THE WOODLANDS, Texas–(BUSINESS WIRE)–Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the “Company”, “we” or “us”), today announced financial and operating results for the quarter and six months ended June 30, 2018.
Second Quarter 2018 Highlights
- Revenues of $37.2 million
- Average daily production of 8,845 Boepd(1)
- Adjusted EBITDAX(2) of $20.5 million
- Net income of $1.5 million
- Net income attributable to Earthstone Energy, Inc. of $0.7 million, or $0.02 per diluted share
- Capital expenditures of $52.0 million
Year To Date 2018 Highlights
- Revenues of $78.0 million
- Average daily production of 9,252 Boepd(1)
- Adjusted EBITDAX(2) of $45.8 million
- Net income of $13.7 million
- Net income attributable to Earthstone Energy, Inc. of $6.0 million, or $0.21 per diluted share
- Capital expenditures of $74.5 million
|(1)||Represents reported sales volumes.|
|(2)||Adjusted EBITDAX is a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measure” section below.|
Robert J. Anderson, President of Earthstone Energy, Inc., commented, “In the second quarter, we elected to moderately slow the pace of our Midland Basin development program, as a result of industry and market conditions related to take-away capacity, increasing Midland Basin differentials and certain land trades in progress that will ultimately provide for longer laterals. While the economic returns from our operations are very attractive at current levels and our wells are meeting or exceeding our type curves, we are being impacted by the negative differentials in the Midland Basin, which averaged -$5.15/Bbl in the second quarter. In general, we temporarily delayed certain completion activities and focused our operated drilling rig on certain locations where we have future drilling obligations in order to insure we maintain all leases over the long term. These actions resulted in reduced average daily production in the second quarter.
Our recent eight-well completion program concluded in July. Accordingly, production from newly completed wells will be mostly reflected in the third quarter. We currently estimate July production at approximately 11,460 Boepd. Additionally, our drilling obligations in the Midland Basin are now nominal, at 3 to 5 wells per year, for 2019 and beyond. Thus far, we have chosen to delay the deployment of a second full-time rig until late this year or early 2019, as we expect to have more visibility on incremental take-away capacity.”
Mr. Anderson further commented, “We also revised our guidance downward for both capital expenditures and production for 2018. We currently estimate average production of 10,500 – 11,000 Boepd for the year and an exit rate in the vicinity of 14,000 Boepd while only spending approximately $140 million.”
Midland Basin: Our operated activities in the Midland Basin so far this year have included drilling eight gross and 7.7 net operated wells with our continuous one-rig drilling program as well as completing eight gross and 6.3 net operated wells. The rig is currently drilling in Upton County and we began a completion program last week on three gross and net operated wells. In Midland County, we completed two wells in our Hamman project (70% working interest), one in each of the Lower Spraberry and Wolfcamp B. The wells achieved an average peak IP30 of 1,170 Boepd (88% oil) from an average completed lateral length of 6,842 feet. In our WTG project in southeast Reagan County (100% working interest) we have completed our first Wolfcamp B Lower well. Although this well has only been online since the middle of July, it has produced at rates above 2,000 Boepd (93% oil) from a 10,339 foot lateral. The Wolfcamp A well on this same pad is continuing to increase in oil cut which is typical of this reservoir in Reagan County.
We have completed our first Wolfcamp C well along with a Wolfcamp B Upper from our two-well West Hartgrove pad (87% working interest) which had an average lateral of 5,785 feet. The Wolfcamp C has produced at rates as high as 995 Boepd (77% oil). The Wolfcamp B Upper has produced at rates up to 1,267 Boepd (86% oil). While both wells are still flowing, we are currently restricted by commercial saltwater disposal capacity. We are in talks with third-party providers to see if we can increase our allocated capacity. If allocated saltwater disposal capacity is increased in the near-term, we would expect to install artificial lift on these wells which should improve peak 30-day rates. In our Hartgrove 22A Unit (60% working interest), we have completed a two-well pad in the Wolfcamp A and Wolfcamp B Lower with an average lateral of 7,585 feet. Although these wells came online in late May, the company-owned saltwater disposal well encountered 20 days of downtime related to electrical outages and therefore the producing wells had to be shut-in. The Wolfcamp A well has performed similarly to other A wells in Reagan County and continues to increase in oil cut after the electrical outage. The B Lower well has reached rates ranging from 889 to 1,030 Boepd (81-93% oil).
Eagle Ford: In our Eagle Ford asset, we drilled and completed our five well Sayre Unit (17%) in southern Gonzales County, Texas with an average lateral of 5,923 feet. These five wells began producing in mid-July and are flowing at rates ranging from 558 to 732 Boepd (93-94% oil) with approximately 1,050 – 1,150 psi of pressure utilizing controlled flowback. We plan to drill an additional five to seven wells in this area in the fourth quarter.
Selected Financial Data (unaudited)
|($000s except where noted)||Three Months Ended June 30,||Six Months Ended June 30,|
|Lease operating expense||5,009||5,243||9,666||9,582|
|General and administrative expense (excluding stock-based compensation)||5,213||5,738||9,852||9,230|
|Stock-based compensation (non-cash)||2,073||1,647||4,013||2,958|
|General and administrative expense||7,286||7,385||13,865||12,188|
|Net income (loss)||1,472||(54,967||)||13,663||(54,238||)|
|Less: Net income (loss) attributable to noncontrolling interest||822||(37,844||)||7,692||(37,844||)|
|Net income (loss) attributable to Earthstone Energy, Inc.||650||(17,123||)||5,971||(16,394||)|
|Net income (loss) per common share(1)|
|Average Daily Production (Boepd)||8,845||7,932||9,252||7,602|
|Adj. for Realized Derivatives Settlements:|
|(1)||Net Income (Loss) Per Common Share attributable to Earthstone Energy, Inc.|
|(2)||See “Reconciliation of Non-GAAP Financial Measure” 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).|
As of June 30, 2018, we had $4.2 million in cash and $22.5 million of long-term debt outstanding under our credit facility with a current borrowing base of $225 million.
During the three months ended June 30, 2018, we incurred capital expenditures of approximately $52.0 million, on an accrual basis, primarily consisting of drilling and completion costs.
We have currently reduced our estimated 2018 capital budget to approximately $140 million, which assumes a continuing one-rig program for our operated acreage in the Midland Basin and a 10 well program for our operated Eagle Ford acreage. At present, we are planning for a second operated rig in the Midland Basin in late 2018 or early 2019. Current estimated capital expenditures, production and operating costs for 2018 are as follows:
|2018 Capital Expenditures||
|Operated Drilling and Completions||$||107||15 / 13.4||19 / 15.0|
|Non-Operated Drilling and Completions||12||5 / 2||5 / 2|
|Land / Infrastructure||9|
|Eagle Ford||12||10 / 2.1||16 / 3.6|
|2018 Total Capital Expenditures||$||140|
|2018 Average Daily Production (Boepd)||10,500 – 11,000|
|Exit Rate Average Daily Production (Boepd)||13,500 – 14,000|
|2018 Operating Costs|
|Lease Operating and Workover ($/Boe)||$5.25 – $5.50|
|Production Taxes (% of Revenue)||5.0% – 5.3%|
|Cash G&A ($/Boe)||$5.00 – $5.50|
As of June 30, 2018, we had hedged a total of 873 MBbls of remaining 2018 oil production at an average price of $54.31/Bbl and 1,220,000 MMBtu of remaining 2018 natural gas production at average price of $2.95/MMBbtu. As of June 30, 2018, we had hedged a total of 1,259 MBbls of 2019 oil production at an average price of $57.15/Bbl. Additionally, we had 303.6 MBbls of WTI Midland Argus Crude Oil Basis Swaps at -$0.15/Bbl and 184 MBbls of LLS Crude Oil Basis Swaps at +$6.35/Bbl remaining for 2018 oil production. For 2019, we had 365 MBbls of WTI Midland Argus Crude Basis Swaps at -$5.95/Bbl and 365 MBbls of LLS Crude Oil Basis Swaps at +$4.50/Bbl. For 2020, we had 366 MBbls of WTI Midland Argus Crude Oil Swaps at -$5.95/Bbl.
On July 9, 2018, we entered into additional WTI Midland Argus Crude Oil Basis Swaps with a weighted average price differential of -$7.75/Bbl for 547,500 Bbls of 2019 crude oil production.
Conference Call Details
Earthstone is hosting a conference call on Tuesday, August 7, 2018 at 11:00 a.m. Eastern (10:00 a.m. Central) to discuss the Company’s operational and financial results for the second quarter of 2018 and its outlook for the remainder of 2018. Prepared remarks by Frank A. Lodzinski, Chief Executive Officer, Robert J. Anderson, President, 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’s 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 will be available on the Company’s website and by telephone until 11:00 a.m. Eastern (10:00 a.m. Central), Tuesday, August 21, 2018. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 136682047.
About Earthstone Energy, Inc.
Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in the development and operation of oil and natural gas properties. Its primary assets are located in the Midland Basin of west Texas and the Eagle Ford Trend of south Texas. Earthstone is listed on the New York Stock Exchange under the symbol “ESTE.” For more information, visit the Company’s website at www.earthstoneenergy.com.