Earthstone Energy, Inc. Reports Fourth Quarter and Full Year 2014 Results
Marketwired
HOUSTON, TX--(Marketwired - Mar 27, 2015) - Earthstone Energy, Inc. (NYSE MKT: ESTE) ("Earthstone" or the "Company"), today announced financial and operating results for the three and twelve month periods ended December 31, 2014.
Recent Transactions - Basis of Reporting
On December 19, 2014, the Company completed a strategic combination with Oak Valley Resources, LLC ("Oak Valley"), which resulted in a change of control, and concurrently acquired additional interests in an existing Eagle Ford development project located in Fayette and Gonzales Counties, Texas. The Company's property portfolio now includes activities in the Eagle Ford trend of south Texas and in the Williston Basin, including both North Dakota and Montana. The strategic combination has been accounted for as a reverse acquisition whereby the subsidiaries of Oak Valley are considered the acquirer for accounting and reporting purposes. Accordingly, all historical information provided in this release and in Earthstone's 2014 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission is that of Oak Valley, with the Earthstone and the Eagle Ford transactions treated as acquisitions on December 19, 2014. Additionally, the Company adopted Oak Valley's fiscal year-end of December 31.
Full Year 2014 Highlights Compared to Full Year 2013
Average daily production of 2,416 Boepd, a 20% increase;
Oil, natural gas, and NGL sales of $47.6 million, a 61% increase;
Adjusted EBITDAX(1) of $28.5 million, a 121% increase; and
PV-10(1) of $344.8 million, a 175% increase.
Fourth Quarter 2014 Highlights Compared to Fourth Quarter 2013
Average daily production of 2,760 Boepd, a 29% increase;
Oil, natural gas, and NGL sales of $12.0 million, 32% increase; and
Adjusted EBITDAX(1) of $7.3 million, a 79% increase. (1) See "Reconciliation of Non-GAAP Financials Measures" section below.
2014 Year-End Proved Reserves
SEC rules require that the reserve calculations utilize the unweighted average price on the first day of the month for the prior twelve-month period. Oil, natural gas, and natural gas liquids prices used for our 2014 year-end reserve report, prior to adjusting for quality and basis differentials, were $94.99 per barrel, $4.309 per MMBtu (million British Thermal units), and $30.19 per barrel, respectively. The following table indicates estimated proved reserves by category as of December 31, 2014.
Oil
Gas
NGL
Total
PV-10
Reserve Category
(MMBbls)
(Bcf)
(MMBbls)
(MMBOE)
($mm)
Proved Developed
6.1
16.2
1.0
9.8
235.4
Proved Undeveloped
7.7
22.4
1.0
12.4
109.4
Total
13.8
38.6
2.0
22.2
344.8
Note: PV-10 is a non-GAAP financial measure. See "Reconciliation of Non-GAAP Financial Measures" section below.
Selected Financial Data
Three Months Ended December 31,
Years Ended December 31,
2014
2013
Change
2014
2013
Change
Total Revenue
12,108
9,124
33
%
47,994
29,943
60
%
Net Loss
(37,318
)
(12,854
)
(28,834
)
(19,875
)
Earnings Per Share (Diluted)
(3.83
)
(1.41
)
(3.11
)
(2.18
)
Adjusted EBITDAX(1)
7,336
4,101
79
%
28,455
12,894
121
%
Production:
Oil (MBbls)
141
64
121
%
403
163
147
%
Gas (MMcf)
487
616
(21
%)
2,132
2,635
(19
%)
NGL (MBbls)
32
31
3
%
124
134
(8
%)
Total (MBOE)
254
197
29
%
882
737
20
%
Total daily production (BOEPD)
2,760
2,142
29
%
2,416
2,019
20
%
Average prices:
Including realized derivatives settlements:
Oil ($/Bbl)
78.22
96.60
(19
%)
88.76
99.02
(10
%)
Gas ($/Mcf)
4.26
3.88
10
%
4.29
3.77
14
%
NGL ($/Bbl)
20.97
30.57
(31
%)
28.29
28.88
(2
%)
Total ($/BOE)
54.19
48.15
13
%
54.87
40.69
35
%
Excluding realized derivatives settlements:
Oil ($/Bbl)
67.05
92.43
(27
%)
86.29
98.32
(12
%)
Gas ($/Mcf)
3.91
3.70
6
%
4.39
3.69
19
%
NGL ($/Bbl)
20.97
30.57
(31
%)
28.29
28.88
(2
%)
Total ($/BOE)
47.33
46.22
2
%
53.99
40.22
34
%
1.
See "Reconciliation of Non-GAAP Financials Measures" section below.
Note: Net loss includes $22.1 million of deferred income tax expense resulting from the strategic combination and $19.4 million of impairment expense, both of which are non-cash charges.
Please see our annual report on Form 10-K for the year ended December 31, 2014 for further information.
Management Comments
Frank A. Lodzinski, President and Chief Executive Officer of Earthstone Energy, Inc., commented, "Our senior management team has re-entered the public markets for the fourth time with our December 2014 strategic combination with Earthstone, and despite the current price environment, we look forward to achieving profitable growth. We are pleased with our accomplishments to-date. In just two short years since we acquired and recapitalized Oak Valley, we have assembled a significant reserve and production position. We achieved this growth, as we have in prior public entities, through a combination of development drilling, asset acquisitions and corporate M&A activities. Our goals are to continue this significant progress with continued development of our current assets, expansion of additional acreage positions, and acquisitions. In addition, we will continue to pursue Corporate M&A opportunities. We intend to pursue such opportunities aggressively but prudently."
About Earthstone Energy, Inc.
Earthstone Energy, Inc. is a growth-oriented independent oil and gas exploration and production company engaged in the development and acquisition of oil and gas reserves through an active and diversified program that includes the acquisition, drilling and development of undeveloped leases, and purchases of reserves and exploration activities, with its current primary assets located in the Eagle Ford trend of south Texas and in the Williston Basin of North Dakota and Montana. Earthstone is traded on NYSE MKT under the symbol "ESTE." Information on Earthstone can be found at www.earthstoneenergy.com. Our corporate headquarters is located in The Woodlands, Texas. We also have an operating office in Denver, Colorado.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. The forward-looking statements include statements about future operations, expansion of production and development acreage, increased cash flow, earnings and assets and access to capital. 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. However, whether actual results and developments will conform to expectations is subject to a number of material risks and uncertainties, including but not limited to: the risks of the oil and gas industry (for example, the recent rapid, significant decline in oil prices and operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits); the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future oil and gas prices, production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; inability of management to execute its plans to meet its goals; unavailability of gathering systems, pipelines and processing facilities; and the possibility that government policies may change. Earthstone's annual report on Form 10-K for the year ended December 31, 2014, recent current reports on Form 8-K, and other SEC filings discuss some of the important risk factors identified that may affect Earthstone's business, results of operations, and financial condition. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.
EARTHSTONE ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
ASSETS
2014
2013
Current assets:
Cash and cash equivalents
$
100,447
$
25,423
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues
14,016
8,122
Joint interest billings and other
9,417
7,541
Current derivative assets
3,569
154
Prepaid expenses and other current assets
1,578
122
Total current assets
129,027
41,362
Oil and gas properties, successful efforts method:
Proved properties
317,006
184,075
Unproved properties
76,791
43,011
Total oil and gas properties
393,797
227,086
Accumulated depreciation, depletion, and amortization
(97,920
)
(79,789
)
Net oil and gas properties
295,877
147,297
Other noncurrent assets:
Goodwill
22,992
--
Office and other equipment, less accumulated depreciation of $474 and $191, respectively
2,109
560
Land
101
101
Other noncurrent assets
1,282
538
TOTAL ASSETS
$
451,388
$
189,858
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
28,753
$
7,428
Accrued expenses
20,529
5,768
Revenues and royalties payable
17,364
10,184
Advances
21,398
3,520
Current derivative liabilities
--
172
Asset retirement obligations
408
70
Total current liabilities
88,452
27,142
Noncurrent liabilities:
Noncurrent derivative liabilities
--
28
Long-term debt
11,191
10,825
Asset retirement obligations
5,670
2,941
Deferred tax liability
29,258
--
Other noncurrent liabilities
289
--
Total noncurrent liabilities
46,408
13,794
Total liabilities
134,860
40,936
Commitments and Contingencies (Note 11)
Equity:
Members' equity
--
148,922
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding
--
--
Common stock, $0.001 par value, 100,000,000 shares authorized; 13,835,128 shares issued and outstanding in 2014 and none in 2013
14
--
Additional paid-in capital
358,086
--
Accumulated deficit
(41,112
)
--
Treasury stock, 15,414 shares in 2014 and none in 2013
(460
)
--
Total equity
316,528
148,922
TOTAL LIABILITIES AND EQUITY
$
451,388
$
189,858
EARTHSTONE ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Years Ended December 31,
2014
2013
2012
REVENUES
Oil, natural gas, and natural gas liquids revenues:
Oil
$
34,734
$
16,038
$
8,679
Natural gas
9,367
9,714
6,064
Natural gas liquids
3,510
3,882
2,348
Total oil, natural gas, and natural gas liquids revenues
47,611
29,634
17,091
Gathering income
383
430
419
(Loss) gain on sale of oil and gas properties
--
(121
)
4,785
Total revenues
47,994
29,943
22,295
OPERATING COSTS AND EXPENSES
Production costs:
Lease operating expense
10,122
8,426
6,211
Severance taxes
2,002
1,225
608
Re-engineering and workovers
708
342
570
Impairment expense
19,359
12,298
52,475
Depreciation, depletion, and amortization
18,414
17,111
12,191
Exploration expense
111
2,490
57
General and administrative expense
7,864
7,751
3,280
Total operating costs and expenses
58,580
49,643
75,392
Loss from operations
(10,586
)
(19,700
)
(53,097
)
OTHER INCOME (EXPENSE)
Interest expense, net
(597
)
(487
)
(273
)
Net gain on derivative contracts
4,392
296
--
Other income, net
62
16
49
Total other income (expense)
3,857
(175
)
(224
)
Loss before income taxes
(6,729
)
(19,875
)
(53,321
)
Income tax expense
22,105
--
--
Net loss
$
(28,834
)
$
(19,875
)
$
(53,321
)
Net loss per common share:
Basic
$
(3.11
)
$
(2.18
)
$
(5.84
)
Diluted
$
(3.11
)
$
(2.18
)
$
(5.84
)
Weighted average common shares outstanding:
Basic
9,279,324
9,124,452
9,124,452
Diluted
9,279,324
9,124,452
9,124,452
EARTHSTONE ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2014
2013
2012
Cash flows from operating activities:
Net loss
$
(28,834
)
$
(19,875
)
$
(53,321
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, and amortization
18,414
17,111
12,191
Impairment of proved and unproved oil and gas properties
19,359
12,298
52,475
Unrealized (gain) loss on derivative contracts
(3,614
)
45
--
Dry hole costs
--
2,096
57
Loss (gain) on sales of oil and gas properties
--
121
(4,785
)
Accretion of asset retirement obligations
317
217
179
Deferred income taxes
22,105
--
--
Amortization of deferred financing costs
164
103
48
Settlement of asset retirement obligations
(56
)
--
--
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(5,305
)
(12,141
)
1,202
(Increase) decrease in prepaid expenses and other
(194
)
(81
)
89
Increase in accounts payable and accrued expenses
28,408
2,171
6,762
Increase in revenue and royalties payable
7,099
9,698
88
Increase in advances
17,925
3,520
--
Net cash provided by operating activities
75,788
15,283
14,985
Cash flows from investing activities:
Acquisitions of proved and unproved property
(18,772
)
(86,687
)
--
Additions to oil and gas property and equipment
(83,041
)
(31,162
)
(39,433
)
Additions to other property and equipment
(1,385
)
(678
)
(97
)
Reverse acquisition with Oak Valley, net of cash
(4,239
)
--
--
Insurance proceeds
--
923
--
Proceeds from sales of oil and gas properties
--
488
9,976
Net cash used in investing activities
(107,437
)
(117,116
)
(29,554
)
Cash flows from financing activities:
Issuance of long-term debt
11,191
--
10,825
Reduction of long-term debt
(10,825
)
--
(5,192
)
Deferred financing costs
(613
)
(425
)
(20
)
Contributions, net of issuance costs
106,920
107,530
24,790
Distributions
--
--
(1,187
)
Net cash provided by financing activities
106,673
107,105
29,216
Net increase in cash and cash equivalents
75,024
5,272
14,647
Cash and cash equivalents at beginning of period
25,423
20,151
5,504
Cash and cash equivalents at end of period
$
100,447
$
25,423
$
20,151
Supplemental disclosure of cash flow information
Cash paid for:
Interest
$
493
$
375
$
238
Non-cash investing and financing activities:
Asset retirement obligations
$
237
$
1,033
$
66
Stock issued for 2014 Eagle Ford Acquisition Properties
$
56,425
$
--
$
--
Earthstone Energy, Inc. Reconciliation of Non-GAAP Financial Measures Unaudited
I. PV-10
PV-10 is derived from the Standardized Measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. 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 10%. We believe that the presentation of PV-10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to our estimated net proved reserves prior to taking into account future corporate income taxes, and it is a useful measure for evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. We use this measure when assessing the potential return on investment related to our oil and natural gas properties. PV-10, however, is not a substitute for the Standardized Measure. Our PV-10 measure and the Standardized Measure do not purport to present the fair value of our oil and natural gas reserves.
The following table provides a reconciliation of PV-10 of our proved properties to the Standardized Measure (in thousands):
Years Ended December 31,
2014
2013
Present value of estimated future net revenues (PV-10)
$
344,800
$
125,357
Future income taxes, discounted at 10%(1)
(88,944
)
-
Standardized measure of discounted future net revenues
$
255,856
$
125,357
(1) As a result of the strategic combination, all historical financial information is that of Oak Valley and its subsidiaries. Oak Valley is a partnership for federal tax purposes and is not subject to federal income taxes or state or local income taxes that follow the federal treatment, and therefore Oak Valley did not pay or accrue for such taxes in 2013. Pursuant to the strategic combination, OVR's subsidiaries have become subsidiaries of Earthstone Energy, Inc., which is a taxable entity; as such, estimated tax expense was included in the Standardized Measure for December 31, 2014.
II. Adjusted EBITDAX
Adjusted EBITDAX is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance compared to that of other companies in our industry, without regard to financing methods, capital structure or historical costs basis. It is also used to assess our ability to incur and service debt and fund capital expenditures. We define "Adjusted EBITDAX" as net income (loss) plus (1) (gain) loss on sale of assets; (2) accretion; (3) impairment expense; (4) depletion, depreciation, and amortization; (5) exploration expense; (6) interest expense; (7) interest income; (8) unrealized (gain) loss on derivatives; and (9) income tax expense (benefit).
Our Adjusted EBITDAX should not be considered an alternative to net income (loss), operating income (loss), cash flow provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDAX may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDAX in the same manner.
The following table provides a reconciliation of net income to Adjusted EBITDAX for the periods indicated:
