SOURCE: Earthstone Energy, Inc.

Earthstone Energy, Inc.

May 14, 2015 17:40 ET

Earthstone Energy, Inc. Reports First Quarter 2015 Financial and Operating Results

Record Quarterly Production of 3,849 Boepd

HOUSTON, TX--(Marketwired - May 14, 2015) - Earthstone Energy, Inc. (NYSE MKT: ESTE) ("Earthstone" or the "Company"), today announced financial and operating results for the three month period ended March 31, 2015 and provided an operations update.

First Quarter 2015 Highlights

  • Average daily production of 3,849 Boepd, a 71% increase from the first quarter of 2014 and a 39% increase from the fourth quarter of 2014
  • Total revenue of $11.3 million, which excludes any effects from hedges
  • Adjusted EBITDAX(1) of $5.4 million

(1) See "Reconciliation of Non-GAAP Financials Measures" section below.

Selected Financial and Operational Data

The below tables provide selected financial and operational data for the three months ended March 31, 2015 and 2014.

     
($000s except where noted)   Three Months Ended
March 31,
    2015   2014   Change
Total Revenue   11,320   11,686   (3%)
Realized Hedge Settlements   1,494   (539)    
Adjusted Revenue (including realized hedge settlements)   12,814   11,147   15%
Net Income (Loss)   (1,114)   2,740    
Earnings (Loss) Per Share (Diluted)   (0.08)   0.30    
Adjusted EBITDAX(1)   5,359   6,828   (22%)
             
Production:            
  Oil (MBbls)   208   81   157%
  Gas (MMcf)   558   557   0%
  NGL (MBbls)   45   29   55%
  Total (MBOE)   346   202   71%
  Total daily production (BOEPD)   3,849   2,247   71%
             
Average prices:            
  Oil ($/Bbl)   43.44   97.55   (55%)
  Gas ($/Mcf)   2.74   4.94   (45%)
  NGL ($/Bbl)   14.85   33.29   (55%)
  Total ($/Boe)   32.45   57.24   (43%)
             
Adjusted for realized derivatives settlements:            
  Oil ($/Bbl)   49.29   95.63   (48%)
  Gas ($/Mcf)   3.24   4.25   (24%)
  NGL ($/Bbl)   14.85   33.29   (55%)
  Total ($/Boe)   36.76   54.58   (33%)
             

(1) See "Reconciliation of Non-GAAP Financials Measures" section below.

Operations Update

During the first quarter of 2015, we produced 3,849 barrels of oil equivalent per day, a 71% increase from the first quarter of 2014 and a 39% increase from the fourth quarter of 2014. Production consisted of 60% oil, 27% natural gas, and 13% natural gas liquids. We are currently running one rig in our operated Eagle Ford/Austin Chalk development program and have begun working through our frac inventory, which as of March 31, 2015, consisted of 17 gross wells.

Operated Eagle Ford - Fayette, Gonzales, and Karnes Counties, Texas

In late March 2015, we resumed completion operations that we had suspended in November 2014 due to low commodity prices. We anticipate that the three-well Richards North Unit and the two-well Murphy North Unit will come online in the second quarter of 2015. These wells are currently flowing back. We further plan to complete at least two wells in each of our Rumley Unit and Hope Unit, with first production expected in the second quarter of 2015. We will complete the remaining wells during the third and fourth quarters of 2015. We own an average working interest of 45% in these wells. Current completion costs per stage have declined 35% to 40% relative to similarly designed frac stages from November 2014. 

During the first quarter of 2015, we drilled two gross Eagle Ford wells in our Flatonia Townsite Unit, with first production expected in September 2015. We anticipate drilling the two-well Eagle Ford Boggs Unit located in Karnes County, Texas, this summer, with first production expected early in the fourth quarter of 2015. We own a 50% working interest in the Flatonia Townsite Unit and a 66% working interest in the Boggs Unit.

Operated Upper Austin Chalk - Fayette County, Texas

We are currently drilling the Reeves 1H well (first production expected in June 2015) and will subsequently drill the Viven 1H well (first production expected in July 2015). After these two wells are drilled, the rig will then move to the two-well Boggs Unit (Eagle Ford) in Karnes County, Texas, and then return to Fayette County, Texas, to drill the South Greene well (first production expected in September 2015). Drilling the Upper Austin Chalk formation provides good economics and will hold large acreage positions, ranging from approximately 900 acres to 1,500 acres, which will allow for future Eagle Ford development. We own approximately a 47% to 50% working interest in these three Upper Austin Chalk wells.

Non-Operated Eagle Ford - La Salle County, Texas

We participated in four gross Eagle Ford wells drilled by Lewis Energy in 2014, three of which came online in late December 2014. We participated in nine gross wells drilled by BHP in 2014, all of which came online between February and April 2015. We own a 10% working interest in each of these 13 wells.

Non-Operated Bakken/Three Forks

As of March 31, 2015, we were participating in the drilling or completion of 54 gross (1.3 net) wells, 39 of which had initial operations in 2014.

Management Comments

Frank A. Lodzinski, President and Chief Executive Officer of Earthstone Energy, Inc., commented, "Commodity prices in the first quarter were very challenging, but we have benefited from a significant reduction in drilling and completion costs. In particular, completion costs are down 35% to 40%. These savings have resulted in our field level economics remaining very competitive. We are also focused on reducing operating and G&A costs on a per unit basis. Recent improvements in the price of oil and the resumption of completion operations will result in increased future production, revenues, and cash flows. As such, we are reaffirming our 2015 full year guidance. We have experienced these significant price downturns before and are confident that we will continue our growth and acquire additional assets. We continue to actively pursue corporate M&A and asset acquisition opportunities, including ground floor leasing if attractive at current prices."

Guidance Reaffirmed

We reaffirm our 2015 full year guidance that was previously announced on March 9, 2015.

Although our general plan is to develop our acreage with a continuous one rig program throughout 2015 and 2016, our current capital budget and guidance shown below is based on i) the resumption of completion operations in late March and ii) resumption of drilling operations in April with a one rig drilling program through the summer of 2015. Our land budget is intended to maintain and expand our acreage position, but it does not reflect additional meaningful acquisitions. We will continue to evaluate drilling and completion operations, prevailing prices, and costs. Accordingly, our budget is subject to change.

             
             

Capital Expenditures
 
$ millions
  Number of
Gross Wells Spud
  Number of
Gross Wells On Line
Drilling and Completion:            
  Eagle Ford - Fayette/Gonzales Counties   38.0   2   17
  Bakken   12.0   34   26
  Eagle Ford - Karnes County   8.0   2   2
  Austin Chalk - Fayette County   6.5   3   3
  Eagle Ford - La Salle County   7.5   0   13
Total Drilling and Completion   72.0   41   61
Land   13.0   n/a   n/a
Total   85.0   41   61
             
     
    Full Year 2015
Production (BOEPD)   4,200 - 4,600
% Oil   63%
% NGLs   11%
% Gas   26%
     
     
Operating Costs and Expenses ($/BOE)    
Lease Operating & Workover   10.00 - 12.00
Production Taxes   2.00 - 3.00
Cash G&A   6.00 - 8.00
DD&A   24.00 - 26.00
     

Note: Guidance is forward-looking information that is subject to a number of risks and uncertainties, many of which are beyond the Company's control. See "Forward-Looking Statements" section below.

Liquidity

We are currently involved in our spring redetermination process related to our borrowing base. As of today, our borrowing base is $80.0 million, with $11.2 million of outstanding indebtedness and $0.3 million of outstanding letters of credit. With $68.5 million of availability under our borrowing base and $59.7 million of cash as of March 31, 2015, our liquidity totals $128.2 million.

Hedging Update

With the recent improvement in the price of oil, we have added hedges and will likely continue to do so. In March and April 2015, we entered into WTI swaps hedging 25,000 barrels a month at an average price of $58.60 per barrel from May 2015 through March 2016; 20,000 barrels a month at an average price of $59.40 per barrel from April 2016 through June 2016; and 10,000 barrels a month at an average price of $60.80 per barrel from July 2016 through December 2016. When combined with 2015 hedges executed during 2014, we have hedged a total of 292,000 barrels of 2015 production at an average price of $69.41 per barrel and 195,000 barrels of 2016 production at an average price of $59.65 per barrel.

Divestiture of Louisiana Assets

On April 6, 2015, we closed the sale of our north Louisiana properties for $3.5 million to an undisclosed buyer. The sale included 25 producing wells primarily located in Caddo and DeSoto Parishes. 

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented independent oil and gas exploration and production company engaged in the development and acquisition of oil and gas reserves through an active and diversified program that includes the acquisition, drilling and development of undeveloped leases, and purchases of reserves and exploration activities, with its current primary assets located in the Eagle Ford trend of south Texas and in the Williston Basin of North Dakota and Montana. Earthstone is traded on NYSE MKT under the symbol "ESTE." Information on Earthstone can be found at www.earthstoneenergy.com. Our corporate headquarters is located in The Woodlands, Texas. We also have an operating office in Denver, Colorado.

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," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. The forward-looking statements include statements about future operations, expansion of production and development acreage, increased cash flow, earnings and assets and access to capital. 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. However, whether actual results and developments will conform to expectations is subject to a number of material risks and uncertainties, including but not limited to: the risks of the oil and gas industry (for example, the recent rapid, significant decline in oil prices and operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits); the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future oil and gas prices, production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; inability of management to execute its plans to meet its goals; unavailability of gathering systems, pipelines and processing facilities; and the possibility that government policies may change. Earthstone's annual report on Form 10-K for the year ended December 31, 2014, quarterly reports on Form 10-Q, recent current reports on Form 8-K, and other SEC filings discuss some of the important risk factors identified that may affect Earthstone's business, results of operations, and financial condition. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

   
   
EARTHSTONE ENERGY, INC.  
CONSOLIDATED BALANCE SHEETS  
(Unaudited)  
   
    March 31,     December 31,  
ASSETS   2015     2014  
Current assets:   (In thousands, except share amounts)  
  Cash and cash equivalents   $ 59,690     $ 100,447  
  Accounts receivable:                
      Oil, natural gas, and natural gas liquids revenues     8,570       14,016  
      Joint interest billings and other     7,109       9,417  
  Current derivative assets     2,749       3,569  
  Prepaid expenses and other current assets     1,209       1,578  
    Total current assets     79,327       129,027  
Oil and gas properties, successful efforts method:                
  Proved properties     334,766       317,006  
  Unproved properties     78,113       76,791  
  Total oil and gas properties     412,879       393,797  
  Accumulated depreciation, depletion, and amortization     (103,742 )     (97,920 )
  Net oil and gas properties     309,137       295,877  
Other noncurrent assets:                
  Goodwill     22,992       22,992  
  Office and other equipment, less accumulated depreciation of $591 and $474, respectively     2,130       2,109  
  Land     101       101  
  Other noncurrent assets     1,272       1,282  
TOTAL ASSETS   $ 414,959     $ 451,388  
LIABILITIES AND EQUITY                
Current liabilities:                
  Accounts payable   $ 13,033     $ 28,753  
  Accrued expenses     14,559       20,529  
  Revenues and royalties payable     8,634       17,364  
  Advances     16,963       21,398  
  Asset retirement obligations     335       408  
    Total current liabilities     53,524       88,452  
Noncurrent liabilities:                
  Long-term debt     11,191       11,191  
  Asset retirement obligations     5,883       5,670  
  Deferred tax liability     28,672       29,258  
  Other noncurrent liabilities     275       289  
    Total noncurrent liabilities     46,021       46,408  
      Total liabilities     99,545       134,860  
Commitments and Contingencies (Note 10)                
Equity:                
  Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding     --       --  
  Common stock, $0.001 par value, 100,000,000 shares authorized; 13,835,128 shares issued and outstanding at March 31, 2015 and December 31, 2014     14       14  
  Additional paid-in capital     358,086       358,086  
  Accumulated deficit     (42,226 )     (41,112 )
  Treasury stock, 15,414 shares at March 31, 2015 and December 31, 2014     (460 )     (460 )
      Total equity     315,414       316,528  
TOTAL LIABILITIES AND EQUITY   $ 414,959     $ 451,388  
                 
   
   
EARTHSTONE ENERGY, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
   
    Three months ended March 31,  
    2015     2014  
REVENUES   (In thousands, except share and per share amounts)  
  Oil, natural gas, and natural gas liquids revenues:                
  Oil   $ 9,038     $ 7,868  
  Natural gas     1,530       2,753  
  Natural gas liquids     674       956  
      Total oil, natural gas, and natural gas liquids revenues     11,242       11,577  
  Gathering income     78       109  
    Total revenues     11,320       11,686  
OPERATING COSTS AND EXPENSES                
  Production costs:                
    Lease operating expense     4,374       2,298  
    Severance taxes     630       489  
  Re-engineering and workovers     119       198  
  Depreciation, depletion, and amortization     5,924       3,380  
  General and administrative expense     2,571       1,412  
    Total operating costs and expenses     13,618       7,777  
    (Loss) income from operations     (2,298 )     3,909  
OTHER INCOME (EXPENSE)                
  Interest expense, net     (169 )     (145 )
  Net gain (loss) on derivative contracts     674       (1,028 )
  Other income, net     94       4  
    Total other income (expense)     599       (1,169 )
    (Loss) income before income taxes     (1,699 )     2,740  
  Income tax benefit     (585 )     --  
      Net (loss) income   $ (1,114 )   $ 2,740  
Net (loss) income per common share:                
  Basic   $ (0.08 )   $ 0.30  
  Diluted   $ (0.08 )   $ 0.30  
Weighted average common shares outstanding:                
  Basic     13,835,128       9,124,452  
  Diluted     13,835,128       9,124,452  
                 
   
   
EARTHSTONE ENERGY, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
   
    Three months ended March 31,  
    2015     2014  
Cash flows from operating activities:   (In thousands)  
  Net (loss) income   $ (1,114 )   $ 2,740  
  Adjustments to reconcile net loss (income) to net cash (used in) provided by operating activities:                
    Depreciation, depletion, and amortization     5,924       3,380  
    Unrealized loss on derivative contracts     820       489  
    Accretion of asset retirement obligations     145       74  
    Deferred income taxes     (585 )     --  
    Amortization of deferred financing costs     65       38  
    Settlement of asset retirement obligations     (46 )     --  
  Changes in assets and liabilities:                
    Decrease (increase) in accounts receivable     7,754       (6,694 )
    Decrease (increase) in prepaid expenses and other     387       (300 )
    (Decrease) increase in accounts payable and accrued expenses     (21,690 )     1,390  
    (Decrease) increase in revenue and royalties payable     (8,730 )     6,807  
    (Decrease) increase in advances     (4,436 )     14,462  
      Net cash (used in) provided by operating activities     (21,506 )     22,386  
Cash flows from investing activities:                
  Additions to oil and gas property and equipment     (19,040 )     (12,196 )
  Additions to other property and equipment     (138 )     (165 )
      Net cash used in investing activities     (19,178 )     (12,361 )
Cash flows from financing activities:                
  Deferred financing costs     (73 )     (6 )
      Net cash used in financing activities     (73 )     (6 )
Net (decrease) increase in cash and cash equivalents     (40,757 )     10,019  
Cash and cash equivalents at beginning of period     100,447       25,423  
Cash and cash equivalents at end of period   $ 59,690     $ 35,442  
Supplemental disclosure of cash flow information                
Cash paid for:                
  Interest   $ 52     $ 107  
Non-cash investing and financing activities:                
  Asset retirement obligations   $ 43     $ 21  
                 
 
 
Earthstone Energy, Inc.
Reconciliation of Non-GAAP Financial Measures
Unaudited
 

Adjusted EBITDAX

Adjusted EBITDAX is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance compared to that of other companies in our industry, without regard to financing methods, capital structure or historical costs basis. It is also used to assess our ability to incur and service debt and fund capital expenditures. We define "Adjusted EBITDAX" as net income (loss) plus (1) (gain) loss on sale of assets; (2) accretion; (3) impairment expense; (4) depletion, depreciation, and amortization; (5) exploration expense; (6) interest expense; (7) interest income; (8) unrealized (gain) loss on derivatives; and (9) income tax expense (benefit).

Our Adjusted EBITDAX should not be considered an alternative to net income (loss), operating income (loss), cash flow provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with the generally accepted accounting principles ("GAAP"). Our Adjusted EBITDAX may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDAX in the same manner.

The following table provides a reconciliation of net income to Adjusted EBITDAX for the periods indicated (in thousands):

     
     
    Three Months Ended
March 31,
    2015     2014
Net income (loss)   $ (1,114 )   $ 2,740
Accretion     145       74
Depletion, depreciation, and amortization     5,924       3,380
Interest expense     185       145
Interest income     (16 )     -
Unrealized (gain) loss on derivative contracts     820       489
Income tax expense (benefit)     (585 )     -
Adjusted EBITDAX   $ 5,359     $ 6,828
               

Contact Information

  • Contact:
    Neil K. Cohen
    Vice President, Finance, and Treasurer
    Earthstone Energy, Inc.
    1400 Woodloch Forest Drive, Suite 300
    The Woodlands, TX 77380
    281-298-4246