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:
- Company record estimated sales volumes
for 2018 of 9,930 Boepd, representing a 26% increase over 2017
- Strong balance sheet and liquidity
position with a $275 million senior secured revolving credit
facility and outstanding debt of only $78.8 million
- 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:
2019 Capital Expenditures
$ millions(Net)
Number of Gross /
NetWells Spudded
Number of Gross /
NetWells On Line
Drilling and Completion: Operated Midland Basin (1 Rig) $118 16 /
13.5 13 / 11.2 Non-Operated Midland Basin 47 20 / 5 19 / 5.6
Operated Eagle Ford 10 7 / 1.5 7 / 1.5 Land / Infrastructure 15
2019 Total Capital Expenditures $190 2019
Average Daily Production (Boepd) 11,000 - 12,000 % Oil 65% % Gas
16% % NGL 19% 2019 Operating Costs Lease Operating and
Workover ($/Boe) $5.25 - $5.75 Production Taxes (% of Revenue) 5.0%
- 5.3% Cash G&A ($/Boe) $5.00 - $5.50
Note: Guidance is forward-looking information
that is subject to considerable change and numerous risks and
uncertainties, many of which are beyond Earthstone’s control. See
“Forward-Looking Statements” section below.
Hedging Position
Price Swaps
Commodity
Volume Weighted Average Price
(Bbls / MMBtu)
($/Bbl / $/MMBtu) 2019 Crude Oil 2,292,100
$65.67 Crude Oil Basis Swap(1) 2,007,500 ($5.36) Crude Oil Basis
Swap(2) 365,000 $4.50 Natural Gas 3,740,500 $2.86 Natural Gas
(Basis Swap)(3) 3,740,500 ($1.14)
2020 Crude Oil 1,464,000
$65.87 Crude Oil Basis Swap(1) 1,464,000 ($2.74) Natural Gas
2,562,000 $2.85 Natural Gas (Basis Swap)(3) 2,562,000 ($1.07)
(1) The basis differential price is
between WTI Midland Argus Crude and the WTI NYMEX (2) The basis
differential price is between LLS Argus Crude and the WTI NYMEX (3)
The basis differential price is between W. Texas (Waha) and the
Henry Hub NYMEX
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:
- 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
- Reduced days by 30% while increasing
the lateral length by 11% compared to the second half of 2017
drilling
- Completion efficiency has increased by
44% from 5.7 stages per day in January 2018 to 8.2 stages per day
by year-end
- 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
- 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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version on businesswire.com: https://www.businesswire.com/news/home/20190116005797/en/
Mark Lumpkin, Jr.Executive Vice President – Chief Financial
OfficerEarthstone Energy, Inc.1400 Woodloch Forest Drive, Suite
300The Woodlands, TX
77380281-298-4246mark.lumpkin@earthstoneenergy.comScott
ThelanderVice President of FinanceEarthstone Energy, Inc.1400
Woodloch Forest Drive, Suite 300The Woodlands, TX
77380281-298-4246scott@earthstoneenergy.com
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