Earthstone Energy, Inc. Reports 2020 Second Quarter and Year-to-Date Financial Results

Achieved Free Cash Flow of $35 Million in Second Quarter

THE WOODLANDS, Texas--(BUSINESS WIRE)-- Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the “Company”, “we”, “our” or “us”), today announced financial and operating results for the three months ended June 30, 2020.

Second Quarter 2020 Highlights

  • Average daily production of 13,555 Boepd(1)
  • Adjusted EBITDAX(2) of $39.8 million ($32.30 per Boe)
  • All-in cash costs(2) of $10.11 per Boe
  • Operating Margin(2) of $11.83 per Boe ($35.64 including realized hedge settlements)
  • Free Cash Flow(2) of $35.3 million
  • Capital expenditures of $3.2 million
  • Net loss of $(35.9) million, or $(0.55) per Adjusted Diluted Share(2)
    • Adjusted net income of $12.8 million, or $0.20 per Adjusted Diluted Share(2)

Year-to-Date 2020 Highlights

  • Average daily production of 14,661 Boepd(1)
  • Adjusted EBITDAX(2) of $78.0 million ($29.25 per Boe)
  • All-in cash costs(2) of $11.62 per Boe
  • Operating Margin(2) of $17.75 per Boe ($32.41 including realized hedge settlements)
  • Free Cash Flow(2) of $30.0 million
  • Capital expenditures of $45.1 million
  • Net income of $0.8 million, or $0.01 per Adjusted Diluted Share(2)
    • Adjusted net income of $21.0 million, or $0.32 per Adjusted Diluted Share(2)

(1)

Represents reported sales volumes.

(2)

See "Non-GAAP Financial Measures" section below.

Management Comments

Mr. Robert J. Anderson, President and CEO of Earthstone, commented, “We had a good quarter against a difficult backdrop that was unprecedented in our industry with the second quarter of 2020 being hit with low commodity prices, reduced demand due to COVID-19 and threats of forced curtailments. Due to our strong hedge position and continued focus on reducing cash costs, we achieved both significant Adjusted EBITDAX of almost $40 million, and generated $35 million of Free Cash Flow. We expect to continue to generate Free Cash Flow for the remainder of the year which will be used to reduce our borrowings and, additionally, we expect this reduction to assist us in achieving our target of being below 1x net debt to Adjusted EBITDAX at year-end.”

Mr. Anderson continued, “We executed our voluntary shut-in / curtailment program successfully in the second quarter without production complications or additional expense. Our continued focus on operating expense reduction was evident during the quarter as expenses were reduced by 40% compared to the first quarter, which was partially driven by shut-ins during May. All of our wells have been returned to full production and based on our recently announced updated production guidance, we expect to average 13,000 - 14,000 Boepd for the full year and therefore have relatively flat production from 2019 to 2020 with our previously guided capital expenditures of $50-60 million. With the vast majority of our capital program for 2020 completed in the first half of the year, we now have 11 wells drilled but uncompleted. Depending on completion timing, these 11 wells should allow us to maintain production relatively flat in 2021 with net capital expenditures presently estimated at $30 million. For the remainder of 2020 we will continue to focus on cost control and generating Free Cash Flow while considering various consolidation opportunities that are a direct result of the current environment.”

Selected Financial Data (unaudited)

($000s except where noted)

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Total revenues

$

21,663

 

 

$

44,542

 

 

$

66,801

 

 

$

85,270

 

 

 

 

 

 

 

 

 

Lease operating expense

5,588

 

 

8,005

 

 

14,927

 

 

14,066

 

 

 

 

 

 

 

 

 

General and administrative expense (excluding stock-based compensation)

4,119

 

 

4,555

 

 

8,557

 

 

9,418

 

Stock-based compensation (non-cash)

2,568

 

 

2,261

 

 

5,262

 

 

4,473

 

General and administrative expense

$

6,687

 

 

$

6,816

 

 

$

13,819

 

 

$

13,891

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(35,909

)

 

$

19,536

 

 

$

805

 

 

$

(18,907

)

Less: Net (loss) income attributable to noncontrolling interest

(19,570

)

 

10,759

 

 

436

 

 

(10,480

)

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

(16,339

)

 

8,777

 

 

369

 

 

(8,427

)

Net (loss) income per common share(1)

 

 

 

 

 

 

 

Basic

(0.55

)

 

0.30

 

 

0.01

 

 

(0.29

)

Diluted

(0.55

)

 

0.30

 

 

0.01

 

 

(0.29

)

Adjusted EBITDAX(2)(5)

$

39,846

 

 

$

33,849

 

 

$

78,049

 

 

$

66,417

 

 

 

 

 

 

 

 

 

Production(3):

 

 

 

 

 

 

 

Oil (MBbls)

800

 

 

704

 

 

1,680

 

 

1,382

 

Gas (MMcf)

1,351

 

 

1,243

 

 

3,021

 

 

2,070

 

NGL (MBbls)

208

 

 

245

 

 

485

 

 

438

 

Total (MBoe)(4)

1,233

 

 

1,156

 

 

2,668

 

 

2,164

 

Average Daily Production (Boepd)

13,555

 

 

12,699

 

 

14,661

 

 

11,958

 

Average Prices:

 

 

 

 

 

 

 

Oil ($/Bbl)

23.56

 

 

57.92

 

 

35.63

 

 

55.17

 

Gas ($/Mcf)

0.83

 

 

0.10

 

 

0.73

 

 

0.59

 

NGL ($/Bbl)

8.10

 

 

14.90

 

 

9.76

 

 

17.89

 

Total ($/Boe)

17.56

 

 

38.54

 

 

25.03

 

 

39.40

 

Adj. for Realized Derivatives Settlements:

 

 

 

 

 

 

 

Oil ($/Bbl)(5)

59.61

 

 

61.92

 

 

58.04

 

 

60.88

 

Gas ($/Mcf)(5)

1.23

 

 

1.54

 

 

1.21

 

 

1.58

 

NGL ($/Bbl)

8.10

 

 

14.90

 

 

9.76

 

 

17.89

 

Total ($/Boe)(5)

41.37

 

 

42.52

 

 

39.69

 

 

43.99

 

Operating Margin per Boe

 

 

 

 

 

 

 

Average realized price(5)

$

17.56

 

 

$

38.54

 

 

$

25.03

 

 

$

39.40

 

Lease operating expense

4.53

 

 

6.92

 

 

5.59

 

 

6.50

 

Production and ad valorem taxes

1.20

 

 

2.35

 

 

1.69

 

 

2.45

 

Operating margin per Boe

11.83

 

 

29.27

 

 

17.75

 

 

30.45

 

Realized hedge settlements

23.81

 

 

3.98

 

 

14.66

 

 

4.59

 

Operating margin per Boe (including realized hedge settlements)

$

35.64

 

 

$

33.25

 

 

$

32.41

 

 

$

35.04

 

(1)

Net (loss) income 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).

(5)

Includes $5.7 million and $2.1 million of cash proceeds related to hedges unwound during the second quarter of 2020 and first quarter of 2019, respectively.

Liquidity Update

As of June 30, 2020, we had $1.8 million in cash and $168.6 million of long-term debt outstanding under our senior secured revolving credit facility (our “Credit Facility”) with a borrowing base of $275 million. With the $106.4 million of undrawn borrowing base capacity and $1.8 million in cash, we had total liquidity of approximately $108.2 million. Through June 30, 2020, we had incurred $45.1 million of our estimated $50 - $60 million in capital expenditures for 2020.

Through July 31, 2020, we have paid down an additional $14.3 million in outstanding borrowings under our Credit Facility as of June 30, 2020 which is in line with our 2020 expectations to generate Free Cash Flow and further reduce our outstanding borrowings absent any extraordinary events. However, it should be noted that we may borrow temporarily as the timing of our cash flows may fluctuate between reporting periods.

Commodity Hedging

The following table sets forth our outstanding derivative contracts as of June 30, 2020. When aggregating multiple contracts, the weighted average contract price is disclosed.

As of June 30, 2020:

 

 

Price Swaps

Period

 

Commodity

 

Volume
(Bbls / MMBtu)

 

Weighted Average Price
($/Bbl / $/MMBtu)

Q3 - Q4 2020

 

Crude Oil

 

1,196,000

 

 

$

58.35

 

Q1 - Q4 2021

 

Crude Oil

 

1,460,000

 

 

$

55.16

 

Q3 - Q4 2020

 

Crude Oil Basis Swap (1)

 

1,196,000

 

 

$

(1.50

)

Q3 - Q4 2020

 

Crude Oil Basis Swap (2)

 

184,000

 

 

$

2.55

 

Q3 - Q4 2020

 

Crude Oil Roll Swap (3)

 

1,104,000

 

 

$

(1.79

)

Q1 - Q4 2021

 

Crude Oil Basis Swap (1)

 

1,825,000

 

 

$

1.05

 

Q3 - Q4 2020

 

Natural Gas

 

1,288,000

 

 

$

2.85

 

Q1 - Q4 2021

 

Natural Gas

 

2,920,000

 

 

$

2.71

 

Q3 - Q4 2020

 

Natural Gas Basis Swap (4)

 

1,288,000

 

 

$

(1.07

)

Q1 - Q4 2021

 

Natural Gas Basis Swap (4)

 

2,920,000

 

 

$

(0.50

)

(1)

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

(2)

The basis differential price is between WTI Houston and the WTI NYMEX.

(3)

The swap is between WTI Roll and the WTI NYMEX.

(4)

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

Updated 2020 Guidance

The Company’s 2020 production, capital budget and Cash G&A guidance remain unchanged. We currently assume no additional operated or non-operated wells will be drilled or completed in 2020 but will continue to monitor market conditions and consider adjusting our plan appropriately. Additional cost guidance for 2020 is provided below.

2020 Capital Expenditures

$ millions
(Net)

Gross / Net
Operated
Wells Drilled &
Awaiting
Completion

Gross / Net
Operated
Wells On Line

Net
Non-Operated
Wells On Line

Drilling and Completions

$45 – 55

11 / 9.7

3 / 3.0

3.1

Land / Infrastructure

5

 

 

 

2020 Total Capital Expenditures

$50 – 60

 

 

 

 

 

 

 

 

2020 Average Daily Production (Boepd)

13,000 – 14,000

 

 

 

% Oil

61% – 62%

 

 

 

% Liquids

81% – 82%

 

 

 

 

 

 

 

 

2020 Operating Costs

 

 

 

 

Lease Operating Expense ($/Boe)

$5.50 - $6.00

 

 

 

Production and Ad Valorem Taxes (% of Revenue)

6.25% - 7.25%

 

 

 

Cash G&A (1) ($mm)

$15.5 – $16.5

 

 

 

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.

(1)

Cash G&A is a non-GAAP measure defined as general and administrative expenses less stock-based compensation which is not settled in cash.

Conference Call Details

Earthstone is hosting a conference call on Thursday, August 6, 2020 at 12:00 p.m. Eastern (11:00 a.m. Central) to discuss the Company’s financial results for the second quarter of 2020 and its outlook for the remainder of 2020. Prepared remarks by Robert J. Anderson, President and Chief Executive Officer, and Mark Lumpkin, Jr., Executive Vice President and Chief Financial Officer, will be followed by a question and answer session.

Investors and analysts are invited to participate in the call by dialing 877-407-6184 for domestic calls or 201-389-0877 for international calls, in both cases asking for the Earthstone conference call. A webcast will also be available through the Company 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 12:00 p.m. Eastern (11:00 a.m. Central), Thursday, August 20, 2020. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13707795.

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in development and operation of oil and natural gas properties. The Company’s primary assets are in the Midland Basin of west Texas and the Eagle Ford Trend of south Texas. Earthstone is traded 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 (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,” “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, 2019, 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.

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)

 

 

 

June 30,

 

December 31,

ASSETS

 

2020

 

2019

Current assets:

 

 

 

 

Cash

 

$

1,810

 

 

$

13,822

 

Accounts receivable:

 

 

 

 

Oil, natural gas, and natural gas liquids revenues

 

12,908

 

 

29,047

 

Joint interest billings and other, net of allowance of $80 and $83 at June 30, 2020 and December 31, 2019, respectively

 

7,779

 

 

6,672

 

Derivative asset

 

31,626

 

 

8,860

 

Prepaid expenses and other current assets

 

2,032

 

 

1,867

 

Total current assets

 

56,155

 

 

60,268

 

 

 

 

 

 

Oil and gas properties, successful efforts method:

 

 

 

 

Proved properties

 

994,333

 

 

970,808

 

Unproved properties

 

238,551

 

 

260,271

 

Land

 

5,382

 

 

5,382

 

Total oil and gas properties

 

1,238,266

 

 

1,236,461

 

 

 

 

 

 

Accumulated depreciation, depletion and amortization

 

(242,597

)

 

(195,567

)

Net oil and gas properties

 

995,669

 

 

1,040,894

 

 

 

 

 

 

Other noncurrent assets:

 

 

 

 

Goodwill

 

 

 

17,620

 

Office and other equipment, net of accumulated depreciation and amortization of $3,435 and $3,180 at June 30, 2020 and December 31, 2019, respectively

 

1,164

 

 

1,311

 

Derivative asset

 

11,642

 

 

770

 

Operating lease right-of-use assets

 

2,932

 

 

3,108

 

Other noncurrent assets

 

1,412

 

 

1,572

 

TOTAL ASSETS

 

$

1,068,974

 

 

$

1,125,543

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

8,525

 

 

$

25,284

 

Revenues and royalties payable

 

19,324

 

 

35,815

 

Accrued expenses

 

9,809

 

 

19,538

 

Asset retirement obligation

 

308

 

 

308

 

Derivative liability

 

169

 

 

6,889

 

Advances

 

93

 

 

11,505

 

Operating lease liabilities

 

763

 

 

570

 

Finance lease liabilities

 

119

 

 

206

 

Other current liabilities

 

 

 

43

 

Total current liabilities

 

39,110

 

 

100,158

 

 

 

 

 

 

Noncurrent liabilities:

 

 

 

 

Long-term debt

 

168,588

 

 

170,000

 

Deferred tax liability

 

15,165

 

 

15,154

 

Asset retirement obligation

 

1,979

 

 

1,856

 

Derivative liability

 

349

 

 

 

Operating lease liabilities

 

2,169

 

 

2,539

 

Finance lease liabilities

 

38

 

 

85

 

Other noncurrent liabilities

 

141

 

 

 

Total noncurrent liabilities

 

188,429

 

 

189,634

 

 

 

 

 

 

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; 30,020,357 and 29,421,131 issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

30

 

 

29

 

Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 35,058,687 and 35,260,680 issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

35

 

 

35

 

Additional paid-in capital

 

535,049

 

 

527,246

 

Accumulated deficit

 

(181,342

)

 

(181,711

)

Total Earthstone Energy, Inc. equity

 

353,772

 

 

345,599

 

Noncontrolling interest

 

487,663

 

 

490,152

 

Total equity

 

841,435

 

 

835,751

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,068,974

 

 

$

1,125,543

 

 

 

 

 

 

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,

 

 

2020

 

2019

 

2020

 

2019

REVENUES

 

 

 

 

Oil

 

$

18,847

 

 

$

40,767

 

 

$

59,859

 

 

$

76,214

 

Natural gas

 

1,127

 

 

129

 

 

2,213

 

 

1,223

 

Natural gas liquids

 

1,689

 

 

3,646

 

 

4,729

 

 

7,833

 

Total revenues

 

21,663

 

 

44,542

 

 

66,801

 

 

85,270

 

 

 

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES

 

 

 

 

 

 

 

 

Lease operating expense

 

5,588

 

 

8,005

 

 

14,927

 

 

14,066

 

Production and ad valorem taxes

 

1,479

 

 

2,709

 

 

4,502

 

 

5,303

 

Rig termination expense

 

426

 

 

 

 

426

 

 

 

Depreciation, depletion and amortization

 

22,902

 

 

14,197

 

 

47,558

 

 

28,202

 

Impairment expense

 

62

 

 

 

 

60,433

 

 

 

General and administrative expense

 

6,687

 

 

6,816

 

 

13,819

 

 

13,891

 

Transaction costs

 

(463

)

 

212

 

 

381

 

 

582

 

Accretion of asset retirement obligation

 

46

 

 

54

 

 

90

 

 

108

 

Exploration expense

 

(3

)

 

 

 

298

 

 

 

Total operating costs and expenses

 

36,724

 

 

31,993

 

 

142,434

 

 

62,152

 

 

 

 

 

 

 

 

 

 

(Loss) gain on sale of oil and gas properties

 

(6

)

 

(201

)

 

198

 

 

(326

)

 

 

 

 

 

 

 

 

 

(Loss) income from operations

 

(15,067

)

 

12,348

 

 

(75,435

)

 

22,792

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest expense, net

 

(1,285

)

 

(1,677

)

 

(3,021

)

 

(3,126

)

(Loss) gain on derivative contracts, net

 

(20,679

)

 

9,496

 

 

79,105

 

 

(38,398

)

Other income (expense), net

 

12

 

 

(18

)

 

138

 

 

(22

)

Total other income (expense)

 

(21,952

)

 

7,801

 

 

76,222

 

 

(41,546

)

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(37,019

)

 

20,149

 

 

787

 

 

(18,754

)

Income tax benefit (expense)

 

1,110

 

 

(613

)

 

18

 

 

(153

)

Net (loss) income

 

(35,909

)

 

19,536

 

 

805

 

 

(18,907

)

 

 

 

 

 

 

 

 

 

Less: Net (loss) income attributable to noncontrolling interest

 

(19,570

)

 

10,759

 

 

436

 

 

(10,480

)

 

 

 

 

 

 

 

 

 

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

 

$

(16,339

)

 

$

8,777

 

 

$

369

 

 

$

(8,427

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

(0.55

)

 

$

0.30

 

 

$

0.01

 

 

$

(0.29

)

Diluted

 

$

(0.55

)

 

$

0.30

 

 

$

0.01

 

 

$

(0.29

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

29,858,162

 

 

28,895,893

 

 

29,677,795

 

 

28,808,205

 

Diluted

 

29,858,162

 

 

29,228,886

 

 

29,677,795

 

 

28,808,205

 

 

 

 

 

 

 

 

 

 

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

For the Six Months Ended
June 30,

 

 

2020

 

2019

Cash flows from operating activities:

 

 

Net income (loss)

 

$

805

 

 

$

(18,907

)

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

 

 

 

 

Depreciation, depletion and amortization

 

47,558

 

 

28,202

 

Impairment of proved and unproved oil and gas properties

 

42,813

 

 

 

Impairment of goodwill

 

17,620

 

 

 

Accretion of asset retirement obligations

 

90

 

 

108

 

Settlement of asset retirement obligations

 

 

 

(179

)

(Gain) loss on sale of oil and gas properties

 

(198

)

 

326

 

Total (gain) loss on derivative contracts, net

 

(79,105

)

 

38,398

 

Operating portion of net cash received in settlement of derivative contracts

 

39,096

 

 

9,956

 

Stock-based compensation

 

5,262

 

 

4,473

 

Deferred income taxes

 

(18

)

 

153

 

Amortization of deferred financing costs

 

161

 

 

215

 

Changes in assets and liabilities:

 

 

 

 

(Increase) decrease in accounts receivable

 

15,060

 

 

(1,257

)

(Increase) decrease in prepaid expenses and other current assets

 

(747

)

 

(537

)

Increase (decrease) in accounts payable and accrued expenses

 

(3,410

)

 

(5,222

)

Increase (decrease) in revenues and royalties payable

 

(16,491

)

 

(3,845

)

Increase (decrease) in advances

 

(11,412

)

 

3,400

 

Net cash provided by operating activities

 

57,084

 

 

55,284

 

Cash flows from investing activities:

 

 

 

 

Additions to oil and gas properties

 

(67,493

)

 

(79,760

)

Additions to office and other equipment

 

(108

)

 

(202

)

Proceeds from sales of oil and gas properties

 

409

 

 

2

 

Net cash used in investing activities

 

(67,192

)

 

(79,960

)

Cash flows from financing activities:

 

 

 

 

Proceeds from borrowings

 

69,906

 

 

128,087

 

Repayments of borrowings

 

(71,318

)

 

(96,915

)

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

 

(382

)

 

(661

)

Cash paid for finance leases

 

(110

)

 

(237

)

Deferred financing costs

 

 

 

(189

)

Net cash (used in) provided by financing activities

 

(1,904

)

 

30,085

 

Net (decrease) increase in cash

 

(12,012

)

 

5,409

 

Cash at beginning of period

 

13,822

 

 

376

 

Cash at end of period

 

$

1,810

 

 

$

5,785

 

Supplemental disclosure of cash flow information

 

 

 

 

Cash paid for:

 

 

 

 

Interest

 

$

2,659

 

 

$

2,760

 

Non-cash investing and financing activities:

 

 

 

 

Accrued capital expenditures

 

$

6,220

 

 

$

16,714

 

Lease asset additions - ASC 842

 

$

 

 

$

1,573

 

Asset retirement obligations

 

$

43

 

 

$

23

 

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 and Free Cash Flow, 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 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 as an indicator of operating performance.

Adjusted Diluted Shares for the periods indicated:

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Class A Common Stock - Diluted

29,858,162

 

 

29,228,886

 

 

29,677,795

 

 

28,808,205

 

Class B Common Stock

35,059,412

 

 

35,423,551

 

 

35,145,179

 

 

35,437,786

 

Adjusted Diluted Shares

64,917,574

 

 

64,652,437

 

 

64,822,974

 

 

64,245,991

 

 

 

 

 

 

 

 

 

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 (loss) income because of its wide acceptance by the investment community as a financial indicator.

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

($000s, except per Boe data)

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Net (loss) income

$

(35,909

)

 

$

19,536

 

 

$

805

 

 

$

(18,907

)

Accretion of asset retirement obligations

46

 

 

54

 

 

90

 

 

108

 

Depreciation, depletion and amortization

22,902

 

 

14,197

 

 

47,558

 

 

28,202

 

Impairment expense

62

 

 

 

 

60,433

 

 

 

Interest expense, net

1,285

 

 

1,677

 

 

3,021

 

 

3,126

 

Transaction costs

(463

)

 

212

 

 

381

 

 

582

 

Loss (gain) on sale of oil and gas properties

6

 

 

201

 

 

(198

)

 

326

 

Rig termination expense

426

 

 

 

 

426

 

 

 

Exploration expense

(3

)

 

 

 

298

 

 

 

Unrealized loss (gain) on derivative contracts

50,036

 

 

(4,902

)

 

(40,009

)

 

48,354

 

Stock based compensation (non-cash)(1)

2,568

 

 

2,261

 

 

5,262

 

 

4,473

 

Income tax (benefit) expense

(1,110

)

 

613

 

 

(18

)

 

153

 

Adjusted EBITDAX

$

39,846

 

 

$

33,849

 

 

$

78,049

 

 

$

66,417

 

Total production (MBoe)(2)(3)

1,233

 

 

1,156

 

 

2,668

 

 

2,164

 

Adjusted EBITDAX per Boe

$

32.30

 

 

$

29.29

 

 

$

29.25

 

 

$

30.69

 

(1)

Included in General and administrative expense in the Condensed Consolidated Statements of Operations.

(2)

Represents reported sales volumes.

(3)

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).

III. Adjusted Net Income

We define “Adjusted Net Income” as net (loss) income plus, when applicable, unrealized loss (gain) on derivative contracts; impairment expense; loss (gain) on sale of oil and gas properties; write-off of deferred financing costs; 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 (loss) income 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 (loss) income 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,

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Net (loss) income

$

(35,909

)

 

$

19,536

 

 

$

805

 

 

$

(18,907

)

Unrealized loss (gain) on derivative contracts

 

50,036

 

 

 

(4,902

)

 

 

(40,009

)

 

 

48,354

 

Impairment expense

 

62

 

 

 

 

 

 

60,433

 

 

 

 

Loss (gain) on sale of oil and gas properties

 

6

 

 

 

201

 

 

 

(198

)

 

 

326

 

Transaction costs

 

(463

)

 

 

212

 

 

 

381

 

 

 

582

 

Income tax effect of the above

 

(945

)

 

 

92

 

 

 

(392

)

 

 

(1,011

)

Adjusted Net Income

$

12,787

 

 

$

15,139

 

 

$

21,020

 

 

$

29,344

 

Adjusted Diluted Shares

 

64,917,574

 

 

 

64,652,437

 

 

 

64,822,974

 

 

 

64,245,991

 

Adjusted Net Income per Adjusted Diluted Share

$

0.20

 

 

$

0.23

 

 

$

0.32

 

 

$

0.46

 

 

 

 

 

 

 

 

 

IV. All-In Cash Costs

We define “All-In Cash Costs” as lease operating expenses plus production and ad valorem taxes, interest expense, net, and general and administrative expense (excluding stock-based compensation).

Our All-In Cash Costs measure provides additional information that may be used to further understand our total cost of production. We use All-In Cash Costs 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. All-In Cash Costs should not be considered as an alternative to, or more meaningful than, net (loss) income as an indicator of operating performance. All-In Cash Costs, as used by us, may not be comparable to similarly titled measures reported by other companies.

All-In Cash Costs for the periods indicated:

($000s, except per Boe data)

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Lease operating expense

$

5,588

 

 

$

8,005

 

 

$

14,927

 

 

$

14,066

 

Production and ad valorem taxes

1,479

 

 

2,709

 

 

4,502

 

 

5,303

 

Interest expense, net

1,285

 

 

1,677

 

 

3,021

 

 

3,126

 

General and administrative expense (excluding stock-based compensation)

4,119

 

 

4,555

 

 

8,557

 

 

9,418

 

All-In Cash Costs

$

12,471

 

 

$

16,946

 

 

$

31,007

 

 

$

31,913

 

Total production (MBoe)(1)(2)

1,233

 

 

1,156

 

 

2,668

 

 

2,164

 

All-In Cash Costs per Boe

$

10.11

 

 

$

14.66

 

 

$

11.62

 

 

$

14.74

 

(1)

Represents reported sales volumes.

(2)

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).

V. 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.

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,

 

2020

 

2019

 

2020

 

2019

Adjusted EBITDAX

$

39,846

 

 

$

33,849

 

 

$

78,049

 

 

$

66,417

 

Interest expense, net

(1,285

)

 

(1,677

)

 

(3,021

)

 

(3,126

)

Capital expenditures (accrual basis)

(3,238

)

 

(31,125

)

 

(45,064

)

 

(73,795

)

Free Cash Flow

$

35,323

 

 

$

1,047

 

 

$

29,964

 

 

$

(10,504

)

 

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

Source: Earthstone Energy, Inc.

« Back to View All News