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THE WOODLANDS, Texas, March 08, 2023 (GLOBE NEWSWIRE) -- Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the “Company”, “we” or “us”), today announced financial and operating results for the quarter and year ended December 31, 2022.
Fourth Quarter 2022 Highlights
Full Year 2022 Highlights
(1) Net income (GAAP) represents the consolidated earnings of Net Income attributable to Earthstone Energy, Inc, and Net income attributable to noncontrolling interest. The related consolidated weighted average shares outstanding of Class A Common Stock and Class B Common Stock are 142.1 million and 130.6 million, on an as-converted basis, for the three months and year ended December 31, 2022 (“Adjusted Diluted Shares”, as reconciled in “Non-GAAP Financial Measures” section below), respectively. All shares of our Class B Common Stock issued and outstanding are held by the noncontrolling interest group.
(2) See “Non-GAAP Financial Measures” section below.
(3) Represents reported sales volumes.
Management Comments
Robert J. Anderson, President and Chief Executive Officer of Earthstone stated, “During the fourth quarter and throughout the year, our team has performed exceptionally well and set new Company records. For the full year, we delivered record production levels, Adjusted EBITDAX, and generated over $500 million of Free Cash Flow. We are also focused on debt-adjusted per share growth in production and reserve value and are pleased to be delivering strong growth on these key measures, as outlined in our investor presentation. As previously released, our team delivered very strong operating results in the fourth quarter with daily production approaching 105,000 Boepd, and with oil production exceeding the mid-point of our guidance range by nine percent.”
“We also advanced our Permian Basin consolidation strategy in 2022, completing three significant accretive acquisitions totaling $2 billion while still managing to reduce leverage, ending 2022 with a last quarter annualized leverage ratio of 0.8x. These material transactions increased our scale, lowered our per unit cost structure, and deepened our high-quality inventory, which now stands at over ten years.”
“As we move into 2023, we remain focused on generating substantial free cash flow, reducing debt to improve our already strong balance sheet, and looking for accretive acquisitions. We have built a sizable and resilient Company and believe our intrinsic value per share significantly exceeds our current share price, offering a compelling value proposition for our current and future shareholders.”
Selected Financial Data (unaudited)
| ($000s except where noted) | Three Months Ended | Years Ended | |||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Total revenues | $ | 494,958 | $ | 144,016 | $ | 1,695,154 | $ | 419,643 | |||||||
| Lease operating expense | 82,541 | 13,742 | 230,515 | 49,321 | |||||||||||
| General and administrative expense (excluding stock-based compensation) | 13,347 | 6,329 | 38,806 | 20,908 | |||||||||||
| Stock-based compensation | 20,257 | 10,393 | 35,369 | 21,014 | |||||||||||
| General and administrative expense | $ | 33,604 | $ | 16,722 | $ | 74,175 | $ | 41,922 | |||||||
| Net income | $ | 185,157 | $ | 69,055 | $ | 650,617 | $ | 61,506 | |||||||
| Adjusted EBITDAX(1) | $ | 338,002 | $ | 85,327 | $ | 1,107,759 | $ | 247,880 | |||||||
| Production(2): | |||||||||||||||
| Oil (MBbls) | 4,297 | 1,187 | 11,866 | 4,381 | |||||||||||
| Gas (MMcf) | 17,825 | 5,015 | 54,392 | 14,505 | |||||||||||
| NGL (MBbls) | 2,370 | 760 | 7,599 | 2,257 | |||||||||||
| Total (MBoe)(3) | 9,638 | 2,782 | 28,531 | 9,055 | |||||||||||
| Average Daily Production (Boepd) | 104,766 | 30,244 | 78,167 | 24,809 | |||||||||||
| Average Prices: | |||||||||||||||
| Oil ($/Bbl) | 83.29 | 77.02 | 93.91 | 67.83 | |||||||||||
| Gas ($/Mcf) | 3.97 | 4.77 | 5.59 | 3.50 | |||||||||||
| NGL ($/Bbl) | 27.93 | 37.80 | 36.45 | 31.76 | |||||||||||
| Total ($/Boe) | 51.35 | 51.76 | 59.41 | 46.34 | |||||||||||
| Adj. for Realized Derivatives Settlements: | |||||||||||||||
| Oil ($/Bbl) | 78.54 | 55.85 | 81.67 | 52.32 | |||||||||||
| Gas ($/Mcf) | 3.65 | 3.66 | 4.66 | 2.89 | |||||||||||
| NGL ($/Bbl) | 27.93 | 37.80 | 36.45 | 31.76 | |||||||||||
| Total ($/Boe) | 48.64 | 40.73 | 52.55 | 37.86 | |||||||||||
| Operating Margin per Boe | |||||||||||||||
| Average realized price | $ | 51.35 | $ | 51.76 | $ | 59.41 | $ | 46.34 | |||||||
| Lease operating expense | 8.56 | 4.94 | 8.08 | 5.45 | |||||||||||
| Production and ad valorem taxes | 3.67 | 3.23 | 4.31 | 2.92 | |||||||||||
| Operating margin per Boe(1) | 39.12 | 43.59 | 47.02 | 37.97 | |||||||||||
| Realized hedge settlements | (2.71 | ) | (11.03 | ) | (6.86 | ) | (8.48 | ) | |||||||
| Operating margin per Boe (including realized hedge settlements) | $ | 36.41 | $ | 32.56 | $ | 40.16 | $ | 29.49 | |||||||
(1) See “Non-GAAP Financial Measures” section below.
(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).
Liquidity Update
As of December 31, 2022, we had $520.1 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 $679.9 million. As of December 31, 2022, our borrowing base was $1.85 billion.
2023 Guidance
The Company reaffirms its guidance released on February 16, 2023 as presented below.
The Company’s 2023 capital budget of $725-$775 million assumes a continuous five-rig program consisting of three rigs in the Delaware Basin and two rigs in the Midland Basin. This program is expected to result in the drilling of 82 gross / 62.7 net operated wells and participation in 1.4 net non-operated wells. The Company estimates production for 2023 to average 96,000 - 104,000 Boepd (~44% oil).
| Production Guidance | FY 2023 | |||
| Production (Boepd) | 96,000 – 104,000 | |||
| % Oil | ~ 44% | |||
| % Liquids | ~ 69% | |||
| Operating Costs | FY 2023 | |||
| Lease Operating Expense ($/Boe) | $8.25 – $9.00 | |||
| Prod. and Ad Val. Taxes (% of Revenue) | 7.25% – 7.75% | |||
| Cash G&A ($mm) | $50 – $55 | |||
| Current Income Taxes at $75/bbl $3/MMBtu ($mm) | $15 – $25 | |||
| 2023 Capital Expenditures | Capex ($mm) | |||
| Op. D&C Capex - Delaware Basin | $335 – $360 | |||
| Op. D&C Capex - Midland Basin | $300 – $320 | |||
| Total Operated D&C Capex | $635 – $680 | |||
| Non-Operated D&C Capex | $18 – $20 | |||
| Non-D&C Capex | $72 – $75 | |||
| Total Capital Expenditures | $725 – $775 | |||
| 2023 Wells by Area | Spud (Gross/Net) | POP(1) (Gross/Net) | ||
| Delaware Wells | 45/31.8 | 44/30.7 | ||
| Midland Wells | 37/30.9 | 35/29.0 | ||
| Non-Op Wells | 12/1.4 | 16/2.3 |
(1) POP is defined as put on production.
Capital Expenditures
During 2022, we incurred capital expenditures of approximately $530.6 million, on an accrual basis, primarily consisting of drilling and completion costs. The Company’s 2023 capital budget of $725-775 million assumes a five-rig program consisting of two rigs operating in the Midland Basin and three rigs operating in the Delaware Basin. This program is expected to result in the spudding of 82 gross / 62.7 net operated wells and bringing 79 gross / 59.7 net operated wells online and spudding 1.4 net non-operated wells and bringing 2.3 net non-operated wells online in 2023.
Hedge Position
Hedging Activities
The following table sets forth our outstanding derivative contracts at December 31, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.
| Period | Commodity | Volume (Bbls / MMBtu) | Price ($/Bbl / $/MMBtu) | ||||
| 2023 | Crude Oil Swap | 1,642,500 | $76.94 | ||||
| 2023 | Crude Oil Basis Swap(1) | 9,488,500 | $0.92 | ||||
| 2023 | Natural Gas Swap | 3,670,000 | $3.52 | ||||
| 2023 | Natural Gas Basis Swap(2) | 51,100,000 | $(1.67) | ||||
| 2024 | Natural Gas Basis Swap(2) | 36,600,000 | $(1.05) | ||||
(1) The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.
(2) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
| Costless Collars | ||||||||||
| Period | Commodity | Volume (Bbls / MMBtu) | Bought Floor ($/Bbl / $/MMBtu) | Sold Ceiling ($/Bbl / $/MMBtu) | ||||||
| 2023 | Crude Oil Costless Collar | 2,080,500 | $ | 63.33 | $ | 82.83 | ||||
| 2023 | Natural Gas Costless Collar | 22,188,000 | $ | 3.82 | $ | 7.44 | ||||
| Deferred Premium Puts | ||||||||||
| Period | Commodity | Volume (Bbls / MMBtu) | $/Bbl (Put Price) | $/Bbl (Net of Premium) | ||||||
| 2023 | Crude Oil | 1,931,500 | $ | 69.53 | $ | 64.12 | ||||
The following tables set forth our outstanding derivative contracts at March 1, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.
| Price Swaps | |||||||
| Period | Commodity | Volume (Bbls / MMBtu) | Weighted Average Price ($/Bbl / $/MMBtu) | ||||
| 2023 | Crude Oil | 1,377,000 | $76.94 | ||||
| 2023 | Crude Oil Basis Swap (1) | 7,925,000 | $0.92 | ||||
| 2023 | Natural Gas | 3,670,000 | $3.35 | ||||
| 2023 | Natural Gas Basis Swap (2) | 42,840,000 | $(1.67) | ||||
| 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) | ||||||
| 2023 | Crude Oil Costless Collar | 2,356,200 | $ | 62.47 | $ | 87.56 | ||||
| 2023 | Natural Gas Costless Collar | 17,190,700 | $ | 3.54 | $ | 6.33 | ||||
| Deferred Premium Puts | ||||||||||
| Period | Commodity | Volume (Bbls / MMBtu) | $/Bbl (Put Price) | $/Bbl (Net of Premium) | ||||||
| 2023 | Crude Oil | 1,559,800 | $ | 69.61 | $ | 64.19 | ||||
Conference Call Details
Earthstone is hosting a conference call on Thursday, March 9, 2023 at 11:00 a.m. Eastern (10:00 a.m. Central) to discuss the Company’s operations and financial results for the fourth quarter and full year 2022 and its outlook for 2023. 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'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), Thursday, March 23, 2023. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13735904.
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 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 (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,” “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, 2022 and other Securities and Exchange Commission 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)
| December 31, | |||||||
| ASSETS | 2022 | 2021 | |||||
| Current assets: | |||||||
| Cash | $ | — | $ | 4,013 | |||
| Accounts receivable: | |||||||
| Oil, natural gas, and natural gas liquids revenues | 161,531 | 50,575 | |||||
| Joint interest billings and other, net of allowance of $19 and $19 at December 31, 2022 and 2021, respectively | 34,549 | 2,930 | |||||
| Derivative asset | 31,331 | 1,348 | |||||
| Prepaid expenses and other current assets | 18,854 | 2,549 | |||||
| Total current assets | 246,265 | 61,415 | |||||
| Oil and gas properties, successful efforts method: | |||||||
| Proved properties | 3,987,901 | 1,625,367 | |||||
| Unproved properties | 282,589 | 222,025 | |||||
| Land | 5,482 | 5,382 | |||||
| Total oil and gas properties | 4,275,972 | 1,852,774 | |||||
| Accumulated depreciation, depletion and amortization | (619,196 | ) | (395,625 | ) | |||
| Net oil and gas properties | 3,656,776 | 1,457,149 | |||||
| Other noncurrent assets: | |||||||
| Office and other equipment, net of accumulated depreciation of $5,273 and $4,547 at December 31, 2022 and 2021, respectively | 5,394 | 1,986 | |||||
| Derivative asset | 9,117 | 157 | |||||
| Operating lease right-of-use assets | 4,569 | 1,795 | |||||
| Other noncurrent assets | 15,280 | 33,865 | |||||
| TOTAL ASSETS | $ | 3,937,401 | $ | 1,556,367 | |||
| LIABILITIES AND EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 91,815 | $ | 31,397 | |||
| Revenues and royalties payable | 163,368 | 36,189 | |||||
| Accrued expenses | 80,942 | 31,704 | |||||
| Asset retirement obligation | 948 | 395 | |||||
| Derivative liability | 14,053 | 45,310 | |||||
| Advances | 7,312 | 4,088 | |||||
| Operating lease liability | 842 | 681 | |||||
| Finance lease liability | 802 | — | |||||
| Other current liability | 16,202 | 851 | |||||
| Total current liabilities | 376,284 | 150,615 | |||||
| Noncurrent liabilities: | |||||||
| Long-term debt | 1,053,879 | 320,000 | |||||
| Asset retirement obligation | 29,611 | 15,471 | |||||
| Derivative liability | — | 571 | |||||
| Deferred tax liability | 138,336 | 15,731 | |||||
| Operating lease liability | 3,889 | 1,276 | |||||
| Finance lease liability | 876 | — | |||||
| Other noncurrent liabilities | 10,509 | 6,442 | |||||
| Total noncurrent liabilities | 1,237,100 | 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; 105,547,139 and 53,467,307 issued and outstanding at December 31, 2022 and 2021, respectively | 106 | 53 | |||||
| Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,259,641 and 34,344,532 issued and outstanding at December 31, 2022 and 2021, respectively | 34 | 34 | |||||
| Additional paid-in capital | 1,346,463 | 718,181 | |||||
| Retained earnings (accumulated deficit) | 292,711 | (159,774 | ) | ||||
| Total Earthstone Energy, Inc. equity | 1,639,314 | 558,494 | |||||
| Noncontrolling interest | 684,703 | 487,767 | |||||
| Total equity | 2,324,017 | 1,046,261 | |||||
| TOTAL LIABILITIES AND EQUITY | $ | 3,937,401 | $ | 1,556,367 | |||
EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
| Three Months Ended | Years Ended | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| REVENUES | |||||||||||||||
| Oil | $ | 357,923 | $ | 91,389 | $ | 1,114,343 | $ | 297,177 | |||||||
| Natural gas | 70,826 | 23,899 | 303,846 | 50,809 | |||||||||||
| Natural gas liquids | 66,209 | 28,728 | 276,965 | 71,657 | |||||||||||
| Total revenues | 494,958 | 144,016 | 1,695,154 | 419,643 | |||||||||||
| OPERATING COSTS AND EXPENSES | |||||||||||||||
| Lease operating expense | 82,541 | 13,742 | 230,515 | 49,321 | |||||||||||
| Production and ad valorem taxes | 35,325 | 8,981 | 123,054 | 26,409 | |||||||||||
| Depreciation, depletion and amortization | 110,144 | 28,874 | 301,813 | 106,367 | |||||||||||
| General and administrative expense | 33,604 | 16,722 | 74,175 | 41,922 | |||||||||||
| Transaction costs | (3,870 | ) | 1,969 | 8,248 | 4,875 | ||||||||||
| Accretion of asset retirement obligation | 789 | 149 | 2,652 | 1,065 | |||||||||||
| Exploration expense | 152 | 15 | 2,492 | 341 | |||||||||||
| Total operating costs and expenses | 258,685 | 70,452 | 742,949 | 230,300 | |||||||||||
| (Loss) gain on sale of oil and gas properties, net | (903 | ) | (2 | ) | 13,900 | 738 | |||||||||
| Income from operations | 235,370 | 73,562 | 966,105 | 190,081 | |||||||||||
| OTHER INCOME (EXPENSE) | |||||||||||||||
| Interest expense, net | (23,890 | ) | (3,128 | ) | (66,821 | ) | (10,796 | ) | |||||||
| Gain (loss) on derivative contracts, net | 15,994 | 805 | (125,107 | ) | (116,761 | ) | |||||||||
| Other income, net | 426 | 18 | 856 | 841 | |||||||||||
| Total other (expense) income | (7,470 | ) | (2,305 | ) | (191,072 | ) | (126,716 | ) | |||||||
| Income before income taxes | 227,900 | 71,257 | 775,033 | 63,365 | |||||||||||
| Income tax expense | (42,743 | ) | (2,202 | ) | (124,416 | ) | (1,859 | ) | |||||||
| Net income | 185,157 | 69,055 | 650,617 | 61,506 | |||||||||||
| Less: Net income attributable to noncontrolling interest | 55,535 | 29,285 | 198,132 | 26,022 | |||||||||||
| Net income attributable to Earthstone Energy, Inc. | $ | 129,622 | $ | 39,770 | $ | 452,485 | $ | 35,484 | |||||||
| Net income per common share attributable to Earthstone Energy, Inc.: | |||||||||||||||
| Basic | $ | 1.23 | $ | 0.76 | $ | 5.12 | $ | 0.75 | |||||||
| Diluted | $ | 1.20 | $ | 0.72 | $ | 4.83 | $ | 0.71 | |||||||
| Weighted average common shares outstanding: | |||||||||||||||
| Basic | 105,754,182 | 52,401,448 | 88,349,088 | 47,169,948 | |||||||||||
| Diluted | 107,877,979 | 55,365,519 | 96,328,217 | 49,952,093 | |||||||||||
EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| For the Years Ended December 31, | |||||||||||
| 2022 | 2021 | 2020 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 650,617 | $ | 61,506 | $ | (29,434 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Impairment of proved and unproved oil and gas properties | — | — | 46,878 | ||||||||
| Depreciation, depletion and amortization | 301,813 | 106,367 | 96,414 | ||||||||
| Accretion of asset retirement obligations | 2,652 | 1,065 | 307 | ||||||||
| Impairment of goodwill | — | — | 17,620 | ||||||||
| Gain on sale of oil and gas properties, net | (13,900 | ) | (738 | ) | (204 | ) | |||||
| Gain on sale of office and other equipment | (321 | ) | (140 | ) | — | ||||||
| Settlement of asset retirement obligations | (910 | ) | (185 | ) | (195 | ) | |||||
| Total loss (gain) on derivative contracts, net | 125,107 | 116,761 | (59,899 | ) | |||||||
| Operating portion of net cash (paid) received in settlement of derivative contracts | (195,876 | ) | (75,966 | ) | 56,044 | ||||||
| Stock-based compensation | 35,369 | 21,014 | 10,054 | ||||||||
| Deferred income taxes | 122,605 | 1,859 | (657 | ) | |||||||
| Amortization of deferred financing costs | 5,529 | 856 | 322 | ||||||||
| Changes in assets and liabilities: | |||||||||||
| (Increase) decrease in accounts receivable | (168,314 | ) | (19,061 | ) | 11,914 | ||||||
| (Increase) decrease in prepaid expenses and other current assets | (16,282 | ) | 58 | (203 | ) | ||||||
| Increase (decrease) in accounts payable and accrued expenses | 68,726 | 9,293 | 481 | ||||||||
| Increase (decrease) in revenues and royalties payable | 98,840 | 5,985 | (8,323 | ) | |||||||
| Increase (decrease) in advances | 3,224 | 2,200 | (9,617 | ) | |||||||
| Net cash provided by operating activities | 1,018,879 | 230,874 | 131,502 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of oil and gas properties (net of cash acquired) | (1,523,813 | ) | (311,324 | ) | — | ||||||
| Additions to oil and gas properties | (491,836 | ) | (114,521 | ) | (88,097 | ) | |||||
| Additions to office and other equipment | (2,133 | ) | (1,365 | ) | (114 | ) | |||||
| Proceeds from sales of oil and gas properties | 49,546 | 975 | 414 | ||||||||
| Net cash used in investing activities | (1,968,236 | ) | (426,235 | ) | (87,797 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings under Credit Agreement | 3,096,013 | 744,132 | 136,056 | ||||||||
| Repayments of borrowings under Credit Agreement | (3,145,877 | ) | (539,132 | ) | (191,056 | ) | |||||
| Proceeds from issuance of 8% Senior Notes due 2027, net | 537,256 | — | — | ||||||||
| Proceeds from term loan | 244,191 | — | — | ||||||||
| Proceeds from issuance Series A Convertible Preferred Stock, net of offering costs of $674 | 279,326 | — | — | ||||||||
| Cash paid to repurchase Class A Common Stock | (43,937 | ) | — | — | |||||||
| Cash paid related to the exchange and cancellation of Class A Common Stock | (5,829 | ) | (4,144 | ) | (836 | ) | |||||
| Cash paid for finance leases | (649 | ) | (70 | ) | (130 | ) | |||||
| Deferred financing costs | (15,150 | ) | (2,906 | ) | (67 | ) | |||||
| Net cash provided by (used in) financing activities | 945,344 | 197,880 | (56,033 | ) | |||||||
| Net increase (decrease) in cash | (4,013 | ) | 2,519 | (12,328 | ) | ||||||
| Cash at beginning of period | 4,013 | 1,494 | 13,822 | ||||||||
| Cash at end of period | $ | — | $ | 4,013 | $ | 1,494 | |||||
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 because of its wide acceptance by the investment community as a financial indicator.
I. Adjusted EBITDAX
The non-GAAP financial measure of Adjusted EBITDAX (as defined below), as calculated by us below, is intended to provide readers with consolidated and 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 income (loss) because of its wide acceptance by the investment community as a financial indicator.
We define “Adjusted EBITDAX” as net income plus, when applicable, accretion of asset retirement obligations; impairment expense; depletion, depreciation and amortization; interest expense, net; transaction costs; loss (gain) on sale of oil and gas properties, net; exploration expense; unrealized (gain) loss on derivative contracts; stock-based compensation (non-cash and expected to settle in cash); and income tax 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 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 income to Adjusted EBITDAX for the periods indicated:
| ($000s) | Three Months Ended | Years Ended | |||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net income | $ | 185,157 | $ | 69,055 | $ | 650,617 | $ | 61,506 | |||||||
| Accretion of asset retirement obligations | 789 | 149 | 2,652 | 1,065 | |||||||||||
| Depletion, depreciation and amortization | 110,144 | 28,874 | 301,813 | 106,367 | |||||||||||
| Interest expense, net | 23,890 | 3,128 | 66,821 | 10,796 | |||||||||||
| Transaction costs | (3,870 | ) | 1,969 | 8,248 | 4,875 | ||||||||||
| Loss (gain) on sale of oil and gas properties, net | 903 | 2 | (13,900 | ) | (738 | ) | |||||||||
| Exploration expense | 152 | 15 | 2,492 | 341 | |||||||||||
| Unrealized (gain) loss on derivative contracts | (42,163 | ) | (30,460 | ) | (70,769 | ) | 40,795 | ||||||||
| Stock-based compensation(1) | 20,257 | 10,393 | 35,369 | 21,014 | |||||||||||
| Income tax expense | 42,743 | 2,202 | 124,416 | 1,859 | |||||||||||
| Adjusted EBITDAX | $ | 338,002 | $ | 85,327 | $ | 1,107,759 | $ | 247,880 | |||||||
(1) Consists of expense for non-cash equity awards and cash-based liability awards that are expected to be settled in cash. No cash-based liability awards were settled in cash during 2021. On February 8, 2023, cash-based liability awards were settled in the amount of $14.5 million. On February 9, 2022, cash-based liability awards were settled in the amount of $8.1 million. Stock-based compensation is included in General and administrative expense in the Condensed Consolidated Statements of Operations.
II. 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 consolidated and comparable per share measurement when presenting results such as Adjusted EBITDAX and Adjusted Net Income that include the interests of both Income attributable to Earthstone and the Income attributable to 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 | Years Ended | ||||||
| December 31, | December 31, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| Class A Common Stock - Diluted | 107,877,979 | 55,365,519 | 96,328,217 | 49,952,093 | |||
| Class B Common Stock | 34,260,337 | 34,349,183 | 34,278,075 | 34,407,211 | |||
| Adjusted Diluted Shares | 142,138,316 | 89,714,702 | 130,606,292 | 84,359,304 | |||
III. Net Income and Adjusted Net Income
We define “Adjusted Net Income” as net income plus, when applicable, unrealized (gain) loss on derivative contracts; impairment expense; loss (gain) on sale of oil and gas properties; transaction costs; and the associated changes in estimated income tax.
Our Adjusted Net Income measure provides consolidated 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 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 per share data) | Three Months Ended | Years Ended | |||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net income | $ | 185,157 | $ | 69,055 | $ | 650,617 | $ | 61,506 | |||||||
| Unrealized (gain) loss on derivative contracts | (42,163 | ) | (30,460 | ) | (70,769 | ) | 40,795 | ||||||||
| Loss (gain) on sale of oil and gas properties | 903 | 2 | (13,900 | ) | (738 | ) | |||||||||
| Transaction costs | (3,870 | ) | 1,969 | 8,248 | 4,875 | ||||||||||
| Income tax effect of the above | 7,221 | 473 | 11,832 | (1,015 | ) | ||||||||||
| Adjusted Net Income | $ | 147,248 | $ | 41,039 | $ | 586,028 | $ | 105,423 | |||||||
| Adjusted Diluted Shares | 142,138,316 | 89,714,702 | 130,606,292 | 84,359,304 | |||||||||||
| Adjusted Net Income per Adjusted Diluted Share | $ | 1.04 | $ | 0.46 | $ | 4.49 | $ | 1.25 | |||||||
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 benefit (expense) 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 | Years Ended | |||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net cash provided by operating activities | $ | 315,710 | $ | 83,564 | $ | 1,018,879 | $ | 230,874 | |||||||
| Adjustments - Condensed Consolidated Statements of Cash Flows | |||||||||||||||
| Settlement of asset retirement obligations | 246 | 82 | 910 | 185 | |||||||||||
| Gain on sale of office and other equipment | 169 | 26 | 321 | 140 | |||||||||||
| Amortization of deferred financing costs | (1,806 | ) | (275 | ) | (5,529 | ) | (856 | ) | |||||||
| Change in assets and liabilities | 5,782 | (3,182 | ) | 13,806 | 1,525 | ||||||||||
| Adjustments - Condensed Consolidated Statements of Operations | |||||||||||||||
| Transaction costs | (3,870 | ) | 1,969 | 8,248 | 4,875 | ||||||||||
| Exploration expense | 152 | 15 | 2,492 | 341 | |||||||||||
| Capital expenditures (accrual basis) | (181,884 | ) | (53,702 | ) | (530,596 | ) | (130,492 | ) | |||||||
| Free Cash Flow | $ | 134,499 | $ | 28,497 | $ | 508,531 | $ | 106,592 | |||||||
| ($000s) | Three Months Ended | Years Ended | |||||||||||||
| December 31, | December 31, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Adjusted EBITDAX | $ | 338,002 | $ | 85,327 | $ | 1,107,759 | $ | 247,880 | |||||||
| Interest expense, net | (23,890 | ) | (3,128 | ) | (66,821 | ) | (10,796 | ) | |||||||
| Current portion of income tax benefit (expense) | 2,271 | — | (1,811 | ) | — | ||||||||||
| Capital expenditures (accrual basis) | (181,884 | ) | (53,702 | ) | (530,596 | ) | (130,492 | ) | |||||||
| Free Cash Flow | $ | 134,499 | $ | 28,497 | $ | 508,531 | $ | 106,592 | |||||||
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 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.