earthstone Energy, Inc. equity


1,278,039


558,494

Noncontrolling interest


541,345


487,767

Total equity


1,819,384


1,046,261






TOTAL LIABILITIES AND EQUITY


$         3,290,959


$         1,556,367






 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)




Three Months Ended


Six Months Ended



June 30,


June 30,



2022


2021


2022


2021

REVENUES





Oil


$       286,632


$         70,918


$       424,384


$       131,737

Natural gas


96,125


6,690


119,083


12,542

Natural gas liquids


89,794


12,063


125,234


20,964

Total revenues


472,551


89,671


668,701


165,243










OPERATING COSTS AND EXPENSES









Lease operating expense


50,514


11,747


72,145


22,596

Production and ad valorem taxes


34,195


5,176


47,510


10,203

Depreciation, depletion and amortization


66,463


26,027


100,789


50,434

General and administrative expense


14,077


9,170


26,383


17,550

Transaction costs


(402)


507


10,340


2,613

Accretion of asset retirement obligation


708


303


1,105


593

Exploration expense



30


92


30

Total operating costs and expenses


165,555


52,960


258,364


104,019










Gain on sale of oil and gas properties



348



348










Income from operations


306,996


37,059


410,337


61,572










OTHER INCOME (EXPENSE)









Interest expense, net


(16,625)


(2,401)


(21,943)


(4,618)

Loss on derivative contracts, net


(49,907)


(51,175)


(201,387)


(84,438)

Other income, net


249


200


296


303

Total other expense


(66,283)


(53,376)


(223,034)


(88,753)










Income (loss) before income taxes


240,713


(16,317)


187,303


(27,181)

Income tax (expense) benefit


(22,688)


486


(21,155)


794

Net income (loss)


218,025


(15,831)


166,148


(26,387)










Less: Net income (loss) attributable to noncontrolling interest


73,140


(6,960)


54,741


(11,683)










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


$       144,885


$         (8,871)


$       111,407


$       (14,704)










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









Basic


$             1.85


$           (0.20)


$             1.57


$           (0.34)

Diluted


$             1.46


$           (0.20)


$             1.37


$           (0.34)










Weighted average common shares outstanding:









Basic


78,291,037


44,127,718


70,909,353


43,457,043

Diluted


102,410,036


44,127,718


84,266,422


43,457,043










 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)  

 



For the Three Months Ended
June 30,


For the Six Months Ended
June 30,



2022


2021


2022


2021

Cash flows from operating activities:







Net income (loss)


$         218,025


$          (15,831)


$         166,148


$          (26,387)

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









Depreciation, depletion and amortization


66,463


26,027


100,789


50,434

Accretion of asset retirement obligations


708


303


1,105


593

Settlement of asset retirement obligations


(274)


(38)


(475)


(53)

(Gain) on sale of oil and gas properties



(348)



(348)

Gain on sale of office and other equipment


(24)


(114)


(46)


(114)

Total loss on derivative contracts, net


49,907


51,175


201,387


84,438

Operating portion of net cash paid in settlement of derivative contracts


(79,099)


(14,522)


(110,785)


(25,427)

Stock-based compensation - equity portion


2,693


4,412


4,994


7,741

Deferred income taxes


21,873


(486)


20,546


(794)

Amortization of deferred financing costs


1,442


198


2,069


339

Changes in assets and liabilities:









(Increase) decrease in accounts receivable


(135,580)


1,198


(184,315)


(4,181)

(Increase) decrease in prepaid expenses and other current assets


(9,207)


(481)


(11,103)


(114)

Increase (decrease) in accounts payable and accrued expenses


49,671


2,963


71,454


8,352

Increase (decrease) in revenues and royalties payable


70,638


3,876


85,570


1,795

Increase (decrease) in advances


(2,561)


(3,188)


(9,661)


(2,830)

Net cash provided by operating activities


254,675


55,144


337,677


93,444

Cash flows from investing activities:









Acquisition of oil and gas properties, net of cash acquired


(711,091)


(53,162)


(1,035,289)


(187,803)

Additions to oil and gas properties


(124,456)


(19,325)


(180,381)


(28,238)

Additions to office and other equipment


(766)


(144)


(1,356)


(370)

Proceeds from sales of oil and gas properties



200



200

Net cash used in investing activities


(836,313)


(72,431)


(1,217,026)


(216,211)

Cash flows from financing activities:









Proceeds from borrowings


889,074


182,964


1,471,572


360,078

Repayments of borrowings


(1,118,303)


(165,028)


(1,396,572)


(233,718)

Proceeds from issuance of 8% Senior Notes due 2027, net


537,250



537,250


Proceeds from issuance of Series A Convertible Preferred Stock, net of
offering costs of $674


279,326



279,326


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


(719)


(741)


(4,617)


(2,821)

Cash paid for finance leases



(50)



(70)

Deferred financing costs


(5,472)


(827)


(11,623)


(1,718)

Net cash provided by financing activities


581,156


16,318


875,336


121,751

Net decrease in cash


(482)


(969)


(4,013)


(1,016)

Cash at beginning of period


482


1,447


4,013


1,494

Cash at end of period


$                  —


$                478


$                  —


$                478

Supplemental disclosure of cash flow information









Cash paid for:









Interest


$             4,888


$             2,350


$             9,468


$             4,272

Income taxes


$                625


$                  —


$                625


$                797

Non-cash investing and financing activities:









Class A Common Stock issued in IRM Acquisition


$                  —


$                  —


$                  —


$           76,572

Class A Common Stock issued in Chisholm Acquisition


$                  —


$                  —


$         249,515


$                  —

Class A Common Stock issued in Bighorn Acquisition


$           77,757


$                  —


$           77,757


$                  —

Accrued capital expenditures


$            (5,568)


$             3,641


$           44,285


$           11,416

Lease asset additions - ASC 842


$                  —


$                  —


$                678


$                  —

Asset retirement obligations


$                198


$               (266)


$                284


$                161

 

Earthstone Energy, Inc.
Non-GAAP Financial Measures
Unaudited

The non-GAAP financial measures of Adjusted Diluted Shares, Adjusted EBITDAX, Adjusted Net Income, 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 their 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 is a non-GAAP financial measure that 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 as an indicator of operating performance.

Adjusted Diluted Shares for the periods indicated:


Three Months Ended


Six Months Ended


June 30,


June 30,


2022


2021


2022


2021

Class A Common Stock - Diluted(1)(2)

102,410,036


44,127,718


84,266,422


43,457,043

Class B Common Stock

34,268,723


34,409,867


34,295,444


34,455,755

Adjusted Diluted Shares

136,678,759


78,537,585


118,561,866


77,912,798



(1)

Includes dilutive effect of Series A Convertible Preferred Stock issued on April 14, 2022 for the
three and six months ended June 30, 2022.

(2)

Does not include potentially dilutive unvested restricted stock units and performance units for the
three and six months ended June 30, 2021.

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 financial 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; depreciation, depletion and amortization; interest expense, net; transaction costs; (gain) on sale of oil and gas properties; exploration expense; unrealized (gain) loss on derivative contracts; stock-based compensation (non-cash and expected to settle in cash); 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


Six Months Ended


June 30,


June 30,


2022


2021


2022


2021

Net income (loss)

$        218,025


$         (15,831)


$        166,148


$         (26,387)

Accretion of asset retirement obligations

708


303


1,105


593

Depreciation, depletion and amortization

66,463


26,027


100,789


50,434

Interest expense, net

16,625


2,401


21,943


4,618

Transaction costs

(402)


507


10,340


2,613

(Gain) on sale of oil and gas properties


(348)



(348)

Exploration expense


30


92


30

Unrealized (gain) loss on derivative contracts

(29,192)


36,653


90,602


59,011

Stock based compensation(1)

5,960


4,412


11,790


7,741

Income tax expense (benefit)

22,688


(486)


21,155


(794)

Adjusted EBITDAX

$        300,875


$          53,668


$        423,964


$          97,511









(1)

Consists of expense for non-cash equity awards and cash-based liability awards that are expected to be settled
in cash. 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; (gain) on sale of oil and gas properties; transaction costs; and the associated changes in estimated income tax.

Our Adjusted Net Income is a non-GAAP financial measure that 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 share and per share data)

Three Months Ended


Six Months Ended


June 30,


June 30,


2022


2021


2022


2021

Net income (loss)

$        218,025


$         (15,831)


$        166,148


$         (26,387)

Unrealized gain (loss) on derivative contracts

(29,192)


36,653


90,602


59,011

(Gain) on sale of oil and gas properties


(348)



(348)

Transaction costs

(402)


507


10,340


2,613

Income tax effect of the above

(12,705)


(700)


(15,190)


(1,166)

Adjusted Net Income

$        175,726


$          20,281


$        251,900


$          33,723

Adjusted Diluted Shares(1)

136,678,759


78,537,585


118,561,866


77,912,798

Adjusted Net Income per Adjusted Diluted Share

$               1.29


$               0.26


$               2.12


$               0.43









(1)

Does not include potentially dilutive unvested restricted stock units and performance units for the three and six months
ended June 30, 2021.

IV. Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that we use as an indicator of our ability to fund our development activities and reduce our leverage. We define Free Cash Flow as Net cash provided by operating activities; less (1) Settlement of asset retirement obligations, Gain on sale of office and other equipment, Amortization of deferred financing costs and Change in assets and liabilities from the Condensed Consolidated Statements of Cash Flows; plus (2) Transaction costs, Exploration expense and the current portion of Income tax (expense) benefit from the Condensed Consolidated Statements of Operations; plus (3) the liability portion of stock-based compensation which is included in General and administrative expense in the Condensed Consolidated Statements of Operations; plus (4) the current portion of income tax (expense) benefit from the Condensed Consolidated Statements of Operations; less (5) Capital expenditures (accrual basis). Alternatively, Free Cash Flow could be defined as Adjusted EBITDAX (defined above), less interest expense, less accrual-based capital expenditures.

Management believes that Free Cash Flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.

Free Cash Flow for the periods indicated:

($000s)


Three Months Ended


Six Months Ended



June 30,


June 30,



2022


2021


2022


2021

Net cash provided by operating activities


$      254,675


$        55,144


$      337,677


$        93,444

Adjustments - Condensed Consolidated Statements of Cash Flows









Settlement of asset retirement obligations


274


38


475


53

Gain on sale of office and other equipment


24


114


46


114

Amortization of deferred financing costs


(1,442)


(198)


(2,069)


(339)

Change in assets and liabilities


27,039


(4,368)


48,055


(3,022)

Adjustments - Condensed Consolidated Statements of Operations









Transaction costs


(402)


507


10,340


2,613

Exploration expense



30


92


30

Stock-based compensation - liability portion


3,267



6,796


Income tax expense - current


815



609


Capital expenditures (accrual basis)


(119,451)


(22,820)


(201,560)


(32,621)

Free Cash Flow


$      164,799


$        28,447


$      200,461


$        60,272










Alternate calculation of Free Cash Flow for the periods indicated:

($000s)

Three Months Ended


Six Months Ended


June 30,


June 30,


2022


2021


2022


2021

Adjusted EBITDAX

$      300,875


$        53,668


$      423,964


$        97,511

Interest expense, net

(16,625)


(2,401)


(21,943)


(4,618)

Capital expenditures (accrual basis)

(119,451)


(22,820)


(201,560)


(32,621)

Free Cash Flow

$      164,799


$        28,447


$      200,461


$        60,272









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.

Cision View original content:https://www.prnewswire.com/news-releases/earthstone-energy-inc-reports-2022-second-quarter-and-year-to-date-financial-results-301600429.html

SOURCE Earthstone Energy, Inc.

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