Earthstone Energy, Inc. Reports 2021 Fourth Quarter and Full Year Results
Earthstone Energy, Inc. (NYSE: ESTE) reported strong financial results for Q4 2021, highlighting a net income of $39.8 million ($0.72 per diluted share) and adjusted EBITDAX of $85.3 million, a 186% increase year-over-year. The Company achieved an average daily production of 30,244 Boepd, a 104% rise from Q4 2020. For the full year, Earthstone's net income was $35.5 million, with free cash flow up 48% to $106.6 million. The successful execution of multiple acquisitions boosted production capacity and financial performance, positioning Earthstone for significant growth in 2022.
- Net income of $39.8 million in Q4 2021, a significant recovery from a net loss in the previous year.
- Adjusted EBITDAX of $85.3 million, up 186% compared to Q4 2020.
- Average daily production increased to 30,244 Boepd, a 104% rise over the same quarter last year.
- Free cash flow of $28.5 million in Q4 2021, up 238% year-over-year.
- Total proved reserves valued at $2.0 billion, significantly enhancing asset base.
- Total revenues of $144 million in Q4 2021, while impressive, still reflect challenges in broader market conditions.
- Long-term debt increased to $652 million as of March 1, 2022, raising concerns over financial leverage.
THE WOODLANDS, Texas, March 9, 2022 /PRNewswire/ -- 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, 2021.
Fourth Quarter 2021 Highlights
- Executed the Chisholm Acquisition PSA on December 15, 2021 which closed subsequent to year-end on February 15, 2022
- Closed the Foreland Acquisition on November 2, 2021
- Net income attributable to Earthstone Energy, Inc. of
$39.8 million , or$0.72 per Diluted Share - Net income of
$69.1 million or$0.77 per Adjusted Diluted Share(1) - Adjusted net income(1) of
$41.0 million or$0.46 per Adjusted Diluted Share(1) - Adjusted EBITDAX(3) of
$85.3 million , up186% compared to Q4 2020 - Net cash provided by operating activities of
$83.6 million - Free Cash Flow(1) of
$28.5 million , up238% compared to Q4 2020 - Average daily production of 30,244 Boepd(2), up
104% compared to Q4 2020
Full Year 2021 Highlights
- Closed the IRM Acquisition(3), Tracker Acquisition(4), Eagle Ford working interest acquisitions(5) and Foreland Acquisition(6)
$2.0 billion PV-10(1) value of estimated total proved reserves of 147.6 MMBoe at December 31, 2021 based on SEC pricing$1.4 billion PV-10(1) value of estimated proved developed reserves of 93.6 MMBoe included in total proved reserve estimates above- Net income attributable to Earthstone Energy, Inc. of
$35.5 million , or$0.71 per Diluted Share - Net income of
$61.5 million or$0.73 per Adjusted Diluted Share(1) - Adjusted net income(1) of
$105.4 million or$1.25 per Adjusted Diluted Share(1) - Adjusted EBITDAX(1) of
$247.9 million , up72% year over year - Net cash provided by operating activities of
$230.9 million - Free Cash Flow(1) of
$106.6 million , up48% year over year - Average daily production of 24,809 Boepd(2), up
62% year over year
(1) | See "Non-GAAP Financial Measures" section below. |
(2) | Represents reported sales volumes. |
(3) | On January 7, 2021, we closed our acquisition (the "IRM Acquisition") of Independence Resources Management, LLC and certain of its affiliates ("IRM"). |
(4) | On July 20, 2021, we consummated the transactions contemplated in two purchase and sale agreements (the "Tracker Acquisition"). A significant shareholder of Earthstone owned |
(5) | We acquired additional working interests in certain of our Eagle Ford Trend properties in May and June 2021 for |
(6) | On November 2, 2021, we consummated the transactions contemplated in two purchase and sale agreements (the "Foreland Acquisition"). |
Management Comments
Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our outstanding fourth quarter results reflect both our employees' dedication and our transformation into a larger, low-cost producer in the Permian Basin. We completed four acquisitions during 2021, enabling us to more than double our average daily production in the fourth quarter compared to 2020 and to expand our operating footprint. Driven by our high-margin drilling program and successful acquisition strategy, we were able to increase Free Cash Flow and Adjusted EBITDAX by approximately
"So far in 2022, we have closed the Chisholm Acquisition and announced the Bighorn Acquisition, which when combined with our existing asset base, should more than double our average daily production yet again in the second half of the year compared to the beginning of 2022. Based on the mid-point of our guidance, we anticipate that we will generate significant Free Cash Flow in 2022 while only reinvesting a little more than half of our Adjusted EBITDAX. We have intentionally structured these accretive acquisitions of well-located assets in such a way that it maintains the strength of our balance sheet, and we expect to be below our target leverage of 1.0x Debt to Adjusted EBITDAX by year-end 2022.
"While we remain open to potential acquisitions that fit our criteria, we intend to make efficient integration our near-term priority. We are better positioned today to optimize our operations and generate substantial Free Cash Flow, and we are confident that our strategy and execution will drive meaningful shareholder value. We enter 2022 as a transformed company compared to who we were a year ago and we are excited to be moving forward as a larger and stronger company."
Current Operations
We continue to operate four drilling rigs with two in each of the Midland Basin and the northern Delaware Basin. Thus far in 2022, we have brought online five gross (5.0 net) wells in the Midland Basin. Prior to the closing of the Chisholm Acquisition on February 15, 2022, five gross (3.2 net) wells were brought online in the northern Delaware Basin. Currently, we are completing six gross (6.0 net) wells in Upton County, Texas with a single frac crew. Additionally, six gross (4.8 net) wells are waiting on completion across our Midland Basin operated assets and four gross (2.7 net) wells are waiting on completion across our Delaware Basin operated assets. We expect to maintain this development pace throughout 2022, as disclosed in our recently released guidance.
Selected Financial Data (unaudited) | |||||||
( | Three Months Ended | Years Ended | |||||
December 31, | December 31, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
Total revenues | $ 144,016 | $ 36,675 | $ 419,643 | $ 144,523 | |||
Lease operating expense | 13,742 | 7,160 | 49,321 | 29,131 | |||
General and administrative expense (excluding stock-based compensation) | 6,329 | 6,229 | 20,908 | 18,179 | |||
Stock-based compensation | 10,393 | 2,389 | 21,014 | 10,054 | |||
General and administrative expense | $ 16,722 | $ 8,618 | $ 41,922 | $ 28,233 | |||
Net income (loss) | $ 69,055 | $ (18,381) | $ 61,506 | $ (29,434) | |||
Less: Net income (loss) attributable to noncontrolling interest | 29,285 | (9,910) | 26,022 | (15,887) | |||
Net income (loss) attributable to Earthstone Energy, Inc. | 39,770 | (8,471) | 35,484 | (13,547) | |||
Net income (loss) per common share(1) | |||||||
Basic | 0.76 | (0.28) | 0.75 | (0.45) | |||
Diluted | 0.72 | (0.28) | 0.71 | (0.45) | |||
Adjusted EBITDAX(2) | $ 85,327 | $ 29,798 | $ 247,880 | $ 144,246 | |||
Production(3): | |||||||
Oil (MBbls) | 1,187 | 660 | 4,381 | 3,180 | |||
Gas (MMcf) | 5,015 | 2,251 | 14,505 | 7,282 | |||
NGL (MBbls) | 760 | 327 | 2,257 | 1,198 | |||
Total (MBoe)(4) | 2,782 | 1,362 | 9,055 | 5,591 | |||
Average Daily Production (Boepd) | 30,244 | 14,809 | 24,809 | 15,276 | |||
Average Prices: | |||||||
Oil ($/Bbl) | 77.02 | 41.43 | 67.83 | 37.85 | |||
Gas ($/Mcf) | 4.77 | 1.65 | 3.50 | 1.18 | |||
NGL ($/Bbl) | 37.80 | 17.18 | 31.76 | 13.03 | |||
Total ($/Boe) | 51.76 | 26.92 | 46.34 | 25.85 | |||
Adj. for Realized Derivatives Settlements: | |||||||
Oil ($/Bbl) | 55.85 | 54.21 | 52.32 | 37.85 | |||
Gas ($/Mcf) | 3.66 | 1.67 | 2.89 | 1.18 | |||
NGL ($/Bbl) | 37.80 | 17.18 | 31.76 | 13.03 | |||
Total ($/Boe) | 40.73 | 33.15 | 37.86 | 35.89 | |||
Operating Margin per Boe | |||||||
Average realized price | $ 51.76 | $ 26.92 | $ 46.34 | $ 25.85 | |||
Lease operating expense | 4.94 | 5.26 | 5.45 | 5.21 | |||
Production and ad valorem taxes | 3.23 | 1.62 | 2.92 | 1.68 | |||
Operating margin per Boe(2) | 43.59 | 20.04 | 37.97 | 18.96 | |||
Realized hedge settlements | (11.03) | 6.23 | (8.48) | 10.04 | |||
Operating margin per Boe (including realized hedge settlements) | $ 32.56 | $ 26.27 | $ 29.49 | $ 29.00 | |||
(1) | Net income (loss) per common share attributable to Earthstone Energy, Inc. |
(2) | See "Non-GAAP Financial Measures" 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). |
Liquidity Update
As of December 31, 2021, we had
As of March 1, 2022, we had approximately
Capital Expenditures
During 2021, we incurred capital expenditures of approximately
Hedge Position
Hedging Activities
The following table sets forth our outstanding derivative contracts at December 31, 2021. When aggregating multiple contracts, the weighted average contract price is disclosed.
Period | Commodity | Volume (Bbls / MMBtu) | Price ($/Bbl / $/MMBtu) | |||
2022 | Crude Oil Swap | 2,768,250 | ||||
2022 | Crude Oil Basis Swap(1) | 3,832,500 | ||||
2022 | Natural Gas Swap | 5,900,000 | ||||
2022 | Natural Gas Basis Swap(2) | 9,100,000 | ||||
2023 | Natural Gas Swap | 1,375,000 |
(1) | The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX. |
(2) | The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX. |
Costless Collars | ||||||||
Period | Commodity | Volume (Bbls / MMBtu) | Bought Floor ($/Bbl / $/MMBtu) | Sold Ceiling ($/Bbl / $/MMBtu) | ||||
2022 | Crude Oil Costless Collar | 730,000 | $ 60.00 | $ 73.73 | ||||
2023 | Crude Oil Costless Collar | 365,000 | $ 55.00 | $ 71.75 | ||||
2022 | Natural Gas Costless Collar | 4,037,500 | $ 3.43 | $ 5.10 | ||||
2023 | Natural Gas Costless Collar | 888,000 | $ 3.25 | $ 5.13 | ||||
Hedging Update
The following table sets forth our outstanding derivative contracts at March 1, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.
Period | Commodity | Volume (Bbls / MMBtu) | Price ($/Bbl / $/MMBtu) | |||
2022 | Crude Oil Swap | 3,930,750 | ||||
2022 | Crude Oil Basis Swap(1) | 4,322,500 | ||||
2023 | Crude Oil Swap | 1,277,500 | ||||
2023 | Crude Oil Basis Swap(1) | 730,000 | ||||
2022 | Natural Gas Swap | 8,782,000 | ||||
2022 | Natural Gas Basis Swap(2) | 9,100,000 | ||||
2023 | Natural Gas Swap | 3,670,000 | ||||
2023 | Natural Gas Basis Swap(2) | 25,550,000 | ||||
2024 | Natural Gas Basis Swap(2) | 25,620,000 |
(1) | The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX. |
(2) | The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX. |
Costless Collars | ||||||||
Period | Commodity | Volume (Bbls / MMBtu) | Bought Floor ($/Bbl / $/MMBtu) | Sold Ceiling ($/Bbl / $/MMBtu) | ||||
2022 | Crude Oil Costless Collar | 1,740,000 | $ 68.45 | $ 82.57 | ||||
2023 | Crude Oil Costless Collar | 1,715,500 | $ 62.98 | $ 80.34 | ||||
2022 | Natural Gas Costless Collar | 14,987,500 | $ 3.67 | $ 5.47 | ||||
2023 | Natural Gas Costless Collar | 13,188,000 | $ 3.28 | $ 4.84 | ||||
Conference Call Details
Earthstone is hosting a conference call on Thursday, March 10, 2022 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 2021 and its outlook for 2022. 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 24, 2022. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13727616.
About Earthstone Energy, Inc.
Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in developing and operating oil and gas properties. The Company's primary assets are located in the Midland Basin of West Texas, the Eagle Ford Trend in South Texas and the Delaware Basin in New Mexico. Earthstone is traded 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, 2021 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
Mark Lumpkin, Jr.
Executive Vice President – Chief Financial Officer
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, TX 77380
281-298-4246
mark.lumpkin@earthstoneenergy.com
Scott Thelander
Vice President of Finance
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, TX 77380
281-298-4246
scott@earthstoneenergy.com
EARTHSTONE ENERGY, INC. | |||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||
(In thousands, except share and per share amounts) | |||
December 31, | |||
ASSETS | 2021 | 2020 | |
Current assets: | |||
Cash | $ 4,013 | $ 1,494 | |
Accounts receivable: | |||
Oil, natural gas, and natural gas liquids revenues | 50,575 | 16,255 | |
Joint interest billings and other, net of allowance of | 2,930 | 7,966 | |
Derivative asset | 1,348 | 7,509 | |
Prepaid expenses and other current assets | 2,549 | 1,509 | |
Total current assets | 61,415 | 34,733 | |
Oil and gas properties, successful efforts method: | |||
Proved properties | 1,625,367 | 1,017,496 | |
Unproved properties | 222,025 | 233,767 | |
Land | 5,382 | 5,382 | |
Total oil and gas properties | 1,852,774 | 1,256,645 | |
Accumulated depreciation, depletion and amortization | (395,625) | (291,213) | |
Net oil and gas properties | 1,457,149 | 965,432 | |
Other noncurrent assets: | |||
Goodwill | — | — | |
Office and other equipment, net of accumulated depreciation of | 1,986 | 931 | |
Derivative asset | 157 | 396 | |
Operating lease right-of-use assets | 1,795 | 2,450 | |
Other noncurrent assets | 33,865 | 1,315 | |
TOTAL ASSETS | $ 1,556,367 | $ 1,005,257 | |
LIABILITIES AND EQUITY | |||
Current liabilities: | |||
Accounts payable | $ 31,397 | $ 6,232 | |
Revenues and royalties payable | 36,189 | 27,492 | |
Accrued expenses | 31,704 | 16,504 | |
Asset retirement obligation | 395 | 447 | |
Derivative liability | 45,310 | 1,135 | |
Advances | 4,088 | 2,277 | |
Operating lease liability | 681 | 773 | |
Finance lease liability | — | 69 | |
Other current liability | 851 | 565 | |
Total current liabilities | 150,615 | 55,494 | |
Noncurrent liabilities: | |||
Long-term debt | 320,000 | 115,000 | |
Asset retirement obligation | 15,471 | 2,580 | |
Derivative liability | 571 | 173 | |
Deferred tax liability | 15,731 | 14,497 | |
Operating lease liability | 1,276 | 1,840 | |
Finance lease liability | — | 5 | |
Other noncurrent liabilities | 6,442 | 132 | |
Total noncurrent liabilities | 359,491 | 134,227 | |
Equity: | |||
Preferred stock, | — | — | |
Class A Common Stock, | 53 | 30 | |
Class B Common Stock, | 34 | 35 | |
Additional paid-in capital | 718,181 | 540,074 | |
Accumulated deficit | (159,774) | (195,258) | |
Total Earthstone Energy, Inc. equity | 558,494 | 344,881 | |
Noncontrolling interest | 487,767 | 470,655 | |
Total equity | 1,046,261 | 815,536 | |
TOTAL LIABILITIES AND EQUITY | $ 1,556,367 | $ 1,005,257 | |
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, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
REVENUES | |||||||
Oil | $ 91,389 | $ 27,338 | $ 297,177 | $ 120,355 | |||
Natural gas | 23,899 | 3,712 | 50,809 | 8,567 | |||
Natural gas liquids | 28,728 | 5,625 | 71,657 | 15,601 | |||
Total revenues | 144,016 | 36,675 | 419,643 | 144,523 | |||
OPERATING COSTS AND EXPENSES | |||||||
Lease operating expense | 13,742 | 7,160 | 49,321 | 29,131 | |||
Production and ad valorem taxes | 8,981 | 2,213 | 26,409 | 9,411 | |||
Rig idle and termination expense | — | — | — | 426 | |||
Impairment expense | — | 1,950 | — | 64,498 | |||
Depreciation, depletion and amortization | 28,874 | 20,318 | 106,367 | 96,414 | |||
General and administrative expense | 16,722 | 8,618 | 41,922 | 28,233 | |||
Transaction costs | 1,969 | 946 | 4,875 | 622 | |||
Accretion of asset retirement obligation | 149 | 170 | 1,065 | 307 | |||
Exploration expense | 15 | — | 341 | 298 | |||
Total operating costs and expenses | 70,452 | 41,375 | 230,300 | 229,340 | |||
(Loss) gain on sale of oil and gas properties, net | (2) | 6 | 738 | 204 | |||
Income (loss) from operations | 73,562 | (4,694) | 190,081 | (84,613) | |||
OTHER INCOME (EXPENSE) | |||||||
Interest expense, net | (3,128) | (1,025) | (10,796) | (5,232) | |||
Write-off of deferred financing costs | — | — | — | — | |||
Gain (loss) on derivative contracts, net | 805 | (13,166) | (116,761) | 59,899 | |||
Other income, net | 18 | 280 | 841 | 400 | |||
Total other (expense) income | (2,305) | (13,911) | (126,716) | 55,067 | |||
Income (loss) before income taxes | 71,257 | (18,605) | 63,365 | (29,546) | |||
Income tax (expense) benefit | (2,202) | 224 | (1,859) | 112 | |||
Net income (loss) | 69,055 | (18,381) | 61,506 | (29,434) | |||
Less: Net income (loss) attributable to noncontrolling interest | 29,285 | (9,910) | 26,022 | (15,887) | |||
Net income (loss) attributable to Earthstone Energy, Inc. | $ 39,770 | $ (8,471) | $ 35,484 | $ (13,547) | |||
Net income (loss) per common share attributable to Earthstone Energy, Inc.: | |||||||
Basic | $ 0.76 | $ (0.28) | $ 0.75 | $ (0.45) | |||
Diluted | $ 0.72 | $ (0.28) | $ 0.71 | $ (0.45) | |||
Weighted average common shares outstanding: | |||||||
Basic | 52,401,448 | 30,212,191 | 47,169,948 | 29,911,625 | |||
Diluted | 55,365,519 | 30,212,191 | 49,952,093 | 29,911,625 | |||
EARTHSTONE ENERGY, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||
(In thousands) | |||||
For the Years Ended December 31, | |||||
2021 | 2020 | 2019 | |||
Cash flows from operating activities: | |||||
Net income (loss) | $ 61,506 | $ (29,434) | $ 1,580 | ||
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 | 106,367 | 96,414 | 69,243 | ||
Accretion of asset retirement obligations | 1,065 | 307 | 214 | ||
Impairment of goodwill | — | 17,620 | — | ||
Gain on sale of oil and gas properties, net | (738) | (204) | (3,222) | ||
Gain on sale of office and other equipment | (140) | — | — | ||
Settlement of asset retirement obligations | (185) | (195) | (374) | ||
Total loss (gain) on derivative contracts, net | 116,761 | (59,899) | 43,983 | ||
Operating portion of net cash received in settlement of derivative contracts | (75,966) | 56,044 | 15,866 | ||
Stock-based compensation | 21,014 | 10,054 | 8,648 | ||
Deferred income taxes | 1,859 | (657) | 1,665 | ||
Write-off of deferred financing costs | — | — | 1,242 | ||
Amortization of deferred financing costs | 856 | 322 | 412 | ||
Changes in assets and liabilities: | |||||
(Increase) decrease in accounts receivable | (19,061) | 11,914 | (18,035) | ||
(Increase) decrease in prepaid expenses and other current assets | 58 | (203) | 66 | ||
Increase (decrease) in accounts payable and accrued expenses | 9,293 | 481 | (10,438) | ||
Increase (decrease) in revenues and royalties payable | 5,985 | (8,323) | 7,067 | ||
Increase (decrease) in advances | 2,200 | (9,617) | 8,331 | ||
Net cash provided by operating activities | 230,874 | 131,502 | 126,248 | ||
Cash flows from investing activities: | |||||
Acquisition of oil and gas properties | (311,324) | — | — | ||
Additions to oil and gas properties | (114,521) | (88,097) | (204,268) | ||
Additions to office and other equipment | (1,365) | (114) | (527) | ||
Proceeds from sales of oil and gas properties | 975 | 414 | 4,184 | ||
Net cash used in investing activities | (426,235) | (87,797) | (200,611) | ||
Cash flows from financing activities: | |||||
Proceeds from borrowings | 744,132 | 136,056 | 234,680 | ||
Repayments of borrowings | (539,132) | (191,056) | (143,508) | ||
Cash paid related to the exchange and cancellation of Class A Common Stock | (4,144) | (836) | (1,135) | ||
Cash paid for finance leases | (70) | (130) | (392) | ||
Deferred financing costs | (2,906) | (67) | (1,836) | ||
Net cash (used in) provided by financing activities | 197,880 | (56,033) | 87,809 | ||
Net increase (decrease) in cash | 2,519 | (12,328) | 13,446 | ||
Cash at beginning of period | 1,494 | 13,822 | 376 | ||
Cash at end of period | $ 4,013 | $ 1,494 | $ 13,822 | ||
Supplemental disclosure of cash flow information | |||||
Cash paid for: | |||||
Interest | $ 9,648 | $ 4,588 | $ 6,405 | ||
Income Taxes | $ 325 | $ — | $ — | ||
Non-cash investing and financing activities: | |||||
Class A Common stock issued in IRM Acquisition | $ 76,572 | $ — | $ — | ||
Class A Common stock issued in Tracker/Sequel Acquisitions | $ 61,814 | $ — | $ — | ||
Class A Common stock issued in Foreland Acquisitions | $ 28,121 | $ — | $ — | ||
Accrued capital expenditures | $ 23,558 | $ 7,328 | $ 28,356 | ||
Lease asset additions - ASC 842 | $ — | $ — | $ 3,722 | ||
Asset retirement obligations | $ 2,178 | $ 762 | $ 105 | ||
Earthstone Energy, Inc.
Non-GAAP Financial Measures
Unaudited
The non-GAAP financial measures of Adjusted Diluted Shares, Adjusted EBITDAX, Adjusted Net Income, All-In Cash Costs, 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 its wide acceptance by the investment community as a financial indicator.
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 measure 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 (loss) as an indicator of operating performance.
Adjusted Diluted Shares for the periods indicated:
Three Months Ended | Years Ended | ||||||
December 31, | December 31, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
Class A Common Stock - Diluted | 55,365,519 | 30,212,191 | 49,952,093 | 29,911,625 | |||
Class B Common Stock | 34,349,183 | 35,009,371 | 34,407,211 | 35,077,711 | |||
Adjusted Diluted Shares | 89,714,702 | 65,221,562 | 84,359,304 | 64,989,336 | |||
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 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 (loss) 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 (loss) 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 (loss) to Adjusted EBITDAX for the periods indicated:
( | Three Months Ended | Years Ended | |||||
December 31, | December 31, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
Net income (loss) | $ 69,055 | $ (18,381) | $ 61,506 | $ (29,434) | |||
Accretion of asset retirement obligations | 149 | 170 | 1,065 | 307 | |||
Impairment expense | — | 1,950 | — | 64,498 | |||
Depletion, depreciation and amortization | 28,874 | 20,318 | 106,367 | 96,414 | |||
Interest expense, net | 3,128 | 1,025 | 10,796 | 5,232 | |||
Transaction costs | 1,969 | 946 | 4,875 | 622 | |||
Loss (gain) on sale of oil and gas properties, net | 2 | (6) | (738) | (204) | |||
Rig idle and termination expense | — | — | — | 426 | |||
Exploration expense | 15 | — | 341 | 298 | |||
Unrealized (gain) loss on derivative contracts | (30,460) | 21,611 | 40,795 | (3,855) | |||
Stock-based compensation(1) | 10,393 | 2,389 | 21,014 | 10,054 | |||
Income tax expense (benefit) | 2,202 | (224) | 1,859 | (112) | |||
Adjusted EBITDAX | $ 85,327 | $ 29,798 | $ 247,880 | $ 144,246 | |||
(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 9, 2022, cash-based liability awards were settled in the amount of |
III. Adjusted Net Income
We define "Adjusted Net Income" as net income (loss) 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 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 (loss) 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:
( | Three Months Ended | Years Ended | |||||
December 31, | December 31, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
Net income (loss) | $ 69,055 | $ (18,381) | $ 61,506 | $ (29,434) | |||
Unrealized (gain) loss on derivative contracts | (30,460) | 21,611 | 40,795 | (3,855) | |||
Impairment expense | — | 1,950 | — | 64,498 | |||
Loss (gain) on sale of oil and gas properties | 2 | (6) | (738) | (204) | |||
Transaction costs | 1,969 | 946 | 4,875 | 622 | |||
Income tax effect of the above | 473 | (298) | (1,015) | (1,611) | |||
Adjusted Net Income | $ 41,039 | $ 5,822 | $ 105,423 | $ 30,016 | |||
Adjusted Diluted Shares | 89,714,702 | 65,221,562 | 84,359,304 | 64,989,336 | |||
Adjusted Net Income per Adjusted Diluted Share | $ 0.46 | $ 0.09 | $ 1.25 | $ 0.46 | |||
IV. Free Cash Flow
Free cash flow is a measure that we use as an indicator of our ability to fund our development activities. We define free cash flow as Adjusted EBITDAX (defined above), less interest expense, less accrual-based capital expenditures.
( | Three Months Ended | Years Ended | |||||
December 31, | December 31, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
Adjusted EBITDAX | $ 85,327 | $ 29,798 | $ 247,880 | $ 144,246 | |||
Interest expense, net | (3,128) | (1,025) | (10,796) | (5,232) | |||
Capital expenditures (accrual basis) | (53,702) | (20,346) | (130,492) | (66,788) | |||
Free Cash Flow | $ 28,497 | $ 8,427 | $ 106,592 | $ 72,226 | |||
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 (loss) 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.
VI. PV-10
The non-GAAP financial measure of PV-10, as defined and presented below, is intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with GAAP.
PV-10 is derived from the standardized measure of discounted future net cash flows ("Standardized Measure"), which is the most directly comparable financial measure under GAAP. 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
The following table provides a reconciliation of PV-10 of the Company's estimated proved properties to the Standardized Measure as of December 31, 2021 (in thousands):
Present value of estimated future net revenues (PV-10) | $ 2,016,686 | |
Future income taxes, discounted at | (198,314) | |
Standardized measure of discounted future net cash flows | $ 1,818,372 |
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SOURCE Earthstone Energy, Inc.
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