SOURCE: Earthstone Energy, Inc.

Earthstone Energy, Inc.

March 27, 2015 20:50 ET

Earthstone Energy, Inc. Reports Fourth Quarter and Full Year 2014 Results

HOUSTON, TX--(Marketwired - Mar 27, 2015) - Earthstone Energy, Inc. (NYSE MKT: ESTE) ("Earthstone" or the "Company"), today announced financial and operating results for the three and twelve month periods ended December 31, 2014.

Recent Transactions - Basis of Reporting

On December 19, 2014, the Company completed a strategic combination with Oak Valley Resources, LLC ("Oak Valley"), which resulted in a change of control, and concurrently acquired additional interests in an existing Eagle Ford development project located in Fayette and Gonzales Counties, Texas. The Company's property portfolio now includes activities in the Eagle Ford trend of south Texas and in the Williston Basin, including both North Dakota and Montana. The strategic combination has been accounted for as a reverse acquisition whereby the subsidiaries of Oak Valley are considered the acquirer for accounting and reporting purposes. Accordingly, all historical information provided in this release and in Earthstone's 2014 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission is that of Oak Valley, with the Earthstone and the Eagle Ford transactions treated as acquisitions on December 19, 2014. Additionally, the Company adopted Oak Valley's fiscal year-end of December 31.

Full Year 2014 Highlights Compared to Full Year 2013

  • Average daily production of 2,416 Boepd, a 20% increase;
  • Oil, natural gas, and NGL sales of $47.6 million, a 61% increase;
  • Adjusted EBITDAX(1) of $28.5 million, a 121% increase; and
  • PV-10(1) of $344.8 million, a 175% increase.

Fourth Quarter 2014 Highlights Compared to Fourth Quarter 2013

  • Average daily production of 2,760 Boepd, a 29% increase;
  • Oil, natural gas, and NGL sales of $12.0 million, 32% increase; and
  • Adjusted EBITDAX(1) of $7.3 million, a 79% increase.
    (1) See "Reconciliation of Non-GAAP Financials Measures" section below.

2014 Year-End Proved Reserves

SEC rules require that the reserve calculations utilize the unweighted average price on the first day of the month for the prior twelve-month period. Oil, natural gas, and natural gas liquids prices used for our 2014 year-end reserve report, prior to adjusting for quality and basis differentials, were $94.99 per barrel, $4.309 per MMBtu (million British Thermal units), and $30.19 per barrel, respectively. The following table indicates estimated proved reserves by category as of December 31, 2014.

                     
                     
    Oil   Gas   NGL   Total   PV-10
Reserve Category   (MMBbls)   (Bcf)   (MMBbls)   (MMBOE)   ($mm)
Proved Developed   6.1   16.2   1.0   9.8   235.4
Proved Undeveloped   7.7   22.4   1.0   12.4   109.4
Total   13.8   38.6   2.0   22.2   344.8
                     
Note: PV-10 is a non-GAAP financial measure. See "Reconciliation of Non-GAAP Financial Measures" section below.           
                     

Selected Financial Data

             
    Three Months Ended
December 31,
    Years Ended
December 31,
 
    2014     2013     Change     2014     2013     Change  
Total Revenue   12,108     9,124     33 %   47,994     29,943     60 %
Net Loss   (37,318 )   (12,854 )         (28,834 )   (19,875 )      
Earnings Per Share (Diluted)   (3.83 )   (1.41 )         (3.11 )   (2.18 )      
Adjusted EBITDAX(1)   7,336     4,101     79 %   28,455     12,894     121 %
                                     
Production:                                    
  Oil (MBbls)   141     64     121 %   403     163     147 %
  Gas (MMcf)   487     616     (21 %)   2,132     2,635     (19 %)
  NGL (MBbls)   32     31     3 %   124     134     (8 %)
  Total (MBOE)   254     197     29 %   882     737     20 %
  Total daily production (BOEPD)   2,760     2,142     29 %   2,416     2,019     20 %
                                     
Average prices:                                    
  Including realized derivatives settlements:                                    
    Oil ($/Bbl)   78.22     96.60     (19 %)   88.76     99.02     (10 %)
    Gas ($/Mcf)   4.26     3.88     10 %   4.29     3.77     14 %
    NGL ($/Bbl)   20.97     30.57     (31 %)   28.29     28.88     (2 %)
    Total ($/BOE)   54.19     48.15     13 %   54.87     40.69     35 %
  Excluding realized derivatives settlements:                                    
    Oil ($/Bbl)   67.05     92.43     (27 %)   86.29     98.32     (12 %)
    Gas ($/Mcf)   3.91     3.70     6 %   4.39     3.69     19 %
    NGL ($/Bbl)   20.97     30.57     (31 %)   28.29     28.88     (2 %)
    Total ($/BOE)   47.33     46.22     2 %   53.99     40.22     34 %
                                         
1.   See "Reconciliation of Non-GAAP Financials Measures" section below.
    Note: Net loss includes $22.1 million of deferred income tax expense resulting from the strategic combination and $19.4 million of impairment expense, both of which are non-cash charges.
    Please see our annual report on Form 10-K for the year ended December 31, 2014 for further information.
     
     

Management Comments

Frank A. Lodzinski, President and Chief Executive Officer of Earthstone Energy, Inc., commented, "Our senior management team has re-entered the public markets for the fourth time with our December 2014 strategic combination with Earthstone, and despite the current price environment, we look forward to achieving profitable growth. We are pleased with our accomplishments to-date. In just two short years since we acquired and recapitalized Oak Valley, we have assembled a significant reserve and production position. We achieved this growth, as we have in prior public entities, through a combination of development drilling, asset acquisitions and corporate M&A activities. Our goals are to continue this significant progress with continued development of our current assets, expansion of additional acreage positions, and acquisitions. In addition, we will continue to pursue Corporate M&A opportunities. We intend to pursue such opportunities aggressively but prudently."

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, 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
(In thousands, except share and per share amounts)
       
    December 31,  
ASSETS   2014     2013  
Current assets:                
  Cash and cash equivalents   $ 100,447     $ 25,423  
  Accounts receivable:                
      Oil, natural gas, and natural gas liquids revenues     14,016       8,122  
      Joint interest billings and other     9,417       7,541  
  Current derivative assets     3,569       154  
  Prepaid expenses and other current assets     1,578       122  
    Total current assets     129,027       41,362  
                 
Oil and gas properties, successful efforts method:                
  Proved properties     317,006       184,075  
  Unproved properties     76,791       43,011  
  Total oil and gas properties     393,797       227,086  
                 
  Accumulated depreciation, depletion, and amortization     (97,920 )     (79,789 )
  Net oil and gas properties     295,877       147,297  
                 
Other noncurrent assets:                
  Goodwill     22,992       --  
  Office and other equipment, less accumulated depreciation of $474 and $191, respectively     2,109       560  
  Land     101       101  
  Other noncurrent assets     1,282       538  
TOTAL ASSETS   $ 451,388     $ 189,858  
LIABILITIES AND EQUITY                
Current liabilities:                
  Accounts payable   $ 28,753     $ 7,428  
  Accrued expenses     20,529       5,768  
  Revenues and royalties payable     17,364       10,184  
  Advances     21,398       3,520  
  Current derivative liabilities     --       172  
  Asset retirement obligations     408       70  
      Total current liabilities     88,452       27,142  
                 
Noncurrent liabilities:                
  Noncurrent derivative liabilities     --       28  
  Long-term debt     11,191       10,825  
  Asset retirement obligations     5,670       2,941  
  Deferred tax liability     29,258       --  
  Other noncurrent liabilities     289       --  
    Total noncurrent liabilities     46,408       13,794  
                 
      Total liabilities     134,860       40,936  
                 
Commitments and Contingencies (Note 11)                
                 
Equity:                
  Members' equity     --       148,922  
  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 in 2014 and none in 2013     14       --  
  Additional paid-in capital     358,086       --  
  Accumulated deficit     (41,112 )     --  
  Treasury stock, 15,414 shares in 2014 and none in 2013     (460 )     --  
      Total equity     316,528       148,922  
                 
TOTAL LIABILITIES AND EQUITY   $ 451,388     $ 189,858  
                 
                 
EARTHSTONE ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
       
    Years Ended December 31,  
    2014     2013     2012  
REVENUES                        
  Oil, natural gas, and natural gas liquids revenues:                        
    Oil   $ 34,734     $ 16,038     $ 8,679  
    Natural gas     9,367       9,714       6,064  
    Natural gas liquids     3,510       3,882       2,348  
      Total oil, natural gas, and natural gas liquids revenues     47,611       29,634       17,091  
  Gathering income     383       430       419  
  (Loss) gain on sale of oil and gas properties     --       (121 )     4,785  
    Total revenues     47,994       29,943       22,295  
                         
OPERATING COSTS AND EXPENSES                        
  Production costs:                        
    Lease operating expense     10,122       8,426       6,211  
    Severance taxes     2,002       1,225       608  
  Re-engineering and workovers     708       342       570  
  Impairment expense     19,359       12,298       52,475  
  Depreciation, depletion, and amortization     18,414       17,111       12,191  
  Exploration expense     111       2,490       57  
  General and administrative expense     7,864       7,751       3,280  
    Total operating costs and expenses     58,580       49,643       75,392  
                         
    Loss from operations     (10,586 )     (19,700 )     (53,097 )
                         
OTHER INCOME (EXPENSE)                        
  Interest expense, net     (597 )     (487 )     (273 )
  Net gain on derivative contracts     4,392       296       --  
  Other income, net     62       16       49  
    Total other income (expense)     3,857       (175 )     (224 )
                         
    Loss before income taxes     (6,729 )     (19,875 )     (53,321 )
                         
  Income tax expense     22,105       --       --  
                         
    Net loss   $ (28,834 )   $ (19,875 )   $ (53,321 )
                         
Net loss per common share:                        
  Basic   $ (3.11 )   $ (2.18 )   $ (5.84 )
  Diluted   $ (3.11 )   $ (2.18 )   $ (5.84 )
                         
Weighted average common shares outstanding:                        
  Basic     9,279,324       9,124,452       9,124,452  
  Diluted     9,279,324       9,124,452       9,124,452  
                           
                           
EARTHSTONE ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
       
    Years Ended December 31,  
    2014     2013     2012  
Cash flows from operating activities:                        
  Net loss   $ (28,834 )   $ (19,875 )   $ (53,321 )
  Adjustments to reconcile net loss to net cash provided by operating activities:                        
    Depreciation, depletion, and amortization     18,414       17,111       12,191  
    Impairment of proved and unproved oil and gas properties     19,359       12,298       52,475  
    Unrealized (gain) loss on derivative contracts     (3,614 )     45       --  
    Dry hole costs     --       2,096       57  
    Loss (gain) on sales of oil and gas properties     --       121       (4,785 )
    Accretion of asset retirement obligations     317       217       179  
    Deferred income taxes     22,105       --       --  
    Amortization of deferred financing costs     164       103       48  
    Settlement of asset retirement obligations     (56 )     --       --  
  Changes in assets and liabilities:                        
    (Increase) decrease in accounts receivable     (5,305 )     (12,141 )     1,202  
    (Increase) decrease in prepaid expenses and other     (194 )     (81 )     89  
    Increase in accounts payable and accrued expenses     28,408       2,171       6,762  
    Increase in revenue and royalties payable     7,099       9,698       88  
    Increase in advances     17,925       3,520       --  
      Net cash provided by operating activities     75,788       15,283       14,985  
                         
Cash flows from investing activities:                        
  Acquisitions of proved and unproved property     (18,772 )     (86,687 )     --  
  Additions to oil and gas property and equipment     (83,041 )     (31,162 )     (39,433 )
  Additions to other property and equipment     (1,385 )     (678 )     (97 )
  Reverse acquisition with Oak Valley, net of cash     (4,239 )     --       --  
  Insurance proceeds     --       923       --  
  Proceeds from sales of oil and gas properties     --       488       9,976  
      Net cash used in investing activities     (107,437 )     (117,116 )     (29,554 )
                         
Cash flows from financing activities:                        
  Issuance of long-term debt     11,191       --       10,825  
  Reduction of long-term debt     (10,825 )     --       (5,192 )
  Deferred financing costs     (613 )     (425 )     (20 )
  Contributions, net of issuance costs     106,920       107,530       24,790  
  Distributions     --       --       (1,187 )
      Net cash provided by financing activities     106,673       107,105       29,216  
                         
Net increase in cash and cash equivalents     75,024       5,272       14,647  
Cash and cash equivalents at beginning of period     25,423       20,151       5,504  
                         
Cash and cash equivalents at end of period   $ 100,447     $ 25,423     $ 20,151  
                         
Supplemental disclosure of cash flow information                        
Cash paid for:                        
  Interest   $ 493     $ 375     $ 238  
Non-cash investing and financing activities:                        
  Asset retirement obligations   $ 237     $ 1,033     $ 66  
  Stock issued for 2014 Eagle Ford Acquisition Properties   $ 56,425     $ --     $ --  
                           
                           

Earthstone Energy, Inc.
Reconciliation of Non-GAAP Financial Measures
Unaudited

I. PV-10

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

The following table provides a reconciliation of PV-10 of our proved properties to the Standardized Measure (in thousands):

     
     
    Years Ended
December 31,
    2014     2013
Present value of estimated future net revenues (PV-10)   $ 344,800     $ 125,357
Future income taxes, discounted at 10%(1)     (88,944 )     -
Standardized measure of discounted future net revenues   $ 255,856     $ 125,357
               
(1) As a result of the strategic combination, all historical financial information is that of Oak Valley and its subsidiaries. Oak Valley is a partnership for federal tax purposes and is not subject to federal income taxes or state or local income taxes that follow the federal treatment, and therefore Oak Valley did not pay or accrue for such taxes in 2013. Pursuant to the strategic combination, OVR's subsidiaries have become subsidiaries of Earthstone Energy, Inc., which is a taxable entity; as such, estimated tax expense was included in the Standardized Measure for December 31, 2014.        
 
 

II. 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 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:

       
    Years Ended
December 31,
 
    2014     2013  
Net loss   $ (28,834 )   $ (19,875 )
Loss on sale of assets     -       121  
Accretion     317       217  
Impairment expense     19,359       12,298  
Depletion, depreciation, and amortization     18,414       17,111  
Exploration expense     111       2,490  
Interest expense     606       487  
Interest income     (9 )     -  
Unrealized (gain) loss on derivative contracts     (3,614 )     45  
Income tax expense (benefit)     22,105       -  
Adjusted EBITDAX   $ 28,455     $ 12,894  
                 
                 
    Three Months Ended
December 31,
 
    2014     2013  
Net (loss)   $ (37,318 )   $ (12,854 )
Loss on sale of assets     -       67  
Accretion     88       81  
Impairment expense     19,359       12,253  
Depletion, depreciation, and amortization     5,383       3,214  
Exploration expense     28       823  
Interest expense     160       153  
Interest income     (10 )     -  
Unrealized (gain) loss on derivative contracts     (2,459 )     364  
Income tax expense (benefit)     22,105       -  
Adjusted EBITDAX   $ 7,336     $ 4,101  
                 
                 

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