Enters 2019 with record production and strong financial position
Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the “Company”, “our”
or “we”), today provided an operations update and 2019 guidance. The
Company has estimated its oil and gas sales volumes for the fourth
quarter of 2018 at approximately 959,000 Boe or an average of
approximately 10,430 Boepd (69% oil, 86% liquids). The Company had
approximately 1,100 Boepd shut-in across 11 gross operated and three
gross non-operated wells during the fourth quarter of 2018 due to offset
completion activity. For the year ended December 31, 2018, the Company
estimates its annual sales volumes grew 26% to approximately 3.62
million Boe, or an average of approximately 9,930 Boepd compared to
7,869 Boepd reported for the year ended December 31, 2017.
Key investment highlights include:
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Company record estimated sales volumes for 2018 of 9,930 Boepd,
representing a 26% increase over 2017
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Strong balance sheet and liquidity position with a $275 million senior
secured revolving credit facility and outstanding debt of only $78.8
million
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Hedge book with swaps in place for 2019 on 84% of the midpoint of 2019
oil guidance at an average price of $65.67 per barrel
2019 Guidance
The Company has set its 2019 capital budget, which assumes a one-rig
operated program and non-operated activities as currently proposed by
operators, for its acreage in the Midland Basin as well as anticipated
activity on its operated Eagle Ford acreage. This budget is subject to
change due to changes in service costs and non-operated activity,
amongst other factors.
Management is targeting free cash flow neutrality in 2020 and currently
estimates that approximately $50 million of the Company’s 2019 capital
budget, shown below, is applicable to production growth for 2020 rather
than 2019. Further, although we continue to focus on trades and
acquisitions that will enhance our existing operated acreage and
production, our projected capital expenditures do not include any
acquisitions. Capital expenditures, production and operating costs for
2019 are currently estimated to be:
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2019 Capital Expenditures
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$ millions (Net)
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Number of Gross / Net Wells Spudded
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Number of Gross / Net Wells On Line
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Drilling and Completion:
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Operated Midland Basin (1 Rig)
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$118
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16 / 13.5
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13 / 11.2
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Non-Operated Midland Basin
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47
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20 / 5
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19 / 5.6
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Operated Eagle Ford
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10
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7 / 1.5
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7 / 1.5
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Land / Infrastructure
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15
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2019 Total Capital Expenditures
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$190
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2019 Average Daily Production (Boepd)
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11,000 - 12,000
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% Oil
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65%
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% Gas
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16%
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% NGL
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19%
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2019 Operating Costs
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Lease Operating and Workover ($/Boe)
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$5.25 - $5.75
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Production Taxes (% of Revenue)
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5.0% - 5.3%
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Cash G&A ($/Boe)
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$5.00 - $5.50
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Note: Guidance is forward-looking information that is subject to
considerable change and numerous risks and uncertainties, many of which
are beyond Earthstone’s control. See “Forward-Looking Statements”
section below.
Hedging Position
Price Swaps
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Commodity
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Volume
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Weighted Average Price
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(Bbls / MMBtu)
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($/Bbl / $/MMBtu)
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2019
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Crude Oil
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2,292,100
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$65.67
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Crude Oil Basis Swap(1)
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2,007,500
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($5.36)
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Crude Oil Basis Swap(2)
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365,000
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$4.50
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Natural Gas
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3,740,500
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$2.86
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Natural Gas (Basis Swap)(3)
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3,740,500
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($1.14)
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2020
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Crude Oil
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1,464,000
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$65.87
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Crude Oil Basis Swap(1)
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1,464,000
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($2.74)
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Natural Gas
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2,562,000
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$2.85
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Natural Gas (Basis Swap)(3)
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2,562,000
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($1.07)
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(1)
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The basis differential price is between WTI Midland Argus Crude and
the WTI NYMEX
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(2)
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The basis differential price is between LLS Argus Crude and the WTI
NYMEX
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(3)
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The basis differential price is between W. Texas (Waha) and the
Henry Hub NYMEX
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Financial
In November 2018, the Company completed an increase in its borrowing
base to $275 million under its senior secured revolving credit facility
(“Credit Facility”). At December 31, 2018, the Company had outstanding
borrowings under its Credit Facility of $78.8 million and a cash balance
of approximately $0.4 million.
Midland Basin
Earthstone plans to maintain a one-rig drilling program on its operated
acreage in the Midland Basin of west Texas throughout 2019. The Company
recently concluded drilling the second well on a two-well pad
in the Ratliff Unit (100% working interest) in Upton County and is
currently moving the rig to Midland County to drill five wells in its
Mid-States Unit (67% working interest).
During 2018, the Company drilled 16 wells with an average working
interest of 89%. Earthstone completed 19 wells during the year,
including three Midland Basin wells that came online at the end of
December 2018. The completed wells were in Midland, Reagan and Upton
counties across multiple targets including the Lower Spraberry, Wolfcamp
A, B and C intervals with an average lateral length of 7,900 feet. Our
average working interest in completed wells was 79% and we ended the
year with one well waiting on completion (89% working interest).
Highlights from the Company’s 2018 program are as follows:
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Drilled the last 8 wells in 2018 from spud to rig release in an
average of 15.3 days with an average completed lateral length of 8,632
feet
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Reduced days by 30% while increasing the lateral length by 11%
compared to the second half of 2017 drilling
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Completion efficiency has increased by 44% from 5.7 stages per day in
January 2018 to 8.2 stages per day by year-end
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First southeastern Reagan County Wolfcamp B Lower well (100% working
interest), Peak IP 30 of 1,857 Boepd, with cumulative production of
approximately 193,000 Boe after 175 days
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First Upton County well (100% working interest) completed in the
Wolfcamp B Lower, Peak IP 30 of 1,718 Boepd, with cumulative
production of approximately 122,000 Boe after 100 days
Earthstone plans to begin completing three wells in February followed by
the five Mid-States wells in Midland County beginning in June 2019. The
Company expects to spud approximately 16 wells in 2019, with an average
working interest of 85%, while completing 13 of these wells with an
average working interest of 86% and an average lateral length of 9,588
feet. First production dates will consist of three wells anticipated at
the end of the first quarter, five wells anticipated early in the third
quarter and the final five wells expected to be online in November and
December 2019. The Company anticipates that production growth in 2019
will result from a total of 16 new wells (including the three new wells
that came online at year-end 2018) while it expects to end the year with
four gross (3.4 net) wells drilled and waiting on completion. The
Company estimates that approximately $33 million of the 2019 capital
budget will be spent on operated wells that will be completed in
December 2019 or in 2020 and therefore will not contribute to 2019
production.
The Company continues to pursue acreage trades in the southern Midland
Basin with the intent of increasing its operated acreage and drilling
inventory, drilling and completing longer laterals and realizing greater
operating efficiency. After trades and final completion of one pending
lease acquisition, the Company will hold approximately 30,200 net acres
in the Midland Basin with approximately 23,300 net operated acres.
Midland Basin Non-Operated
Earthstone participated in two non-operated 8,190 foot Wolfcamp wells in
Reagan County with a 50% working interest which were completed in
January 2019. Operators have advised of the following meaningful
activity and have scheduled these operations. Accordingly, these
projects have been included in our capital guidance and budget shown
herein.
1. Midland County: Two-10,000 foot lateral Wolfcamp wells with an
approximate 35% working interest that are expected to be completed
mid-year 2019
2. Midland/Martin County: Fifteen wells with 10,000 foot laterals to be
drilled in various Spraberry and Wolfcamp targets, with an approximate
21% working interest beginning in 2019 and completed in 2020
3. Howard County: A combination of four Wolfcamp wells with 7,500 and
10,000 foot laterals with an approximate 35% working interest with one
well drilled in 2018 and three to be drilled in 2019 while all four are
expected to be completed in 2019
The Company estimates that approximately $17 million of the 2019 capital
budget will be spent on non-operated wells that will be completed in
December 2019 or in 2020 and therefore will not contribute to 2019
production. While the Company cannot predict non-operated activity and
specific timing with certainty, it expects to participate in
non-operated activities with acceptable returns.
Eagle Ford
The Company drilled five wells (17% working interest) in southern
Gonzales County, Texas in 2018 and completed 11 wells in the area during
the year (five wells at 17% working interest and six wells at 25%
working interest). We expect to drill seven wells in this area during
2019 with an average working interest of 22% and may consider additional
drilling based on improvement in the commodity prices.
Management Comments:
Robert J. Anderson, President of Earthstone, stated, “During 2018, our
operations in the Midland Basin continued to focus on capital and
operating efficiency. We have achieved significant cost reductions in
drilling, completion and production operations. Reducing the drilling
time by an average of over six days while drilling longer laterals and
increasing the number of completion stages by 2.5 per day are two
examples of our team’s improvement in efficiency over the course of
2018. The acreage trade we announced in October 2018 results in the
ability to increase our average lateral lengths by approximately 20% and
thus should contribute to improved capital efficiency. In that trade, we
gained approximately 3,900 net operated acres in Reagan County with a
100% working interest, in exchange for approximately 1,200 net
non-operated acres in Glasscock County with an average working interest
of 39% and cash. The disciplined approach to our operations along with
well performance that on average is inline or exceeding our type curves
will generate attractive well-level economics, in the current commodity
price environment.”
Mr. Anderson continued, “Our strong balance sheet, favorable hedge
position and liquidity will enable us to have flexibility in our 2019
drilling program. While we will maintain the current one-rig plan in the
Midland Basin, we will opportunistically consider acquisitions of
additional leasehold and producing assets, trades, and additional
drilling expenditures as prospects present themselves. We have
successfully maneuvered through challenging price environments in the
past and we are in a great position to do so again. Corporate level
returns will benefit from our operations, hedge position and a strong
capital structure. Our program is currently designed to reach cash flow
neutrality in 2020 under a one-rig program and current commodity prices
while continuing our low leverage profile.”
About Earthstone
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
and the Eagle Ford trend of south Texas. 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, 2017, quarterly reports on Form 10-Q, recent current reports on Form
8-K and Form 8-K/A, 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.
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