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

11/02/2022

THE WOODLANDS, Texas, Nov. 2, 2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we", "our" or "us"), today announced financial and operating results for the three and nine months ended September 30, 2022.

Third Quarter 2022 and Other Recent Highlights

  • Repurchase of 3 million shares of Class A Common Stock for $43.7 million
  • Closed the Titus Acquisition on August 10, 2022
  • Net income attributable to Earthstone Energy, Inc. of $211.5 million, or $1.94 per Diluted Share
  • Net income of $299.3 million, or $2.09 per Adjusted Diluted Share(1)
  • Adjusted net income(1) of $186.9 million, or $1.30 per Adjusted Diluted Share(1)
  • Adjusted EBITDAX(1) of $345.8 million, up 15% compared to 2Q 2022
  • Net cash provided by operating activities of $365.5 million
  • Free Cash Flow(1) of $174.2 million, up 6% compared to 2Q 2022
  • Average net production of 94,329 Boepd(2), up 22% compared to 2Q 2022 and 7% above the midpoint of 3Q 2022 guidance
  • Capital expenditures of $147.2 million

Year to Date 2022 Highlights

  • Closed the Titus, Bighorn and Chisholm acquisitions
  • Net income attributable to Earthstone Energy, Inc. of $322.9 million, or $3.61 per Diluted Share
  • Net income of $465.5 million, or $3.66 per Adjusted Diluted Share(1)
  • Adjusted net income(1) of $438.8 million, or $3.45 per Adjusted Diluted Share(1)
  • Adjusted EBITDAX(1) of $769.8 million
  • Net cash provided by operating activities of $703.2 million
  • Free Cash Flow(1) of $374.0 million
  • Average net production of 69,203 Boepd(2)
  • Capital expenditures of $348.7 million

(1)     See the "Non-GAAP Financial Measures" section below.
(2)     Represents reported sales volumes of barrels of oil and natural gas equivalent per day.

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "The Company delivered another outstanding quarter, with production, Adjusted EBITDAX, and Free Cash Flow each reaching record levels for the Company. During the quarter, we also closed on the previously announced Titus Acquisition in New Mexico, which has already contributed production, cash flow, and development inventory to the Company. This larger asset base, coupled with the continued success of our development program, drove our production to over 100,000 Boepd in September. Despite the continued volatility in commodity prices and inflationary pressures, this quarter's record results are indicative of the quality of the assets we have accumulated over the past two years. We are currently operating five drilling rigs across our more than 250,000-acre footprint. We continue to transform Earthstone with the significant operating scale we have built and our ability to leverage synergies and cost savings across our larger asset base. We are confident in our efforts to drive operating efficiencies from the higher operating cost assets acquired this year and expect the results of these efforts will be realized in future quarters."

Mr. Anderson continued, "Our third quarter well results further support the high-quality nature of our asset base. We brought nineteen operated wells online across the Delaware and Midland basins during the third quarter. Fourteen of these wells reached oil rates of over 1,000 barrels per day, with several wells approaching 1,500 barrels per day, highlighting the quality inventory we deliberately assembled through our focused acquisition efforts. Our outstanding financial and operational results are indicative of the high-quality nature of our assets which we believe will continue to create meaningful value for our shareholders. During the quarter, we used our substantial free cash flow to reduce debt, and we are pleased to end the quarter with a debt-to-annualized quarterly Adjusted EBITDAX ratio of 0.8x. With the significant Free Cash Flow we expect to generate over the coming quarters, our focus will be to continue reducing debt while evaluating accretive high-quality assets for consolidation, if available. However, we remain steadfast in our commitment to increasing shareholder value."

Operations Update

During the third quarter of 2022, for Company-operated activity, Earthstone commenced drilling 12 gross (12.0 net) wells and brought seven gross (6.3 net) wells online in the Midland Basin. The Company began drilling six gross (3.3 net) wells in the Delaware Basin and brought 12 gross (10.5 net) wells online. 

In the Midland Basin, the Barnhart five-well pad in Irion County came online in August 2022 and had peak IP-30 average production of ~1,170 Boepd (~81% oil) per well. These wells averaged a completed lateral length of ~10,000 ft per well and are producing from the Wolfcamp B interval.

In the Delaware Basin, the Cletus and Salt Draw pads in Eddy County commenced production in early September. The two-well Cletus pad had peak IP-30 average production of ~1,370 Boepd (69% oil) per well, and both wells have completed lateral length of approximately 9,750 ft and are producing from the Wolfcamp A interval. The two-well Salt Draw pad had a peak IP-30 average production of ~1,570 Boepd (77% oil) per well from the Second Bone Springs interval. The two wells have a completed lateral length of approximately 4,700 ft per well. Additionally, in early September, the six drilled but uncompleted wells (Lonesome Dove and Cattlemen pads) acquired in the Titus acquisition in Lea County came online and had peak IP-30 average production of ~1,520 Boepd (73% oil) per well. All six wells had completed lateral length of approximately 7,700 ft per well and are producing from the First and Second Bone Springs interval.

The Company operated a four-rig drilling program in the third quarter with two rigs in each of the Midland and Delaware basins. Earthstone has recently added a fifth rig in the Delaware Basin and expects to continue a five-rig operated drilling program in 2023 with two rigs in the Midland Basin and three rigs in the Delaware Basin. For full year 2022 and only for Company-operated activity, Earthstone anticipates spudding 36 gross (32.4 net) wells and bringing 34 gross (30.7 net) wells online in the Midland Basin. In the Delaware Basin, the Company anticipates spudding 28 gross (18.2 net) wells and bringing 27 gross (19.3 net) wells online.

Updated 2022 Guidance

The Company is providing updated guidance for the fourth quarter of 2022 based on recent operating results and the current operating plan for the fourth quarter. On the strength of production from new wells and continued operational improvements which resulted in exceeding our third quarter production guidance, Earthstone is increasing its fourth quarter production guidance to a new range of 98,000 -102,000 Boepd (~43% oil). For the fourth quarter, the Company expects to incur $170-185 million in capital expenditures, resulting in 2022 capital expenditures of $519-534 million, representing a $12 million increase from the midpoint of prior guidance. The increase in expected capital expenditures is driven primarily by anticipated improvements in capital efficiency via an increase in the lateral length of fourth quarter wells by approximately 30% compared to our prior plan. To a lesser degree, Earthstone also anticipates higher non-operated capital activity in the fourth quarter compared to prior expectations.

 

Production Guidance


 Actuals

3Q22 YTD


Guidance

4Q22


Implied

FY22

Production (Boe/d)


69,203


98,000 - 102,000


76,462 - 77,470

% Oil


40 %


~43%


~41%

% Liquids


68 %


~69%


~68%








Total Capital Expenditures ($MM)


$349


$170 - $185


$519 - $534

Lease Operating Expense ($/Boe)


$7.83


$8.00 - $8.50


$7.89 - $8.05

Production & Ad Valorem Taxes (% of Revenue)


7.3 %


7.5% - 8.0%


7.3% - 7.6%

Cash G&A ($MM)


$25


$10 - $12


$35 - $37








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.

 

Selected Financial Data (unaudited)

($000s except where noted)

Three Months Ended
September 30,


Nine Months Ended
September 30,


2022


2021


2022


2021

Total revenues

$      531,495


$      110,384


$  1,200,196


$      275,627









Lease operating expense

75,829


12,983


147,974


35,579









General and administrative expense (excluding stock-based compensation)

10,866


4,770


25,459


14,579

Stock-based compensation

3,322


2,880


15,112


10,621

General and administrative expense

$        14,188


$          7,650


$        40,571


$        25,200









Net income (loss)

$      299,312


$        18,838


$      465,460


$        (7,549)

Less: Net income (loss) attributable to noncontrolling interest

87,856


8,420


142,597


(3,263)

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

211,456


10,418


322,863


(4,286)

Net income (loss) per common share(1)








Basic

2.01


0.21


3.91


(0.09)

Diluted

1.94


0.20


3.61


(0.09)

Adjusted EBITDAX(2)

$      345,792


$        65,042


$      769,756


$      162,553









Production(3):








Oil (MBbls)

3,566


1,055


7,569


3,195

Gas (MMcf)

16,514


4,119


36,567


9,490

NGL (MBbls)

2,360


636


5,229


1,497

  Total (MBoe)(4)

8,678


2,377


18,892


6,273

Average Daily Production (Boepd)

94,329


25,836


69,203


22,978

Average Prices:








Oil ($/Bbl)

93.12


70.20


99.93


64.42

Gas ($/Mcf)

6.90


3.49


6.37


2.84

NGL ($/Bbl)

36.23


34.56


40.31


28.69

Total ($/Boe)

61.24


46.44


63.53


43.94

Adj. for Realized Derivatives Settlements:








Oil ($/Bbl)

83.75


52.94


83.44


51.01

Gas ($/Mcf)

5.36


2.85


5.15


2.49

NGL ($/Bbl)

36.23


34.56


40.31


28.69

Total ($/Boe)

54.45


37.68


54.54


36.58

Operating Margin per Boe








Average realized price

$          61.24


$          46.44


$          63.53


$          43.94

Lease operating expense

8.74


5.46


7.83


5.67

Production and ad valorem taxes

4.63


3.04


4.64


2.78

Operating margin per Boe(2)

47.87


37.94


51.06


35.49

Realized hedge settlements

(6.79)


(8.76)


(8.99)


(7.36)

Operating margin per Boe (including Realized Hedge Settlements)(2)

$          41.08


$          29.18


$          42.07


$          28.13









(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 September 30, 2022, we had $642 million of long-term debt outstanding under our senior secured credit facility ("Credit Facility"), including the term loan tranche of $250 million, with elected commitments of $1.2 billion, resulting in available borrowings of approximately $558 million. As of September 30, 2022, our borrowing base was $1.85 billion.

Through September 30, 2022, we had incurred $348.7 million of capital expenditures. We expect to fund the estimated $170-185 million of fourth quarter 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 October 31, 2022, 105,416,926 shares of Class A Common Stock and 34,261,641 shares of Class B Common Stock were outstanding.

Commodity Hedging

Hedging Activities

The following tables set forth our outstanding derivative contracts as of September 30, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.



Price Swaps

Period


Commodity


Volume

(Bbls / MMBtu)


Weighted Average Price

($/Bbl / $/MMBtu)

Q4 2022


Crude Oil


1,081,000


$                              66.70

Q1 - Q4 2023


Crude Oil


1,277,500


$                              76.20

Q4 2022


Crude Oil Basis Swap (1)


3,128,000


$                                0.89

Q1 - Q4 2023


Crude Oil Basis Swap (1)


9,488,500


$                                0.92

Q4 2022


Natural Gas


1,893,500


$                                3.33

Q1 - Q4 2023


Natural Gas


3,670,000


$                                3.35

Q4 2022


Natural Gas Basis Swap (2)


1,840,000


$                              (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)

Q4 2022


Crude Oil Costless Collar


805,000


$                         73.14


$                        96.49

Q1 - Q4 2023


Crude Oil Costless Collar


1,715,500


$                         62.98


$                        80.34

Q4 2022


Natural Gas Costless Collar


8,686,500


$                           4.57


$                        10.17

Q1 - Q4 2023


Natural Gas Costless Collar


17,298,000


$                           3.77


$                          7.49












Deferred Premium Puts

Period


Commodity


Volume

(Bbls / MMBtu)


$/Bbl (Put Price)


$/Bbl (Net of Premium)

Q4 2022


Crude Oil


253,000


$                        80.00


$                        75.79

Q1 - Q4 2023


Crude Oil


1,750,500


$                        70.00


$                        64.53

 

Hedging Update

The following tables set forth our outstanding derivative contracts at October 31, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.



Price Swaps

Period


Commodity


Volume

(Bbls / MMBtu)


Weighted Average Price

($/Bbl / $/MMBtu)

Q4 2022


Crude Oil


1,081,000


$                              66.70

Q1 - Q4 2023


Crude Oil


1,642,500


$                              76.94

Q4 2022


Crude Oil Basis Swap (1)


3,128,000


$                                0.89

Q1 - Q4 2023


Crude Oil Basis Swap (1)


9,488,500


$                                0.92

Q4 2022


Natural Gas


1,893,500


$                                3.33

Q1 - Q4 2023


Natural Gas


3,670,000


$                                3.35

Q4 2022


Natural Gas Basis Swap (2)


2,460,000


$                              (0.80)

Q1 - Q4 2023


Natural Gas Basis Swap (2)


51,100,000


$                              (1.67)

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)

Q4 2022


Crude Oil Costless Collar


805,000


$                        73.14


$                        96.49

Q1 - Q4 2023


Crude Oil Costless Collar


2,080,500


$                        63.33


$                        82.83

Q4 2022


Natural Gas Costless Collar


8,686,500


$                           4.57


$                        10.17

Q1 - Q4 2023


Natural Gas Costless Collar


17,298,000


$                           3.77


$                           7.49












Deferred Premium Puts

Period


Commodity


Volume

(Bbls / MMBtu)


$/Bbl (Put Price)


$/Bbl (Net of Premium)

Q4 2022


Crude Oil


253,000


$                        80.00


$                        75.79

Q1 - Q4 2023


Crude Oil


1,931,500


$                        69.53


$                        64.12

 

Conference Call Details

Earthstone is hosting a conference call on Thursday, November 3, 2022 at 1:00 p.m. Eastern (12:00 p.m. Central) to discuss the Company's financial results for the third quarter of 2022 and its outlook for the fourth quarter 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 1:00 p.m. Eastern (12:00 p.m. Central), Thursday, November 17, 2022. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13733887.

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 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, 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

Clay Jeansonne
Investor Relations
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300  
The Woodlands, TX 77380
713-379-3080
cjeansonne@earthstoneenergy.com

 

 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)








September 30,


December 31,

ASSETS


2022


2021

Current assets:





Cash


$                     —


$                4,013

Accounts receivable:





Oil, natural gas, and natural gas liquids revenues


196,941


50,575

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


20,328


2,930

Derivative asset


14,950


1,348

Prepaid expenses and other current assets


19,089


2,549

Total current assets


251,308


61,415






Oil and gas properties, successful efforts method:





Proved properties


3,832,991


1,625,367

Unproved properties


290,111


222,025

Land


5,482


5,382

Total oil and gas properties


4,128,584


1,852,774






Accumulated depreciation, depletion and amortization


(516,662)


(395,625)

Net oil and gas properties


3,611,922


1,457,149






Other noncurrent assets:





Office and other equipment, net of accumulated depreciation and amortization of $5,059 and
$4,547 at September 30, 2022 and December 31, 2021, respectively


5,070


1,986

Derivative asset


5,526


157

Operating lease right-of-use assets


2,255


1,795

Other noncurrent assets


16,216


33,865

TOTAL ASSETS


$         3,892,297


$         1,556,367

LIABILITIES AND EQUITY





Current liabilities:





Accounts payable


$              75,162


$              31,397

Revenues and royalties payable


158,867


36,189

Accrued expenses


105,623


31,704

Asset retirement obligation


941


395

Derivative liability


28,404


45,310

Advances


15,405


4,088

Operating lease liabilities


869


681

Finance lease liabilities


784


Other current liabilities


4,105


851

Total current liabilities


390,160


150,615






Noncurrent liabilities:





Long-term debt, net


1,174,549


320,000

Deferred tax liability


93,322


15,731

Asset retirement obligation


35,837


15,471

Derivative liability


7,840


571

Operating lease liabilities


1,549


1,276

Finance lease liabilities


1,003


Other noncurrent liabilities


13,574


6,442

Total noncurrent liabilities


1,327,674


359,491






Equity:





Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding



Series A Convertible Preferred Stock, $0.001 par value, none authorized, issued or outstanding



Class A Common Stock, $0.001 par value, 200,000,000 shares authorized; 108,416,926 and
53,467,307 issued and outstanding at September 30, 2022 and December 31, 2021, respectively


108


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 September 30, 2022 and December 31, 2021, respectively


34


34

Additional paid-in capital


1,382,026


718,181

Retained earnings (accumulated deficit)


163,089


(159,774)

Total Earthstone Energy, Inc. equity


1,545,257


558,494

Noncontrolling interest


629,206


487,767

Total equity


2,174,463


1,046,261






TOTAL LIABILITIES AND EQUITY


$         3,892,297


$         1,556,367






 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)








Three Months Ended


Nine Months Ended



September 30,


September 30,



2022


2021


2022


2021

REVENUES





Oil


$       332,036


$         74,051


$       756,420


$       205,788

Natural gas


113,937


14,368


233,020


26,910

Natural gas liquids


85,522


21,965


210,756


42,929

Total revenues


531,495


110,384


1,200,196


275,627










OPERATING COSTS AND EXPENSES









Lease operating expense


75,829


12,983


147,974


35,579

Production and ad valorem taxes


40,219


7,225


87,729


17,428

Depreciation, depletion and amortization


90,880


27,059


191,669


77,493

General and administrative expense


14,188


7,650


40,571


25,200

Transaction costs


1,778


293


12,118


2,906

Accretion of asset retirement obligation


758


323


1,863


916

Exploration expense


2,248


296


2,340


326

Total operating costs and expenses


225,900


55,829


484,264


159,848










Gain on sale of oil and gas properties


14,803


392


14,803


740










Income from operations


320,398


54,947


730,735


116,519










OTHER INCOME (EXPENSE)









Interest expense, net


(20,988)


(3,050)


(42,931)


(7,668)

Gain (loss) on derivative contracts, net


60,286


(33,128)


(141,101)


(117,566)

Other income, net


134


520


430


823

Total other income (expense)


39,432


(35,658)


(183,602)


(124,411)










Income (loss) before income taxes


359,830


19,289


547,133


(7,892)

Income tax (expense) benefit


(60,518)


(451)


(81,673)


343

Net income (loss)


299,312


18,838


465,460


(7,549)










Less: Net income (loss) attributable to noncontrolling interest


87,856


8,420


142,597


(3,263)










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


$       211,456


$         10,418


$       322,863


$         (4,286)










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









Basic


$             2.01


$             0.21


$             3.91


$           (0.09)

Diluted


$             1.94


$             0.20


$             3.61


$           (0.09)










Weighted average common shares outstanding:









Basic


105,254,778


49,243,185


82,483,635


45,406,952

Diluted


109,278,661


52,662,942


92,844,854


45,406,952










 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)  




For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,



2022


2021


2022


2021

Cash flows from operating activities:







Net income (loss)


$         299,312


$           18,838


$         465,460


$           (7,549)

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









Depreciation, depletion and amortization


90,880


27,059


191,669


77,493

Accretion of asset retirement obligations


758


323


1,863


916

Settlement of asset retirement obligations


(189)


(50)


(664)


(103)

Gain on sale of oil and gas properties


(14,803)


(392)


(14,803)


(740)

Gain on sale of office and other equipment


(106)



(152)


(114)

Total loss on derivative contracts, net


(60,286)


33,128


141,101


117,566

Operating portion of net cash paid in settlement of derivative contracts


(58,923)


(20,884)


(169,708)


(46,311)

Stock-based compensation - equity and liability awards


3,322


2,880


15,112


10,621

Deferred income taxes


57,045


451


77,591


(343)

Amortization of deferred financing costs


1,654


242


3,723


581

Changes in assets and liabilities:









(Increase) decrease in accounts receivable


(5,189)


(8,057)


(189,504)


(12,238)

(Increase) decrease in prepaid expenses and other current assets


(5,443)


1,014


(16,546)


900

Increase (decrease) in accounts payable and accrued expenses


27,792


(2,262)


92,450


6,090

Increase (decrease) in revenues and royalties payable


8,690


761


94,260


2,556

Increase (decrease) in advances


20,978


815


11,317


(2,015)

Net cash provided by operating activities


365,492


53,866


703,169


147,310

Cash flows from investing activities:









Acquisition of oil and gas properties, net of cash acquired


(482,980)


(52,628)


(1,518,269)


(240,431)

Additions to oil and gas properties


(144,728)


(36,836)


(325,109)


(65,074)

Additions to office and other equipment


(338)


(516)


(1,694)


(886)

Proceeds from sales of oil and gas properties


26,165


775


26,165


975

Net cash used in investing activities


(601,881)


(89,205)


(1,818,907)


(305,416)

Cash flows from financing activities:









Proceeds from borrowings


877,156


143,656


2,348,728


503,734

Repayments of borrowings


(880,424)


(106,764)


(2,276,996)


(340,482)

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


6



537,256


Proceeds from term loan


244,209



244,209


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




279,326


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


(551)


(599)


(5,168)


(3,420)

Cash paid for finance leases


(408)



(408)


(70)

Deferred financing costs


(3,599)


(991)


(15,222)


(2,709)

Net cash provided by financing activities


236,389


35,302


1,111,725


157,053

Net decrease in cash



(37)


(4,013)


(1,053)

Cash at beginning of period



478


4,013


1,494

Cash at end of period


$                 —


$                441


$                 —


$               441

Supplemental disclosure of cash flow information









Cash paid for:









Interest


$             8,017


$             2,854


$           17,485


$             7,126

Income taxes


$                  —


$               (110)


$                625


$                687

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


$                  —


$           61,814

Class A Common Stock issued in Chisholm Acquisition


$                  —


$                  —


$         249,515


$                  —

Class A Common Stock issued in Bighorn Acquisition


$                  —


$                  —


$           77,757


$                  —

Class A Common Stock issued in Titus Acquisition


$           53,574


$                  —


$           53,574


$                  —

Accrued capital expenditures


$            (3,316)


$             7,555


$           40,969


$           18,971

Lease asset additions - ASC 842


$             2,433


$                  —


$             3,111


$                  —

Asset retirement obligations


$                438


$                  81


$                722


$                242

 

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


Nine Months Ended


September 30,


September 30,


2022


2021


2022


2021

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

109,278,661


52,662,942


92,844,854


45,406,952

Class B Common Stock

34,261,641


34,369,735


34,284,053


34,426,767

Adjusted Diluted Shares

143,540,302


87,032,677


127,128,907


79,833,719









(1)     The three and nine month periods ended September 30, 2022 include the dilutive effect of Series A Convertible Preferred Stock issued
          on April 14, 2022 and automatically converted into Class A Common Stock on July 6, 2022.

(2)     Does not include potentially dilutive unvested restricted stock units and performance units for the nine months ended September 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


Nine Months Ended


September 30,


September 30,


2022


2021


2022


2021

Net income (loss)

$        299,312


$          18,838


$        465,460


$           (7,549)

Accretion of asset retirement obligations

758


323


1,863


916

Depreciation, depletion and amortization

90,880


27,059


191,669


77,493

Interest expense, net

20,988


3,050


42,931


7,668

Transaction costs

1,778


293


12,118


2,906

(Gain) on sale of oil and gas properties

(14,803)


(392)


(14,803)


(740)

Exploration expense

2,248


296


2,340


326

Unrealized (gain) loss on derivative contracts

(119,209)


12,244


(28,607)


71,255

Stock based compensation(1)

3,322


2,880


15,112


10,621

Income tax expense (benefit)

60,518


451


81,673


(343)

Adjusted EBITDAX

$        345,792


$          65,042


$        769,756


$        162,553









(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, of which $7.9 million was recorded as expense in 2021. 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


Nine Months Ended


September 30,


September 30,


2022


2021


2022


2021

Net income (loss)

$        299,312


$          18,838


$        465,460


$           (7,549)

Unrealized (gain) loss on derivative contracts

(119,209)


12,244


(28,607)


71,255

Gain on sale of oil and gas properties

(14,803)


(392)


(14,803)


(740)

Transaction costs

1,778


293


12,118


2,906

Income tax effect of the above

19,801


(322)


4,611


(1,489)

Adjusted Net Income

$        186,879


$          30,661


$        438,779


$          64,383

Adjusted Diluted Shares(1)

143,540,302


87,032,677


127,128,907


79,833,719

Adjusted Net Income per Adjusted Diluted Share

$               1.30


$               0.35


$               3.45


$               0.81









(1)     Does not include potentially dilutive unvested restricted stock units and performance units for the nine months ended September 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; less (3) Capital expenditures (accrual basis). Alternatively, Free Cash Flow could be defined as Adjusted EBITDAX (defined above), less interest expense, less the current portion of income tax 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


Nine Months Ended



September 30,


September 30,



2022


2021


2022


2021

Net cash provided by operating activities


$      365,492


$        53,866


$      703,169


$      147,310

Adjustments - Condensed Consolidated Statements of Cash Flows









Settlement of asset retirement obligations


189


50


664


103

Gain on sale of office and other equipment


106



152


114

Amortization of deferred financing costs


(1,654)


(242)


(3,723)


(581)

Change in assets and liabilities


(46,828)


7,729


8,023


4,707

Adjustments - Condensed Consolidated Statements of Operations









Transaction costs


1,778


293


12,118


2,906

Exploration expense


2,248


296


2,340


326

Capital expenditures (accrual basis)


(147,152)


(44,169)


(348,712)


(76,790)

Free Cash Flow


$      174,179


$        17,823


$      374,031


$        78,095










 

Alternate calculation of Free Cash Flow for the periods indicated:

($000s)

Three Months Ended


Nine Months Ended


September 30,


September 30,


2022


2021


2022


2021

Adjusted EBITDAX

$      345,792


$        65,042


$      769,756


$      162,553

Interest expense, net

(20,988)


(3,050)


(42,931)


(7,668)

Current portion of income tax expense

(3,473)



(4,082)


Capital expenditures (accrual basis)

(147,152)


(44,169)


(348,712)


(76,790)

Free Cash Flow

$      174,179


$        17,823


$      374,031


$        78,095









 

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-third-quarter-and-year-to-date-financial-results-301666827.html

SOURCE Earthstone Energy, Inc.

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