THE WOODLANDS, Texas, Oct. 31, 2023 (GLOBE NEWSWIRE) -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we", "our" or "us"), today announced financial and operating results for the three and nine months ended September 30, 2023.
Permian Resources Merger Agreement
On October 30, 2023, at the special meeting of stockholders of Earthstone, the stockholders of Earthstone approved the previously disclosed merger agreement with Permian Resources Corporation and the transactions contemplated thereby (the "Merger Agreement"), among other proposals. The parties to the Merger Agreement expect the Mergers to close on or about November 1, 2023, subject to other customary closing conditions.
Third Quarter 2023 Highlights
- Closed the Novo Acquisition on August 15, 2023
- Average daily production of 116,967 Boepd(1)
- Net income(2) of $87.2 million, and Adjusted Net Income(3) of $106.2 million
- Adjusted EBITDAX(3) of $302.3 million
- Net cash provided by operating activities of $285.1 million
- Free Cash Flow(3) of $76.1 million
- Capital expenditures of $191.7 million
Year to Date 2023 Highlights
- Average daily production of 109,016 Boepd(1)
- Net income(2) of $255.8 million, and Adjusted Net Income(3) of $291.0 million
- Adjusted EBITDAX(3) of $808.0 million
- Net cash provided by operating activities of $761.9 million
- Free Cash Flow(3) of $159.8 million
- Capital expenditures of $568.4 million
(1) Represents reported sales volumes.
(2) Net income (GAAP) represents the sum of Net Income attributable to Earthstone Energy, Inc., plus the Net income attributable to noncontrolling interest. The related consolidated weighted average shares outstanding of Class A Common Stock and Class B Common Stock were 142.5 million shares and 142.0 million shares, respectively, on an as-converted basis, for the three and nine months ended September 30, 2023 ("Adjusted Diluted Shares", as reconciled in the "Non-GAAP Financial Measures" section below). All shares of our Class B Common Stock issued and outstanding are held by the noncontrolling interest group.
(3) See "Non-GAAP Financial Measures" section below.
Selected Financial Data (unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| ($000s except where noted) | 2023 | 2022 | 2023 | 2022 | |||||||||||
| Total revenues | $ | 475,816 | $ | 531,495 | $ | 1,258,960 | $ | 1,200,196 | |||||||
| Lease operating expense | 101,156 | 75,829 | 276,736 | 147,974 | |||||||||||
| General and administrative expense (excluding stock-based compensation) | 11,984 | 10,866 | 37,102 | 25,459 | |||||||||||
| Stock-based compensation | 14,524 | 3,322 | 26,977 | 15,112 | |||||||||||
| General and administrative expense | $ | 26,508 | $ | 14,188 | $ | 64,079 | $ | 40,571 | |||||||
| Net income | $ | 87,151 | $ | 299,312 | $ | 255,810 | $ | 465,460 | |||||||
| Less: Net income attributable to noncontrolling interest | 25,793 | 87,856 | 75,862 | 142,597 | |||||||||||
| Net income attributable to Earthstone Energy, Inc. | 61,358 | 211,456 | 179,948 | 322,863 | |||||||||||
| Adjusted EBITDAX(1) | $ | 302,276 | $ | 345,792 | $ | 808,024 | $ | 769,756 | |||||||
| Production(2): | |||||||||||||||
| Oil (MBbls) | 4,435 | 3,566 | 12,602 | 7,569 | |||||||||||
| Gas (MMcf) | 20,433 | 16,514 | 55,551 | 36,567 | |||||||||||
| NGL (MBbls) | 2,920 | 2,360 | 7,900 | 5,229 | |||||||||||
| Total (MBoe)(3) | 10,761 | 8,678 | 29,761 | 18,892 | |||||||||||
| Average Daily Production (Boepd) | 116,967 | 94,329 | 109,016 | 69,203 | |||||||||||
| Average Prices: | |||||||||||||||
| Oil ($/Bbl) | 82.65 | 93.12 | 77.68 | 99.93 | |||||||||||
| Gas ($/Mcf) | 1.92 | 6.90 | 1.62 | 6.37 | |||||||||||
| NGL ($/Bbl) | 23.96 | 36.23 | 24.06 | 40.31 | |||||||||||
| Total ($/Boe) | 44.22 | 61.24 | 42.30 | 63.53 | |||||||||||
| Adj. for Realized Derivatives Settlements: | |||||||||||||||
| Oil ($/Bbl) | 80.37 | 83.75 | 76.38 | 83.44 | |||||||||||
| Gas ($/Mcf) | 1.34 | 5.36 | 1.38 | 5.15 | |||||||||||
| NGL ($/Bbl) | 23.96 | 36.23 | 24.06 | 40.31 | |||||||||||
| Total ($/Boe) | 42.17 | 54.45 | 41.31 | 54.54 | |||||||||||
| Operating Margin per Boe | |||||||||||||||
| Average realized price | $ | 44.22 | $ | 61.24 | $ | 42.30 | $ | 63.53 | |||||||
| Lease operating expense | 9.40 | 8.74 | 9.30 | 7.83 | |||||||||||
| Production and ad valorem taxes | 3.57 | 4.63 | 3.47 | 4.64 | |||||||||||
| Operating margin per Boe(1) | 31.25 | 47.87 | 29.53 | 51.06 | |||||||||||
| Realized hedge settlements | (2.05 | ) | (6.79 | ) | (0.99 | ) | (8.99 | ) | |||||||
| Operating margin per Boe (including Realized Hedge Settlements)(1) | $ | 29.20 | $ | 41.08 | $ | 28.54 | $ | 42.07 | |||||||
(1) See the "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).
Recent Eagle Ford Basin Non-Core Assets Sale
Earthstone recently agreed to sell certain non-core assets located in Karnes and Gonzales counties of Texas on approximately 2,800 net acres for a purchase price of $66.5 million. For the third quarter of 2023, production was approximately 1,160 Boepd (83% oil). The transaction is expected to close late in the fourth quarter of 2023.
Liquidity and Equity Capitalization
As of September 30, 2023, we had $16.6 million of cash on hand and $700.4 million outstanding under our senior secured credit facility ("Credit Facility"). As of September 30, 2023, elected commitments under the Credit Facility were $1.75 billion with a borrowing base of $2.0 billion.
As of September 30, 2023, 106,443,591 shares of Class A Common Stock and 34,257,641 shares of Class B Common Stock were outstanding, resulting in 140,701,232 combined shares of common stock outstanding.
Commodity Hedging
Hedging Activities
The following tables set forth our outstanding derivative contracts as of September 30, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.
| Price Swaps | ||||||||
| Period | Commodity | Volume (Bbls / MMBtu) | Weighted Average Price ($/Bbl / $/MMBtu) | |||||
| Q4 2023 | Crude Oil | 653,200 | $74.25 | |||||
| Q1 - Q4 2024 | Crude Oil | 1,719,600 | $76.28 | |||||
| Q4 2023 | Crude Oil Basis Swap (1) | 2,346,000 | $0.92 | |||||
| Q4 2023 | Natural Gas | 1,150,000 | $3.35 | |||||
| Q4 2023 | Natural Gas Basis Swap (2) | 12,880,000 | $(1.67) | |||||
| Q1 - Q4 2024 | Natural Gas Basis Swap (2) | 36,600,000 | $(1.05) | |||||
| Q1 - Q4 2025 | Natural Gas Basis Swap (2) | 14,600,000 | $(0.74) | |||||
(1) The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
| Costless Collars | ||||||||||
| Period | Commodity | Volume (Bbls / MMBtu) | Bought Floor ($/Bbl / $/MMBtu) | Sold Ceiling ($/Bbl / $/MMBtu) | ||||||
| Q4 2023 | Crude Oil Costless Collar | 1,122,400 | $62.58 | $84.84 | ||||||
| Q1 - Q4 2024 | Crude Oil Costless Collar | 732,000 | $60.00 | $76.01 | ||||||
| Q4 2023 | Natural Gas Costless Collar | 7,090,400 | $3.00 | $4.91 | ||||||
| Q1 - Q4 2024 | Natural Gas Costless Collar | 14,640,000 | $2.56 | $4.51 | ||||||
| Deferred Premium Puts | ||||||||||
| Period | Commodity | Volume (Bbls / MMBtu) | $/Bbl (Put Price) | $/Bbl (Net of Premium) | ||||||
| Q4 2023 | Crude Oil | 395,600 | $70.00 | $64.54 | ||||||
| Q1 - Q4 2024 | Crude Oil | 915,000 | $65.00 | $60.04 | ||||||
About Earthstone Energy, Inc.
Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in acquisitions and the development and operation of oil and natural gas properties. Its primary assets are located in the Permian Basin of New Mexico and west Texas. Earthstone's Class A Common Stock is listed on the New York Stock Exchange under the symbol "ESTE." For more information, visit Earthstone's website at www.earthstoneenergy.com.
Forward-Looking Statements
The foregoing contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included in this communication that address activities, events or developments that Permian Resources or Earthstone expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "create," "intend," "could," "may," "foresee," "plan," "will," "guidance," "look," "outlook," "goal," "future," "assume," "forecast," "build," "focus," "work," "continue" or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to, statements regarding the Company's pending merger with Permian Resources Corporation (the "Transaction"), pro forma descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities and anticipated future performance. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this press release. These include the expected timing and likelihood of completion of the Transaction, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the Transaction that could reduce anticipated benefits or cause the parties to abandon the Transaction, the ability to successfully integrate the businesses, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, the risk that the parties may not be able to satisfy the conditions to the Transaction in a timely manner or at all, risks related to disruption of management time from ongoing business operations due to the Transaction, the risk that any announcements relating to the Transaction could have adverse effects on the market price of Permian Resources' common stock or Earthstone's common stock, the risk that the Transaction and its announcement could have an adverse effect on the ability of Permian Resources and Earthstone to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally, the risk the pending Transaction could distract management of both entities and they will incur substantial costs, the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or it may take longer than expected to achieve those synergies and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond Permian Resources' or Earthstone's control, including those detailed in Permian Resources' annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K that are available on its website at https://www.permianres.com and on the SEC's website at http://www.sec.gov, and those detailed in Earthstone's annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K that are available on Earthstone's website at https://www.earthstoneenergy.com and on the SEC's website at http://www.sec.gov. All forward-looking statements are based on assumptions that Permian Resources or Earthstone believe to be reasonable but that may not prove to be accurate. Any forward-looking statement speaks only as of the date on which such statement is made, and Permian Resources and Earthstone undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
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) | ||||||||
| September 30, | December 31, | |||||||
| ASSETS | 2023 | 2022 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 16,592 | $ | - | ||||
| Accounts receivable: | ||||||||
| Oil, natural gas, and natural gas liquids revenues | 177,353 | 161,531 | ||||||
| Joint interest billings and other, net of allowance of $19 and $19 at September 30, 2023 and December 31, 2022, respectively | 32,574 | 34,549 | ||||||
| Derivative asset | 1,542 | 31,331 | ||||||
| Prepaid expenses and other current assets | 40,323 | 18,854 | ||||||
| Total current assets | 268,384 | 246,265 | ||||||
| Oil and gas properties, successful efforts method: | ||||||||
| Proved properties | 5,488,844 | 3,987,901 | ||||||
| Unproved properties | 305,706 | 282,589 | ||||||
| Land | 6,338 | 5,482 | ||||||
| Total oil and gas properties | 5,800,888 | 4,275,972 | ||||||
| Accumulated depreciation, depletion and amortization | (955,434 | ) | (619,196 | ) | ||||
| Net oil and gas properties | 4,845,454 | 3,656,776 | ||||||
| Other noncurrent assets: | ||||||||
| Office and other equipment, net of accumulated depreciation of $6,601 and $5,273 at September 30, 2023 and December 31, 2022, respectively | 6,724 | 5,394 | ||||||
| Derivative asset | 507 | 9,117 | ||||||
| Operating lease right-of-use assets | 6,573 | 4,569 | ||||||
| Other noncurrent assets | 18,913 | 15,280 | ||||||
| TOTAL ASSETS | $ | 5,146,555 | $ | 3,937,401 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 61,995 | $ | 91,815 | ||||
| Revenues and royalties payable | 209,589 | 163,368 | ||||||
| Accrued expenses | 221,366 | 80,942 | ||||||
| Asset retirement obligation | 415 | 948 | ||||||
| Derivative liability | 50,369 | 14,053 | ||||||
| Advances | 6,338 | 7,312 | ||||||
| Operating lease liabilities | 923 | 842 | ||||||
| Finance lease liabilities | 1,359 | 802 | ||||||
| Other current liabilities | 23,689 | 16,202 | ||||||
| Total current liabilities | 576,043 | 376,284 | ||||||
| Noncurrent liabilities: | ||||||||
| Long-term debt, net | 1,722,066 | 1,053,879 | ||||||
| Deferred tax liability | 193,266 | 138,336 | ||||||
| Asset retirement obligation | 32,210 | 29,611 | ||||||
| Derivative liability | 7,612 | - | ||||||
| Operating lease liabilities | 3,286 | 3,889 | ||||||
| Finance lease liabilities | 1,538 | 876 | ||||||
| Other noncurrent liabilities | 28,633 | 10,509 | ||||||
| Total noncurrent liabilities | 1,988,611 | 1,237,100 | ||||||
| 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; 106,443,591 and 105,547,139 issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 106 | 106 | ||||||
| Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,257,641 and 34,259,641 issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 34 | 34 | ||||||
| Additional paid-in capital | 1,348,580 | 1,346,463 | ||||||
| Retained earnings | 472,659 | 292,711 | ||||||
| Total Earthstone Energy, Inc. equity | 1,821,379 | 1,639,314 | ||||||
| Noncontrolling interest | 760,522 | 684,703 | ||||||
| Total equity | 2,581,901 | 2,324,017 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 5,146,555 | $ | 3,937,401 | ||||
| EARTHSTONE ENERGY, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUES | ||||||||||||||||
| Oil | $ | 366,574 | $ | 332,036 | $ | 978,949 | $ | 756,420 | ||||||||
| Natural gas | 39,275 | 113,937 | 89,942 | 233,020 | ||||||||||||
| Natural gas liquids | 69,967 | 85,522 | 190,069 | 210,756 | ||||||||||||
| Total revenues | 475,816 | 531,495 | 1,258,960 | 1,200,196 | ||||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||
| Lease operating expense | 101,156 | 75,829 | 276,736 | 147,974 | ||||||||||||
| Production and ad valorem taxes | 38,419 | 40,219 | 103,377 | 87,729 | ||||||||||||
| Depreciation, depletion and amortization | 123,059 | 90,880 | 343,799 | 191,669 | ||||||||||||
| Impairment expense | - | - | 854 | - | ||||||||||||
| General and administrative expense | 26,508 | 14,188 | 64,079 | 40,571 | ||||||||||||
| Transaction costs | 1,503 | 1,778 | 1,904 | 12,118 | ||||||||||||
| Accretion of asset retirement obligation | 683 | 758 | 1,958 | 1,863 | ||||||||||||
| Exploration expense | 488 | 2,248 | 7,036 | 2,340 | ||||||||||||
| Total operating costs and expenses | 291,816 | 225,900 | 799,743 | 484,264 | ||||||||||||
| Gain on sale of oil and gas properties | 1,290 | 14,803 | 47,404 | 14,803 | ||||||||||||
| Income from operations | 185,290 | 320,398 | 506,621 | 730,735 | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense, net | (34,232 | ) | (20,988 | ) | (79,180 | ) | (42,931 | ) | ||||||||
| Write-off of deferred financing costs | - | - | (5,109 | ) | - | |||||||||||
| (Loss) gain on derivative contracts, net | (45,047 | ) | 60,286 | (111,820 | ) | (141,101 | ) | |||||||||
| Other income, net | 70 | 134 | 882 | 430 | ||||||||||||
| Total other income (expense) | (79,209 | ) | 39,432 | (195,227 | ) | (183,602 | ) | |||||||||
| Income before income taxes | 106,081 | 359,830 | 311,394 | 547,133 | ||||||||||||
| Income tax expense | (18,930 | ) | (60,518 | ) | (55,584 | ) | (81,673 | ) | ||||||||
| Net income | 87,151 | 299,312 | 255,810 | 465,460 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 25,793 | 87,856 | 75,862 | 142,597 | ||||||||||||
| Net income attributable to Earthstone Energy, Inc. | $ | 61,358 | $ | 211,456 | $ | 179,948 | $ | 322,863 | ||||||||
| Net income per common share attributable to Earthstone Energy, Inc.: | ||||||||||||||||
| Basic | $ | 0.58 | $ | 2.01 | $ | 1.69 | $ | 3.91 | ||||||||
| Diluted | $ | 0.57 | $ | 1.94 | $ | 1.67 | $ | 3.61 | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 106,332,278 | 105,254,778 | 106,172,873 | 82,483,635 | ||||||||||||
| Diluted | 108,285,229 | 109,278,661 | 107,741,704 | 92,844,854 | ||||||||||||
| EARTHSTONE ENERGY, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net income | $ | 87,151 | $ | 299,312 | $ | 255,810 | $ | 465,460 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation, depletion and amortization | 123,059 | 90,880 | 343,799 | 191,669 | ||||||||||||
| Impairment of proved and unproved oil and gas properties | - | - | 854 | - | ||||||||||||
| Accretion of asset retirement obligations | 683 | 758 | 1,958 | 1,863 | ||||||||||||
| Settlement of asset retirement obligations | (691 | ) | (189 | ) | (1,727 | ) | (664 | ) | ||||||||
| Gain on sale of oil and gas properties | (1,290 | ) | (14,803 | ) | (47,404 | ) | (14,803 | ) | ||||||||
| Gain on sale of office and other equipment | - | (106 | ) | (33 | ) | (152 | ) | |||||||||
| Total loss (gain) on derivative contracts, net | 45,047 | (60,286 | ) | 111,820 | 141,101 | |||||||||||
| Operating portion of net cash paid in settlement of derivative contracts | (22,051 | ) | (58,923 | ) | (29,494 | ) | (169,708 | ) | ||||||||
| Stock-based compensation - equity and liability awards | 14,524 | 3,322 | 26,977 | 15,112 | ||||||||||||
| Deferred income taxes | 18,701 | 57,045 | 54,930 | 77,591 | ||||||||||||
| Write-off of deferred financing costs | - | - | 5,109 | - | ||||||||||||
| Amortization of deferred financing costs | 2,245 | 1,654 | 5,704 | 3,723 | ||||||||||||
| Changes in assets and liabilities (net of assets and liabilities acquired): | ||||||||||||||||
| (Increase) decrease in accounts receivable | 220 | (5,189 | ) | 63,523 | (189,504 | ) | ||||||||||
| (Increase) decrease in prepaid expenses and other current assets | (10,473 | ) | (5,443 | ) | (11,307 | ) | (16,546 | ) | ||||||||
| Increase (decrease) in accounts payable and accrued expenses | 18,705 | 27,792 | (43,326 | ) | 92,450 | |||||||||||
| Increase (decrease) in revenues and royalties payable | 15,006 | 8,690 | 26,273 | 94,260 | ||||||||||||
| Increase (decrease) in advances | (5,705 | ) | 20,978 | (1,568 | ) | 11,317 | ||||||||||
| Net cash provided by operating activities | 285,131 | 365,492 | 761,898 | 703,169 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Acquisition of oil and gas properties, net of cash acquired | (848,404 | ) | (482,980 | ) | (924,482 | ) | (1,518,269 | ) | ||||||||
| Additions to oil and gas properties | (165,218 | ) | (144,728 | ) | (522,404 | ) | (325,109 | ) | ||||||||
| Additions to office and other equipment | (358 | ) | (338 | ) | (840 | ) | (1,694 | ) | ||||||||
| Proceeds from sales of oil and gas properties | 1,291 | 26,165 | 57,353 | 26,165 | ||||||||||||
| Net cash used in investing activities | (1,012,689 | ) | (601,881 | ) | (1,390,373 | ) | (1,818,907 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from borrowings under Credit Agreement | 1,576,782 | 877,156 | 3,467,269 | 2,348,728 | ||||||||||||
| Repayments of borrowings under Credit Agreement | (876,398 | ) | (880,424 | ) | (3,037,022 | ) | (2,276,996 | ) | ||||||||
| Proceeds from issuance of 8% Senior Notes due 2027, net | - | 6 | - | 537,256 | ||||||||||||
| Proceeds from issuance of 9.875% Senior Notes due 2031, net | (911 | ) | - | 480,304 | - | |||||||||||
| Proceeds from term loan | - | 244,209 | - | 244,209 | ||||||||||||
| Repayment of term loan | - | - | (250,000 | ) | - | |||||||||||
| Proceeds from issuance of Series A Convertible Preferred Stock, net of offering costs of $674 | - | - | - | 279,326 | ||||||||||||
| Cash paid related to the exchange and cancellation of Class A Common Stock | (990 | ) | (551 | ) | (8,131 | ) | (5,168 | ) | ||||||||
| Cash paid for finance leases | (158 | ) | (408 | ) | (599 | ) | (408 | ) | ||||||||
| Deferred financing costs | (3,675 | ) | (3,599 | ) | (6,754 | ) | (15,222 | ) | ||||||||
| Net cash provided by financing activities | 694,650 | 236,389 | 645,067 | 1,111,725 | ||||||||||||
| Net (decrease) increase in cash and cash equivalents | (32,908 | ) | - | 16,592 | (4,013 | ) | ||||||||||
| Cash and cash equivalents at beginning of period | 49,500 | - | - | 4,013 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 16,592 | $ | - | $ | 16,592 | $ | - | ||||||||
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 (loss) because of their wide acceptance by the investment community as financial indicators.
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 is a non-GAAP financial measure that 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 | Nine Months Ended | ||||||
| September 30, | September 30, | ||||||
| 2023 | 2022 | 2023 | 2022 | ||||
| Class A Common Stock - Diluted | 108,285,229 | 109,278,661 | 107,741,704 | 92,844,854 | |||
| Class B Common Stock | 34,257,641 | 34,261,641 | 34,258,945 | 34,284,053 | |||
| Adjusted Diluted Shares | 142,542,870 | 143,540,302 | 142,000,649 | 127,128,907 | |||
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 financial 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 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; depreciation, depletion and amortization; impairment expense; interest expense, net; transaction costs; gain on sale of oil and gas properties; exploration expense; unrealized loss (gain) 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:
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| ($000s) | 2023 | 2022 | 2023 | 2022 | |||||||||||
| Net income | $ | 87,151 | $ | 299,312 | $ | 255,810 | $ | 465,460 | |||||||
| Accretion of asset retirement obligations | 683 | 758 | 1,958 | 1,863 | |||||||||||
| Depreciation, depletion and amortization | 123,059 | 90,880 | 343,799 | 191,669 | |||||||||||
| Impairment expense | - | - | 854 | - | |||||||||||
| Interest expense, net | 34,232 | 20,988 | 79,180 | 42,931 | |||||||||||
| Transaction costs | 1,503 | 1,778 | 1,904 | 12,118 | |||||||||||
| Gain on sale of oil and gas properties | (1,290 | ) | (14,803 | ) | (47,404 | ) | (14,803 | ) | |||||||
| Exploration expense | 488 | 2,248 | 7,036 | 2,340 | |||||||||||
| Unrealized loss (gain) on derivative contracts | 22,996 | (119,209 | ) | 82,326 | (28,607 | ) | |||||||||
| Stock based compensation(1) | 14,524 | 3,322 | 26,977 | 15,112 | |||||||||||
| Income tax expense | 18,930 | 60,518 | 55,584 | 81,673 | |||||||||||
| Adjusted EBITDAX | $ | 302,276 | $ | 345,792 | $ | 808,024 | $ | 769,756 | |||||||
(1) Consists of expense for non-cash equity awards and cash-based liability awards that are expected to be settled in cash. 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.
III. Adjusted Net Income
We define "Adjusted Net Income" as net income plus, when applicable, unrealized loss (gain) on derivative contracts; impairment expense; 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 is a non-GAAP financial measure that 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 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 to Adjusted Net Income for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| ($000s, except share and per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||
| Net income | $ | 87,151 | $ | 299,312 | $ | 255,810 | $ | 465,460 | |||||||
| Unrealized loss (gain) on derivative contracts | 22,996 | (119,209 | ) | 82,326 | (28,607 | ) | |||||||||
| Impairment expense | - | - | 854 | - | |||||||||||
| Gain on sale of oil and gas properties | (1,290 | ) | (14,803 | ) | (47,404 | ) | (14,803 | ) | |||||||
| Write-off of deferred financing costs | - | - | 5,109 | - | |||||||||||
| Transaction costs | 1,503 | 1,778 | 1,904 | 12,118 | |||||||||||
| Income tax effect of the above | (4,141 | ) | 19,801 | (7,638 | ) | 4,611 | |||||||||
| Adjusted Net Income | $ | 106,219 | $ | 186,879 | $ | 290,961 | $ | 438,779 | |||||||
| Adjusted Diluted Shares | 142,542,870 | 143,540,302 | 142,000,649 | 127,128,907 | |||||||||||
| Adjusted Net Income per Adjusted Diluted Share | $ | 0.75 | $ | 1.30 | $ | 2.05 | $ | 3.45 | |||||||
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, Write-off of deferred financing costs, Amortization of deferred financing costs and Change in assets and liabilities from the Condensed Consolidated Statements of Cash Flows; plus (2) Transaction costs and Exploration 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 current portion of Income tax (expense) benefit, less accrual-based capital expenditures.
Management believes that Free Cash Flow, which measures our ability to generate cash in addition to 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:
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| ($000s) | 2023 | 2022 | 2023 | 2022 | |||||||||||
| Net cash provided by operating activities | $ | 285,131 | $ | 365,492 | $ | 761,898 | $ | 703,169 | |||||||
| Adjustments - Condensed Consolidated Statements of Cash Flows | |||||||||||||||
| Settlement of asset retirement obligations | 691 | 189 | 1,727 | 664 | |||||||||||
| Gain on sale of office and other equipment | - | 106 | 33 | 152 | |||||||||||
| Write-off of deferred financing costs | - | - | (5,109 | ) | - | ||||||||||
| Amortization of deferred financing costs | (2,245 | ) | (1,654 | ) | (5,704 | ) | (3,723 | ) | |||||||
| Change in assets and liabilities | (17,753 | ) | (46,828 | ) | (33,595 | ) | 8,023 | ||||||||
| Adjustments - Condensed Consolidated Statements of Operations | |||||||||||||||
| Transaction costs | 1,503 | 1,778 | 1,904 | 12,118 | |||||||||||
| Exploration expense | 488 | 2,248 | 7,036 | 2,340 | |||||||||||
| Capital expenditures (accrual basis) | (191,711 | ) | (147,152 | ) | (568,423 | ) | (348,712 | ) | |||||||
| Free Cash Flow | $ | 76,104 | $ | 174,179 | $ | 159,767 | $ | 374,031 | |||||||
Alternate calculation of Free Cash Flow for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| ($000s) | 2023 | 2022 | 2023 | 2022 | |||||||||||
| Adjusted EBITDAX | $ | 302,276 | $ | 345,792 | $ | 808,024 | $ | 769,756 | |||||||
| Interest expense, net | (34,232 | ) | (20,988 | ) | (79,180 | ) | (42,931 | ) | |||||||
| Current portion of income tax expense | (229 | ) | (3,473 | ) | (654 | ) | (4,082 | ) | |||||||
| Capital expenditures (accrual basis) | (191,711 | ) | (147,152 | ) | (568,423 | ) | (348,712 | ) | |||||||
| Free Cash Flow | $ | 76,104 | $ | 174,179 | $ | 159,767 | $ | 374,031 | |||||||
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.
