ESTE - Earnings call transcript Q1 2019

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Operator

Good morning, and welcome to Earthstone Energy's Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions].

As a reminder, this conference is being recorded.

Joining us today from Earthstone are Frank Lodzinski, Chief Executive Officer; Robert Anderson, President; Mark Lumpkin, Executive Vice President and Chief Financial Officer; Scott Thelander, Vice President of Finance. Mr. you, Thank begin. may Thelander, you

Scott Thelander

Thank you, Quarter Call. our welcome to First Conference and

of as Act amended, would get remind forward-looking within Section Securities we started, like XXXX will of statements Act XXA XXXX of meaning Exchange Before and Section I the the as contain call to the of Securities today's of you XXE that amended.

vary our today, by webcast of telephone Also, replay. The any recorded A via by measure these certain of the replay this These quarter to replay. the of they on also www.earthstoneenergy.com. financial website any time-sensitive section based call accurate can one of give time be Form website, for information XXXX. assumptions call to Although, of risks, non-GAAP they will released to or to assumptions can for management Should materially. on risks XXXX. in announcement expectations, available prove Earthstone's as believes as May contained subject conference these only and Thus, on also the Investors be of actual X, includes more the incorrect, underlying and we these information call in may our Reconciliations reasonable to financial no our documents should of Form are in most statements and be the uncertainties and earnings GAAP at longer going correct. statements will materialize Investors XX-K quarterly section prove report references certain released annual directly measures. under assurance measures that or are report the in please are first described no comparable our note, earnings today These XX-Q of found XXXX today. non-GAAP speaks be may announcement on results today's

providing an regarding from how and concluding plans, will to quarter first with overview on and Frank, accomplishments, information call Frank. turn access to by Robert matters Today’s performance call of our now our from find Mark I our will begin over remarks released remarks financial announcement You regarding and today. our operations. from those the remarks can future about earnings with followed

Frank Lodzinski

thank and first our joining Well, call everybody the you, over of year achieve morning. and one great Basin to production and essentially program track daily a we the to had continue record rig Midland that welcome XX,XXX the is just a to to on and Okay. allowed Scott, quarter. average solid start during for the run operating We’ve this with BOE results, financial in day us

EBITDAX We also $XX achieved a record million. over adjusted of

continue and successfully to are using on grow drill accomplishing profitably. our bits. now, the focus effectively efficiently Right these operating we with to objectives capital We

us drilling have of inventory job been that of projects a and also sheet very of acreage and we to balance doing operations maintain Our is team value turn overview the I’ll substantial our the negotiate to disciplined financial of That strategic strategy. gives flexibility rate over of transactions. to growth call proven now situation. Mark and return extracting generate able value a We’ve combination expertise remain options strong provides rates a growth attractive high-quality brief a our to position that an our for successful find excellent occasionally. the

Mark Lumpkin

Thank you, Frank.

our are provide begin, that to January XXXX guidance. please guidance did we we in changes not making mind any I Before in keep and

sales later improving the significant On this, ended on side. on improved quarter. decreased first and to discount representing Despite price both significantly by have we largely realized are on volumes this top-line, Earthstone’s second a and X% top We realized first The our the $XX.X offset to the of commodity part Cushing the been by oil equivalent of oil volumes higher quarter-to-date a of quarter with of receiving significantly Midland looking differentials the our has barrels oil based metrics the lower compared which the realization quarter per and compared prices XX% saw the fourth XX% the in were fourth third financial of quarter last basis with NYMEX. and XX% fourth quarter, revenues total quarter Further, fourth of the the XX,XXX the that of first company first day, lower was the essentially to growth in average to in a the realizations March starting respectively year. prices record the flat for quarter to quarter XXXX of So with in on equivalent XXXX. compared XX% of X% we at million of price and sales quarter. versus were daily quarter NYMEX

Our production first and the quarter mix making was XX% NGLs oil natural gas balance. up with during XX% the

in in oil, continue XX% about oil per in that in record up we the XXXX. We million estimate XXXX quarter first first of the and natural from averaged $XX.X per XXXX. to Lease XXXX compared NGLs, equivalent will and fourth quarter the gas. the XX% up quarter of quarter of of quarter our BOE the a the first XXXX first XX% compared be XXXX, BOE to expense $XX.X quarter Adjusted from XX% recorded million fourth in the XX% XXXX $X.XX EBITDAX was mix $X.XX of and the of million in to operating $XX.X $X.XX barrel per of

past a workover XXXX. to our full expect $X.XX and due Robert XXXX production and quarter, the while that per the longer programs LOE to per quarters but in $X.XX was we greater LOE per LOE between and for average year program first to workover averaged we two the for recent $X.XX further, per BOE. $X.XX $X.XX times. run BOE relatively and been workover accounted has XXXX, expect the In our reference will over result still for While BOE recurring expense late initiated BOE high we

fourth first approximately the compensation quarter the first was XXXX approximately in quarter quarter of of to million compared and million, $X.X the excluding in million expense XXXX. Our in $X.X stock-based G&A $X.X

in Our BOE. to BOE compared $X.XX year. stock-based last period BOE the quarter per per to of quarter BOE in per same compensation excluding This $X XXXX of XXXX to $X.XX G&A averaged our the per $X.XX BOE in compares of per fourth and first guidance $X.XX the

As quarterly discussed reported on are year. for what prior call, this we we a our expense now on lead and accruing smoother basis versus last quarterly bonuses to cash should G&A

commodity we quarter, price net $X.X gain the During hedges. a our realized million

a of reported million this reported unrealized in hedges. $XX.X of our fourth we We mark-to-market quarter on the of also loss, unrealized we for million gain result mark-to-market as net of loss $XX.X unrealized of XXXX, million. the $XX.X a $XX.X quarter reported mark-to-market a of Comparatively, the loss Largely million.

to shares. disclose a amount described our associated earnings of Class Accordingly, of with GAAP GAAP requires calls, As our our loss previous controlling interest the from reflects the income A us net which in essentially attributable share a reported or Earthstone quarter of we $XX.X million, the in of $XX.X share, loss net of per net perspective, XXXX. to $X.XX Inc. income $X.XX or to fourth per Energy million compared

refer our also to earnings for information. further XX-Q can You release and today’s

$XXX.X undrawn in of increased under outstanding facility XX, was week, sheet redetermined the and $X.X as for approximately and our by of to our move had March the was at over $XX base XXXX, recent credit At we borrowing the Last quarter to million. revolving increase total had base, under cash million. $XXX.X facility approximately million Adjusted $XXX our a of million we liquidity Now, borrowing of borrowings balance balance million $XXX for capacity end. million credit liquidity. scheduled let’s and

first to continues liquidity on remain XXXX in in of the late our So hedges a $X.X as year improved April from strong. volatility benefit reduce standpoint, gains some our volumes hedging we with we million, materially last to have of added early to oil and quarter flow did and realized our hedges continue hedges year. From and from cash this prices additional on layer

hedges differential hedges and have volumes. gas oil for at the strong our XXXX XXXX in $XX a hedged remains hedge place Further, approximately an as oil position price and basis on guidance gas well at average similarly at in natural barrel. gas of on natural Our XX% position our on barrel approximately and we $XX are volumes in same per our the oil the we underlying hedge oil per of hedges significant with side and

capital million. for $XX.X quarter the Our totaled expenditures

As to be total this do we XXXX back-end more budgeted million and know, expenditures expect you we of approximately weighted. $XXX

So over I turn with to that, it will Robert review operations. to

Robert Anderson

everyone. Mark morning Thanks, good and

line Frank highlighted, are to of average the As our our we type exceed results. confidence our or our quarter with performance in first On curves further well in providing be quality acreage. pleased continues with

new target our Wolfcamp we XXXX acreage specifically this on A program Midland and year. the Our is positions results have testing and drilling and not any are proven Basin across the B zones which zones focused

of and contribute spud those. economics reminder, and our a wells expected in to level XXXX XX These As are wells demonstrate to XX we plan XXXX. attractive, complete in well growth to

During the our the foot XX,XXX quarter, Basin. we in wells X-X completed first operated completed Midland with we Malone an three Wolfcamp February, In lateral. the A in XA

reach in an taken XX% time and in with Malone Reagan is have this Reagan We County. has working the to interest Central peak as typical located Wolfcamp some County, well wells rates. And A

These line peak Upton is we oil after two targeting the of well with feet the increase March, XXX% another. B XXX Wolfcamp the about in County and which of continuing per intervals. working B XX wells feet were and from completed However, in In IP average one feet expectations. days, wells a to day,XX% lower landing a have upper lateral XX with in an zones oil performing has interest. of the They barrels one other Ratliff targeting equivalent XXX our we is XX,XXX with the XXX are away drilled with Wolfcamp apart approximately and two

So peak XX well XXXX the IP BOE per peak IP of oil BOE Wolfcamp XXXX XX% a XX% oil. had XX B had B per while day, of day, a upper lower

a offsetting B a we Benedum of a well of oil lower completed has point days. cumulative September, reference in of Wolfcamp As production barrels equivalent XXX,XXX last XXX the

with in this area. we are quite So the results pleased

pad well completing which drilling wells the Midland Completion interest. and production As the intervals on have June we County our wells mentioned third be wells, Reagan and spaced quarter. of wells Wolfcamp laterals. capital about B Wolfcamp targeting TSRH a These project XXXX should to on out These contributions where will we B lower. we expected a previously County, in three two with well apart and After start drilling upper feet start program wells our budget are Central in on XXXX we remainder have XX% are the block will about and assessment will XX,XXX aid operations zone a during the a drilling from These plan Midstates feet XXX we five in in this in landing we for area. producers or foot our Wolfcamp quarter, B from same Midstates distance between wells. spend to are working parameters significant pattern the specific our TSRH these our existing late see spacing in A our commenced in of the on five wells

from We non-operated are also value our realizing activity.

in Reagan have quarter, wells and two one completed completed interest. working participated we XX% the a During we Howard in interest where which a County in working we in first County have XX% well

for in these different of in Including drilling datapoint A, wells spacing participating to target also and and interest ranging in Midland area. up drilling Mill, counties the and are Wolfcamp in Martin be program across We Wolfcamp position completions this of from made well Jo stages our various a X% five with Spraberry, parameters B, will Howard, an again, Lower XX projects important XX%. zones

I’ll chemical Eagle and mentioned last LOE, driven on BOE, in quarter on first order intentionally our BOE increased though in we Mark and completion future other LOE would on downtime to year of and inflation our time. Midland assets and that our at quarter workover basis. both present we late and with note runtime. per program, program Ford did also quarter Items in increase at for $X.XX adding $X.XX production declining drilling, replacing our by will equipment by significantly discussion our seeing limited I volumes. Basin a the tubing proactive about in As high like to note reduce his the production are that March LOE for enhance expenses services increased we workover was treatment per end the the or

did this quarter to been the mentioned, a due per offset to and BOE new record the had of XX,XXX shut-in of day first production frac only we the BOE has day day. in volume shut Compared in we see result quarter approximately As XXXX where BOE XX,XXX approximately XX,XXX of per with of quarter completed offset that a estimate reduced XXX shut-ins for a BOE over the frac had and production we had a we activity fourth we company in wells activity, day quarter, had March. of as

year Our our completion producers the effect wells. on program should based limited existing on configuration this have of

As our our three the the is capital so weighted and We reminder, back-end first a completed XXXX budget production is quarter. wells growth. in

in expect with County expect have Midland and four to the on later on relatively half This in quarter, least this flat quarter. first and at production wells the over compared the coming year wells to completion to We finally quarter the five this wells next five drilled on coming leave at us should and should third fourth quarter. waiting end production lead schedule a late

Eagle our on Finally, Ford project. we initiated have drilling

it where we three wells a increase program our area. in XX% and by this wells drill adding Unit interest will have We on working an Ranch. Pen additional could our seven

to end. online these to have before expect We wells ten seven year

to large But Of and Basin pursuit our small. supports trades the have acquisitions, will strong to we will our continue interest strong drilling inventory continue and strategic while operated and growth. we to in to acquisitions course, potential expand continue disciplined in structure capital of both our acreage pursue and we be pursuing in acreage Midland

growth Midland the a drill Basin in and the our drilling bit to of year. the the end considering on continue have bringing before second We inventory are rig

services. of this prices dependent course, high commodity is and Of on quality availability

been see close we in intervals proximity and Reagan upside Spraberry Wolfcamp majority on target in has D be we the our and the B acreage locations are both to and County yet Upton to have acreage. additional Although our tested in tested Wolfcamp A our of zones counties in Upton which

So that, take our the upside now we continue operator, with we might acreage. that to there. will be questions be And excited on any about out

Operator

RBC here from question Brad first Our Heffern is Markets. Instructions] go [Operator from Please Capital ahead.

Brad Heffern

you to XXXX? Is price-dependent, decision-making in governor be you rig thinking drilling Midland year in some sort but factors are about is the end the Hey the are what know talked there Eagle able about end a be want you some before everyone. potentially about talked adding said to in flow commodity of that also still adding it, you Robert, of at other the in the you the and I Or cash that? neutral Ford. it’s potentially there?

Robert Anderson

working land can commitment. get the of terms we issues before we out done and final In have Eagle hopefully Ford, make are this some we to a

on The second flow rig at trying necessarily and in free the Midland year. cash be Basin, I think the it’s next to just economics based not wellhead

our next we some we given seeing. are think year, I economics will have two rig program

a I of to matter timing start. think ramping when we second with of rig. pleased going up to a just the pretty are we It’s

Brad Heffern

like a you about – spaced TSRH the pad more I you could – broadly a Okay. you We’ve historically. And that look spacing. wondering people the if about update is about then, guess, it than on Midland you’ve little what seen just doing given on been how was an widely talking the talked upspacing, lot thinking are in of I

just spacing? leading So, on thoughts any edge

Robert Anderson

issue Yes, moment. I the at big mean, that’s a

I think it’s area-by-area-specific.

are you we in as comfortable foot between think, Midland the still Upton same XXX are and I quite spacing target with interval. counties,

target-specific we’ve the maybe we did as it’s down don’t and it get move results what spacing into again, somewhere you But are out see a you able what area-specific what to kind between of and going yet. and to be and then we nailed TSRH we it’s well. tell I tried wider back think As past. there in come and area, little test our even I’ll

Frank Lodzinski

is Brad. Yes, This Frank.

that a relationship earnings scrutinizing parent quite the of we that our are call last quarter, whole have recall this year we end we is child aware that market you indicated from If locations. lot

very any are area. drilled densely We in not

of didn’t think, and on So, us for consider shoot are I are it economics, gives say on, know, is, word, densely that in better and lack a then an and work. head we come The you spacing drilling the thing it right? opportunity closer on back going do always to focused to ourselves last – as we

our on foremost mind. it’s So,

Robert Anderson

will proved those The make point quick foot locations. other I is at spacing, not are that, XXX real

a than in cases. spacing we possible wider proved spuds actually is our Our a that. most have location much probable fact, in between and And

out profile. math so. can does kind of does, that to you what on spacing our So, evaluate what We’ve foot of ourselves the there and figure area-by-area reserve a lot to long-term continue to XXX that given opportunity

Brad Heffern

original an Is interest, question, interest think are is And XX% a XX% for management it. actually a the or that JV the Got Ford that’s the release. Okay. like that that the working Eagle I they something increase working then, those just wells press but or in changing number? accounting seven budget in were

Robert Anderson

in participate whether based The actual certain participate to or decision not parties’ the increase in working wells. interest on

Brad Heffern

Okay. Thank you.

Operator

question is from Neal Please from SunTrust. Our next Dingmann ahead. go

Neal Dingmann

guys. Morning

XX, I continue all Slide particular stages nice you question Robert, per nine at about going the five to Looking think out stands here from it I guess, talks and stages to my see day. improvement

you in you here I saw back, know think are built all? of I flattish, but So, Frank, you mentioned number I are did one, – what are step two, you remarks and these an standpoint, you cost guess, and are And these into efficiency first see you they that, sort to am estimates staying your wondering at improvements? seeing more your you number continuing are from of

Frank Lodzinski

to they built far what our year. Neal, so into are of accomplish estimates been able Yes, we’ve this

or million that, earlier perspective, say or slide looking foot I were cost last at are the XX,XXX in and $X on somewhere we was a captures time normalized that. between so just $X.X fracking well. we a wells And from so, the this year

down is the of seeing are year. substantially from cost last definitely that costs have and leading factor frac we come those quite So, stabilize

Neal Dingmann

it. Got it. Got

on just don’t Robert, haven’t k now want now? the structure seen really to looking I Frank, wondering, kind then I right what always again, sort cap you is, you we looking anything just you and move market, out in it’s of And some want is leverage, or there criteria of I you all for for And lastly am at are just quite Okay. I because or there. time. this are M&A. mean, am

does looking? possible? got Just how more the wondering, Is it radar

Frank Lodzinski

Neal that over place. I the markets all A think, and Well, B the

function function That’s high. said we maybe part. I a have think you so out this side, their on, on hope to of expectations have a and folks On a our that that second that’s there still commodity too necessarily not prices that call on of rig. may we’ve go

continue with work year things on things to in we blocking bolt-ons, We things. the the a and the Reagan like smaller The larger County. company last did trades, up Central

We I drilling in least and improving have or comfortable efficiencies with we the completion with are at programs type quite comfortable, our curves. the quite am

governing I let are out factors and So get our we chase going can think get balance The out of control, not things. sheet there right. to

going are commodity leverage done of our because X We to not brothers ratio, has EBITDAX or a lot whatever a you to in price a to have that what see x go drop to you, out there.

governing to debt a our So, much want balance we sheet might keep be how factor and reasonable.

the over our and and our the strengths those control and we for things can XX have control, others Robert is three other guys more us decades spending I we and or XX balance years with sheet. that two me Robert As than and the followed operations fundamental said,

in But answer. So the market day. every of kind are – we a it’s kind of

here is… So

Neal Dingmann

Got it.

Frank Lodzinski

round There led us, is capital people been modernizations is by There market. answer. you’ve would capital been not right? and the the other past. you block know, strong no markets Here But a in a is time. That benefit to has Because, that I would the thing long improving, hope haven’t the okay?

– happen people to that’s that an not for production using is to up perhaps going going $XX,XXX us are why because to keep balance acre. some there where think sheet, you there be I and is and contingencies you are going we some to saying a an opportunity people perhaps to to our things is, pick be acreage overnight on pay of stock going some on market putting it, our maybe using

just So, we are that trying we can. everything

Neal Dingmann

makes sense. all you it see look I Now Thanks forward guys. up And to come with.

Operator

from Seaport go question Please next John from Our ahead. Global. is Aschenbeck

John Aschenbeck

Thanks the Good taking for and everyone. morning congrats quarter. questions on the

Robert Anderson

Thank you.

John Aschenbeck

just directionally, out several you over through production hoping for first one, commodity quarters. could with also ploughing was that the So, your then outlook, my you current rig next us just Midland. the and spend under you the profile assuming And one walk mix your I in the how capital stick just see

terms color at company could looking here commentary just capital Your really you and helpful? if your levels, speaking mix of it level. the be activity in really prepared profile, commodity help could BOE to XX,XXX was at type provide just of helpful, from total Any me the spend but would foot Thanks. out on production you

Mark Lumpkin

Sure. if Maybe, that. to as take It’s at here a stab Robert want he in can Mark and I’ll chime well.

day. In the terms of now quarter. first we online late wells had per XX,XXX production is as third and There production, and quarter our coming BOE later come between was some online nothing in Robert obviously over March mentioned,

So, there. that decline will from

be going and comment think, May And lower some in starting third half, be March, et and in cetera. you I per was, and would BOE in pick volumes next April it’s to starting little as to then additional production a a the up we quarter we fairly expect, with over the XX,XXX in flat Robert’s should should get day June, quarter.

probably kind second thinking the fairly it’s the and about way depends exact first in quarter. flattish but think of time online on are about flattish, that So third the it’s versus it’s the also at – et we cetera. quarter quarter We wells get when we the

XX our being the fairly a and third way and in we mean, our more it feel comfortable range. fracs. be ahead ago above had production we little barrels we But got of we amount little it to and the than a tracking the improvement is little timing of than are still because last flat production had some mean, of and really, and what of very kind quarter we’ve So, shut-in think days versus we honestly, of bottom we it’s model of the we well a about did ahead I feel are first thinking we better that quarter some the are that’s obviously of we we and it and model. range time trying prior may now spoke, But are bit for

some were the it relative type that. of curves And performing is to well

are In terms shrink little of gas. mix, in the the a we of seeing more some bit

So less will. we seeing wet stream gas bit you little are a in the kind if of the

So, a certainly versus we the line is percentage expect wells are would not are changing saw the tick when on first in there oil higher we to than oil come guidance down and you little percentage the bit. what quarter,

We down with here of XX% just It in in above a the we quarter. to guiding that late first are kind little bit though the we year. oil a more little until trends wells probably are still online get

John Aschenbeck

just should I the But on it’s side then, think was And that just how it. missed helpful. if sorry ratable Mark capital I or Okay. fairly really that? about

Mark Lumpkin

Well, will fourth in pick activity. and we quarter. quarter unchanged the in probably XX different and first up we – a that third will it whole and had quarter bit decent in the the completion second We of than we spent lot spend

John Aschenbeck

for Okay. that. Perfect. The Thank you one me. last for

good you about it I actually, in we future much if but, those did your just some that’s LOE I production how think a the got contribute explained really increased to did gave this, think workovers And about missed it? how Robert Is curious, more estimate guide you how then, LOE. – really think or quarters? helps the color on full helpful, beat? workovers, year I was I just I apologize should we good QX just think should

Robert Anderson

had the didn’t a tell probably done of production a it lot of I was lot whole to volumes quarter. our QX that to the during John, truth. impact you mean,

wells worked little to production a of at per guidance second X.XX to Maybe help quarter, range? We fall the assets. how BOE those where for your on we bit question. X.XX you still answer higher range. in in don’t of time It in quarter rest or Yes. of after would the we were specific X.X the year than on put that can the the I that But the we we toward on first clean context, sometimes – and on of them. the first out about just yes, so, are know at lane year, think of range And to stabilize you’ve full obviously, kind last take LOE out terms hopefully the will per Starting of up in year we end year. $X.XX kind for were of in X.XX less BOE of LOE. in

pretty So reported that the of the almost reducing quarter. than with versus workover the and lower probably of for fresh the what gets January significantly you we March, production February. mentioned, top-end Robert of range having activity the as to kind December, in much benefit and And then

down, still tracking. But range upper-end the you, versus range. probably if the to pin the it’s we’d probably it’s bottom of So, close the you this tell of

Frank Lodzinski

a also. one forth will is discussion and things of that try we’ve I the always necessarily say calls and so historically that achieve to the marketplace in great Yes, these deal get of all what doesn’t

You your plus your are cost, and per right? are cost on sheet that’s You balance as of increased know, efficient also. expenditures a controlling operations are But function not and LOE kind always and of reducing necessarily aside production, from variable. per in know, kind time, our under got, the many keeping of focused operations They means, control, part D&C and capital statement our the of you income BOE field and of and BOE we’ve course, big that. And over absolute G&A your step-variable. that of

of those kind those And years, longer. we’ve the of for initiate focused, longer runtimes always in So, the on on activities and downtime always decided and we’ve we us longer to years your have fourth and and you and wells that here focused years making quarter. cutting known

So, BOE it’s going And hopefully, forward. reduced going going to to LOE forward. production also contribute per

John Aschenbeck

time. the Okay. you appreciate all for and thank detail the I Got it.

Frank Lodzinski

gross maximized margins we Aside are it’s minimizing from everything by trying costs. your else do, called to

John Aschenbeck

see day. at of the goal Let’s end Frank. the Thanks, end

Frank Lodzinski

the That’s goal.

Operator

next go from Wangler is from Capital. Imperial Jason Please ahead. Our

Jason Wangler

Robert, guys. I you wanted the to on morning good Hey, ask side. non-operated

some think you just when with I from kind in timing had expand zones. you that? maybe start that, mentioned think to Could you five see maybe results – of and should you interest I the that some on program

Robert Anderson

County started, right just one area. It’s on Right the Martin they gotten drilling of the use multiple now, have they And that They’ve Jason, just in running. part a rigs. rig may Midland line.

to frac it’s drill wells, XX and a how may depending while a crews. frac on many take And to going wells. again, two crews So use to those complete complete to they then while

So, until to expect year. production next I materially, see any don’t

Jason Wangler

Okay.

Okay, that’s going far obviously help and year. B kind by get as But you A that you I and guess fair? at the looking from program, focused some other perhaps, expand probably the you stuff can end, this but on obviously as are some is around, that the as that of to information

Robert Anderson

it activity have view It’s County this is far impact an definitely will not of occurring. we Yes, on too asset. how south our Midland where

Jason Wangler

have. back. I That’s Okay. I’ll Thank it you. turn all

Operator

Mills from Company. next Johnson and Please Our question from Rice is Ron go ahead.

Ron Mills

follow-up last quick a just question. Maybe Jason’s Robert. on Hey

kind but you still expect million budget it up to provide have won’t you have because XXXX? is particularly for projects interest average I Do going really of think well I wells? much productive impact the we’ve in $XX really something sets non-op working D&C about that this that of your in year, forwards a – past, you XX% program, think, because those of talked like

Robert Anderson

That That’s probably changed. right, hasn’t number Ron.

the these upon operators dependent is drilled. timing it getting of Although things

kind one might well that to are program, it. XX side speed getting program with up in some at So point only running. got one started they We have drilling they of help rig than the they’ve and just thought rig more of this

a may of So – how capital spend million actually of this year production. bit in contributes $XX we with the go up terms little to it

other hand, this and flow the year On may next not all may it spend we it year. into

until the really it’s closer hard to get the tell end So year. we of to

Frank Lodzinski

I operated non-op. mean, now we’ve schedule on for our versus I ahead Ron, really, assumptions the And bit changes our like little whether the calls are overall, probably side, But really the on no or it’s information weeks this mean, eight timing a got to we side. mean, the year. I new on ago. anything CapEx around I we said, production made tracking no on

Ron Mills

then, Robert potentially to I a really you rig. remember about it’s, earlier And that Frank second mentioned Okay. going or talk can’t and

last call, not trying growth just about ability with think solve flow your if flow for bit to of necessarily free far you strong a your of your generating talked have to the cash drilling situation? cash sheet where expand game into end at versus balance looking returns. a really just I thoughts on [Indiscernible] driver a on the is cash Can flow greater free generates money free putting versus to you little activity continue

Frank Lodzinski

the cash time Many free known call, that flow in you say on was that We’ve poll Ron, Hey smaller important efficient we importance versus a the proved of to is talked we reserves. is additions took a we’ve as growth free folks that not of and everybody company. of give this as folks cash and a get growth flow as deal if the to long answers call some on a Frank. mixed of lot and to we would the

So, to it say, rather with I talk we will – and us for people so, than marketplace. the continue issue a in unsettled would is

Although factor, necessarily are impacting offense that positively on price. our stock you But to shareholder no be returns focused determining folks. we won’t the building

price we flow see commodity If said, continue all year, out to that next if okay? a think we looked bring in of at introduce we kind obviously, or this that will I I another push to consider rig, strong a year just next I consideration. think as with it’s probably if point We year, would second prices dynamic that year. that. scrip the Probably topic that free was more, at it $XX this Now cash want another morning,

second than earlier question XX% is on our The another not interest. was we a interest those I person Eagle concern with a up something, think our of I maybe that, up. partners rather thing say, don’t the of a as anybody some Ford going from drilling back that to function stepped a will that want end wells to may XX% going And fact strong. guess, that Ranch And in those we the economics Pen I on are interest. may well to which just things very, The compete a very in on we XX% wells could economics. Ranch? partner at Midland very right wells or on, that these those Robert, we very, doing retain And are on well Pen Basin, with now, we bring on choose are

Robert Anderson

The second well.

Frank Lodzinski

the Well, well. second

a So, opportunities to basis. unfortunately, available us a West Texas program, the and on case operating environment, in non-op that are we are with the of with and partners daily with in dealing the

kind we out wanted drill of to there. it So just

if and balance increase okay? of proved along the a say are spacing So, total being are this, lines. destroying meaningfully If I that. affected ending adversely later sum we year. strong, don’t without reserves, production our second rig know not is, this with will to sheet, by consider the adding are economics on We our can how those we we that things

Ron Mills

me last a talked and last economic your about it growth I guess, the a – use that on call far Well, bit thinks just for of in little put one camp also better is capital. you outspending today. Then clarification,

In well in the booked you basically your the Midland you know greater inventory I inventory County. on in XXX terms tested than spacing, spacing. being about talked foot of

feet, You more were formation? but equivalent and of XXX foot of the of you the drilled rack in kind lower and some doing on of that Was it spacing. line wells just kind upper XXX

Robert Anderson

were zone. pattern than target A Yes, foot little foot that’s XXX actually a wider right, probably and XXX Ron. But so, drilling We B the in essentially a and were anyway, spacing. a they same an

tighter haven’t anything catched in than We the zone. that target same

Ron Mills

or like also upcoming wine zone tests the to, said widening something up Okay, great. some out feet. within were think I Is in same that talking rack you that when the of was kind separation? And target XXX about you then,

Robert Anderson

the That’s rack. wine

pad going bench, same three feet are so XXX well wells. we a a where the to feet between or do XXXX So we basically in are

be to lower. and be uppers it So,

Ron Mills

you That’s very great. much. what I Okay, Thank needed.

Frank Lodzinski

am the a that, to do am locations. gross try additional of want think have we there, out have on we on But XX,XXX based is spacing, range. locations I We we foot if point and charts the number Jo where and got to XXX me XXXX take locations presentation. page Robert at et lateral Spraberry wrong. correct now if et I all Hey has the looked look that We of like you to PowerPoint you to the our here I lengths to in have XX we here, number see at we in correct if the plus upside cetera, Mill, but where wrong on cetera. if Robert, have, out Ron, please that be not on aggressive

that in kind you a If look at so, laterals. more shorter the half there the you would was and chart see of less and similar that year that ago in longer laterals or

the way, importance acreage the leading that I right activity and and the of trades, daily So, greater Am swaps efficiencies. all saying that of the laterals is towards bolt-ons, Robert? the longer

Robert Anderson

Yes, that’s correct.

Frank Lodzinski

that guess, XX%, or XX% those longer maybe we of a I sometime but ago, less in kind had laterals XX% guess. that’s

just want that also. I So out point to

We been aggressive all of that. on haven’t

Ron Mills

Great. Thank you.

Operator

ahead. Please Northland Our Markets. next Jeff Capital question from go Grampp is from

Jeff Grampp

morning guys. Good

add could the that Can XX,XXX last about laterals, of you go the Frank X,XXX ahead on make Just the those rig, second to development lateral you guys there sticking you can accelerated again? kind if to topic that pace the you touch sustainability potentially decision talk the – did to foot guys want and that on lengths. given to on of guys

Robert Anderson

still like are develop lots a rig, I bounce of anywhere go XX,XXX maybe out five drilling a Those in on unit well the areas like XX,XXX Reagan around, or Upton, we really with economics. around situation line. have all are a We’d that. to mean, we put that capital we areas where in laterals, where the have where move not and do County, we second footers in big But six and capital footers three and Jeff, pads from where longer efficiency because we good well pads can obviously, County we bit. little highest Southeast rather Reagan

where a have units couple shorter we’ve We got laterals. of

length efficiency if those of like are We’ve the X,XXX economics isn’t So but capital could the kind of unit. good we’ve capital really opportunity. that and definitely would lateral a been out But because County, that unit in But for we further Upton now just got really efficiency, have get, wells of it lots and we foot as good holding good. there on back go economics. have develop

Jeff Grampp

down back-end and deck. curve the of on looks that my the very And Slide it’s bit great. XX think some you guys beginning show moving cost looking, the guess, type Very, on the Okay, I are like guys follow-up, quite cost to you for I below, in quote it helpful. of side, a cost

how sand that guys to guess, get just you future for use your guys then, numbers you or curve So of the I some to if are type you? just currently kind number? the in-basin of put some, And on conservatism in kind to math you AFE of considerations some updating type curious that any can touch is I the might that in in change there prospectively curves, was there giving of

Robert Anderson

right. are You

type economics. curve our We have updated not

improvements So we’ve had. got we’ve some upside the cost that there and because efficiencies of current

update it the We and as sense. will things go middle makes the year through probably of

on down. I and has helped side really think that, sand costs the driving the in-basin completion those

probably of the XXXXs bit in but We little the using We in-basin pump XXX% not at using but and in-basin, our of that’s XX%. a are mesh tail-end in-basin are jobs a not we all sand. sand, the still XXXX XXX

Jeff Grampp

Great. right. Appreciate those guys. quarter All details nice and

Robert Anderson

Thanks.

Operator

from question is ahead. next Gail Stephens. Our from go Nicholson Please

Gail Nicholson

line you anything everybody. morning of the Good completion with On spacing are design? different test that those testing,

Frank Lodzinski

pretty are amount anything. spacing, recognize I pumping that factors may drilling that. have but physically the us is It change same. our of job, that We make bit, designs. change, there frac yet design about have like the maybe Gail, we come things not but other in certain consider that are to change kicked want the things these of to But some little stay around We we’re way would fluid we going the tight at anything if probably with a or we think the that sizes up

Gail Nicholson

Okay. Great. Thank have hedging very guys then, history. And you. you successful a

XXXX. think put I you on great would in have hedges that

forward? strategy think hedges your kind of about you talk going hedging I in just Can incremental that’s XXXX.

Mark Lumpkin

was we are love to did for and of result whenever them of that nice I around they largely much really, high that when prices of some hedges we would kind on. terminate being deal. because are adding nice prices higher. first, some mean, XXXX more much volatile out But, have that hedges for we and be money, with were be of hedges make some announcements the will last pretty a We’d probably fall we Sure, than left hedged fell as typically having

definitely little we of mean longer out just ongoing In – we going decent our forward, or I of production than want hedge. that, chunk are a thinking months terms a maybe into XX

XXXX prices. We at XXXX, beginning the maybe we prices April, for think I hedges or hedge basis. at and than $X.XX mid-April, we barrels like added lower obviously $XX.XX a some of on to got as the Mid-Cush on plus Here higher a day

And going protection adverse guidance are not we just XX% from hedged. get a decent defensively, fortunately We we cash not current somewhere or of the amount hedged to I out. are so thinking want the the year we’ve But for be kind and half a that to but able been year of of way on typically the and hedge time to do of probably depending hedging around XX% things. kind the just flow XX% bit are maybe standpoint. our mean, year of of not we to that’s offensively

Frank Lodzinski

another I Frank, is this this act on think, hedging. think juggling I Yes, is

like historically, been XX% XX% kind of we’ve to think hedged. I

see like hedged be $XX kind of $XX. greater do this we As or prices I at think gangbusters to

inflation. As we we and on talk more Robert do see do to in and Mark will more. come and our solve I consultants should to more, here We

But being XX% think move is up to that. sweet probably, future XX% XX% wouldn’t I in I spot strong like prices. the or our hedged with something So

back go to to that. and have like sheet protection things balance You

does have have that it to your has enough And and You us. us. for your done and that to cash for pay capital hedging flow G&A cost

floor, once again will. process So, you with it’s a substantive ongoing an thought if

Gail Nicholson

Great. Thank you.

Mark Lumpkin

Thank you, Gail.

Operator

next here Palmer. from ahead. go Your Beard David Coker Please is question from

David Beard

equity. markets. been probably most my Hey, are But It to do want financing the market does that markets outside capital And of differently? the debt gentlemen. done that that to follow-up Thank would M&A asked. are Obviously, do you. to bigger hold a little good than you’d deals shut, get require did doesn’t mean, a see the have deals? Or relative to or and questions that lot of smaller seem Is capital you easier has morning deal I case? as

Frank Lodzinski

on and No, back from Scott been of market like we’ve standing been capital bit enhancing a Mark I’ve our staffing those addition markets and of folks a to from with the debt kind a little consider standpoint. things it.

then to clear in where prices and we’ve increase because resulted refresh ever that is, had in just past I worst EBITDA the our would it’s that way and But, X deals. debt situation, get this sight increased and about and and and our that That was production So balance we the so is you increase maybe, some hopefully had production We situation, below our lines go clean, conducted down clean to The know on. markets greater greater ratio there we do to to of thoughts. go think debt-to-EBITDAX. a the share I’ve component. out of X.X in sheet, we line capital a

being these are like on all the back too markets out here, I capital that don’t be know phone. the without people when on that smart been going So, to turn smart there. have

good stock our makes deals or economic utilizing We debt like So, consider consider need scale we need to growth. financing. to things periodically that efficiency, facilitate and sense for

going to don’t I have they people talking. have that take are what people could else we stock so, away if but We say. if more to small are But the have good definitive. little that, record. capital a maybe we saying want that a ever know to I the cap do then know, again, back may come mean, We division. is to we I could track out finance be The do there sector, do tell anybody don’t markets news have maybe a miles me indicated And of that us.

working we at So keep it. on

am any how to David. So that sorry. don’t answer better, I know

David Beard

obviously the color. just changes market and the gentlemen. that’s But a No, that. and appreciate sort definitely of your current lot on all read it Thanks

Mark Lumpkin

Thank David. you,

Operator

and question the turn to like I’d comments. floor This any management the closing session. concludes for to answer back

Frank Lodzinski

We we Well, I it said pretty all. appreciate folks you much think, dialing in.

on will We keep working hard.

on and will cost, our of in trades, future. completion, and our We quarters drilling P&L margins gross lot working our increased positive our a doing this on have improving efficiency hopefully keep the and bolt-ons, like

So, much. thank you very

Operator

concludes This today's teleconference.

this participation. your for at your You may disconnect Thank time. you again lines

Earthstone Energy (ESTE) 6 May 192019 Q1 Earnings call transcript